ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock Funds
Equity Portfolios
Annual Report
September 30, 2005
[GRAPHIC APPEARS HERE]
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE BlackRock
BlackRock Funds
EQUITY PORTFOLIOS
*Investment Trust *Mid-Cap Growth Equity *Global Resources
*Large Cap Value Equity *Aurora *All-Cap Global Resources
*Large Cap Growth Equity *Small/Mid-Cap Growth *Health Sciences
*Dividend AchieversTM *Small Cap Value Equity *U.S. Opportunities
*Legacy *Small Cap Core Equity *International
*Mid-Cap Value Equity *Small Cap Growth Equity Opportunities
*Global Science & Technology *Asset Allocation
Opportunities *Index Equity
TABLE Of CONTENTS
Shareholder Letter ........................................................... 1
Portfolio Summaries
Investment Trust ...................................................... 2-3
Large Cap Value Equity ................................................ 4-5
Large Cap Growth Equity ............................................... 6-7
Dividend Achievers(TM) ................................................ 8-9
Legacy .............................................................. 10-11
Mid-Cap Value Equity ................................................ 12-13
Mid-Cap Growth Equity ............................................... 14-15
Aurora .............................................................. 16-17
Small/Mid-Cap Growth ................................................ 18-19
Small Cap Value Equity .............................................. 20-21
Small Cap Core Equity ............................................... 22-23
Small Cap Growth Equity ............................................. 24-25
Global Science & Technology Opportunities ........................... 26-27
Global Resources .................................................... 28-29
All-Cap Global Resources ............................................ 30-31
Health Sciences ..................................................... 32-33
U.S. Opportunities .................................................. 34-35
International Opportunities ......................................... 36-37
Asset Allocation .................................................... 38-39
Index Equity ........................................................ 40-41
Note on Performance Information ..................................... 42-43
Statements of Net Assets and/or Statements of Assets and Liabilities .... 44-132
Portfolio Financial Statements
Statements of Operations .......................................... 134-137
Statements of Changes in Net Assets ............................... 138-145
Financial Highlights .............................................. 146-171
Notes to Financial Statements .......................................... 172-212
Report of Independent Registered Public Accounting Firm ................ 213-214
Fund Management 215-219 Additional Information ............................. 221
DFA Investment Trust Company Annual Report.............................. 223-254
PRIVACY PRINCIPLES OF BLACKROCK FUNDS
BlackRock Funds is committed to maintaining the privacy of its shareholders and
to safeguarding their nonpublic personal information. The following information
is provided to help you understand what personal information BlackRock Funds
collects, how we protect that information, and why in certain cases we may share
such information with select other parties.
BlackRock Funds does not receive any nonpublic personal information relating to
its shareholders who purchase shares through their broker-dealers. In the case
of shareholders who are record owners of BlackRock Funds, BlackRock Funds
receives nonpublic personal information on account applications or other forms.
With respect to these shareholders, BlackRock Funds also has access to specific
information regarding their transactions in BlackRock Funds. BlackRock Funds
does not disclose any nonpublic personal information about its shareholders or
former shareholders to anyone, except as permitted by law or as is necessary in
order to service our shareholders' accounts (for example, to a transfer agent).
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shareholders to BlackRock employees with a legitimate business need for the
information. BlackRock Funds maintains physical, electronic and procedural
safeguards designed to protect the nonpublic personal information of our
shareholders.
BlackRock Funds
September 30, 2005
Dear Shareholder:
We are pleased to present the Annual Report of the BlackRock Funds' Equity
Portfolios for the year ended September 30, 2005. On January 31, 2005, the State
Street Research Funds reorganized into BlackRock Funds and we at BlackRock would
like to welcome the former State Street Research Funds shareholders and our new
shareholders to the BlackRock Funds Family.
The Annual Report includes important information on each Portfolio:
.. Portfolio Summary - discusses recent portfolio management activity and
highlights total returns.
.. Fund Profile - displays characteristics of each Portfolio's holdings as of
September 30, 2005.
.. Expense Example - discusses costs in a shareholder account and provides
information for a shareholder to estimate his or her expenses by share
class and to compare expenses of each share class to other funds.
.. Statement of Net Assets and/or Statement of Assets and Liabilities - lists
portfolio holdings and includes each holding's market value and par
amount/number of shares as of September 30, 2005. The Statement of Net
Assets also contains the net asset value for each share class of a
Portfolio. The net asset value for each share class may be found in the
Statement of Assets and Liabilities.
.. Statement of Operations - displays the components of each Portfolio's
investment income and provides a detailed look at each Portfolio's
expenses. The Statement of Operations also lists the aggregate change in
value of a Portfolio's securities due to market fluctuations and security
sales.
.. Statements of Changes in Net Assets - compares Portfolio information from
the prior period to the current period. Specifically, it details
shareholder distributions by share class, aggregate realized gains and
losses, and the change in net assets from the beginning of the period to
the end of the period.
.. Financial Highlights - include each Portfolio's expense ratios, net asset
values, total returns, distributions per share, and turnover ratios for the
last five years or since inception.
.. Notes to Financial Statements - provide additional information on fees, a
summary of significant accounting policies, a list of affiliated
transactions, and a summary of purchases and sales of securities.
.. Fund Management Table - lists information regarding BlackRock Funds'
Trustees and Officers.
In addition to these items, a summary of shareholder privileges is listed
on the inside back cover of the report. Shareholders can find information on
this page describing how to access account balances, recent transactions, and
share prices. It also includes a summary of the Fund's various investment plans.
At BlackRock, we maintain an unwavering commitment to placing our clients
first and we value the trust you have placed in us. We hope you find the report
informative, and we thank you for making BlackRock part of your investment
strategy. Should you have questions concerning this report, please contact your
financial advisor or contact us at 1-800-441-7762 or visit us at
www.blackrock.com/funds.
Sincerely,
[GRAPHIC APPEARS HERE]
Anne Ackerley
Managing Director
BlackRock Advisors,Inc.
1
Investment Trust Portfolio
Total Net Assets (9/30/05): $1.3 billion
Performance Benchmark:
S&P 500(R) Index
Investment Approach:
Seeks long-term capital appreciation. The Portfolio normally invests at
least 80% of its assets in equity securities. The portfolio management team uses
quantitative techniques to analyze a universe of approximately 800 companies,
including those in the S&P 500(R) Index and about 300 other large and medium
capitalization companies. Using a multi-factor model, the management team
identifies stocks with rising earnings expectations that sell at low relative
valuations when compared with their sector peers. Based on this information, and
using sophisticated risk measurement tools, the portfolio management team
selects stocks, together with their appropriate weightings, that it believes
will maximize the Portfolio's return per unit of risk. The Portfolio seeks to
maintain market capitalization, sector allocations and style characteristics
similar to the S&P 500(R) Index.
Recent Portfolio Management Activity:
. On January 31, 2005, BlackRock, Inc., the parent of BlackRock
Advisors, Inc. (BAI), acquired SSRM Holdings, Inc., the parent of State Street
Research & Management Company (SSRM), the investment adviser to the State Street
Research mutual funds. In connection with the transaction, the BlackRock Select
Equity Portfolio reorganized with the State Street Research Large Cap Analyst
and Investment Trust Funds (the SSR Funds) and was renamed the BlackRock
Investment Trust Portfolio (the Portfolio). The SSR Funds transferred
substantially all of their assets and liabilities to the Portfolio in exchange
for shares of the Portfolio, which were then distributed to the SSR Fund
shareholders.
. The Institutional, Service and Investor A share classes outperformed
the benchmark for the annual period. The Investor B and C share classes
underperformed the benchmark for the annual period.
. The equity market, as measured by the S&P 500(R) Index, was up a
solid 12.25% with the bulk of the returns coming from the fourth calendar
quarter of 2004. While large capitalization stocks returns were solid, small
capitalization stocks outperformed large by almost 6% over the annual period
continuing a trend seen over the last few years. Within large capitalization
stocks, value stocks outperformed growth stocks - the Russell 1000 Value Index
was up 16.7% while the Russell 1000 Growth Index was up 11.6% - consistent with
the trend of the past five years. Over the past three years, large
capitalization value stocks have outperformed large capitalization growth
stocks by 5.74% on an annualized basis.
. From a sector perspective, the returns were dominated by the energy
and utilities sectors, which returned 46% and 34%, respectively. The increasing
demand for oil (particularly in China and India) coupled with the loss of supply
infrastructure - due in significant part to the hurricane destruction in the
Gulf of Mexico - led to the dramatic surge in oil and gasoline prices, which
dominated investor concern. The technology sector was up in line with the broad
market while most other sectors posted slightly positive returns.
. The multi-factor model was slightly predictive over the course of the
annual period with particular strength early in the period. The model was flat
for the third calendar quarter of 2005 as investors seem to be focused on
broader macroeconomic issues such as the impact of hurricanes in the Gulf
region, as well as the direction of oil prices and interest rates. The
valuation factors were strong early on and faded in the third calendar quarter
of 2005. Earnings expectation factors gained predictive power over the course
of the third calendar quarter of 2005. The most predictive factors for the year
included the estimate momentum, earnings revision and forecast earnings to
price. The weakest factors included forecast estimate dispersion and return on
equity.
. From a sector relative perspective, the consumer cyclical, basic
materials, and energy sectors were the best performing sectors leading to the
Portfolio's outperformance. Our positions in Nordstrom in the consumer
cyclical sector, Consol Energy in the basic materials sector and Valero Energy
in the energy sector were the primary drivers of performance. The technology
sector underperformed for the annual period due to our lack of exposure to
select poorly ranked names, which outperformed our highly-ranked technology
holdings.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INVESTMENT TRUST
PORTFOLIO AND THE S&P 500(R) INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A S&P 500(R) Index
------------- ---------- ----------------
09/30/1995 $ 10,000 $ 9,429 $ 10,000
12/31/1995 10,598 9,973 10,602
03/31/1996 11,136 10,469 11,171
06/30/1996 11,647 10,937 11,673
09/30/1996 11,984 11,242 12,033
12/31/1996 13,111 12,296 13,036
03/31/1997 13,457 12,607 13,386
06/30/1997 15,810 14,787 15,723
09/30/1997 17,077 15,957 16,901
12/31/1997 17,236 16,088 17,386
03/31/1998 19,614 18,290 19,811
06/30/1998 20,046 18,673 20,465
09/30/1998 17,772 16,535 18,429
12/31/1998 21,479 19,956 22,354
03/31/1999 22,435 20,837 23,468
06/30/1999 24,159 22,407 25,122
09/30/1999 22,565 20,907 23,554
12/31/1999 25,940 24,005 27,058
03/31/2000 26,363 24,385 27,679
06/30/2000 25,236 23,309 26,944
09/30/2000 24,402 22,504 26,683
12/31/2000 22,093 20,339 24,595
03/31/2001 18,514 17,023 21,679
06/30/2001 19,286 17,710 22,948
09/30/2001 15,791 14,495 19,580
12/31/2001 17,377 15,921 21,672
03/31/2002 16,703 15,299 21,732
06/30/2002 14,191 12,978 18,820
09/30/2002 11,931 10,904 15,569
12/31/2002 12,848 11,717 16,882
03/31/2003 12,450 11,351 16,351
06/30/2003 14,253 12,973 18,868
09/30/2003 14,651 13,313 19,367
12/31/2003 16,425 14,903 21,725
03/31/2004 17,100 15,509 22,093
06/30/2004 17,272 15,640 22,473
09/30/2004 17,157 15,522 22,053
12/31/2004 18,819 16,994 24,089
03/31/2005 18,472 16,664 23,572
06/30/2005 18,790 16,942 23,894
09/30/2005 19,340 17,430 24,756
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------ ------ ------ -------
Institutional Class 12.72% 17.47% (4.54)% 6.82%
Service Class 12.41% 17.14% (4.83)% 6.50%
Investor A Class (Load Adjusted) 5.83% 14.65% (6.10)% 5.71%
Investor A Class (NAV) 12.30% 16.93% (4.98)% 6.34%
Investor B Class (Load Adjusted) 6.92% 15.21% (6.00)% 5.58%
Investor B Class (NAV) 11.42% 16.08% (5.68)% 5.58%
Investor C Class (Load Adjusted) 10.49% 16.10% (5.66)% 5.58%
Investor C Class (NAV) 11.49% 16.10% (5.66)% 5.58%
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, 9/13/93; Service Shares, 9/15/93;
Investor A Shares, 10/13/93; Investor B Shares, 3/27/96; and Investor C Shares,
9/27/96. See "Note on Performance Information" on page 42 for further
information on how performance data was calculated,including important
information on the line graph above.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is actively
managed and its composition will vary.
2
Investment Trust Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
General Electric Co. 3.5%
Microsoft Corp. 3.2
Exxon Mobil Corp. 2.9
Intel Corp. 2.5
Pfizer, Inc. 2.4
Bank of America Corp. 2.2
ConocoPhillips 2.0
International Business Machines Corp. 1.8
Citigroup, Inc. 1.8
Altria Group, Inc. 1.6
----
Total 23.9%
====
Top Ten Industries (% of long-term investments)
Oil & Gas 10.2%
Manufacturing 9.3
Banks 8.9
Computer Software & Services 6.3
Pharmaceuticals 5.5
Insurance 5.5
Retail Merchandising 4.9
Finance 4.5
Computer & Office Equipment 4.4
Telecommunications 4.3
----
Total 63.8%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) or redemption/exchange
fees, where applicable; and (2) ongoing costs, including advisory fees,
distribution (12b-1) and service fees, where applicable; and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,047.00 1,046.10 1,046.00 1,041.40 1,042.20
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 4.16 5.69 5.95 9.77 9.78
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,020.89 1,019.37 1,019.11 1,015.30 1,015.30
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 4.11 5.63 5.89 9.70 9.70
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.81%, 1.11%, 1.16%, 1.91%, and 1.91% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
3
Large Cap Value Equity Portfolio
Total Net Assets (9/30/05): $361.1 million
Performance Benchmark:
Russell 1000 Value Index
Investment Approach:
Seeks long-term capital appreciation with a secondary objective of current
income by investing at least 80% of its net assets in equity securities issued
by U.S. large capitalization value companies (defined as those with market
capitalizations equal to those within the universe of Russell 1000 Value Index
stocks). The portfolio management team uses quantitative techniques to analyze
a universe of approximately 800 value companies. The management team uses a
multi-factor model, which identifies the key factors that drive the performance
of value stocks. Using this multi-factor model, the management team identifies
stocks with low relative valuations and improving earnings expectations when
compared with their sector peers. Based on this information, and using
sophisticated risk measurement tools, the management team selects stocks,
together with their appropriate weightings, that it believes will maximize the
Portfolio's return per unit of risk. The Portfolio seeks to maintain market
capitalization, sector allocations and style characteristics similar to those
of the Russell 1000 Value Index.
Recent Portfolio Management Activity:
. On January 31, 2005, BlackRock, Inc., the parent of BlackRock
Advisors, Inc. (BAI), acquired SSRM Holdings, Inc., the parent of State Street
Research & Management Company (SSRM), the investment adviser to the State Street
Research mutual funds. In connection with the transaction, the BlackRock Large
Cap Value Equity Portfolio (the Portfolio) reorganized with the State Street
Research Large Cap Value Fund (the SSR Fund). The SSR Fund transferred
substantially all of its assets and liabilities to the Portfolio in exchange for
shares of the Portfolio, which were then distributed to the SSR Fund
shareholders.
. The Institutional share class outperformed the benchmark for the
annual period. The Service, Investor A, B and C share classes underperformed the
benchmark for the annual period.
. The equity market, as measured by the S&P 500(R) Index, was up a
solid 12.25% with the bulk of the returns coming from the fourth calendar
quarter of 2004. While large capitalization stocks returns were solid, small
capitalization stocks outperformed large by almost 6% over the annual period
continuing a trend seen over the last few years. Within large capitalization
stocks, value stocks outperformed growth stocks - the Russell 1000 Value Index
was up 16.7% while the Russell 1000 Growth Index was up 11.6% - consistent with
the trend of past five years. Over the past three years, large capitalization
value stocks have outperformed large capitalization growth stocks by 5.74% on an
annualized basis.
. From a sector perspective, the returns were dominated by the energy
and utilities sectors, which returned 46% and 34%, respectively. The increasing
demand for oil (particularly in China and India) coupled with the loss of supply
infrastructure - due in significant part to the hurricane destruction in the
Gulf of Mexico - led to the dramatic surge in oil and gasoline prices, which
dominated investor concern. The technology sector was up in line with the broad
market while most other sectors posted slightly positive returns.
. The multi-factor model was slightly predictive over the course of the
annual period with particular strength early in the period. The model was flat
for the third calendar quarter of 2005 as investors seem to be focused on
broader macroeconomic issues such as the impact of hurricanes in the Gulf
region, as well as the direction of oil prices and interest rates. The valuation
factors were strong early on in the year, but faded in the third calendar
quarter of 2005. Fortunately, the strength of the price momentum factor offset
the weakness of the valuation factors. Earnings expectation factors gained
predictive power over the course of the third calendar quarter of 2005. The most
predictive factors for the annual period included price momentum, estimate
momentum, earnings revision and forecast earnings to price. The weakest factors
included forecast estimate dispersion, return on equity and earnings surprise.
. From a sector relative perspective, the utilities, basic materials,
and energy sectors were the best performing sectors leading to the Portfolio's
outperformance. Our positions in TXU Corp in the utilities sector, Consol Energy
in the basic materials sector and Valero Energy in the energy sector were the
primary drivers of performance. The health sector underperformed for the annual
period due to our positions in select large pharmaceutical companies that are
highly-ranked by the model.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE LARGE CAP VALUE
EQUITY PORTFOLIO AND THE RUSSELL 1000 VALUE INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A Russell 1000 Value Index
------------- ---------- ------------------------
09/30/1995 $ 10,000 $ 9,425 $ 10,000
12/31/1995 10,705 10,077 10,664
03/31/1996 11,312 10,637 11,267
06/30/1996 11,700 10,995 11,461
09/30/1996 12,101 11,359 11,795
12/31/1996 13,295 12,476 12,971
03/31/1997 13,517 12,662 13,304
06/30/1997 15,371 14,376 15,265
09/30/1997 16,658 15,563 16,785
12/31/1997 17,103 15,971 17,535
03/31/1998 19,251 17,948 19,579
06/30/1998 18,962 17,660 19,666
09/30/1998 16,280 15,154 17,388
12/31/1998 18,896 17,563 20,275
03/31/1999 19,111 17,745 20,566
06/30/1999 21,292 19,741 22,885
09/30/1999 18,784 17,404 20,644
12/31/1999 19,584 18,139 21,767
03/31/2000 19,296 17,840 21,871
06/30/2000 18,407 16,998 20,846
09/30/2000 19,956 18,398 22,485
12/31/2000 21,537 19,847 23,294
03/31/2001 20,274 18,643 21,930
06/30/2001 20,865 19,179 23,001
09/30/2001 18,315 16,809 20,482
12/31/2001 19,433 17,812 21,992
03/31/2002 19,347 17,716 22,892
06/30/2002 16,203 14,816 20,942
09/30/2002 13,295 12,154 17,011
12/31/2002 14,778 13,478 18,579
03/31/2003 13,979 12,735 17,675
06/30/2003 16,244 14,795 20,728
09/30/2003 16,476 14,988 21,156
12/31/2003 18,586 16,873 24,158
03/31/2004 19,395 17,589 24,890
06/30/2004 19,456 17,623 25,109
09/30/2004 19,716 17,865 25,497
12/31/2004 21,677 19,609 28,143
03/31/2005 21,776 19,682 28,168
06/30/2005 22,138 19,990 28,640
09/30/2005 23,026 20,772 29,752
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------ ------ ------ -------
Institutional Class 16.79% 20.09% 2.90% 8.70%
Service Class 16.45% 19.73% 2.60% 8.38%
Investor A Class (Load Adjusted) 9.55% 17.22% 1.25% 7.58%
Investor A Class (NAV) 16.27% 19.56% 2.46% 8.22%
Investor B Class (Load Adjusted) 10.88% 17.84% 1.31% 7.42%
Investor B Class (NAV) 15.38% 18.68% 1.67% 7.42%
Investor C Class (Load Adjusted) 14.37% 18.68% 1.69% 7.43%
Investor C Class (NAV) 15.37% 18.68% 1.69% 7.43%
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,
5/2/92; Service Shares, 7/29/93; Investor B Shares, 1/18/96; and Investor C
Shares, 8/16/96. See "Note on Performance Information" on page 42 for further
information on how performance data was calculated, including important
information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
4
Large Cap Value Equity Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
Exxon Mobil Corp. 5.3%
Bank of America Corp. 4.1
Citigroup, Inc. 3.7
Pfizer, Inc. 3.2
ConocoPhillips 2.9
Wachovia Corp. 2.2
SBC Communications, Inc. 2.1
General Electric Co. 1.9
ChevronTexaco Corp. 1.8
PPL Corp. 1.7
----
Total 28.9%
====
Top Ten Industries (% of long-term investments)
Banks 16.9%
Oil & Gas 15.9
Insurance 7.1
Energy & Utilities 6.9
Telecommunications 6.1
Pharmaceuticals 5.4
Finance 5.1
Manufacturing 5.1
Real Estate 4.1
Entertainment & Leisure 4.1
----
Total 76.7%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) or redemption/exchange
fees, where applicable; and (2) ongoing costs, including advisory fees,
distribution (12b-1) and service fees, where applicable; and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,057.40 1,055.60 1,055.30 1,051.50 1,051.40
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 4.07 5.62 6.13 10.08 9.98
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,020.99 1,019.47 1,018.96 1,015.05 1,015.15
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 4.01 5.53 6.04 9.95 9.85
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.79%, 1.09%, 1.19%, 1.96%, and 1.94% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
5
Large Cap Growth Equity Portfolio
Total Net Assets (9/30/05): $56.1 million
Performance Benchmark:
Russell 1000 Growth Index
Investment Approach:
Seeks long-term capital appreciation by investing at least 80% of its net
assets in equity securities issued by U.S. large capitalization growth
companies (defined as those with market capitalizations equal to those within
the universe of Russell 1000 Growth Index stocks). The portfolio management
team uses quantitative techniques to analyze a universe of approximately 700
growth companies. The management team uses a multi-factor model, which
identifies the key factors that drive the performance of growth stocks. Using
this multi-factor model, the management team identifies stocks with rising
earnings expectations that sell at attractive relative valuations when compared
with their sector peers. Based on this information, and using sophisticated
risk measurement tools, the management team selects stocks, together with their
appropriate weightings, that it believes will maximize the Portfolio's return
per unit of risk. The Portfolio seeks to maintain market capitalization, sector
allocations and style characteristics similar to those of the Russell 1000
Growth Index.
Recent Portfolio Management Activity:
. All share classes outperformed the benchmark for the annual period.
. The equity market, as measured by the S&P 500 Index, was up a solid
12.25% with the bulk of the returns coming from the fourth calendar quarter of
2004. While large capitalization stocks returns were solid, small
capitalization stocks outperformed large by almost 6% over the annual period
continuing a trend seen over the last few years. Within large capitalization
stocks, value stocks outperformed growth stocks - the Russell 1000 Value Index
was up 16.7% while the Russell 1000 Growth Index was up 11.6% - consistent with
the trend of the past five years. Over the past three years, large
capitalization value stocks have outperformed large capitalization growth
stocks by 5.74% on an annualized basis.
. From a sector perspective, the returns were dominated by the energy
and utilities sectors, which returned 46% and 34%, respectively. The increasing
demand for oil (particularly in China and India) coupled with the loss of supply
infrastructure - due in significant part to the hurricane destruction in the
Gulf of Mexico - led to the dramatic surge in oil and gasoline prices, which
dominated investor concern. The technology sector was up in line with the broad
market while most other sectors posted slightly positive returns.
. The multi-factor model was predictive over the course of the year with
particular strength early in the period. The model was flat for the third
quarter of 2005 as investors seem to be focused on broader macroeconomic issues
such as the impact of hurricanes in the Gulf region, as well as the direction of
oil prices and interest rates. The valuation factors were strong early on in the
year, but faded in the third calendar quarter of 2005. Fortunately, the strength
of the price momentum factor offset the weakness of the valuation factors.
Earnings expectation factors gained predictive power over the course of the
third calendar quarter of 2005. The most predictive factors for the year
included price momentum, estimate momentum, earnings revision and book to price.
The weakest factors included forecast estimate dispersion and earnings surprise.
. From a sector relative perspective, the technology, consumer cyclical,
and consumer services sectors were the best performing sectors leading to the
Portfolio's outperformance. Our positions in highly-ranked LSI Logic,
Activision, Nordstrom, and Darden Restaurants were some of the key holdings that
drove performance. The commercial services sector underperformed for the annual
period as some of our highly-ranked holdings did not keep pace with their sector
peers.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE LARGE CAP GROWTH
EQUITY PORTFOLIO AND THE RUSSELL 1000 GROWTH INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A Russell 1000 Growth Index
------------- ---------- -------------------------
09/30/1995 $ 10,000 $ 9,428 $ 10,000
12/31/1995 10,252 9,658 10,455
03/31/1996 10,901 10,262 11,017
06/30/1996 11,542 10,851 11,718
09/30/1996 11,867 11,142 12,140
12/31/1996 12,339 11,568 12,873
03/31/1997 12,261 11,490 12,942
06/30/1997 14,585 13,655 15,390
09/30/1997 15,866 14,839 16,546
12/31/1997 15,845 14,796 16,798
03/31/1998 18,514 17,262 19,343
06/30/1998 19,687 18,340 20,221
09/30/1998 17,732 16,495 18,384
12/31/1998 22,391 20,811 23,300
03/31/1999 24,157 22,422 24,781
06/30/1999 24,604 22,820 25,734
09/30/1999 24,019 22,253 24,792
12/31/1999 30,564 28,301 31,025
03/31/2000 32,356 29,908 33,236
06/30/2000 31,311 28,930 32,339
09/30/2000 29,519 27,217 30,600
12/31/2000 22,810 21,003 24,068
03/31/2001 16,556 15,228 19,038
06/30/2001 17,276 15,864 20,641
09/30/2001 13,112 12,037 16,634
12/31/2001 14,913 13,673 19,153
03/31/2002 14,510 13,281 18,657
06/30/2002 11,628 10,644 15,173
09/30/2002 9,668 8,831 12,890
12/31/2002 10,317 9,413 13,812
03/31/2003 10,173 9,264 13,665
06/30/2003 11,398 10,373 15,620
09/30/2003 11,787 10,711 16,231
12/31/2003 12,954 11,766 17,921
03/31/2004 13,271 12,037 18,062
06/30/2004 13,444 12,172 18,412
09/30/2004 12,853 11,631 17,450
12/31/2004 14,106 12,753 19,050
03/31/2005 13,660 12,334 18,272
06/30/2005 14,164 12,780 18,722
09/30/2005 14,539 13,105 19,473
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------ ------ ------ -------
Institutional Class 13.12% 14.57% (13.21)% 3.81%
Service Class 12.84% 14.24% (13.48)% 3.50%
Investor A Class (Load Adjusted) 6.25% 11.82% (14.62)% 2.74%
Investor A Class (NAV) 12.67% 14.06% (13.60)% 3.35%
Investor B Class (Load Adjusted) 7.37% 12.27% (14.54)% 2.59%
Investor B Class (NAV) 11.87% 13.19% (14.24)% 2.59%
Investor C Class (Load Adjusted) 10.76% 13.23% (14.25)% 2.57%
Investor C Class (NAV) 11.76% 13.23% (14.25)% 2.57%
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,
3/14/92; Service Shares, 7/29/93; Investor B Shares, 1/24/96; and Investor C
Shares, 1/24/97. See "Note on Performance Information" on page 42 for further
information on how performance data was calculated, including important
information on the line graph above.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is actively
managed and its composition will vary.
6
Large Cap Growth Equity Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
General Electric Co. 5.4%
Microsoft Corp. 4.1
Johnson & Johnson 3.5
Intel Corp. 3.1
International Business Machines Corp. 2.5
The Procter & Gamble Co. 2.5
Cisco Systems, Inc. 2.0
Amgen, Inc. 2.0
PepsiCo, Inc. 1.9
The Home Depot, Inc. 1.7
----
Total 28.7%
====
Top Ten Industries (% of long-term investments)
Manufacturing 12.9%
Computer Software & Services 9.7
Retail Merchandising 8.5
Medical Instruments & Supplies 7.2
Computer & Office Equipment 7.2
Medical & Medical Services 5.7
Electronics 5.6
Pharmaceuticals 4.4
Soaps & Cosmetics 3.8
Entertainment & Leisure 3.3
----
Total 68.3%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) or redemption/exchange
fees, where applicable; and (2) ongoing costs, including advisory fees,
distribution (12b-1) and service fees, where applicable; and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,064.30 1,062.60 1,062.50 1,058.50 1,057.40
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 4.24 5.79 6.31 10.17 10.16
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,020.84 1,019.31 1,018.81 1,015.00 1,015.00
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 4.16 5.69 6.19 10.00 10.00
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.82%, 1.12%, 1.22%, 1.97%, and 1.97% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
7
Dividend Achievers(TM) Portfolio
Total Net Assets (9/30/05): $33.1 million
Performance Benchmark:
Russell 1000 Value Index
Investment Approach:
Seeks to provide total return through a combination of current income and
capital appreciation by investing primarily in U.S. large-capitalization stocks
with long-term consistent dividend history. The Portfolio invests at least 80%
of its assets in common stocks included in the universe of common stocks which
Mergent(R), a recognized provider of financial information, has identified as
Dividend Achievers(TM). To qualify for the Dividend Achievers(TM) universe, an
issuer must have raised its annual regular cash dividend on a pre-tax basis for
at least each of the last ten consecutive years. These issuers are also subject
to additional screening criteria applied by Mergent(R) such as liquidity. The
Portfolio will be constructed from a broad universe of stocks that the fund
management team believes to be value stocks and all stocks in the Dividend
Achievers(TM) universe. The portfolio management team screens these issuers
utilizing BlackRock's proprietary Quantitative Equity Model, which uses earnings
momentum and valuation factors to rank stocks within a sector and industry based
upon their expected return, to continuously evaluate fund holdings. The
Portfolio will be constructed with consideration of the characteristics of the
Russell 1000 Value Index, such as style, sector, industry, capitalization and
volatility. The Portfolio may invest up to 20% of its assets in common stocks of
issuers that are not included in the Dividend Achievers(TM) universe, and in
fixed income securities when, in the opinion of the portfolio management team,
it is advantageous for the Portfolio to do so.
Recent Portfolio Management Activity:
. All share classes underperformed the benchmark for the annual period.
. The equity market, as measured by the S&P 500 Index, was up a solid
12.25% with the bulk of the returns coming from the fourth calendar quarter of
2004. While large capitalization stocks returns were solid, small
capitalization stocks outperformed large by almost 6% over the annual period
continuing a trend seen over the last few years. Within large capitalization
stocks, value stocks outperformed growth stocks - the Russell 1000 Value Index
was up 16.7% while the Russell 1000 Growth Index was up 11.6% - consistent with
the trend of past five years. Over the past three years, large capitalization
value stocks have outperformed large capitalization growth stocks by 5.74% on
an annualized basis.
. From a sector perspective, the returns were dominated by the energy
and utilities sectors, which returned 46% and 34%, respectively. The increasing
demand for oil (particularly in China and India) coupled with the loss of supply
infrastructure - due in significant part to the hurricane destruction in the
Gulf of Mexico - led to the dramatic surge in oil and gasoline prices, which
dominated investor concern. The technology sector was up in line with the broad
market while most other sectors posted slightly positive returns.
. The Portfolio's stock selection is based on three criteria. During
the annual period, two of the criteria created headwinds for the Portfolio while
the third criteria proved modestly helpful. As the Portfolio is committed to
maintaining at least 80% of the Portfolio in Dividend Achievers(TM) stocks, the
performance of these stocks is a key determinant to the overall performance of
the Portfolio. For the annual period, Mergent's Dividend Achievers(TM) universe
of stocks underperformed the Russell 1000 Value Index by 10.4% creating
significant pressure. Secondly, stocks in the value universe with little or no
dividend yield significantly outperformed those with high yields creating
additional performance challenges. The last criteria in stock selection is the
Quantitative Equity Model. The model was slightly positive over the course of
the annual period with particular strength early in the period. The model was
flat for the third calendar quarter of 2005 as investors seem to be focused on
broader macroeconomic issues such as the impact of hurricanes in the Gulf
region, as well as the direction of oil prices and interest rates. The valuation
factors were strong early on in the annual period, but faded in the third
calendar quarter of 2005. Fortunately, the strength of the price momentum factor
offset the weakness of the valuation factors. Earnings expectation factors
gained predictive power over the course of the third calendar quarter of 2005.
The most predictive factors for the year included price momentum, estimate
momentum, earnings revision and forecast earnings to price. The weakest factors
included forecast estimate dispersion, return on equity and earnings surprise.
. From a sector relative perspective, the energy, technology and health
sectors were the sectors with weakest performance. The lack of exposure to
several large non-Dividend Achievers(TM) stocks led to weakness in the energy
and technology sectors. In the health care sector, our positions in select large
pharmaceutical companies, which are highly-ranked, high-yielding Dividend
Achievers(TM) stocks, led to poor relative performance.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE DIVIDEND
ACHIEVERS(TM) PORTFOLIO AND THE RUSSELL 1000 VALUE INDEX FROM INCEPTION.
[LINE CHART]
Institutional Investor A Russell 1000 Growth Index
------------- ---------- -------------------------
09/30/1995 $ 10,000 $ 9,428 $ 10,000
12/31/1995 10,252 9,658 10,455
03/31/1996 10,901 10,262 11,017
06/30/1996 11,542 10,851 11,718
09/30/1996 11,867 11,142 12,140
12/31/1996 12,339 11,568 12,873
03/31/1997 12,261 11,490 12,942
06/30/1997 14,585 13,655 15,390
09/30/1997 15,866 14,839 16,546
12/31/1997 15,845 14,796 16,798
03/31/1998 18,514 17,262 19,343
06/30/1998 19,687 18,340 20,221
09/30/1998 17,732 16,495 18,384
12/31/1998 22,391 20,811 23,300
03/31/1999 24,157 22,422 24,781
06/30/1999 24,604 22,820 25,734
09/30/1999 24,019 22,253 24,792
12/31/1999 30,564 28,301 31,025
03/31/2000 32,356 29,908 33,236
06/30/2000 31,311 28,930 32,339
09/30/2000 29,519 27,217 30,600
12/31/2000 22,810 21,003 24,068
03/31/2001 16,556 15,228 19,038
06/30/2001 17,276 15,864 20,641
09/30/2001 13,112 12,037 16,634
12/31/2001 14,913 13,673 19,153
03/31/2002 14,510 13,281 18,657
06/30/2002 11,628 10,644 15,173
09/30/2002 9,668 8,831 12,890
12/31/2002 10,317 9,413 13,812
03/31/2003 10,173 9,264 13,665
06/30/2003 11,398 10,373 15,620
09/30/2003 11,787 10,711 16,231
12/31/2003 12,954 11,766 17,921
03/31/2004 13,271 12,037 18,062
06/30/2004 13,444 12,172 18,412
09/30/2004 12,853 11,631 17,450
12/31/2004 14,106 12,753 19,050
03/31/2005 13,660 12,334 18,272
06/30/2005 14,164 12,780 18,722
09/30/2005 14,539 13,105 19,473
For period ending September 30, 2005
Average Annual Total Return
1 Year From Inception
------ --------------
Institutional Class 9.83% 8.83%
Service Class 9.32% 8.35%
Investor A Class (Load Adjusted) 3.18% 2.63%
Investor A Class (NAV) 9.50% 8.52%
Investor B Class (Load Adjusted) 4.37% 4.18%
Investor B Class (NAV) 8.87% 7.94%
Investor C Class (Load Adjusted) 7.72% 7.80%
Investor C Class (NAV) 8.72% 7.80%
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio on 9/8/04.
See "Note on Performance Information" on page 42 for further information on how
performance data was calculated, including important information on the line
graph above.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is actively
managed and its composition will vary.
8
Dividend Achievers(TM) Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
Exxon Mobil Corp. 5.7%
Bank of America Corp. 4.3
ChevronTexaco Corp. 4.2
Pfizer, Inc. 3.8
Citigroup, Inc. 3.5
Altria Group, Inc. 2.5
ConocoPhillips 2.5
General Electric Co. 2.3
SBC Communications, Inc. 2.3
McDonald's Corp. 1.9
----
Total 33.0%
====
Top Ten Industries (% of long-term investments)
Banks 16.3%
Oil & Gas 16.2
Manufacturing 6.8
Insurance 6.7
Finance 6.4
Pharmaceuticals 6.3
Energy & Utilities 5.8
Telecommunications 5.8
Real Estate 4.7
Tobacco 3.0
----
Total 78.0%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) or redemption/exchange
fees, where applicable; and (2) ongoing costs, including advisory fees,
distribution (12b-1) and service fees, where applicable; and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,036.90 1,035.50 1,035.00 1,030.80 1,030.70
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 4.60 6.12 6.58 10.39 10.33
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,020.43 1,018.86 1,018.45 1,014.64 1,014.69
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 4.57 6.14 6.55 10.36 10.31
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.90%, 1.20%, 1.29%, 2.04%, and 2.03% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
9
Legacy Portfolio
Total Net Assets (9/30/05): $278.6 million
Performance Benchmark:
Russell 1000 Growth Index
Investment Approach:
Seeks to provide long-term growth of capital by normally investing at least
65% of its net assets in common and preferred stock and securities convertible
into common and preferred stocks of mid- and large-capitalization companies. The
Portfolio seeks to invest in fundamentally sound companies with strong
management, superior earnings growth prospects and attractive valuations. The
disciplined investment process uses a bottom-up stock selection approach as the
primary driver of returns. The Portfolio emphasizes large companies that exhibit
stable growth and accelerated earnings.
Recent Portfolio Management Activity:
. On January 31, 2005, BlackRock, Inc., the parent of BlackRock
Advisors, Inc. (BAI), acquired SSRM Holdings, Inc., the parent of State Street
Research & Management Company (SSRM), the investment adviser to the State Street
Research mutual funds. In connection with the transaction, the BlackRock Legacy
Portfolio (the Portfolio) reorganized with the State Street Research Legacy Fund
(the SSR Fund). The SSR Fund transferred substantially all of its assets and
liabilities to the Portfolio in exchange for shares of the Portfolio, which were
then distributed to the SSR Fund shareholders. For periods prior to January 31,
2005, the performance information shown reflects the performance of the SSR
Fund, which had substantially similar investment goals and strategies as the
Portfolio.
. All share classes outperformed the benchmark for the annual period.
. Equity markets rallied in the final quarter of 2004, but have provided
mixed results thus far in 2005. Investors continue to exhibit caution, as
worries over oil prices, interest rates and economic growth remain in the
spotlight. Nevertheless, the S&P 500(R) Index managed to produce double digit
gains, rising 12.25% over the annual period. Within the Portfolio's benchmark,
the Russell 1000 Growth Index, all major sectors posted positive returns.
However, the energy sector was the primary driver of total return as energy
prices climbed significantly. Other sector leaders included health care and
utilities.
. The Portfolio benefited from strong stock selection across several
sectors including the energy, financials and materials sectors. Stock selection
decisions in the consumer staples, industrials and information technology ("IT")
sectors created a drag on return comparisons. Additionally, our overweight to
the energy sector was a significant contributor to the Portfolio's relative
gains.
. Both absolute and relative gains in the Portfolio were largely the
result of good stock selection and our overweight to the strong performing
energy sector. Energy stocks continued to strengthen throughout the period.
Near-term events such as the devastating Gulf Coast hurricanes coupled with the
long-term supply/demand dynamics for oil, coal, and natural gas pushed energy
stocks higher during the period. Key contributors included exploration and
production companies, EOG Resources and Newfield Exploration, and coal producer,
Consol Energy.
. Broad-based strength among our positions in the financials sector
resulted in favorable return comparisons. Good stock selection propelled gains,
with holdings such as Goldman Sachs, Franklin Resources and Chicago Mercantile
Exchange making large contributions to performance. Additionally, our decision
to underweight some of the troubled firms within the insurance and the thrifts
and mortgage industries aided returns.
. Stock selection within the IT sector resulted in weak relative
performance, as Portfolio positions tended to underperform benchmark holdings.
Internet software and services names held in the Portfolio, such as Yahoo and
VeriSign, were detractors. Select positions within the industrials sector also
detracted from returns. Conglomerate Tyco International was the primary
detractor. After a strong 2003 and 2004, Tyco has struggled in 2005, and we have
sold our position on concerns that the company cannot sustain growth.
. Deteriorating fundamentals within select consumer segments led us to
reduce our overall exposure to the consumer sectors during the annual period. At
the same time, we continued to gradually increase our energy exposure, primarily
by adding to existing positions that will continue to benefit in the current
supply constrained environment. At the close of the annual period, the
Portfolio's largest overweights were in energy and health care, while the
largest underweights were in industrials and consumer staples. In general,
sector weightings are a function of our bottom-up stock selection process and
are, therefore, dependent on where we are finding individual opportunities
within our investment universe.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE LEGACY
PORTFOLIO AND THE RUSSELL 1000 GROWTH INDEX FROM INCEPTION.
[LINE CHART]
Institutional Investor A Russell 1000 Growth Index
------------- ---------- -------------------------
12/31/1997 $ 10,000 $ 9,425 $ 10,000
03/31/1998 11,470 10,801 11,515
06/30/1998 12,290 11,565 12,038
09/30/1998 10,730 10,085 10,944
12/31/1998 13,227 12,429 13,871
03/31/1999 13,907 13,070 14,752
06/30/1999 14,908 13,994 15,320
09/30/1999 14,027 13,164 14,759
12/31/1999 16,608 15,569 18,470
03/31/2000 16,668 15,616 19,786
06/30/2000 16,228 15,116 19,252
09/30/2000 16,849 15,672 18,217
12/31/2000 15,698 14,597 14,328
03/31/2001 13,037 12,108 11,334
06/30/2001 13,547 12,579 12,288
09/30/2001 11,376 10,561 9,903
12/31/2001 12,787 11,853 11,402
03/31/2002 12,867 11,919 11,107
06/30/2002 10,896 10,081 9,033
09/30/2002 9,285 8,591 7,674
12/31/2002 9,815 9,072 8,223
03/31/2003 9,655 8,921 8,135
06/30/2003 10,966 10,118 9,299
09/30/2003 11,336 10,458 9,663
12/31/2003 12,686 11,693 10,669
03/31/2004 12,787 11,778 10,753
06/30/2004 13,057 12,014 10,961
09/30/2004 12,586 11,580 10,388
12/31/2004 13,957 12,825 11,341
03/31/2005 13,207 12,127 10,878
06/30/2005 13,657 12,532 11,145
09/30/2005 14,197 13,032 11,593
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year From Inception
------ ------ ------ --------------
Institutional Class 12.80% 15.21% (3.37)% 4.63%
Service Class 12.54% 14.90% (3.62)% 4.27%
Investor A Class (Load Adjusted) 6.06% 12.64% (4.75)% 3.48%
Investor A Class (NAV) 12.54% 14.90% (3.62)% 4.27%
Investor B Class (Load Adjusted) 7.22% 13.16% (4.70)% 3.51%
Investor B Class (NAV) 11.72% 14.07% (4.31)% 3.51%
Investor C Class (Load Adjusted) 10.72% 14.07% (4.31)% 3.51%
Investor C Class (NAV) 11.72% 14.07% (4.31)% 3.51%
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio, rather than
the date such class was introduced. The inception dates of the Portfolio's share
classes were as follows: Institutional Shares, 12/31/97; Investor A Shares,
12/31/97; Investor C Shares, 12/31/97; Investor B Shares, 1/1/99; and Service
Shares, 1/28/05. See "Note on Performance Information" on page 42 for further
information on how performance data was calculated, including important
information on the line graph above.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is actively
managed and its composition will vary.
10
Legacy Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
Microsoft Corp. 4.8%
General Electric Co. 4.3
Google, Inc. - Class A 4.2
Johnson & Johnson 3.4
UnitedHealth Group, Inc. 3.2
America Express Co. 3.1
Yahoo!, Inc. 3.0
CONSOL Energy, Inc. 2.9
The Procter & Gamble Co. 2.7
St. Jude Medical, Inc. 2.6
----
Total 34.2%
====
Top Ten Industries (% of long-term investments)
Computer Software & Services 17.7%
Manufacturing 10.1
Medical & Medical Services 8.6
Finance 8.6
Oil & Gas 7.9
Medical Instruments & Supplies 7.5
Retail Merchandising 7.4
Pharmaceuticals 7.3
Semiconductors & Related Devices 3.0
Metal & Mining 2.9
----
Total 81.0%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) or redemption/exchange
fees, where applicable; and (2) ongoing costs, including advisory fees,
distribution (12b-1) and service fees, where applicable; and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,075.00 1,073.80 1,074.60 1,070.50 1,070.50
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 5.72 7.02 7.02 10.90 10.90
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,019.42 1,018.15 1,018.15 1,014.34 1,014.34
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 5.58 6.85 6.85 10.66 10.66
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 1.10%, 1.35%, 1.35%, 2.10%, and 2.10% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
11
Mid-Cap Value Equity Portfolio
Total Net Assets (9/30/05): $789.5 million
Performance Benchmark:
Russell Midcap Value Index
Investment Approach:
Seeks long-term capital appreciation by investing primarily in
mid-capitalization stocks believed by the Portfolio management team to be worth
more than is indicated by current market price. The Portfolio normally invests
at least 80% of assets in equity securities issued by US mid-capitalization
value companies. The Portfolio defines these companies as those with market
capitalizations comparable in size to the companies in the Russell Midcap Value
Index. The Portfolio management team uses fundamental analysis to examine each
company for financial strength before deciding to purchase the stock.
Recent Portfolio Management Activity:
. On January 31, 2005, BlackRock, Inc., the parent of BlackRock
Advisors, Inc. (BAI), acquired SSRM Holdings, Inc., the parent of State Street
Research & Management Company (SSRM), the investment adviser to the State Street
Research mutual funds. In connection with the transaction, the BlackRock Mid-Cap
Value Equity Portfolio (the Portfolio) reorganized with the State Street
Research Mid Cap Value Fund (the SSR Fund). The SSR Fund transferred
substantially all of its assets and liabilities to the Portfolio in exchange for
shares of the Portfolio, which were then distributed to the SSR Fund
shareholders. For periods prior to January 31, 2005, the performance information
shown reflects the performance of the SSR Fund, which had similar investment
goals and strategies as the Portfolio.
. All share classes underperformed the benchmark for the annual period.
. The domestic equity markets posted solid gains during the annual
period. Within the Portfolio's benchmark, the Russell Midcap Value Index, all
major sectors posted positive returns. However, the energy sector was the
primary driver of total return as energy prices climbed significantly. Other
sector leaders included health care and utilities. During the annual period, the
Portfolio's holdings in the energy and industrials sectors aided returns
relative to the benchmark. However, these gains were overshadowed by relative
weakness in the health care and materials sectors.
. Growing global demand and constrained supply continued to apply upward
pressure on energy prices as crude oil approached $70 a barrel during the annual
period. The corresponding positive impact on energy-related stocks proved to be
among the greatest contributors to relative performance as the Portfolio
benefited from solid stock selection within the sector. Key contributors
included exploration and production companies, EOG Resources and Newfield
Exploration, and coal producer, Consol Energy. In the industrials sector, stock
selection, particularly among commercial services and electrical equipment
suppliers, powered favorable return comparisons. The most notable contributor
during the period was York International. The share price of the supplier of
heating, ventilation and air conditioning systems appreciated sharply following
the late August announcement of its acquisition by Johnson Controls. The
position was sold from the Portfolio during the annual period.
. Stock selection, particularly among health care providers and
equipment and supply manufacturers, proved to be a drag on relative return in
the health care sector. Likewise, stock selection in the materials sector
detracted from return comparisons relative to the benchmark. Specifically,
containers and packaging names held in the Portfolio, including a specialty
packaging manufacturer and Bowater, hindered relative returns as industry profit
margins were squeezed by higher raw materials costs.
. Our investment approach is driven by our focus on adding value through
bottom-up fundamental research. As a result, portfolio positioning and
corresponding sector weights relative to the benchmark are largely determined by
stock selection. During the annual period, the impact of buy/sell decisions
within the Portfolio, combined with the performance of underlying holdings,
resulted in increased allocations to the consumer staples and utilities sectors,
and decreased exposure to the industrials and materials sectors.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE MID-CAP VALUE
EQUITY PORTFOLIO AND THE RUSSELL MIDCAP VALUE INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A Russell Midcap Value Index
------------- ---------- --------------------------
09/30/1995 $ 10,000 $ 9,426 $ 10,000
12/31/1995 10,439 9,825 10,454
03/31/1996 10,977 10,333 11,039
06/30/1996 11,461 10,774 11,251
09/30/1996 12,010 11,292 11,575
12/31/1996 13,108 12,307 12,572
03/31/1997 13,281 12,463 12,786
06/30/1997 14,641 13,732 14,397
09/30/1997 16,485 15,452 16,233
12/31/1997 16,756 15,697 16,893
03/31/1998 18,862 17,661 18,581
06/30/1998 18,807 17,598 18,104
09/30/1998 15,931 14,908 15,632
12/31/1998 17,695 16,547 17,753
03/31/1999 17,115 15,995 17,200
06/30/1999 18,836 17,591 19,124
09/30/1999 16,868 15,743 17,090
12/31/1999 17,205 16,037 17,735
03/31/2000 17,305 16,129 17,914
06/30/2000 17,031 15,852 17,613
09/30/2000 19,018 17,700 19,313
12/31/2000 21,729 20,205 21,137
03/31/2001 21,942 20,389 20,391
06/30/2001 24,507 22,746 21,827
09/30/2001 20,535 19,057 19,306
12/31/2001 25,730 23,855 21,629
03/31/2002 28,020 25,968 23,337
06/30/2002 25,291 23,419 22,246
09/30/2002 19,271 17,828 18,252
12/31/2002 20,644 19,090 19,542
03/31/2003 18,740 17,306 18,749
06/30/2003 22,708 20,933 22,104
09/30/2003 24,005 22,123 23,417
12/31/2003 27,908 25,690 26,981
03/31/2004 29,715 27,350 28,423
06/30/2004 30,619 28,157 28,915
09/30/2004 30,748 28,247 29,417
12/31/2004 34,491 31,677 33,376
03/31/2005 34,338 31,506 33,635
06/30/2005 35,481 32,547 35,217
09/30/2005 37,385 34,248 37,102
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------ ------ ------ -------
Institutional Class 21.59% 24.72% 14.47% 14.10%
Service Class 21.31% 24.33% 14.12% 13.78%
Investor A Class (Load Adjusted) 14.29% 21.89% 12.76% 13.10%
Investor A Class (NAV) 21.24% 24.31% 14.11% 13.77%
Investor B Class (Load Adjusted) 15.83% 22.70% 13.09% 12.94%
Investor B Class (NAV) 20.33% 23.47% 13.33% 12.94%
Investor C Class (Load Adjusted) 19.34% 23.48% 13.34% 12.96%
Investor C Class (NAV) 20.34% 23.48% 13.34% 12.96%
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, 8/25/86; Institutional Shares,
6/1/93; Investor C Shares, 6/1/93; Investor B Shares, 1/1/99; and Service
Shares, 1/28/05; . See "Note on Performance Information" on page 42 for further
information on how performance data was calculated, including important
information on the line graph above.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is actively
managed and its composition will vary.
12
Mid-Cap Value Equity Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
CIT Group, Inc. 1.9%
The Brink's Co. 1.9
Questar Corp. 1.9
NCR Corp. 1.9
CONSOL Energy, Inc. 1.8
Radian Group, Inc. 1.8
Boston Properties, Inc. 1.8
Ambac Financial Group, Inc. 1.7
W.W. Grainger, Inc. 1.7
Sovereign Bancorp, Inc. 1.7
----
Total 18.1%
====
Top Ten Industries (% of long-term investments)
Manufacturing 10.5%
Energy & Utilities 9.0
Finance 8.5
Retail Merchandising 8.0
Insurance 7.4
Banks 7.3
Oil & Gas 6.2
Real Estate 4.8
Computer & Office Equipment 4.3
Computer Software & Services 4.3
----
Total 70.3%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) or redemption/exchange
fees, where applicable; and (2) ongoing costs, including advisory fees,
distribution (12b-1) and service fees, where applicable; and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,088.70 1,087.90 1,087.00 1,083.40 1,083.40
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 5.24 6.54 6.54 10.45 10.45
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,019.92 1,018.65 1,018.65 1,014.85 1,014.85
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 5.08 6.35 6.35 10.15 10.15
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 1.00%, 1.25%, 1.25%, 2.00%, and 2.00% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
13
Mid-Cap Growth Equity Portfolio
Total Net Assets (9/30/05): $446.7 million
Performance Benchmark:
Russell Midcap Growth Index
Investment Approach:
Seeks long-term capital appreciation by investing normally at least 80% of
assets in equity securities issued by U.S. mid-capitalization growth companies
that the portfolio management team believes have above-average earnings growth
potential. The Portfolio defines these companies as those with market
capitalizations comparable in size to the companies in the Russell Midcap Growth
Index. The management team would expect these companies to have products,
technologies, management, markets and opportunities which will facilitate
earnings growth over time that is well above the growth rate of the overall
economy and the rate of inflation. The portfolio management team uses a bottom
up investment style to select securities based upon fundamental analysis (such
as analysis of earnings, cash flows, competitive position and management's
abilities).
Recent Portfolio Management Activity:
. On January 31, 2005, BlackRock, Inc., the parent of BlackRock
Advisors, Inc. (BAI), acquired SSRM Holdings, Inc., the parent of State Street
Research & Management Company (SSRM), the investment adviser to the State Street
Research mutual funds. In connection with the transaction, the BlackRock Mid-Cap
Growth Equity Portfolio (the Portfolio) reorganized with the State Street
Research Mid Cap Growth Fund (the SSR Fund). The SSR Fund transferred
substantially all of its assets and liabilities to the Portfolio in exchange for
shares of the Portfolio, which were then distributed to the SSR Fund
shareholders.
. All share classes underperformed the benchmark for the annual period.
. After closing 2004 with a substantial rally, the U.S. equity market
has been volatile in 2005 and only managed to produce slight gains. While
corporate profits have continued to grow steadily, investors have begun to fear
rising interest rates and energy prices, and a corresponding slowdown in the
economy.
. The Portfolio performed well during the annual period due to strong
performance from our energy stock holdings. Growth in worldwide demand has
driven energy prices higher throughout the annual period, pushing energy stocks
to high levels. The Portfolio benefited from a relatively high energy sector
exposure during this period. In addition, stock selection in the sector also
contributed to performance, as shares of EOG Resources and Consol Energy rose
rapidly during the annual period. Stock selection decisions in other sectors,
including the health care and information technology ("IT") sectors, countered
the success in the energy sector and led to the Portfolio's underperformance. In
the health care sector, the Portfolio's exposure to the biotechnology industry
accounted for much of the detraction in this sector. Our positions in Biogen and
Elan Pharmaceuticals substantially declined in value after the unforeseeable
withdrawal of Tysabri, a drug which figured prominently in the growth thesis for
these stocks. Both positions were immediately sold from the Portfolio. Despite
excellent results in the communications equipment industry, the Portfolio's IT
sector allocation also led to underperformance. Relative weakness in Avid
Technology, a maker of media editing software, as well as several IT services
companies including Alliance Data Systems and BISYS Group led to the
disappointment in the sector.
. Our investment approach is driven by our focus on adding value through
bottom-up fundamental research. As a result, portfolio positioning and
corresponding sector weights relative to the benchmark are largely determined by
stock selection. During the annual period, we increased our weightings in the
energy and IT sectors, while reducing the Portfolio's exposure to the consumer
discretionary and health care sectors. As of the beginning of the fourth
calendar quarter of 2005, the Portfolio holds a significant overweight in the IT
sector where the portfolio management team has found many diverse opportunities.
The largest underweight is in the financials sector, where we do not find
compelling long-term growth opportunities.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE MID-CAP GROWTH
EQUITY PORTFOLIO AND THE RUSSELL MIDCAP GROWTH INDEX FROM INCEPTION.
[LINE CHART]
Institutional Investor A Russell Midcap Growth Index
------------- ---------- ---------------------------
12/27/1996 $ 10,000 $ 9,425 $ 10,000
12/31/1996 10,040 9,463 10,009
03/31/1997 8,930 8,407 9,644
06/30/1997 10,570 9,934 11,063
09/30/1997 12,200 11,442 12,612
12/31/1997 11,521 10,802 12,265
03/31/1998 12,963 12,133 13,729
06/30/1998 13,135 12,285 13,721
09/30/1998 11,218 10,478 11,430
12/31/1998 14,093 13,141 14,456
03/31/1999 16,050 14,957 14,951
06/30/1999 18,058 16,801 16,508
09/30/1999 19,288 17,923 15,682
12/31/1999 31,151 28,920 21,874
03/31/2000 37,868 35,115 26,494
06/30/2000 34,322 31,767 24,531
09/30/2000 36,964 34,166 25,151
12/31/2000 27,667 25,545 19,305
03/31/2001 20,360 18,789 14,462
06/30/2001 20,852 19,200 16,802
09/30/2001 16,002 14,723 12,131
12/31/2001 18,865 17,331 15,414
03/31/2002 18,673 17,147 15,142
06/30/2002 15,660 14,354 12,377
09/30/2002 12,947 11,849 10,251
12/31/2002 13,481 12,321 11,191
03/31/2003 13,545 12,382 11,189
06/30/2003 15,810 14,415 13,288
09/30/2003 16,173 14,723 14,239
12/31/2003 18,074 16,448 15,971
03/31/2004 19,442 17,680 16,743
06/30/2004 19,677 17,845 16,919
09/30/2004 18,715 16,962 16,186
12/31/2004 20,894 18,933 18,443
03/31/2005 20,467 18,522 18,135
06/30/2005 21,364 19,323 18,757
09/30/2005 22,326 20,165 19,986
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year From Inception
------ ------ ------ --------------
Institutional Class 19.29% 19.92% (9.59)% 9.60%
Service Class 19.03% 19.57% (9.86)% 9.28%
Investor A Class (Load Adjusted) 12.10% 17.07% (11.07)% 8.34%
Investor A Class (NAV) 18.89% 19.39% (10.01)% 9.07%
Investor B Class (Load Adjusted) 13.46% 17.65% (10.91)% 8.31%
Investor B Class (NAV) 17.96% 18.49% (10.68)% 8.31%
Investor C Class (Load Adjusted) 16.96% 18.49% (10.67)% 8.31%
Investor C Class (NAV) 17.96% 18.49% (10.67)% 8.31%
The inception date of the Portfolio's Institutional, Service, Investor A,
Investor B and Investor C Shares was 12/27/96. See "Note on Performance
Information" on page 42 for further information on how performance data was
calculated, including important information on the line graph above.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is actively
managed and its composition will vary.
14
Mid-Cap Growth Equity Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
EOG Resources, Inc. 3.2%
CONSOL Energy, Inc. 3.0
Newfield Exploration Co. 2.2
Navteg Corp. 2.1
American Tower Corp. - Class A 2.0
Ceridian Corp. 2.0
Shire Pharmaceuticals Group PLC - ADR 2.0
Community Health Systems, Inc. 2.0
WellPoint, Inc. 1.9
ENSCO International, Inc. 1.8
----
Total 22.2%
====
Top Ten Industries (% of long-term investments)
Telecommunications 11.9%
Medical & Medical Services 10.3
Oil & Gas 9.6
Computer Software & Services 9.2
Retail Merchandising 8.5
Medical Instruments & Supplies 6.6
Metal & Mining 5.6
Semiconductors & Related Devices 4.4
Entertainment & Leisure 4.0
Manufacturing 3.8
----
Total 73.9%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) or redemption/exchange
fees, where applicable; and (2) ongoing costs, including advisory fees,
distribution (12b-1) and service fees, where applicable; and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,090.80 1,087.50 1,088.70 1,084.30 1,084.30
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 6.45 8.01 8.33 12.23 12.23
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,018.76 1,017.23 1,016.93 1,013.12 1,013.12
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 6.24 7.77 8.07 11.88 11.88
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 1.23%, 1.53%, 1.59%, 2.34%, and 2.34% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
15
Aurora Portfolio
Total Net Assets (9/30/05): $2.7 billion
Performance Benchmark:
Russell 2500 Value Index
Investment Approach:
Seeks high total return, consisting principally of capital appreciation by
investing at least 80% of its net assets in small- and mid-capitalization
common and preferred stocks and securities convertible into common and
preferred stock. The Portfolio considers issuers of small- and
mid-capitalization value stocks to be companies that are comparable in size to
the companies in the Russell 2500 Value Index or a similar index. In choosing
among small- and mid-capitalization stocks, the management team takes a value
approach, searching for those companies that appear to be trading below their
true worth.
Recent Portfolio Management Activity:
. On January 31, 2005, BlackRock, Inc., the parent of BlackRock
Advisors, Inc. (BAI), acquired SSRM Holdings, Inc., the parent of State Street
Research & Management Company (SSRM), the investment adviser to the State Street
Research mutual funds. In connection with the transaction, the BlackRock Aurora
Portfolio (the Portfolio) reorganized with the State Street Research Aurora Fund
(the SSR Fund). The SSR Fund transferred substantially all of its assets and
liabilities to the Portfolio in exchange for shares of the Portfolio, which were
then distributed to the SSR Fund shareholders. For periods prior to January 31,
2005, the performance information shown reflects the performance of the SSR
Fund, which had substantially similar investment goals and strategies as the
Portfolio. The SSR Fund's benchmark was the Russell 2000 Value Index while the
Portfolio's benchmark is the Russell 2500 Value Index.
. All share classes underperformed the benchmark for the annual period.
. The domestic equity markets posted solid gains during the annual
period. Within the Portfolio's benchmark, the Russell 2500 Value Index, all
major sectors posted positive returns. However, the energy sector was the
primary driver of total return as energy prices climbed significantly. Other
sector leaders included health care, industrials and utilities. During the
annual period, the Portfolio's holdings in the energy and financials sectors
aided returns relative to the benchmark. However, these gains were overshadowed
by relative weakness in the information technology, health care and industrials
sectors.
. Growing global demand for and constrained supply of energy continued
to apply upward pressure on energy prices as crude oil approached $70 a barrel
during the annual period. The corresponding positive impact on energy-related
stocks proved to be among the greatest contributors to relative performance as
the Portfolio benefited from stock selection and an overweight in the sector
relative to the benchmark. Key contributors included exploration and production
companies, Vintage Petroleum and EOG Resources, and oil services firm, Global
Industries. In the financials sector, allocation within the sector was the key
driver of favorable comparisons. Specifically, underweights in commercial banks,
real estate investment trusts ("REITs") and mortgage finance companies benefited
relative sector returns.
. Stock selection within the information technology sector was the
single greatest detractor from relative performance during the annual period.
Within the sector, the most notable areas of weakness were attributable to
communications and electronics equipment holdings. Stock selection in the health
care sector also proved to be a drag on relative return due to health care
providers and service stocks held in the Portfolio. Additionally, stock
selection in the industrials sector also hampered relative performance. Notable
detractors included GrafTech International and Trinity Industries, both of which
were sold during the period.
. Our investment approach is driven by our focus on adding value
through bottom-up fundamental research. As a result, portfolio positioning and
corresponding sector weights relative to the benchmark are largely determined by
stock selection. During the annual period, the impact of buy/sell decisions
within the Portfolio, combined with the performance of underlying holdings,
resulted in increased allocations to the financials and utilities sectors, and
decreased exposure to the industrials, information technology and materials
sectors.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE AURORA PORTFOLIO,
THE RUSSELL 2000 VALUE INDEX AND THE RUSSELL 2500 VALUE INDEX FOR THE PAST TEN
YEARS.
[LINE CHART]
Institutional Investor A Russell 2000 Value Index Russell 2500 Value Index
------------- ---------- ------------------------ ------------------------
09/30/1995 $ 10,000 $ 9,424 $ 10,000 $ 10,000
12/31/1995 10,355 9,754 10,291 10,384
03/31/1996 11,711 11,023 10,743 10,854
06/30/1996 13,598 12,794 11,182 11,187
09/30/1996 14,395 13,536 11,348 11,534
12/31/1996 16,245 15,271 12,490 12,690
03/31/1997 16,843 15,813 12,459 12,793
06/30/1997 20,312 19,053 14,340 14,607
09/30/1997 24,917 23,375 16,188 16,425
12/31/1997 23,877 22,394 16,460 16,890
03/31/1998 26,540 24,872 17,836 18,502
06/30/1998 24,712 23,148 17,192 17,839
09/30/1998 18,879 17,666 14,119 14,901
12/31/1998 20,307 18,991 15,402 16,565
03/31/1999 19,351 18,089 13,909 15,240
06/30/1999 23,708 22,143 16,211 17,681
09/30/1999 23,260 21,709 14,944 16,153
12/31/1999 27,193 25,363 15,174 16,813
03/31/2000 30,085 27,990 15,752 17,597
06/30/2000 32,385 30,079 16,060 17,492
09/30/2000 35,894 33,311 17,238 18,697
12/31/2000 37,482 34,753 18,635 20,308
03/31/2001 38,563 35,736 18,817 19,907
06/30/2001 43,215 40,016 21,007 21,895
09/30/2001 35,663 32,986 18,205 19,168
12/31/2001 43,531 40,253 21,249 22,286
03/31/2002 47,656 44,035 23,286 24,183
06/30/2002 43,241 39,867 22,792 23,339
09/30/2002 33,014 30,398 17,940 19,051
12/31/2002 35,069 32,289 18,823 20,088
03/31/2003 32,618 30,011 17,867 19,130
06/30/2003 39,828 36,619 21,927 23,201
09/30/2003 43,977 40,399 23,621 25,005
12/31/2003 52,669 48,344 27,487 29,113
03/31/2004 55,003 50,448 29,388 30,912
06/30/2004 56,369 51,662 29,638 31,069
09/30/2004 53,982 49,446 29,682 31,146
12/31/2004 60,721 55,572 33,601 35,394
03/31/2005 58,750 53,732 32,265 34,642
06/30/2005 60,243 55,050 33,902 36,488
09/30/2005 62,953 57,507 34,951 37,784
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------ ------ ------ -------
Institutional Class 16.62% 24.01% 11.89% 20.20%
Service Class 16.30% 23.68% 11.54% 19.82%
Investor A Class (Load Adjusted) 9.61% 21.26% 10.23% 19.12%
Investor A Class (NAV) 16.30% 23.68% 11.54% 19.82%
Investor B Class (Load Adjusted) 10.94% 22.01% 10.47% 18.94%
Investor B Class (NAV) 15.44% 22.79% 10.74% 18.94%
Investor C Class (Load Adjusted) 14.45% 22.81% 10.74% 18.94%
Investor C Class (NAV) 15.45% 22.81% 10.74% 18.94%
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, 2/13/95; Investor A
Shares, 2/13/95; Investor C Shares, 2/13/95; Investor B Shares, 1/1/99; and
Service Shares, 1/28/05. See "Note on Performance Information" on page 42 for
further information on how performance data was calculated, including important
information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
16
Aurora Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
GTECH Holdings, Corp. 1.8%
Vintage Petroleum, Inc. 1.7
Humana, Inc. 1.6
The Brink's Co. 1.5
Allmerica Financial Corp. 1.4
Affiliated Managers Group, Inc. 1.4
Bausch & Lomb, Inc. 1.4
Walter Industries, Inc. 1.4
Radian Group, Inc. 1.4
Linens 'n Things, Inc. 1.3
-----
Total 14.9%
=====
Top Ten Industries (% of long-term investments)
Insurance 10.3%
Retail Merchandising 8.0
Manufacturing 6.7
Oil & Gas 5.5
Banks 5.3
Energy & Utilities 5.1
Business Services 4.6
Telecommunications 4.6
Aerospace 4.3
Finance 4.2
----
Total 58.6%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) or redemption/exchange
fees, where applicable; and (2) ongoing costs, including advisory fees,
distribution (12b-1) and service fees, where applicable; and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,071.60 1,070.30 1,070.30 1,065.90 1,066.20
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 6.13 7.32 7.32 11.29 11.29
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,019.01 1,017.84 1,017.84 1,013.93 1,013.93
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 5.99 7.16 7.16 11.07 11.07
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 1.18%, 1.41%, 1.41%, 2.18%, and 2.18% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
17
Small/Mid-Cap Growth Portfolio
Total Net Assets (9/30/05): $281.6 million
Performance Benchmark:
Russell 2500 Growth Index
Investment Approach:
Seeks to provide growth of capital by investing at least 80% of its total
assets in small-capitalization and mid-capitalization companies. The Portfolio
views small- and mid-capitalization companies as those that are less mature and
appear to have the potential for rapid growth. The Portfolio generally defines
small- and mid-capitalization companies as those that have similar market
capitalizations to those in the Russell 2500 Growth Index or a similar index.
The portfolio management team uses research to identify potential investments,
examining such features as a company's financial condition, business prospects,
competitive position and business strategy.
Recent Portfolio Management Activity:
. On January 31, 2005, BlackRock, Inc., the parent of BlackRock
Advisors, Inc. (BAI), acquired SSRM Holdings, Inc., the parent of State Street
Research & Management Company (SSRM), the investment adviser to the State Street
Research mutual funds. In connection with the transaction, the BlackRock
Small/Mid-Cap Growth Portfolio (the Portfolio) reorganized with the State Street
Research Emerging Growth Fund (the SSR Fund). The SSR Fund transferred
substantially all of its assets and liabilities to the Portfolio in exchange for
shares of the Portfolio, which were then distributed to the SSR Fund
shareholders. For periods prior to January 31, 2005, the performance information
shown reflects the performance of the SSR Fund, which had substantially similar
investment goals and strategies as the Portfolio. The SSR Fund's benchmark was
the Russell 2000 Growth Index while the Portfolio's benchmark is the Russell
2500 Growth Index.
. The Institutional, Service and Investor A share classes
outperformed the benchmark for the annual period. The Investor B and C share
classes underperformed the benchmark for the annual period.
. After closing 2004 with a substantial rally, the U.S. equity market
has been volatile in 2005 and only managed to produce slight gains. While
corporate profits have continued to grow steadily, investors have begun to fear
rising interest rates and energy prices, and a corresponding slowdown in the
economy.
. The Portfolio performed well during the annual period due to strong
performance from our health care and energy stock holdings. Growth in worldwide
demand has driven energy prices higher throughout the year, pushing energy
stocks to high levels. The Portfolio benefited from a relatively high energy
sector exposure during the annual period. In addition, stock selection in the
health care sector, particularly in the health care providers and services
industry, also contributed to performance. LCA-Vision, an operator of laser
vision correction centers, was the top performing health care stock in the
Portfolio, more than doubling in value during our holding period. In addition,
the Portfolio's positions in Lifepoint Hospitals and Community Health Systems
contributed significantly to the success in the health care sector. Conversely,
despite producing solid relative results in the semiconductor industry, the
Portfolio's overall investment in information technology ("IT") lagged behind
that of the benchmark. Internet stocks Autobytel and Ask Jeeves both detracted
substantially from IT performance overall, each falling more than 30% in a
positive market environment for technology stocks.
. Our investment approach is driven by our focus on adding value through
bottom-up fundamental research. As a result, portfolio positioning and
corresponding sector weights relative to the benchmark are largely determined by
stock selection. During the year we have increased our weightings in the energy
and IT sectors, while reducing the Portfolio's exposure to the financials and
health care sectors. As of the beginning of the fourth calendar quarter of 2005,
the Portfolio holds a significant overweight in the IT sector where the
portfolio management team found many diverse opportunities in the IT services
industry. The Portfolio's largest underweight is in the financials sector, where
we do not find compelling long-term growth opportunities.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE SMALL/MID-CAP
GROWTH PORTFOLIO, THE RUSSELL 2000 GROWTH INDEX AND THE RUSSELL 2500 GROWTH
INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A Russell 2000 Growth Index Russell 2500 Growth Index
------------- ---------- ------------------------- -------------------------
09/30/1995 $ 10,000 $ 9,426 $ 10,000 $ 10,000
12/31/1995 9,703 9,144 10,148 10,175
03/31/1996 10,143 9,562 10,731 10,887
06/30/1996 11,412 10,749 11,358 11,443
09/30/1996 11,709 11,021 11,261 11,600
12/31/1996 12,202 11,470 11,291 11,708
03/31/1997 11,628 10,945 10,106 10,771
06/30/1997 14,068 13,224 11,881 12,522
09/30/1997 17,370 16,312 13,891 14,605
12/31/1997 15,838 14,865 12,752 13,436
03/31/1998 18,365 17,224 14,268 14,933
06/30/1998 16,446 15,406 13,448 14,205
09/30/1998 12,189 11,423 10,442 11,050
12/31/1998 15,319 14,331 12,911 13,852
03/31/1999 14,702 13,742 12,693 13,706
06/30/1999 17,171 16,032 14,565 16,010
09/30/1999 15,796 14,746 13,850 15,454
12/31/1999 23,357 21,804 18,475 21,538
03/31/2000 26,233 24,470 20,190 24,799
06/30/2000 23,820 22,206 18,702 23,086
09/30/2000 23,119 21,536 17,959 22,407
12/31/2000 19,927 18,530 14,331 18,072
03/31/2001 16,617 15,449 12,152 14,473
06/30/2001 20,316 18,870 14,336 17,550
09/30/2001 16,246 15,044 10,310 12,799
12/31/2001 20,265 18,724 13,008 16,114
03/31/2002 20,181 18,643 12,753 15,637
06/30/2002 17,259 15,984 10,752 13,037
09/30/2002 15,300 14,153 8,438 10,551
12/31/2002 15,199 14,039 9,071 11,425
03/31/2003 15,047 13,893 8,719 11,059
06/30/2003 19,117 17,638 10,825 13,572
09/30/2003 20,451 18,854 11,958 14,925
12/31/2003 23,338 21,496 13,475 16,717
03/31/2004 25,449 23,442 14,227 17,637
06/30/2004 24,132 22,210 14,240 17,660
09/30/2004 21,092 19,389 13,384 16,670
12/31/2004 23,946 21,999 15,402 19,156
03/31/2005 23,068 21,172 14,351 18,327
06/30/2005 23,879 21,902 14,850 18,979
09/30/2005 25,601 23,474 15,789 20,173
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
-------- ------- ------- -------
Institutional Class 21.38% 18.72% 2.06% 9.86%
Service Class 20.99% 18.35% 1.72% 9.55%
Investor A Class (Load Adjusted) 14.11% 16.07% 0.54% 8.91%
Investor A Class (NAV) 21.07% 18.37% 1.74% 9.55%
Investor B Class (Load Adjusted) 15.59% 16.66% 0.71% 8.78%
Investor B Class (NAV) 20.09% 17.51% 1.04% 8.78%
Investor C Class (Load Adjusted) 19.15% 17.50% 1.09% 8.80%
Investor C Class (NAV) 20.15% 17.50% 1.09% 8.80%
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, 10/4/93; investor a
shares, 2/1/94; investor c shares, 2/1/94; investor b shares, 1/1/99 and
service shares, 1/28/05. See "Note on Performance Information" on page 42 for
further information on how performance data was calculated, including important
information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
18
Small/Mid-Cap Growth Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
Laureate Education, Inc. 2.3%
Digitas, Inc. 2.1
Vintage Petroleum, Inc. 2.0
Community Health Systems, Inc. 1.9
SonicWALL, Inc. 1.8
Airgas, Inc. 1.8
ADTRAN, Inc. 1.7
Station Casinos, Inc. 1.7
Massey Energy Co. 1.6
Foundry Networks 1.6
----
Total 18.5%
====
Top Ten Industries (% of long-term investments)
Business Services 12.0%
Computer Software & Services 11.5
Medical & Medical Services 10.4
Oil & Gas 9.0
Telecommunications 7.8
Medical Instruments & Supplies 6.5
Retail Merchandising 5.3
Personal Services 4.7
Metal & Mining 4.0
Pharmaceuticals 4.0
----
Total 75.2%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) or redemption/exchange
fees, where applicable; and (2) ongoing costs, including advisory fees,
distribution (12b-1) and service fees, where applicable; and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,109.80 1,107.10 1,108.70 1,103.30 1,104.00
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 5.82 7.13 7.14 11.07 11.08
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,019.42 1,022.68 1,018.15 1,014.34 1,014.34
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 5.58 2.32 6.85 10.66 10.66
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 1.10%, 1.35%, 1.35%, 2.10%, and 2.10% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
19
Small Cap Value Equity Portfolio
Total Net Assets (9/30/05): $128.6 million
Performance Benchmark:
Russell 2000 Value Index
Investment Approach:
Seeks long-term capital appreciation by investing in small capitalization
stocks of companies believed by the portfolio manager to be worth more than is
indicated by current market price. The Portfolio normally invests at least 80%
of its net assets in equity securities issued by U.S. small capitalization value
companies (market capitalizations under $2 billion). The portfolio manager uses
fundamental analysis to examine each company for financial strength before
deciding to purchase the stock.
Recent Portfolio Management Activity:
. All share classes outperformed the benchmark for the annual period.
. The domestic equity markets posted solid gains during the annual
period. Within the Portfolio's benchmark, the Russell 2000 Value Index, all
major sectors posted positive returns. However, the energy sector was the
primary driver of total return as energy prices climbed significantly. Other
sector leaders included industrials and utilities. During the annual period, the
Portfolio's holdings in the industrials and health care sectors aided returns
relative to the benchmark, more than offsetting relative weakness in the
consumer staples and consumer discretionary sectors.
. Stock selection within the industrials sector was the greatest
contributor to positive returns during the annual period. Specifically, strong
performance from Walter Industries and Administaff was among the key drivers of
favorable sector comparisons. The natural resources segment of Walter
Industries, a diversified industrials firm, powered the stock higher as coal
prices increased dramatically during the annual period. Stronger-than-expected
first and second quarter earnings at Administaff, a human resources management
firm, fueled stock price gains during the annual period. In the health care
sector, holdings among health care providers and equipment and supply
manufacturers were the primary contributors to outperformance relative to the
benchmark. Notable contributors included DJ Orthopedics and Sybron Dental
Specialties.
. Although stock selection within the consumer staples sector,
particularly among food products producers, proved to be a modest drag on
relative sector performance during the annual period, this negative impact was
largely offset by the positive effect of an overweight in the sector,
particularly among beverage and personal products producers. In the consumer
discretionary sector, however, stock selection and an overweight position
relative to the benchmark combined to drive less favorable comparisons. Within
the sector, the most notable detractors included RV manufacturer, Fleetwood
Enterprises, and Handleman, a manager and distributor of prerecorded music.
. Our investment approach is driven by our focus on adding value through
bottom-up fundamental research. As a result, portfolio positioning and
corresponding sector weights relative to the benchmark are largely determined by
stock selection. During the annual period, the impact of buy/sell decisions
within the Portfolio, combined with the performance of underlying holdings,
resulted in increased allocations to the energy, financials and information
technology sectors, and decreased exposure to the consumer discretionary, health
care and materials sectors.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE SMALL CAP VALUE
EQUITY PORTFOLIO AND THE RUSSELL 2000VALUE INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A Russell 2000 Value Index
------------- ---------- ------------------------
09/30/1995 $ 10,000 $ 9,427 $ 10,000
12/31/1995 10,291 9,697 10,291
03/31/1996 10,842 10,199 10,743
06/30/1996 11,216 10,531 11,182
09/30/1996 11,264 10,564 11,348
12/31/1996 12,336 11,572 12,490
03/31/1997 12,237 11,460 12,459
06/30/1997 14,512 13,577 14,340
09/30/1997 16,598 15,513 16,188
12/31/1997 16,745 15,627 16,460
03/31/1998 18,060 16,831 17,836
06/30/1998 17,112 15,929 17,192
09/30/1998 13,771 12,809 14,119
12/31/1998 15,704 14,593 15,402
03/31/1999 13,397 12,425 13,909
06/30/1999 15,715 14,556 16,211
09/30/1999 14,490 13,413 14,944
12/31/1999 14,943 13,814 15,174
03/31/2000 15,319 14,143 15,752
06/30/2000 15,566 14,362 16,060
09/30/2000 16,976 15,639 17,238
12/31/2000 17,985 16,570 18,635
03/31/2001 17,418 16,029 18,817
06/30/2001 19,450 17,876 21,007
09/30/2001 17,055 15,652 18,205
12/31/2001 19,032 17,446 21,249
03/31/2002 20,656 18,913 23,286
06/30/2002 19,447 17,794 22,792
09/30/2002 15,648 14,289 17,940
12/31/2002 15,872 14,483 18,823
03/31/2003 15,671 14,286 17,867
06/30/2003 18,785 17,103 21,927
09/30/2003 20,335 18,486 23,621
12/31/2003 23,480 21,319 27,487
03/31/2004 25,354 22,995 29,388
06/30/2004 25,225 22,862 29,638
09/30/2004 24,579 22,254 29,682
12/31/2004 28,217 25,538 33,601
03/31/2005 28,021 25,340 32,265
06/30/2005 29,058 26,260 33,902
09/30/2005 29,684 26,801 34,951
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------ ------- ------- -------
BlackRock Class 20.68% 23.79% 11.82% 11.49%
Institutional Class 20.77% 23.79% 11.82% 11.49%
Service Class 20.46% 23.46% 11.51% 11.16%
Investor A Class (Load Adjusted) 13.47% 20.91% 10.07% 10.36%
Investor A Class (NAV) 20.43% 23.33% 11.37% 11.01%
Investor B Class (Load Adjusted) 15.24% 21.66% 10.34% 10.19%
Investor B Class (NAV) 19.58% 22.45% 10.55% 10.19%
Investor C Class (Load Adjusted) 18.53% 22.41% 10.53% 10.19%
Investor C Class (NAV) 19.49% 22.41% 10.53% 10.19%
Effective July 1, 2005, the fund closed to new investors. Existing shareholders
on the date of closing may make additional investments in current accounts. In
addition, new accounts may be opened by (i) any investor if the tax id number
for the new account will be the same as that for a current account and (ii)
401(k), 403(b), 457 and other similar group retirement plan programs that have
current accounts.
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, 4/13/92; Investor A
Shares, 6/2/92; Service Shares, 7/29/93; Investor B Shares, 10/3/94; Investor C
Shares, 10/1/96; and BlackRock Shares, 4/12/04. See "Note on Performance
Information" on page 42 for further information on how performance data was
calculated, including important information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the portfolio is
actively managed and its composition will vary.
20
Small Cap Value Equity Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
Banta Corp. 2.6%
Washington Group International, Inc. 2.5
Laidlaw International, Inc. 2.4
Gaylord Entertainment Co. 2.3
Jarden Corp. 2.1
Max Re Capital Ltd. 2.0
Sybron Dental Specialties, Inc. 1.9
Affiliated Managers Group, Inc. 1.9
Foundation Coal Holdings, Inc. 1.9
Whiting Petroleum Corp. 1.8
----
Total 21.4%
====
Top Ten Industries (% of long-term investments)
Retail Merchandising 11.5%
Banks 10.8
Computer Software & Services 6.6
Energy & Utilities 5.5
Insurance 5.3
Business Services 5.2
Oil & Gas 4.9
Medical Instruments & Supplies 4.1
Manufacturing 4.0
Construction 3.8
----
Total 61.7%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) or redemption/exchange
fees, where applicable; and (2) ongoing costs, including advisory fees,
distribution (12b-1) and service fees, where applicable; and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
--------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- --------------- ------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,058.60 1,059.40 1,057.30 1,057.70 1,054.00 1,053.10
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 5.63 5.01 6.45 6.45 10.30 10.29
Hypothetical Expenses
(5% return before expenses)
--------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- --------------- ------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,019.47 1,020.08 1,018.65 1,018.65 1,014.85 1,014.85
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 5.53 4.92 6.35 6.35 10.15 10.15
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 1.09%, 0.97%, 1.25%, 1.25%, 2.00%, and 2.00% for BlackRock, the
Institutional, Service, Investor A, B, and C share classes, respectively,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period).
21
Small Cap Core Equity Portfolio
Total Net Assets (9/30/05): $48.3 million
Performance Benchmark:
Russell 2000 Index
Investment Approach:
Seeks long-term capital appreciation by normally investing at least 80% of
assets in the equity securities of U.S. small capitalization companies (market
capitalizations under $2 billion). The portfolio management team seeks to
achieve consistent and sustainable performance through various market cycles by
emphasizing stock selection. Stock selection is determined by looking at
companies using a range of valuation criteria, including the strength of their
management and business franchise. The portfolio management team uses
fundamental analysis to examine each company for financial strength before
deciding to purchase the stock.
Recent Portfolio Management Activity:
. All share classes outperformed the benchmark for the annual period.
. The domestic equity markets posted solid gains during the annual
period. Within the Portfolio's benchmark, the Russell 2000 Index, all major
sectors posted positive returns. However, the energy sector was the primary
driver of total return as energy prices climbed significantly. Other sector
leaders included industrials, telecommunication services and utilities. During
the annual period, the Portfolio's holdings in the information technology,
consumer discretionary and health care sectors aided returns relative to the
benchmark, more than offsetting relative weakness in the consumer staples and
financials sectors.
. Stock selection in the information technology sector proved to be the
single largest contributor to outperformance during the annual period, driven
primarily by strength in software and communications equipment providers. Key
contributors included Ascential Software, which was acquired by IBM in May,
Titan Corp., which was acquired by L-3 Communications in July, and Arris Group.
In the consumer discretionary sector, stock selection, most notably among hotel,
restaurant and gaming stocks, added the greatest value. Orient Express Hotels
and Gaylord Entertainment were among the strongest performers. Elsewhere within
the sector, Portfolio returns benefited from solid performance from select
specialty retailers. In the health care sector, holdings among health care
providers and equipment and supply manufacturers were the primary contributors
to outperformance relative to the benchmark.
. Consumer staples proved to be an area of relative weakness, driven
primarily by stock selection among personal products producers. Specifically,
Portfolio holdings in NBTY and Nu Skin Enterprises declined during the annual
period. In the financials sector, disappointing performance from select
holdings, most notably in the insurance and mortgage finance industries,
detracted from relative return. These stocks came under pressure as the market
reacted to increasing interest rates and the impact of hurricanes Katrina and
Rita on insurance company profit margins.
. Our investment approach is driven by our focus on adding value through
bottom-up fundamental research. As a result, portfolio positioning and
corresponding sector weights relative to the benchmark are largely determined by
stock selection. During the annual period, the impact of buy/sell decisions
within the Portfolio, combined with the performance of underlying holdings,
resulted in increased allocations to the energy, financials and information
technology sectors, and reduced exposure to the consumer staples, health care
and industrials sectors.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE SMALL CAP CORE
EQUITY PORTFOLIO AND THE RUSSELL 2000 INDEX FROM INCEPTION.
[LINE CHART]
Institutional Investor A Russell 2000 Index
------------- ---------- ------------------
01/02/2002 $ 10,000 $ 9,425 $ 10,000
03/31/2002 10,680 10,066 10,420
06/30/2002 10,010 9,434 9,550
09/30/2002 8,350 7,870 7,506
12/31/2002 8,900 8,388 7,968
03/31/2003 8,570 8,077 7,610
06/30/2003 10,750 10,132 9,392
09/30/2003 12,000 11,310 10,245
12/31/2003 14,009 13,185 11,733
03/31/2004 15,566 14,633 12,467
06/30/2004 15,586 14,642 12,526
09/30/2004 14,929 14,013 12,168
12/31/2004 17,004 15,950 13,883
03/31/2005 16,444 15,413 13,142
06/30/2005 17,156 16,056 13,709
09/30/2005 17,930 16,775 14,352
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year From Inception
------- ------ --------------
Institutional Class 20.10% 29.01% 16.88%
Service Class 20.22% 28.94% 16.83%
Investor A Class (Load Adjusted) 12.80% 26.18% 14.82%
Investor A Class (NAV) 19.71% 28.70% 16.65%
Investor B Class (Load Adjusted) 14.31% 27.37% 15.67%
Investor B Class (NAV) 18.81% 28.08% 16.21%
Investor C Class (Load Adjusted) 17.74% 28.06% 16.19%
Investor C Class (NAV) 18.74% 28.06% 16.19%
The inception date of the Portfolio's Institutional, Service, Investor A,
Investor B and Investor C Shares was 1/2/02. See "Note on Performance
Information" on page 42 for further information on how performance data was
calculated, including important information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as the periods indicated, the Portfolio is actively
managed and its composition will vary.
22
Small Cap Core Equity Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
Aviall, Inc. 3.0%
Laureate Education, Inc. 2.7
TETRA Technologies, Inc. 2.3
KCS Energy, Inc. 2.0
Airgas, Inc. 2.0
Universal American Financial Corp. 1.9
The Brink's Co. 1.9
Gaylord Entertainment Co. 1.8
Vintage Petroleum, Inc. 1.8
Foundation Coal Holdings, Inc. 1.8
----
Total 21.2%
====
Top Ten Industries (% of long-term investments)
Computer Software & Services 8.0%
Banks 7.7
Business Services 6.7
Medical & Medical Services 5.9
Medical Instruments & Supplies 5.7
Retail Merchandising 5.5
Entertainment & Leisure 5.2
Aerospace 5.2
Manufacturing 4.8
Insurance 4.7
----
Total 59.4%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) or redemption/exchange
fees, where applicable; and (2) ongoing costs, including advisory fees,
distribution (12b-1) and service fees, where applicable; and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,090.30 1,089.20 1,088.40 1,085.00 1,084.30
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 6.81 8.38 9.00 12.81 12.80
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,018.40 1,016.88 1,016.27 1,012.56 1,012.56
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 6.60 8.12 8.73 12.44 12.44
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 1.30%, 1.60%, 1.72%, 2.45%, and 2.45% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
23
Small Cap Growth Equity Portfolio
Total Net Assets (9/30/05): $573.7 million
Performance Benchmark:
Russell 2000 Growth Index
Investment Approach:
Seeks long-term capital appreciation by investing at least 80% of its net
assets in equity securities issued by U.S. small capitalization growth companies
(market capitalizations under $2 billion). The management team would expect
these companies to have products, technologies, management, markets and
opportunities which will facilitate earnings growth over time that is well above
the growth rate of the overall economy and the rate of inflation. The management
team uses a bottom up investment style and selects securities based upon
fundamental analysis (such as analysis of earnings, cash flows, competitive
position and management's abilities).
Recent Portfolio Management Activity:
. The Institutional, Service and Investor A share classes outperformed
the benchmark for the annual period. The Investor B and C share classes
underperformed the benchmark for the annual period.
. After closing 2004 with a substantial rally, the U.S. equity market
has been volatile in 2005 and only managed to produce slight gains. While
corporate profits have continued to grow steadily, investors have begun to fear
rising interest rates and energy prices, and a corresponding slowdown in the
economy.
. The Portfolio produced strong absolute and relative performance during
the annual period as a result of both sector positioning and stock selection.
Growth in worldwide demand has driven energy prices higher throughout the year,
pushing energy stocks to high levels. The Portfolio benefited from relatively
high energy sector exposure during the annual period. Stock selection in the
health care sector also contributed to performance. During the annual period,
Hologic, a maker of medical imaging equipment, tripled in value and contributed
tremendously to the Portfolio's success in the health care sector. In addition,
two of our holdings, CTI Molecular Imaging and Accredo Health, surged higher due
to their acquisition by larger companies at substantial premiums. Information
technology ("IT") stocks lagged the broader market during the annual period, but
positive stock selection made this a top-contributing sector for the Portfolio.
Adtran, O2Micro International, and VeriFone Holdings delivered strong returns in
this sector. Conversely, the industrials sector produced relative weakness for
the Portfolio. Our holdings trailed the benchmark as a result of poor stock
selection in the commercial services industry. Several of the Portfolio's
holdings performed poorly during the second calendar quarter of 2005 after a
strong performance in 2004.
. Our investment approach is driven by our focus on adding value through
bottom-up fundamental research. As a result, portfolio positioning and
corresponding sector weights relative to the benchmark are largely determined by
stock selection. During the annual period we have increased our weightings in
the energy and information technology sectors, while reducing the Portfolio's
exposure to the industrials and health care sectors. As of the beginning of the
fourth calendar quarter of 2005, the Portfolio holds a significant overweight in
the IT sector where the portfolio management team has found many diverse
opportunities in the IT services industry. The Portfolio's largest underweight
is in the financials sector, where we do not find compelling long-term growth
opportunities.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE SMALL CAP GROWTH
EQUITY PORTFOLIO AND THE RUSSELL 2000 GROWTH INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A Russell 2000 Growth Index
------------- ---------- -------------------------
09/30/1995 $ 10,000 $ 9,427 $ 10,000
12/31/1995 10,738 10,069 10,148
03/31/1996 12,114 11,347 10,731
06/30/1996 13,869 12,977 11,358
09/30/1996 14,587 13,650 11,261
12/31/1996 14,128 13,204 11,291
03/31/1997 11,380 10,617 10,106
06/30/1997 13,856 12,920 11,881
09/30/1997 16,905 15,736 13,891
12/31/1997 15,428 14,345 12,752
03/31/1998 16,913 15,701 14,268
06/30/1998 16,272 15,095 13,448
09/30/1998 13,197 12,226 10,442
12/31/1998 16,566 15,323 12,911
03/31/1999 17,018 15,737 12,693
06/30/1999 17,780 16,422 14,565
09/30/1999 19,129 17,650 13,850
12/31/1999 28,570 26,338 18,475
03/31/2000 34,378 31,654 20,190
06/30/2000 31,143 28,602 18,702
09/30/2000 31,186 28,586 17,959
12/31/2000 24,769 22,693 14,331
03/31/2001 18,672 17,100 12,152
06/30/2001 20,085 18,368 14,336
09/30/2001 14,431 13,177 10,310
12/31/2001 16,263 14,825 13,008
03/31/2002 15,304 13,936 12,753
06/30/2002 13,177 11,981 10,752
09/30/2002 11,063 10,049 8,438
12/31/2002 11,813 10,713 9,071
03/31/2003 11,309 10,250 8,719
06/30/2003 14,001 12,680 10,825
09/30/2003 15,070 13,628 11,958
12/31/2003 18,340 16,567 13,475
03/31/2004 19,680 17,752 14,227
06/30/2004 19,262 17,372 14,240
09/30/2004 17,848 16,081 13,384
12/31/2004 20,245 18,238 15,402
03/31/2005 19,557 17,598 14,351
06/30/2005 19,852 17,858 14,850
09/30/2005 21,253 19,103 15,789
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------ ------ ------ -------
Institutional Class 19.08% 24.31% (7.38)% 7.83%
Service Class 18.82% 24.02% (7.61)% 7.48%
Investor A Class (Load Adjusted) 11.94% 21.44% (8.83)% 6.69%
Investor A Class (NAV) 18.79% 23.88% (7.75)% 7.32%
Investor B Class (Load Adjusted) 13.42% 22.18% (8.69)% 6.54%
Investor B Class (NAV) 17.92% 22.95% (8.44)% 6.54%
Investor C Class (Load Adjusted) 16.90% 22.98% (8.42)% 6.55%
Investor C Class (NAV) 17.90% 22.98% (8.42)% 6.55%
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, 9/14/93; Service and
Investor A Shares, 9/15/93; Investor B Shares, 1/18/96; and Investor C Shares,
9/6/96. See "Note on Performance Information" on page 42 for further
information on how performance data was calculated, including important
information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
24
Small Cap Growth Equity Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
Laureate Education, Inc. 2.3%
Massey Energy Co. 2.1
TETRA Technologies, Inc. 2.0
SonicWALL, Inc. 2.0
Vintage Petroleum, Inc. 2.0
Digitas, Inc. 2.0
Watson Wyatt & Co. Holdings 2.0
Micromuse, Inc. 1.8
Airgas, Inc. 1.8
O2Micro International Ltd. 1.8
-----
Total 19.8%
=====
Top Ten Industries (% of long-term investments)
Computer Software & Services 16.5%
Business Services 14.6
Oil & Gas 12.7
Medical Instruments & Supplies 7.7
Medical & Medical Services 6.2
Entertainment & Leisure 5.7
Retail & Merchandising 5.6
Semiconductors & Related Devices 5.0
Personal Services 4.0
Metal & Mining 3.3
----
Total 81.3%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) or redemption/exchange
fees, where applicable; and (2) ongoing costs, including advisory fees,
distribution (12b-1) and service fees, where applicable; and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,086.80 1,085.30 1,085.50 1,081.40 1,081.40
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 5.02 6.33 6.33 10.23 10.23
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,020.13 1,018.86 1,018.86 1,015.05 1,015.05
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 4.87 6.14 6.14 9.95 9.95
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.96%, 1.21%, 1.21%, 1.96%, and 1.96% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
25
Global Science & Technology Opportunities Portfolio
Total Net Assets (9/30/05): $24.4 million
Performance Benchmark:
Pacific Stock Exchange Technology Index
Investment Approach:
Seeks long-term capital appreciation by investing primarily in equity
securities of U.S. and non-U.S. companies in all capitalization ranges selected
for their rapid and sustainable growth potential from the development,
advancement and use of science and/or technology. The Portfolio normally invests
up to 80% of its net assets in equity securities issued by science and
technology companies in all market capitalization ranges. The Portfolio may
invest up to 25% of its net assets in stocks of issuers in emerging market
countries. The Portfolio management team uses a multi-factor screen to identify
stocks that have above-average return potential. The factors and weights
assigned to a factor may change depending on market conditions. The most
influential factors over time have been revenue and earnings growth, estimate
revisions, profitability and relative value.
Recent Portfolio Management Activity:
. The Institutional, Service and Investor A share classes outperformed
the benchmark for the annual period. The Investor B and C share classes
underperformed the benchmark for the annual period.
. During the annual period, international markets significantly
outperformed the U.S. equity market with emerging markets generating the
greatest return. International market returns in the period were higher even
though foreign currencies weakened relative to the U.S. dollar. Following the
pattern of recent years, small capitalization stocks outperformed large
capitalization stocks and value stocks outperformed growth stocks. Globally, as
measured by the S&P/Citigroup Broad Market Index, the energy, materials and
utilities sectors outperformed the broader index during the period while the
industrials sector performed in-line with the index. The consumer discretionary,
technology and health care sectors were the worst performers in the period.
. The annual period was comprised of a cyclical advance from October
2004 through February 2005. This was followed by a two-month consolidation and
then a cyclical rally lasting through the end of the annual period. The cyclical
advances were primarily driven by better-than-expected GDP growth in countries
outside of the U.S. Energy led the world equity markets as commodity prices
reached record highs due to both strong economic demand and supply shocks
resulting from the active hurricane season in the U.S.
. For the annual period, security selection was the primary driver of
the Portfolio's outperformance versus its benchmark, particularly in the
information technology, telecommunication services and industrials sectors. In
contrast, sector selection was a modest detractor from performance as the
Portfolio maintained a relative overweight in the health care sector, which
underperformed in the period, and held an underweight allocation to the
information technology sector, which outperformed the benchmark.
. In the information technology sector, the primary contributors to
performance were MEMC Electronic Materials Inc., Powerwave Technologies Inc. and
SiRF Technology Holdings Inc. Wireless subscriber growth and the build out of
third generation (3G) mobile networks have been drivers of technology stocks,
including Powerwave Technologies and SiRF Technology Holdings.
. The Portfolio also benefited from the strength of wireless carriers,
both domestically and internationally. Alamosa Holdings was the largest
contributor to performance, followed by Bharti Televenture, an Indian company.
Wireless substitution has become a global phenomenon and the global carriers are
experiencing strong subscriber growth and solid average revenue per user (ARPU)
trends.
. The Portfolio's underweight to biotechnology stocks led to a modest
underperformance in health care relative to the benchmark. While stock selection
was strong within the sector, leading to the Portfolio's stocks outperforming
those of the benchmark, the Portfolio's large underweight to the sector negated
the positive returns. Positions in select pharmaceutical companies experienced
declines, which additionally hurt performance as pharmaceuticals are not
included in the benchmark. Health care provider stocks, however, had a positive
impact on performance due to strong absolute performance.
. At the end of the period, the Portfolio maintained its relative
underweight to the information technology sector and relative overweight to the
health care sector. We are cautious on the outlook for many information
technology companies due to margin pressure. With emerging countries, such as
China and India, becoming more integrated into the world supply chain,
technology companies are experiencing price erosion as these buyers are not
focused on purchasing leading edge technology. We maintain a favorable view of
industrial technology as a result of the continued industrialization and
urbanization of emerging market countries.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GLOBAL SCIENCE &
TECHNOLOGY OPPORTUNITIES PORTFOLIO AND THE PACIFIC STOCK EXCHANGE TECHNOLOGY
INDEX FROM INCEPTION.
[LINE CHART]
Pacific Stock Exchange
Institutional Investor A Technology Index
------------- ---------- ----------------------
05/15/2000 $ 10,000 $ 9,425 $ 10,000
06/30/2000 11,400 10,745 10,789
09/30/2000 12,490 11,753 10,178
12/31/2000 9,490 8,926 7,983
03/31/2001 6,190 5,815 6,494
06/30/2001 6,830 6,400 7,121
09/30/2001 4,410 4,128 5,077
12/31/2001 5,850 5,476 6,752
03/31/2002 5,680 5,306 6,732
06/30/2002 4,520 4,213 5,049
09/30/2002 3,600 3,355 3,795
12/31/2002 3,820 3,553 4,512
03/31/2003 3,660 3,402 4,497
06/30/2003 4,760 4,420 5,545
09/30/2003 5,470 5,071 6,084
12/31/2003 6,070 5,627 6,887
03/31/2004 6,270 5,796 7,059
06/30/2004 5,820 5,382 7,275
09/30/2004 5,410 5,005 6,736
12/31/2004 6,230 5,749 7,719
03/31/2005 5,650 5,212 7,190
06/30/2005 5,950 5,485 7,403
09/30/2005 6,610 6,079 8,136
For period ending September 30, 2005
Average Annual Total Return
From
1 Year 3 Year 5 Year Inception
------ ------ -------- -----------
Institutional Class 22.18% 22.45% (11.95)% (7.41)%
Service Class 21.68% 22.17% (12.20)% (7.67)%
Investor A Class (Load Adjusted) 14.57% 19.50% (13.38)% (8.84)%
Investor A Class (NAV) 21.47% 21.91% (12.35)% (7.83)%
Investor B Class (Load Adjusted) 16.16% 20.25% (13.38)% (8.70)%
Investor B Class (NAV) 20.66% 21.05% (13.03)% (8.53)%
Investor C Class (Load Adjusted) 19.66% 21.05% (13.03)% (8.53)%
Investor C Class (NAV) 20.66% 21.05% (13.03)% (8.53)%
The inception date of the Portfolio's Institutional, Service, Investor A,
Investor B, and Investor C Shares was 5/15/00. See "Note On Performance
Information" on Page 42 for Further Information on how performance data was
calculated, including important information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as the periods indicated, the Portfolio is actively
managed and its composition will vary.
26
Global Science & Technology Opportunities Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
Genentech, Inc. 1.9%
Powerwave Technologies, Inc. 1.8
Apple Computer, Inc. 1.8
Roche Holding AG 1.7
Broadcom Corp. - Class A 1.7
Samsung Electronics Co. Ltd. 1.6
Harris Corp. 1.6
Ibiden Co., Ltd. 1.6
Texas Instruments, Inc. 1.6
Motorola, Inc. 1.6
----
Total 16.9%
====
Top Ten Industries (% of long-term investments)
Computer Software & Service 17.0%
Telecommunications 15.4
Semiconductors & Related Devices 14.6
Pharmaceuticals 9.2
Computer & Office Equipment 8.6
Medical & Medical Services 8.5
Electronics 6.3
Medical Instruments & Supplies 4.7
Manufacturing 4.5
Aerospace 2.9
----
Total 91.7%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) or redemption/exchange
fees, where applicable; and (2) ongoing costs, including advisory fees,
distribution (12b-1) and service fees, where applicable; and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,169.90 1,166.70 1,166.40 1,161.40 1,161.40
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 7.78 9.40 10.10 14.14 14.14
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,017.74 1,016.22 1,015.56 1,011.75 1,011.75
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 7.26 8.78 9.44 13.25 13.25
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 1.43%, 1.73%, 1.86%, 2.61%, and 2.61% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
27
Global Resources Portfolio
Total Net Assets (9/30/05): $1.2 billion
Performance Benchmark:
Lipper Natural Resources Funds Index
S&P 500(R) Index
Investment Approach:
Seeks to provide long-term growth of capital by investing at least 80% of
its total assets in securities of global energy and natural resources companies
and companies in associated businesses, as well as utilities. The Portfolio may
invest in companies located anywhere in the world and will generally invest in
at least three countries and in companies tied economically to a number of
countries. In selecting investments, the management team seeks to invest in
companies and industries that appear to have the potential for above-average
long-term performance. These may include companies that are expected to show
above-average growth over the long term as well as those that appear to be
trading below their true worth. The Portfolio may invest up to 20% of its assets
in other U.S. and foreign investments including stocks and bonds of companies
not associated with energy or natural resources. While the Portfolio tends to
emphasize smaller companies, from time to time it may emphasize companies of
other sizes.
Recent Portfolio Management Activity:
. On January 31, 2005, BlackRock, Inc., the parent of BlackRock
Advisors, Inc. (BAI), acquired SSRM Holdings, Inc., the parent of State Street
Research & Management Company (SSRM), the investment adviser to the State Street
Research mutual funds. In connection with the transaction, the BlackRock Global
Resources Portfolio (the Portfolio) reorganized with the State Street Research
Global Resources Fund (the SSR Fund). The SSR Fund transferred substantially all
of its assets and liabilities to the Portfolio in exchange for shares of the
Portfolio, which were then distributed to the SSR Fund shareholders. For periods
prior to January 31, 2005, the performance information shown reflects the
performance of the SSR Fund, which had substantially similar investment goals
and strategies as the Portfolio.
. All share classes outperformed the benchmarks for the annual period.
. During the annual period, the Portfolio posted substantial gains in a
market environment in which the energy sector has provided clear market
leadership as the underlying commodity prices have risen substantially.
Sustained long-term global economic growth and strong incremental demand coming
from China due to the continued urbanization of the country combined with
limited excess supply of energy resources have created significant tightness
within the worldwide energy system. With this as a back-drop, strong economic
growth, a hotter than normal summer in U.S., continued geo-political turmoil and
significant storm activity in the Gulf of Mexico, a major U.S. oil and gas
production and refining area, have propelled energy prices to historically high
levels.
. While nearly all areas of the energy sector have posted substantial
gains in over the last year, as the entire industry has benefited from higher
prices and growing demand in this environment, the Portfolio's emphasis on coal
producers, oil and gas exploration and production companies, and drillers
provided the greatest boost to absolute and relative return comparisons. As
energy commodity prices have moved higher, having significant exposure to those
companies with the greatest leverage to price has been beneficial to
performance. Coal companies such as Consol Energy, Peabody Energy, and Arch Coal
all benefited from rising long-term contract pricing as well as increasing
global demand for coal, stemming from greater use of electricity and steel
manufacturing.
. In contrast, a lack of exposure to refiners such as Valero modestly
detracted from return. Refiners continued to benefit from a wide price
differential between light and heavy crude oil and rising volumes. We strongly
believe that this cannot continue and profit margins at refiners will be
compressed going forward. As a result, we continue to remain cautious in this
area of the sector.
. In this environment, the Portfolio's positioning has not changed
dramatically as we continue to favor oil and gas exploration and production
companies, oil service providers, drillers, and coal producers.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GLOBAL RESOURCES
PORTFOLIO, THE LIPPER NATURAL RESOURCES FUNDS INDEX AND THE S&P 500(R) INDEX
FORTHE PAST TEN YEARS.
Lipper Natural
Institutional Investor A Resources Funds Index S&P 500(R) Index
------------- ---------- --------------------- ----------------
09/30/1995 $ 10,000 $ 9,424 $ 10,000 $ 10,000
12/31/1995 10,456 9,850 10,650 10,602
03/31/1996 12,121 11,414 11,518 11,171
06/30/1996 13,857 13,044 12,050 11,673
09/30/1996 15,247 14,337 12,501 12,033
12/31/1996 17,841 16,770 13,725 13,036
03/31/1997 17,272 16,221 13,198 13,386
06/30/1997 18,476 17,344 14,554 15,723
09/30/1997 23,490 22,034 16,995 16,901
12/31/1997 18,886 17,703 15,746 17,386
03/31/1998 18,806 17,635 16,341 19,811
06/30/1998 15,869 14,867 15,277 20,465
09/30/1998 11,576 10,840 12,801 18,429
12/31/1998 9,747 9,120 12,106 22,354
03/31/1999 9,863 9,221 13,217 23,468
06/30/1999 12,008 11,215 15,694 25,122
09/30/1999 13,089 12,221 15,852 23,554
12/31/1999 11,283 10,532 16,163 27,058
03/31/2000 13,061 12,184 18,072 27,679
06/30/2000 16,625 15,498 18,764 26,944
09/30/2000 19,059 17,750 20,108 26,683
12/31/2000 20,847 19,393 20,888 24,595
03/31/2001 20,702 19,236 19,858 21,679
06/30/2001 21,378 19,846 19,270 22,948
09/30/2001 17,746 16,467 16,283 19,580
12/31/2001 20,325 18,849 18,260 21,672
03/31/2002 22,875 21,156 20,086 21,732
06/30/2002 22,711 20,990 18,855 18,820
09/30/2002 19,359 17,824 15,751 15,569
12/31/2002 21,494 19,772 16,942 16,882
03/31/2003 21,165 19,458 16,739 16,351
06/30/2003 25,937 23,824 18,394 18,868
09/30/2003 27,358 25,107 18,371 19,367
12/31/2003 34,546 31,683 21,387 21,725
03/31/2004 37,765 34,605 22,835 22,093
06/30/2004 40,589 37,180 23,993 22,473
09/30/2004 45,599 41,746 26,869 22,053
12/31/2004 51,138 46,770 28,927 24,089
03/31/2005 58,483 53,472 32,914 23,572
06/30/2005 61,221 55,933 34,411 23,894
09/30/2005 81,345 74,258 42,704 24,756
For Period Ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------ ------ ------ -------
Institutional Class 78.39% 61.37% 33.67% 23.32%
Investor A Class (Load Adjusted) 67.65% 57.76% 31.58% 22.20%
Investor A Class (NAV) 77.88% 60.91% 33.14% 22.93%
Investor B Class (Load Adjusted) 72.21% 59.39% 32.12% 22.03%
Investor B Class (NAV) 76.71% 59.85% 32.25% 22.03%
Investor C Class (Load Adjusted) 75.64% 59.81% 32.28% 22.05%
Investor C Class (NAV) 76.64% 59.81% 32.28% 22.05%
effective January 31, 2005, the fund closed to new investors. Existing
shareholders on the date of closing may make additional investments in current
accounts. in addition, new accounts may be opened by (i) any investor if the
tax id number for the new account will be the same as that for a current
account and (ii) 401(k), 403 (b), 457 and other similar group retirement plan
programs that have current accounts.
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, 3/2/90; Institutional Shares,
6/1/93; Investor C Shares, 6/1/93; and Investor B Shares, 1/1/99. See "Note on
Performance Information" on page 42 for further information on how performance
data was calculated, including important information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the portfolio is
actively managed and its composition will vary.
28
Global Resources Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
Peabody Energy Corp. 7.8%
CONSOL Energy, Inc. 7.4
Massey Energy Co. 4.8
Arch Coal, Inc. 4.5
Penn West Energy Trust 4.4
Newfield Exploration Co. 4.0
Plains Exploration & Production Co. 4.0
Patterson-UTI Energy, Inc. 3.8
Vintage Petroleum, Inc. 3.6
BJ Services Co. 2.8
----
Total 47.1%
====
Industries (% of long-term investments)
Oil & Gas 64.4%
Metal & Mining 28.7
Conglomerates 2.2
Energy & Utilities 2.0
Manufacturing 1.5
Transportation 0.9
Finance 0.2
Motor Vehicles 0.1
-----
Total 100.0%
=====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) or redemption/exchange
fees, where applicable; and (2) ongoing costs, including advisory fees,
distribution (12b-1) and service fees, where applicable; and other Portfolio
expenses. This Example is intended to help you understand your ongoing costs (in
dollars) of investing in the Portfolio and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
-------------------------------------------------------------
Institutional Investor Investor Investor
Class A Class B Class C Class
--------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,390.90 1,388.70 1,383.80 1,383.80
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 6.23 8.02 12.19 12.19
Hypothetical Expenses
(5% return before expenses)
-------------------------------------------------------------
Institutional Investor Investor Investor
Class A Class B Class C Class
--------------- --------------- --------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,019.72 1,018.20 1,014.64 1,014.64
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 5.28 6.80 10.36 10.36
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 1.04%, 1.34%, 2.04%, and 2.04% for the Institutional, Investor A, B,
and C share classes, respectively, multiplied by the average account value over
the period, multiplied by 183/365 (to reflect the one-half year period).
29
All-Cap Global Resources Portfolio
Inception Date: February 16, 2005
Total Net Assets (9/30/05): $244.4 million
Performance Benchmark:
Lipper Natural Resources Funds Index
S&P 500(R) Index
Investment Approach:
Seeks to provide long-term growth of capital by investing at least 80% of
its total assets in securities of global energy and natural resources companies
and companies in associated businesses, as well as utilities. The Portfolio may
invest in companies located anywhere in the world and will generally invest in
at least three countries and in companies tied economically to a number of
countries. In selecting investments, the management team seeks to invest in
companies and industries that appear to have the potential for above-average
long-term performance. These may include companies that are expected to show
above-average growth over the long term as well as those that appear to be
trading below their true worth. The Portfolio may invest up to 20% of its assets
in other U.S. and foreign investments including stocks and bonds of companies
not associated with energy or natural resources. The Portfolio does not limit
its investments to companies of any particular size, and may invest in
securities of companies with small to large capitalizations.
Recent Portfolio Management Activity:
. All share classes outperformed the benchmarks since its inception in
February 2005.
. Since inception, the Portfolio posted substantial gains in a market
environment in which the energy sector has provided clear market leadership as
the underlying energy commodity prices have risen substantially. Sustained
long-term global economic growth and strong incremental demand coming from China
due to the continued urbanization of the country combined with limited excess
supply of energy resources have created significant tightness within the
worldwide energy system. With this as a back-drop, strong economic growth, a
hotter than normal summer in U.S., continued geo-political turmoil and
significant storm activity in the Gulf of Mexico, a major U.S. oil and gas
production and refining area, have propelled energy prices to historically high
levels.
. Despite the volatility in the energy sector since the inception of the
Portfolio, gains in the energy sector have been fairly broad based across
industries contributing to the Portfolio's strong absolute returns. The
Portfolio's emphasis on coal producers and exploration and production companies
has provided the most significant boost to relative returns. Additionally,
strong stock selection within the integrated oil and gas industry has also aided
absolute return comparisons. In general, the Portfolio's emphasis on companies
with market capitalizations between $5 and $15 billion, particularly within the
Portfolio's holdings in the integrated oil and gas industry, has aided
performance, as these companies' revenues tend to have greater exposure in a
rising price environment. Coal companies such as Consol Energy, Peabody Energy,
and Arch Coal all benefited from rising long-term contract pricing as well as
increasing global demand for coal, stemming from greater use of electricity and
steel manufacturing.
. In contrast, a lack of exposure to refiners such as Valero modestly
detracted from return comparisons. This area of the sector generated the largest
returns over the period as refiners continue to benefit from a wide price
differential between light and heavy crude oil and rising volumes. We strongly
believe that this cannot continue and profit margins at refiners will be
compressed going forward. As a result, we continue to remain cautious in this
area of the sector.
. In this environment, the Portfolio's positioning has not changed
dramatically as we continue to favor oil and gas exploration and production
companies, oil service providers, drillers, and coal producers.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE ALL-CAP GLOBAL
RESOURCES PORTFOLIO, THE LIPPER NATURAL RESOURCES FUNDS INDEX AND THE S&P
500(R) INDEX FROM INCEPTION.
[LINE CHART]
Lipper Natural
Resources
Institutional Investor A Funds Index S&P 500(R) Index
------------- ---------- -------------- ----------------
02/16/2005 $ 10,000 $ 9,425 $ 10,000 $ 10,000
02/28/2005 10,190 9,604 10,449 9,950
03/31/2005 10,060 9,482 10,248 9,774
04/30/2005 9,490 8,944 9,589 9,589
05/31/2005 9,890 9,321 9,942 9,894
06/30/2005 10,670 10,057 10,714 9,908
07/31/2005 11,610 10,933 11,645 10,276
08/31/2005 12,640 11,904 12,477 10,183
09/30/2005 13,560 12,724 13,295 10,265
Average Annual Total Return
From
Inception
----------
Institutional Class 35.60%
Service Class 35.10%
Investor A Class (Load Adjusted) 27.24%
Investor A Class (NAV) 35.00%
Investor B Class (Load Adjusted) 29.90%
Investor B Class (NAV) 34.40%
Investor C Class (Load Adjusted) 33.60%
Investor C Class (NAV) 34.60%
The inception date of the Portfolio's Institutional, Service, Investor A,
Investor B, and Investor C shares was 02/16/2005. See "Note on Performance
Information" on page 42 for further information on how performance data was
calculated,including important information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
30
All-Cap Global Resources Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
Peabody Energy Corp. 3.4%
EOG Resources, Inc. 3.4
Massey Energy Co. 3.2
CONSOL Energy, Inc. 3.1
Arch Coal, Inc. 2.7
Statoil ASA - ADR 2.5
Cairn Energy PLC 2.4
Canadian Natural Resources 2.3
McDermott International, Inc. 2.3
Talisman Energy, Inc. - ADR 2.2
-----
Total 27.5%
=====
Industries (% of long-term investments)
Oil & Gas 70.5%
Metal & Mining 24.0
Energy & Utilities 4.1
Conglomerate 1.4
-----
Total 100.0%
=====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) or
redemption/exchange fees, where applicable; and (2) ongoing costs, including
advisory fees, distribution (12b-1) and service fees, where applicable; and
other Portfolio expenses. This Example is intended to help you understand your
ongoing costs (in dollars) of investing in the Portfolio and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
---------------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,347.90 1,343.00 1,342.00 1,338.70 1,338.00
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 6.12 7.87 7.87 11.96 11.96
Hypothetical Expenses
(5% return before expenses)
---------------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,019.72 1,018.20 1,018.20 1,014.64 1,014.64
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 5.28 6.80 6.80 10.36 10.36
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 1.04%, 1.34%, 1.34%, 2.04%, and 2.04% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the period the
fund was open during the one-half year period).
31
Health Sciences Portfolio
Total Net Assets (9/30/05): $347.3 million
Performance Benchmark:
Lipper Health/Biotechnology Funds Index
S&P 500(R) Index
Investment Approach:
Seeks to provide long-term growth of capital by investing at least 80% of
its total assets in securities of companies in health sciences and related
industries. The management team expects to invest in health sciences companies
comparable in size to those in the health care sector of the Russell 3000(Reg.
TM) Index or similar companies, including non-U.S. companies. In selecting
investments, the management team seeks to invest in companies and industries
that appear to have the potential for above-average growth over the long term.
Recent Portfolio Management Activity:
. On January 31, 2005, BlackRock Inc., the parent of BlackRock Advisors,
Inc. (BAI), acquired SSRM Holdings, Inc., the parent of State Street Research &
Management (SSRM), the investment adviser to the State Street Research mutual
funds. In connection with the transaction, the BlackRock Health Sciences
Portfolio (the Portfolio) reorganized with the State Street Research Health
Sciences Fund (the SSR Fund). The SSR Fund transferred substantially all of its
assets and liabilities to the Portfolio in exchange for shares of the
Portfolio, which were then distributed to the SSR Fund shareholders. For
periods prior to January 31, 2005, the performance information shown reflects
the performance of the SSR Fund, which had substantially similar investment
goals and strategies as the Portfolio.
. All share classes outperformed the Lipper Health/Biotechnology Funds
Index and the S&P 500(R) Index for the annual period.
. U.S. equity markets posted solid gains during the annual period, with
the majority of positive returns coming during the fourth quarter of 2004.
Despite investors exhibiting caution as concern over oil prices, interest rates
and economic growth remained in the spotlight, the S&P 500(R) Index
gained 12.25% in the annual period. The health care sector, within the broader
S&P 500(R) Index, also delivered positive returns in the period, rising
10.26%. In this environment, all industries within the Portfolio posted
absolute gains in the annual period.
. The Portfolio's allocation to the biotechnology industry was the most
significant contributor to performance in the period. A diverse mix of
securities contributed to returns, as both large and small capitalization
stocks made a positive impact on both relative and absolute returns. Within
the large capitalization universe, holdings in Amgen Inc. and Genentech Inc.
led outperformance while allocations to Momenta Pharmaceuticals Inc. and
ViroPharma Inc. drove performance in the small capitalization universe.
. The Portfolio's positioning in the healthcare providers & services and
healthcare equipment & supplies industries benefited performance in the period.
Within the health care providers & services industry, managed care providers,
including WellPoint Inc., Aetna Inc. and UnitedHealth Group Inc., aided returns
while medical equipment maker Aspect Medical Systems Inc. drove returns in the
healthcare equipment and supplies industry.
. The Portfolio experienced modest absolute gains in the pharmaceuticals
industry, however, select securities hurt overall performance. The Portfolio's
exposure to Elan Corp. Plc detracted from performance as its shares declined
due to the unexpected withdrawal of a major drug it produces. Additionally,
positions in two large pharmaceutical companies detracted from absolute gains
during the period, though our underweight to these companies helped relative
returns. The Portfolio's exposure to select European-based companies,
including Roche Holdings Ltd., led gains among non-U.S. pharmaceuticals.
. The Portfolio's positioning continues to reflect our long-term view
that health care will remain a rapidly growing segment of the U.S. economy.
During the latter part of the annual period, we modestly decreased our exposure
to the biotechnology industry following a period of strength. Within the
biotechnology industry, we continue to find more compelling investment
opportunities among small- and mid-capitalization securities. In addition, the
weighting to the health care services industry was increased, predominantly by
adding to our HMO and Pharmacy Benefit Manager ("PBM") exposure. Within the
pharmaceuticals industry, we continue to favor the stronger pipelines of
European-based companies and remain cautious on large capitalization
pharmaceuticals.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE HEALTH SCIENCES
PORTFOLIO, THE LIPPER HEALTH/BIOTECHNOLOGY FUNDS INDEX AND THE S&P 500(R)
INDEX FROM INCEPTION.
[LINE CHART]
Institutional Investor A Lipper Health/Biotechnology Funds Index S&P 500(R) Index
------------- ---------- --------------------------------------- ----------------
12/21/1999 $ 10,000 $ 9,425 $ 10,000 $ 10,000
12/31/1999 10,580 9,972 10,647 10,253
03/31/2000 11,930 11,244 11,651 10,488
06/30/2000 14,295 13,473 13,747 10,209
09/30/2000 17,001 16,024 15,153 10,111
12/31/2000 16,434 15,479 15,297 9,319
03/31/2001 14,074 13,265 12,311 8,215
06/30/2001 16,242 15,288 13,941 8,695
09/30/2001 14,869 13,984 12,610 7,419
12/31/2001 17,075 16,042 13,697 8,212
03/31/2002 15,972 15,003 12,812 8,234
06/30/2002 13,560 12,730 10,852 7,131
09/30/2002 12,119 11,361 9,974 5,899
12/31/2002 13,192 12,362 10,108 6,397
03/31/2003 13,387 12,546 10,199 6,196
06/30/2003 18,048 16,898 11,892 7,149
09/30/2003 19,750 18,471 12,190 7,338
12/31/2003 22,040 20,600 13,193 8,232
03/31/2004 23,317 21,782 13,880 8,371
06/30/2004 23,507 21,940 14,089 8,515
09/30/2004 22,717 21,184 13,533 8,356
12/31/2004 25,324 23,599 14,741 9,128
03/31/2005 23,888 22,245 13,912 8,932
06/30/2005 26,359 24,542 14,918 9,054
09/30/2005 28,784 26,774 16,082 9,380
For period ending September 30, 2005
Average Annual Total Return
From
1 Year 3 Year 5 Year Inception
------ ------ ------ ----------
Institutional Class 26.71% 33.42% 11.11% 20.08%
Service Class 26.60% 33.15% 10.85% 19.84%
Investor A Class (Load Adjusted) 19.10% 30.47% 9.51% 18.58%
Investor A Class (NAV) 26.39% 33.08% 10.81% 19.80%
Investor B Class (Load Adjusted) 20.99% 31.44% 9.84% 19.07%
Investor B Class (NAV) 25.49% 32.11% 10.11% 19.15%
Investor C Class (Load Adjusted) 24.56% 32.15% 10.07% 19.11%
Investor C Class (NAV) 25.56% 32.15% 10.07% 19.11%
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, 12/21/99; Institutional
Shares, 10/16/00; Investor B Shares, 10/16/00; Investor C Shares, 10/16/00; and
Service Shares, 1/28/05 . See "Note on Performance Information" on page 42 for
further information on how performance data was calculated, including important
information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
32
Health Sciences Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
Roche Holdings Ltd. 6.9%
WellPoint, Inc. 6.2
UnitedHealth Group, Inc. 5.8
Caremark Rx, Inc. 4.7
Baxter International, Inc. 4.6
Genetech, Inc. 3.7
Wyeth 3.6
Cigna Corp. 3.1
Amgen, Inc. 3.0
Medco Health Solutions, Inc. 2.6
-----
Total 44.2%
=====
Industries (% of long-term investments)
Pharmaceuticals 41.2%
Medical & Medical Services 34.0
Medical Instruments & Supplies 15.4
Insurance 9.4
-----
Total 100.0%
=====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) or
redemption/exchange fees, where applicable; and (2) ongoing costs, including
advisory fees, distribution (12b-1) and service fees, where applicable; and
other Portfolio expenses. This Example is intended to help you understand your
ongoing costs (in dollars) of investing in the Portfolio and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
---------------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,204.90 1,205.00 1,203.60 1,199.00 1,198.90
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 6.91 8.57 8.56 12.40 12.40
Hypothetical Expenses
(5% return before expenses)
---------------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,018.65 1,017.13 1,017.13 1,013.58 1,013.58
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 6.35 7.87 7.87 11.42 11.42
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 1.25%, 1.55%, 1.55%, 2.25%, and 2.25% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
33
U.S. Opportunities Portfolio
Total Net Assets (9/30/05): $96.0 million
Performance Benchmark:
S&P/Citigroup Extended Market Index U.S. ("S&P/Citigroup EMI U.S.")
Investment Approach:
Seeks long-term capital appreciation by normally investing at least 80% of
its net assets in equity securities of U.S. emerging capitalization companies
(defined as those with market capitalizations equal to those within the
universe of the S&P/Citigroup EMI U.S. stocks) with relatively attractive
earnings growth potential and valuation. The Portfolio management team uses a
multi-factor screen to identify stocks that have above-average return
potential. The factors and the weight assigned to a factor may change
depending on market conditions. The most influential factors over time have
been revenue and earnings growth, estimate revisions, profitability and
relative value.
Recent Portfolio Management Activity:
. All share classes outperformed the benchmark for the annual period.
. During the annual period, international markets significantly
outperformed the U.S. equity market with emerging markets generating the
greatest return. International market returns in the period were higher even
though foreign currencies weakened relative to the U.S. dollar. Following the
pattern of recent years, small capitalization stocks outperformed large
capitalization stocks and value stocks outperformed growth stocks. Globally,
as measured by the S&P/Citigroup Broad Market Index, the energy, materials and
utilities sectors outperformed the broader index during the period while the
industrials sector performed in-line with the index. The consumer
discretionary, technology and health care sectors were the worst performers in
the period.
. The annual period was comprised of a cyclical advance from October
2004 through February 2005. This was followed by a two-month consolidation and
then a cyclical rally lasting through the end of the annual period. The
cyclical advances were primarily driven by better-than-expected GDP growth in
countries outside of the U.S. Energy led the world equity markets as commodity
prices reached record highs due to both strong economic demand and supply shocks
resulting from the active hurricane season in the U.S.
. For the annual period, security selection was the primary driver of
the Portfolio's outperformance versus its benchmark, particularly in the
information technology and consumer discretionary sectors. This was slightly
offset by the Portfolio's security selection in the materials, health care and
industrials sectors.
. Within the information technology sector, allocations to Powerwave
Technologies Inc., aQuantive Inc. and MEMC Electronic Materials Inc.
contributed the most to performance. While the Portfolio benefited from
security selection within the sector, at the end of the annual period we were
underweight to the information technology sector due to continued concern about
the margin performance for the broader industry and demand following the
Christmas season. The cyclical nature of the industry has become more
pronounced with the consumer driving an increasing percentage of the business.
. In the consumer discretionary sector, solid stock selection and an
overweight in hotel and gaming stocks contributed positively to performance in
the annual period. Scientific Games Corp. and Gaylord Entertainment Company
were positive contributors, as was Genesco Inc., a shoe retailer.
. Detracting from performance during the period was lack of exposure to
select medical device companies in the healthcare sector. In addition, poor
stock selection in the industrials sector hurt performance as the Portfolio's
exposure to EGL Inc. and GrafTech International Ltd. detracted from returns as
each stock fell sharply in the period.
. The Portfolio was cyclically biased throughout much of the annual
period. The cyclical bias was reduced in the latter part of the period as high
energy prices and the potential for rising interest rates could have a negative
impact on global economic growth.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE U.S. OPPORTUNITIES
PORTFOLIO AND THE S&P/CITIGROUP EMI U.S. FROM INCEPTION.
[LINE CHART]
Institutional Investor A S&P/Citigroup EMI U.S.
------------- ---------- ----------------------
05/01/1998 $ 10,000 $ 9,425 $ 10,000
06/30/1998 10,950 10,320 9,518
09/30/1998 9,390 8,841 7,732
12/31/1998 13,030 12,253 9,126
03/31/1999 15,880 14,920 8,645
06/30/1999 20,950 19,661 9,897
09/30/1999 24,730 23,186 9,234
12/31/1999 41,897 39,221 11,107
03/31/2000 55,260 51,678 12,415
06/30/2000 53,197 49,701 11,970
09/30/2000 50,359 46,992 12,452
12/31/2000 38,649 36,015 11,544
03/31/2001 30,128 28,045 10,447
06/30/2001 36,305 33,752 11,892
09/30/2001 27,054 25,120 9,716
12/31/2001 33,256 30,851 11,524
03/31/2002 30,464 28,220 12,034
06/30/2002 25,578 23,660 11,072
09/30/2002 20,257 18,721 9,084
12/31/2002 20,381 18,809 9,693
03/31/2003 19,854 18,312 9,318
06/30/2003 23,732 21,848 11,230
09/30/2003 25,686 23,631 12,104
12/31/2003 30,122 27,679 13,843
03/31/2004 31,503 28,907 14,689
06/30/2004 31,782 29,141 14,773
09/30/2004 31,549 28,907 14,495
12/31/2004 35,644 32,634 16,519
03/31/2005 34,807 31,830 16,031
06/30/2005 36,451 33,306 16,769
09/30/2005 39,631 36,185 17,723
For period ending September 30, 2005
Average Annual Total Return
From
1 Year 3 Year 5 Year Inception
------ ------ -------- ---------
Institutional Class 25.61% 25.07% (4.68)% 20.40%
Service Class 25.24% 24.67% (4.99)% 20.03%
Investor A Class (Load Adjusted) 17.96% 22.14% (6.21)% 18.93%
Investor A Class (NAV) 25.18% 24.57% (5.09)% 19.89%
Investor B Class (Load Adjusted) 19.77% 22.86% (6.07)% 19.02%
Investor B Class (NAV) 24.27% 23.63% (5.80)% 19.02%
Investor C Class (Load Adjusted) 23.24% 23.61% (5.82)% 19.00%
Investor C Class (NAV) 24.24% 23.61% (5.82)% 19.00%
The inception date of the Portfolio's Institutional, Service, Investor A,
Investor B, and Investor C Shares was 5/1/98. See "Note on Performance
Information" on page 42 for further information on how performance data was
calculated, including important information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as the periods indicated, the Portfolio is actively
managed and its composition will vary.
34
U.S. Opportunities Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
American Tower Corp. - Class A 1.4%
Powerwave Technologies, Inc. 1.4
T. Rowe Price Group, Inc. 1.4
Phelps Dodge Corp. 1.4
E*TRADE Financial Corp. 1.4
Goodrich Corp. 1.3
CB Richard Ellis Group, Inc. - Class A 1.3
Washington Group International, Inc. 1.3
MDU Resources Group, Inc. 1.3
ENSCO International, Inc. 1.3
----
Total 13.5%
====
Top Ten Industries (% of long-term investments)
Oil & Gas 9.7%
Manufacturing 7.2
Telecommunications 6.5
Energy & Utilities 6.5
Metal & Mining 5.7
Medical & Medical Services 5.6
Entertainment & Leisure 5.5
Retail Merchandising 5.1
Real Estate 4.9
Business Services 4.3
----
Total 61.0%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) or
redemption/exchange fees, where applicable; and (2) ongoing costs, including
advisory fees, distribution (12b-1) and service fees, where applicable; and
other Portfolio expenses. This Example is intended to help you understand your
ongoing costs (in dollars) of investing in the Portfolio and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
---------------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,138.60 1,137.10 1,136.80 1,132.30 1,132.00
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 8.58 10.18 10.71 14.70 14.70
Hypothetical Expenses
(5% return before expenses)
---------------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,016.88 1,015.35 1,014.85 1,011.04 1,011.04
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 8.12 9.65 10.15 13.96 13.96
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 1.60%, 1.90%, 2.00%, 2.75%, and 2.75% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
35
International Opportunities Portfolio
Total Net Assets (9/30/05): $718.2 million
Performance Benchmark:
S&P/Citigroup Extended Market Index Global Ex-U.S. ("S&P/Citigroup EMI
Global Ex-U.S.")
Investment Approach:
Seeks long-term capital appreciation by normally investing at least 80% of
its net assets in equity securities issued by international emerging
capitalization companies (defined as those with market capitalizations equal to
those within the universe of S&P/Citigroup EMI Global Ex-U.S. stocks). The
Portfolio may invest up to 25% of its net assets in stocks of issuers in
emerging market countries. The Portfolio management team uses a multi-factor
screen to identify stocks that have above average return potential. The
factors and the weight assigned to a factor may change depending on market
conditions. The most influential factors over time have been revenue and
earnings growth, estimate revisions, profitability and relative value.
Recent Portfolio Management Activity:
. All share classes outperformed the benchmark for the annual period.
. During the annual period, international markets significantly
outperformed the U.S. equity market with emerging markets generating the
greatest return. International market returns in the period were higher even
though foreign currencies weakened relative to the U.S. dollar. Following the
pattern of recent years, small capitalization stocks outperformed large
capitalization stocks and value stocks outperformed growth stocks. Globally,
as measured by the S&P/Citigroup Broad Market Index, the energy, materials and
utilities sectors outperformed the broader index during the period while the
industrials sector performed in-line with the index. The consumer
discretionary, technology and health care sectors were the worst performers in
the period.
. The annual period was comprised of a cyclical advance from October
2004 through February 2005. This was followed by a two-month consolidation and
then a cyclical rally lasting through the end of the annual period. The
cyclical advances were primarily driven by better-than-expected GDP growth in
countries outside of the U.S. Energy led the world equity markets as commodity
prices reached record highs due to both strong economic demand and supply shocks
resulting from the active hurricane season in the U.S.
. For the annual period, the Portfolio's country allocation, sector
allocation and individual security selection all benefited relative performance
versus its benchmark. Country allocation was aided by the Portfolio's
overweight positions in the strong performing markets of Norway, Austria and
India. In addition, the Portfolio's underweight positions in Taiwan,
Switzerland and the United Kingdom were beneficial to performance as these
markets underperformed for the period. Positive country selection was slightly
tempered by the Portfolio's overweight allocations to Hong Kong and Thailand,
as well as an underweight allocation to Australia.
. From a sector perspective, the industrials and consumer discretionary
sectors were the best performing sectors versus the benchmark. Asian
construction and machinery stocks, including Hanjin Heavy Industries &
Construction Co., Hyundai Development Co. and Sumitomo Heavy Industries Ltd.,
helped drive industrial sector performance. Within the consumer discretionary
sector, small European retails, including Lindex AB and Cortefiel S.A., and the
Japanese homebuilder, Joint Corp., drove outperformance in the sector. The
Portfolio's underweight to the utilities sector and its small allocation to
cash resulted in negative relative performance for the period.
. As a result of the integration of China and India into world markets,
we are maintaining the cyclical bias of the Portfolio with overweight positions
in the industrials and materials sectors at the end of the annual period. We
believe that a significant replacement cycle exists for machinery which should
help dampen overall cyclical exposure for these stocks. The largest overall
exposure versus the benchmark at the end of the period is the Portfolio's
substantial overweight to Japan as we believe there to be significant
opportunity for domestic related Japanese stocks.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERNATIONAL
OPPORTUNITIES PORTFOLIO AND THE S&P/CITIGROUP EMI GLOBAL EX-U.S. FROM INCEPTION.
[LINE CHART]
Institutional Investor A S&P/Citigroup EMI Global Ex-U.S.
------------- ---------- --------------------------------
09/26/1997 $ 10,000 $ 9,497 $ 10,000
09/30/1997 9,970 9,468 10,028
12/31/1997 9,483 8,996 8,904
03/31/1998 11,384 10,788 10,356
06/30/1998 11,997 11,350 10,158
09/30/1998 9,614 9,092 8,574
12/31/1998 10,538 9,935 9,681
03/31/1999 10,764 10,127 9,846
06/30/1999 12,722 11,963 10,587
09/30/1999 14,601 13,702 11,070
12/31/1999 26,522 24,889 12,137
03/31/2000 33,056 30,958 12,420
06/30/2000 28,509 26,693 12,053
09/30/2000 28,037 26,213 11,372
12/31/2000 24,365 22,749 10,613
03/31/2001 21,041 19,625 9,586
06/30/2001 21,601 20,118 9,847
09/30/2001 18,501 17,205 8,290
12/31/2001 20,182 18,744 9,056
03/31/2002 22,684 21,046 9,630
06/30/2002 22,821 21,140 9,742
09/30/2002 18,961 17,546 8,045
12/31/2002 19,572 18,098 8,433
03/31/2003 18,812 17,370 8,064
06/30/2003 21,825 20,130 9,934
09/30/2003 24,850 22,890 11,272
12/31/2003 29,217 26,892 13,071
03/31/2004 30,974 28,478 14,351
06/30/2004 29,828 27,397 14,316
09/30/2004 30,463 27,949 14,481
12/31/2004 36,235 33,219 16,899
03/31/2005 37,104 34,002 17,441
06/30/2005 37,142 33,990 17,370
09/30/2005 43,280 39,578 19,327
For period ending September 30, 2005
Average Annual Total Return
From
1 Year 3 Year 5 Year Inception
------ ------ -------- ---------
Institutional Class 41.95% 31.63% 9.05% 20.06%
Service Class 41.58% 31.25% 8.68% 19.68%
Investor A Class (Load Adjusted) 34.45% 28.89% 7.47% 18.73%
Investor A Class (NAV) 41.52% 31.12% 8.58% 19.49%
Investor B Class (Load Adjusted) 35.94% 29.42% 7.47% 18.63%
Investor B Class (NAV) 40.44% 30.11% 7.76% 18.63%
Investor C Class (Load Adjusted) 39.47% 30.12% 7.77% 18.63%
Investor C Class (NAV) 40.47% 30.12% 7.77% 18.63%
The inception date of the Portfolio's Institutional, Service, Investor A,
Investor B, and Investor C Shares was 9/26/97. See "Note on Performance
Information" on page 42 for further information on how performance data was
calculated, including important information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as the periods indicated, the Portfolio is actively
managed and its composition will vary.
36
International Opportunities Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
Bharti Tele-Ventures Ltd. 1.7%
Antofagasta PLC 1.4
Prosafe ASA 1.4
Federal Home Loan Bank, Discount Notes 1.4
Exel PLC 1.4
Mitsui Trust Holdings, Inc. 1.4
Rheinmetall AG 1.3
Tullow Oil PLC 1.3
Yamaha Motor Co., Ltd. 1.2
Zinifex Ltd. 1.1
-----
Total 13.6%
=====
Top Ten Countries (% of long-term investments)
Japan 31.9%
United Kingdom 15.7
Germany 9.0
Norway 4.6
Canada 4.0
South Korea 3.9
United States 3.5
Sweden 3.5
Finland 2.9
Hong Kong 2.7
----
Total 81.7%
====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) or
redemption/exchange fees, where applicable; and (2) ongoing costs, including
advisory fees, distribution (12b-1) and service fees, where applicable; and
other Portfolio expenses. This Example is intended to help you understand your
ongoing costs (in dollars) of investing in the Portfolio and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
---------------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,165.40 1,163.50 1,163.30 1,158.90 1,158.70
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 7.87 9.49 9.49 13.64 13.64
Hypothetical Expenses
(5% return before expenses)
---------------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,017.64 1,016.12 1,016.12 1,012.21 1,012.21
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 7.36 8.88 8.88 12.79 12.79
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 1.45%, 1.75%, 1.75%, 2.52%, and 2.52% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
37
Asset Allocation Portfolio
Total Net Assets (9/30/05): $772.4 million
Performance Benchmark:
60% S&P 500(R) Index / 40% Lehman Brothers U.S. Aggregate Index
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management. The Portfolio uses an asset allocation strategy,
investing varying percentages of its portfolio in three major categories:
stocks, bonds and, to a lesser extent, money market instruments. The fund
management team uses a combination of quantitative and fundamental analysis to
evaluate the relative attractiveness of various segments in the equity
universe, defined by style, capitalization range and geographic location. The
fund management team regularly reviews and allocates varying percentages of the
fund to equity investment management team members responsible for security
selection within these distinctive disciplines, including stocks of large,
middle and small capitalization companies, companies that appear to be trading
below their true worth, companies with significant growth opportunities, firms
in specialized sectors and international companies. Within each discipline,
investment decisions are primarily the result of bottom-up security selection
that, in turn, drives sector and industry weightings as well as average market
capitalization. The fixed income investment management team selects bonds from
several sectors including: U.S. Treasuries and agency securities, commercial
and residential mortgage-backed securities, collateralized mortgage
obligations, asset-backed securities and corporate bonds. The Portfolio invests
primarily in dollar-denominated investment grade bonds, but may invest up to
20% of its fixed income allocation in any combination of non-investment grade
bonds (high yield or junk bonds), non-dollar denominated bonds and bonds of
emerging market issuers.
Recent Portfolio Management Activity:
. On January 31, 2005, BlackRock, Inc., the parent of BlackRock
Advisors, Inc. (BAI), acquired SSRM Holdings, Inc., the parent of State Street
Research & Management Company (SSRM), the investment adviser to the State Street
Research mutual funds. In connection with the transaction, the BlackRock
Balanced Portfolio reorganized with the State Street Research Asset Allocation
Fund (the SSR Fund) and was renamed the BlackRock Asset Allocation Portfolio
(the Portfolio). The SSR Fund transferred substantially all of its assets and
liabilities to the Portfolio in exchange for shares of the Portfolio, which were
then distributed to the SSR Fund shareholders. For periods prior to January 31,
2005, the performance information shown reflects the performance of the SSR
Fund, which had similar investment goals and strategies as the Portfolio.
. All share classes of the Portfolio outperformed the benchmark for the
annual period.
. The equity market, as measured by the S&P 500 Index, returned 12.25%
for the annual period, with much of the strength driven by a strong fourth
quarter of 2004. During the annual period, mid-capitalization stocks
outperformed both small and large capitalization stocks while value stocks
outperformed growth stocks. Overall, mid-capitalization value stocks were the
best performing stocks. In the fixed income markets, interest rates, as
measured by the 10-year Treasury bond, increased by 0.21% ending the period at
4.33%. During the annual period, the Federal Open Market Committee increased
the Federal Funds target rate eight times, in 25 basis point increments, to
3.75%. The high yield and emerging market sectors outperformed the general
fixed income market, with much of the outperformance occurring during the
fourth quarter of 2004.
. During the annual period, due to equity market outperformance versus
the fixed income market, the Portfolio's overweight to equity aided
performance. The Portfolio's outperformance was mainly due to the tactical
allocation among the different equity styles. With respect to market
capitalization exposure, the Portfolio benefited from its overweight to
mid-capitalization stocks. In terms of style, the Portfolio's exposure to value
stocks was largely beneficial. During the annual period, the Portfolio reduced
its exposure to value stocks. The Portfolio's allocation to energy and
international stocks was beneficial to performance. Despite the run-up in
energy stocks, the Portfolio maintained its exposure to the energy sector. The
portfolio management team continues to believe in the long-term value in energy
stocks due to the long-term imbalance between limited supply and growing global
demand, and the recent supply distortions caused by Hurricane Katrina. The
Portfolio maintained an allocation to international stocks due to their
attractive relative valuations and earnings growth prospects. Within the fixed
income portion of the Portfolio, the allocation to high yield and emerging
markets securities had a positive impact on performance relative to the
benchmark. The Portfolio continued to favor low duration, high quality fixed
income securities during the annual period. Towards the end of the annual
period, the Portfolio reduced its exposure to mortgages.
. The Portfolio continued to emphasize equities over fixed income;
ending the annual period with a 68% equity/31% fixed income/1% cash target
allocation. This represents an overweight position to equities and underweight
position to fixed income relative to the normal strategic allocation of 60%
equity/40% fixed income/0% cash allocation.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE ASSET ALLOCATION
PORTFOLIO AND 60% S&P 500(R) INDEX/40% LEHMAN BROTHERS U.S. AGGREGATE INDEX
FOR THE PAST TEN YEARS.
60% S&P 500(R) Index,
Institutional Investor A 40% Lehman Brothers U.S. Aggregate
------------- ---------- ----------------------------------
09/30/1995 $ 10,000 $ 9,429 $ 10,000
12/31/1995 10,209 9,620 10,533
03/31/1996 10,734 10,109 10,793
06/30/1996 11,176 10,519 11,108
09/30/1996 11,605 10,916 11,402
12/31/1996 12,294 11,556 12,110
03/31/1997 12,104 11,371 12,282
06/30/1997 13,283 12,473 13,733
09/30/1997 14,642 13,739 14,541
12/31/1997 14,328 13,437 14,970
03/31/1998 15,727 14,740 16,304
06/30/1998 15,728 14,732 16,783
09/30/1998 14,303 13,388 16,084
12/31/1998 15,551 14,545 18,111
03/31/1999 15,662 14,643 18,616
06/30/1999 16,391 15,315 19,335
09/30/1999 15,839 14,789 18,657
12/31/1999 17,608 16,429 20,285
03/31/2000 18,352 17,114 20,767
06/30/2000 18,227 16,973 20,579
09/30/2000 18,806 17,518 20,720
12/31/2000 19,165 17,840 20,083
03/31/2001 18,455 17,164 18,879
06/30/2001 19,374 18,006 19,595
09/30/2001 17,205 15,978 18,174
12/31/2001 20,043 18,580 19,338
03/31/2002 20,018 18,562 19,387
06/30/2002 18,382 17,033 18,074
09/30/2002 16,411 15,193 16,473
12/31/2002 16,921 15,655 17,439
03/31/2003 16,591 15,338 17,206
06/30/2003 18,694 17,250 18,949
09/30/2003 19,299 17,815 19,247
12/31/2003 21,281 19,632 20,661
03/31/2004 22,141 20,390 21,092
06/30/2004 22,138 20,392 21,101
09/30/2004 21,964 20,198 21,134
12/31/2004 23,728 21,804 22,376
03/31/2005 23,394 21,495 22,049
06/30/2005 23,841 21,871 22,498
09/30/2005 24,834 22,760 22,928
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------ ------ ------ -------
Institutional Class 13.07% 14.81% 5.72% 9.52%
Service Class 12.76% 14.45% 5.39% 9.22%
Investor A Class (Load Adjusted) 6.15% 12.19% 4.14% 8.57%
Investor A Class (NAV) 12.68% 14.42% 5.37% 9.21%
Investor B Class (Load Adjusted) 7.33% 12.72% 4.29% 8.43%
Investor B Class (NAV) 11.83% 13.63% 4.63% 8.43%
Investor C Class (Load Adjusted) 10.85% 13.60% 4.64% 8.42%
Investor C Class (NAV) 11.85% 13.60% 4.64% 8.42%
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, 12/29/88; Institutional
Shares, 6/1/93; Investor C Shares, 6/1/93; Investor B Shares, 1/1/99; and
Service Shares, 1/28/05. See "Note on Performance Information" on page 42 for
further information on how performance data was calculated, including important
information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
38
Asset Allocation Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
U.S. Treasury Notes 1.3%
U.S. Treasury Bonds 1.3
General Electric Co. 1.2
Exxon Mobil Corp. 1.2
MidCap Spdr Trust Series 1 1.1
Microsoft Corp. 1.1
Banco Santader, Certificate of Deposit 1.0
Federal Home Loan Mortgage Corp. 0.9
CONSOL Energy, Inc. 0.8
Bank of America Corp. 0.8
----
Total 10.7%
====
Credit Quality (% of long-term investments)/1/
AAA 72.6%
AA 8.4
A 8.3
BBB 6.8
\BBB 3.9
-----
Total 100.0%
=====
Top Ten Industries (% of long-term investments)
Oil & Gas 8.9%
Banks 6.8
Finance 4.7
Manufacturing 4.4
Telecommunications 4.0
Computer Software & Services 3.9
Pharmaceuticals 3.9
Retail Merchandising 3.5
Insurance 3.3
Energy & Utilities 3.0
----
Total 46.4%
====
1 Using the higher of Standard & Poor's ("S&P") or Moody's Investor Service
("Moody's").
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) or
redemption/exchange fees, where applicable; and (2) ongoing costs, including
advisory fees, distribution (12b-1) and service fees, where applicable; and
other Portfolio expenses. This Example is intended to help you understand your
ongoing costs (in dollars) of investing in the Portfolio and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
-------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,061.60 1,059.30 1,058.90 1,054.70 1,054.90
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 4.44 5.99 6.45 10.35 10.30
Hypothetical Expenses
(5% return before expenses)
---------------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,020.63 1,019.11 1,018.65 1,014.80 1,014.85
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 4.37 5.89 6.35 10.20 10.15
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.86%, 1.16%, 1.25%, 2.01%, and 2.00% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
39
Index Equity Portfolio
Advisor to the Index Master Portfolio
Dimensional Fund Advisors Inc.
Total Net Assets (9/30/05): $1.3 billion
Performance Benchmark:
S&P 500(R) Index
Investment Approach:
Seeks to approximate the investment performance of the S&P 500(R)
Index, in terms of its total investment return. In pursuit of this goal, the
Portfolio invests all of its assets indirectly, through the The U.S. Large
Company Series (the Index Master Portfolio) of The DFA Investment Trust
Company, in the stocks of the S&P 500(R) Index. The Index Master
Portfolio, under normal market conditions, invests at least 95% of its total
assets in substantially all the stocks of the S&P 500(R) Index in
approximately the same proportion as they are represented in the Index.
Recent Portfolio Management Activity:
. All share classes underperformed the benchmark for the annual period.
. The rally in U.S. equity markets during late 2004 - spurred by
falling oil prices, the presidential election resolution and generally benign
economic releases - was modestly offset by market weakness in the first quarter
of 2005. In the latter portion of the first half of the annual period, investors
became increasingly concerned about the impact that higher commodity prices
might have on the overall economy and inflation.
. Whereas every sector of the S&P 500(R) Index posted solid returns
during the fourth quarter of 2004, during the first quarter of 2005, investors
favored defensive areas of the market with only four of the ten sectors in the
S&P 500(R) Index generating positive returns. Higher-beta segments of the
market, which performed well in the fourth quarter of 2004, declined in the
first quarter of 2005. Most notably, the information technology,
telecommunication services and financial sectors posted the largest losses.
Small capitalization stocks also fell out of favor with investors, losing 5.3%
during the quarter compared to a loss of 1.9% for large capitalization stocks.
From a valuation standpoint, stronger performance by more defensive areas of
the market, such as the energy and utilities sectors, helped value stocks to
continue their significant outperformance over their growth counterparts in the
large capitalization universe throughout the first half of the annual period.
. In the second half of the annual period, the U.S. equity markets
modestly rebounded from the negative performance of the first quarter of 2005,
with the S&P 500(R) Index returning 1.4% and 3.6% in the second and third
quarters of 2005. Inflation fears grew in the period in the face of high energy
prices and raw materials costs. Both producers and consumers began to feel the
effects of higher prices. In addition, the Federal Reserve continued its
tightening cycle, increasing the Federal Funds Target Rate to 3.75%, the eighth
25 basis point incremental rise in the annual period.
. In a reversal of recent trends, growth stocks outperformed value
stocks in the large capitalization universe during the second half of the annual
period. While returns were positive for all capitalization ranges in the
period, large capitalization stocks underperformed their small and
mid-capitalization counterparts. From a sector perspective, the energy,
utilities and information technology sectors posted returns greater than the
S&P 500(R) Index throughout the period. In contrast, the materials,
consumer discretionary and industrials sectors all underperformed the S&P
500(R) Index in the period. The energy sector posted the highest absolute
return in the period, a result of surging energy costs in the aftermath of
hurricanes in the Gulf coast.
. The Portfolio, through the investment of all of its assets in The U.S.
Large Company Series of The DFA Investment Trust Company, holds substantially
all of the stocks contained in the S&P 500(R) Index in approximately the
same proportion as the Index. For the annual period ended September 30, 2005,
the S&P 500(R) Index returned 12.3%. The Institutional, Service, Investor
A, Investor B and Investor C class shares of the Portfolio posted total returns
of 12.2%, 11.8%, 11.8%, 10.9% and 10.9%, respectively, for the annual period.
The return of each class was less than the return of the S&P(R) 500 Index
primarily because of Portfolio and class-specific expenses.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INDEX EQUITY
PORTFOLIO AND THE S&P 500(R) INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A S&P 500(R) Index
------------- ---------- ----------------
09/30/1995 $ 10,000 $ 9,700 $ 10,000
12/31/1995 10,596 10,275 10,602
03/31/1996 11,142 10,786 11,171
06/30/1996 11,630 11,249 11,673
09/30/1996 11,982 11,573 12,033
12/31/1996 12,967 12,520 13,036
03/31/1997 13,304 12,830 13,386
06/30/1997 15,608 15,037 15,723
09/30/1997 16,772 16,143 16,901
12/31/1997 17,235 16,560 17,386
03/31/1998 19,631 18,836 19,811
06/30/1998 20,267 19,443 20,465
09/30/1998 18,267 17,495 18,429
12/31/1998 22,157 21,200 22,354
03/31/1999 23,221 22,195 23,468
06/30/1999 24,815 23,683 25,122
09/30/1999 23,265 22,172 23,554
12/31/1999 26,725 25,440 27,058
03/31/2000 27,332 25,974 27,679
06/30/2000 26,539 25,181 26,944
09/30/2000 26,313 24,928 26,683
12/31/2000 24,255 22,951 24,595
03/31/2001 21,374 20,182 21,679
06/30/2001 22,601 21,311 22,948
09/30/2001 19,268 18,150 19,580
12/31/2001 21,314 20,040 21,672
03/31/2002 21,358 20,049 21,732
06/30/2002 18,492 17,333 18,820
09/30/2002 15,288 14,316 15,569
12/31/2002 16,577 15,492 16,882
03/31/2003 16,047 14,976 16,351
06/30/2003 18,506 17,246 18,868
09/30/2003 18,987 17,667 19,367
12/31/2003 21,295 19,778 21,725
03/31/2004 21,645 20,078 22,093
06/30/2004 22,009 20,391 22,473
09/30/2004 21,591 19,983 22,053
12/31/2004 23,571 21,797 24,089
03/31/2005 23,068 21,307 23,572
06/30/2005 23,374 21,570 23,894
09/30/2005 24,219 22,330 24,756
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------ ------ ------ -------
Institutional Class 12.17% 16.57% (1.65)% 9.25%
Service Class 11.78% 16.10% (2.06)% 8.84%
Investor A Class (Load Adjusted) 8.39% 14.81% (2.77)% 8.36%
Investor A Class (NAV) 11.75% 15.97% (2.18)% 8.70%
Investor B Class (Load Adjusted) 6.43% 14.25% (3.29)% 7.93%
Investor B Class (NAV) 10.93% 15.14% (2.90)% 7.93%
Investor C Class (Load Adjusted) 9.90% 15.11% (2.92)% 7.92%
Investor C Class (NAV) 10.90% 15.11% (2.92)% 7.92%
The Investor B and C Classes of the BlackRock Index Equity Portfolio closed to
investors as of 4:00 p.m., May 28, 2004.
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, 6/2/92; Service Shares, 7/29/93; Investor B Shares, 2/7/96; and
Investor C Shares, 8/14/96. See "Note on Performance Information" on page 42
for further information on how performance data was calculated, including
important information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
40
Index Equity Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)/1/
Exxon Mobil Corp. 3.6%
General Electric Co. 3.2
Microsoft Corp. 2.1
Citigroup, Inc. 2.1
Johnson & Johnson 1.7
Pfizer, Inc. 1.7
Bank of America Corp. 1.5
American International Group, Inc. 1.4
Altria Group, Inc. 1.4
Intel Corp. 1.4
-----
Total 20.1%
=====
Sector Allocation (% of long-term investments)/2/
Financials 19.3%
Technology 15.3
Health Care 13.3
Industrials 11.1
Consumer Discretionary 10.7
Energy 10.3
Consumer Staples 9.6
Utilities 3.6
Telecommunications 3.1
Materials 2.9
Other 0.8
-----
Total 100.0%
=====
1 Represents the Top Ten Holdings of The U.S. Large Company Series of The DFA
Investment Trust Company.
2 Represents the Sector Allocation of The U.S. Large Company Series of The
DFA Investment Trust Company.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) or
redemption/exchange fees, where applicable; and (2) ongoing costs, including
advisory fees, distribution (12b-1) and service fees, where applicable; and
other Portfolio expenses. This Example is intended to help you understand your
ongoing costs (in dollars) of investing in the Portfolio and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
---------------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,049.90 1,047.90 1,048.00 1,044.20 1,043.90
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 0.92 2.72 2.72 6.56 6.56
Hypothetical Expenses
(5% return before expenses)
---------------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,024.09 1,022.31 1,022.31 1,018.50 1,018.50
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 0.91 2.69 2.69 6.50 6.50
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.18%, 0.53%, 0.53%, 1.28%, and 1.28% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).The Example reflects the expenses for both the Index Equity
Portfolio and The U.S. Large Company Series of The DFA Investment Trust
Company.
41
BlackRock Funds
NOTE ON PERFORMANCE INFORMATION
The performance information on the previous pages 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/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. Additionally, the
performance information above does not reflect accounting adjustments required
under accounting principles generally accepted in the United States of America
and as a result there may be variances between what is reported within this
section and that reported in the total return calculation in the Financial
Highlights.
Performance for the Legacy, Mid-Cap Value Equity, Aurora, Small/Mid-Cap
Growth, Global Resources, Health Sciences and Asset Allocation Portfolios for
the periods prior to January 31, 2005 is based on performance of certain former
State Street Research mutual funds that reorganized with the Portfolios on that
date.
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:
Investment Trust, Large Cap Value Equity, Large Cap Growth Equity, Dividend
AchieversTM, Legacy, Mid-Cap Value Equity, Mid-Cap Growth Equity, Aurora,
Small/Mid Cap Growth, Small Cap Value Equity, Small Cap Core Equity, Small Cap
Growth Equity, Global Science &Technology Opportunities, Global Resources,
All-Cap Global Resources, Health Sciences, U.S.Opportunities, and Asset
Allocation Portfolios - 5.75%; International Opportunities Portfolio -
5.00%; Index Equity Portfolio - 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 and reimbursements
that subsidize and reduce the total operating expenses of each Portfolio. The
Portfolios' returns would have been lower if there were no such waivers and
reimbursements. BlackRock Advisors, Inc. is under no obligation to waive or
continue waiving its fees after February 1, 2006 or February 1, 2007 as
described in the prospectus of the Portfolios. 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.
The performance shown in the line graphs is that of Institutional Shares
and Investor A Shares of the Portfolios. The actual performance of Investor B,
Investor C and Service Shares is lower than the performance of Institutional
Shares because Investor B, Investor C and Service Shares have higher expenses
than Institutional Shares. Excluding the effects of sales charges, the actual
performance of Investor B and Investor C Shares is lower than the performance
of Investor A Shares because Investor B and Investor C Shares have higher
expenses than Investor A Shares. Purchasers of Investor A Shares generally pay
a front-end sales charge, while purchasers of Investor B and Investor C Shares
may pay a contingent deferred sales charge (depending on how long they hold
their shares) when they sell their shares.
Important Tax Information for Shareholders of the BlackRock Equity Portfolios
During the fiscal year ended September 30, 2005, the following Portfolios
of the BlackRock Funds declared the following dividends from net realized
capital gains:
Short-term Long-term
capital gain capital gain
per share per share
-------------- -------------
Dividends Achievers(TM) Portfolio ........ $ 0.0029 $ 0.0075
Mid-Cap Value Equity Portfolio ........... 2.3684 0.8364
Aurora Portfolio ......................... 0.5875 3.2550
Small Cap Value Equity Portfolio ......... 2.0218 0.9653
Small Cap Core Equity Portfolio .......... -- 0.1096
Health Sciences Portfolio ................ -- 0.0095
Because each Portfolio's fiscal year is not the calendar year, another
notification will be sent with respect to calendar year 2005. The second
notification, which reflects the amounts to be used by calendar year taxpayers
on their U.S. federal income tax returns, has been made in conjunction with
Form 1099-DIV and will be mailed in January 2006.
For Corporate Shareholders Only:
The percentage of dividends from net investment income declared in the
fiscal year ended September 30, 2005 which qualify for the corporate dividends
received deduction is as follows:
BlackRock Investment Trust Portfolio ............... 100.0%
BlackRock Large Cap Value Equity Portfolio ......... 100.0
BlackRock Dividends AchieversTM Portfolio .......... 100.0
BlackRock Mid-Cap Value Equity Portfolio ........... 10.2
BlackRock Small Cap Value Equity Portfolio ......... 6.0
BlackRock Asset Allocation Portfolio ............... 61.7
42
BlackRock Funds
Important Tax Information for Shareholders of the International Opportunities
Portfolio.
BlackRock International Opportunities Portfolio paid foreign taxes of
$1,150,579 and recognized foreign source income of $11,053,815. Pursuant to
Section 853 of the Internal Revenue Code, the Portfolio designates such amounts
as having been paid in connection with dividends distributed from investment
taxable income during the fiscal year ended September 30, 2005.
Qualified Dividend Income:
For taxable non-corporate shareholders, the net investment income and net
short-term capital gains representing qualified dividend income subject to the
15% tax rate category based on the Portfolios' tax year-ends as of September
30, 2005 are estimated as follows:
Qualified
Dividends
---------
BlackRock Investment Trust Portfolio .................... 100.0%
BlackRock Large Cap Value Equity Portfolio .............. 100.0
BlackRock Dividends Achievers(TM) Portfolio ............. 100.0
BlackRock Mid-Cap Value Equity Portfolio ................ 8.8
BlackRock Small Cap Value Equity Portfolio .............. 5.0
BlackRock International Opportunities Portfolio ......... 100.0
BlackRock Asset Allocation Portfolio .................... 72.5
The final Qualified Dividend Income to be used by calendar year taxpayers
on their U.S. federal income tax returns, will be reflected on the Form
1099-DIV and will be mailed in January 2006.
- -------------------------------------------------------------------------------
43
BlackRock Funds
STATEMENT OF NET ASSETS
INVESTMENT TRUST PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS -- 99.6%
Aerospace -- 1.7%
General Dynamics Corp. 116,900 $ 13,975,395
Raytheon Co. 227,700 8,657,154
----------------
22,632,549
----------------
Banks -- 8.9%
AmSouth Bancorp.(b) 292,300 7,383,498
Bank of America Corp.(b) 703,900 29,634,190
Citigroup, Inc.(b) 543,900 24,758,328
Comerica, Inc. 172,500 10,160,250
Key Corp.(b) 263,000 8,481,750
National City Corp.(b) 365,200 12,212,288
U.S. Bancorp. 405,300 11,380,824
Wachovia Corp.(b) 331,200 15,761,808
----------------
119,772,936
----------------
Beverages & Bottling -- 2.2%
Constellation Brands, Inc.(c) 262,000 6,812,000
Pepsi Bottling Group, Inc. 279,200 7,971,160
PepsiCo, Inc. 261,000 14,801,310
----------------
29,584,470
----------------
Chemicals -- 1.6%
The Dow Chemical Co. 209,500 8,729,865
The Lubrizol Corp. 193,000 8,362,690
Lyondell Chemical Co. 167,500 4,793,850
----------------
21,886,405
----------------
Computer & Office Equipment -- 4.3%
Cisco Systems, Inc.(c) 1,058,100 18,971,733
Hewlett-Packard Co. 498,200 14,547,440
International Business Machines Corp. 308,700 24,763,914
----------------
58,283,087
----------------
Computer Software & Services -- 6.3%
Checkfree Corp.(b)(c) 201,600 7,624,512
Computer Sciences Corp.(b)(c) 215,300 10,185,843
eBay, Inc.(c) 156,000 6,427,200
Emulex Corp.(c) 337,300 6,816,833
Microsoft Corp.(b) 1,647,500 42,390,175
Oracle Corp.(c) 869,800 10,776,822
----------------
84,221,385
----------------
Construction -- 0.8%
Pulte Homes, Inc. 251,200 10,781,504
----------------
Electronics -- 3.4%
Intel Corp.(b) 1,364,600 33,637,390
L-3 Communications Holdings, Inc.(b) 159,500 12,611,665
----------------
46,249,055
----------------
Energy & Utilities -- 3.7%
FirstEnergy Corp. 188,800 9,840,256
PG&E Corp. 382,400 15,009,200
PPL Corp. 517,400 16,727,542
Sempra Energy 180,500 8,494,330
----------------
50,071,328
----------------
Entertainment & Leisure -- 2.8%
Comcast Corp. -- Class A(c) 312,600 8,996,628
Time Warner, Inc. 785,900 14,232,649
The Walt Disney Co. 626,200 15,110,206
----------------
38,339,483
----------------
Finance -- 4.5%
American Express Co. 300,300 17,249,232
The Bear Stearns Cos., Inc.(b) 90,800 9,965,300
Capital One Financial Corp. 8,000 636,160
CIT Group, Inc. 232,100 10,486,278
Countrywide Financial Corp.(b) 188,498 6,216,664
Franklin Resources, Inc. 98,600 8,278,456
Washington Mutual, Inc.(b) 182,100 7,141,962
----------------
59,974,052
----------------
Food & Agriculture -- 1.0%
ConAgra Foods, Inc. 285,500 7,066,125
Tyson Foods, Inc. - Class A(b) 362,400 6,541,320
----------------
13,607,445
----------------
Insurance -- 5.5%
Aetna, Inc. 106,800 9,199,752
The Allstate Corp. 147,700 8,166,333
American International Group, Inc. 252,600 15,651,096
CHUBB Corp.(b) 104,300 9,340,065
Genworth Financial, Inc.(b) 242,400 7,814,976
Hartford Financial Services Group 99,800 7,701,566
Prudential Financial, Inc.(b) 130,400 8,809,824
W.R. Berkley Corp. 169,450 6,689,886
----------------
73,373,498
----------------
Manufacturing -- 9.3%
Acco Brands Corp.(c) 10 282
Black & Decker Corp. 80,300 6,591,827
Eaton Corp. 146,000 9,278,300
Energizer Holdings, Inc.(b)(c) 124,900 7,081,830
Fortune Brands, Inc.(b) 88,300 7,181,439
General Electric Co.(d) 1,403,000 47,239,010
Ingersoll-Rand Co. - Class A 203,000 7,760,690
ITT Industries, Inc. 90,800 10,314,880
Newell Rubbermaid, Inc. 277,800 6,292,170
Nike, Inc. 79,400 6,485,392
Nucor Corp. 12,400 731,476
The Stanley Works 210,900 9,844,812
Textron, Inc. 86,700 6,218,124
----------------
125,020,232
----------------
Medical & Medical Services -- 4.0%
Amgen, Inc.(c) 259,300 20,658,431
Coventry Health Care, Inc.(c) 148,571 12,780,077
HCA, Inc.(b) 174,500 8,362,040
McKesson Corp.(b) 256,400 12,166,180
----------------
53,966,728
----------------
Medical Instruments & Supplies -- 2.7%
Bausch & Lomb, Inc. 120,700 9,738,076
Becton, Dickinson & Co. 152,600 8,000,818
Johnson & Johnson(b) 294,600 18,642,288
----------------
36,381,182
----------------
Metal & Mining -- 0.6%
CONSOL Energy, Inc. 110,700 8,443,089
----------------
Motor Vehicles -- 1.4%
Ford Motor Co.(b) 459,100 4,526,726
Harley-Davidson, Inc.(b) 167,600 8,118,544
PACCAR, Inc. 85,700 5,818,173
----------------
18,463,443
----------------
See accompanying notes to financial statements.
44
BlackRock Funds
STATEMENT OF NET ASSETS
INVESTMENT TRUST PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS (Continued)
Oil & Gas -- 10.1%
ConocoPhillips 388,700 $ 27,174,017
Devon Energy Corp. 209,900 14,407,536
Exxon Mobil Corp.(b) 602,100 38,257,434
Kerr-McGee Corp. 140,400 13,634,244
Nabors Industries Ltd.(c) 103,700 7,448,771
Newfield Exploration Co.(c) 238,800 11,725,080
Patterson-UTI Energy, Inc. 417,100 15,048,968
Valero Energy Corp. 77,100 8,716,926
----------------
136,412,976
----------------
Paper & Forest Products -- 0.6%
Georgia-Pacific Corp. 256,400 8,732,984
----------------
Pharmaceuticals -- 5.5%
Hospira, Inc.(c) 141,200 5,784,964
Merck & Co., Inc. 556,300 15,136,923
Pfizer, Inc. 1,278,900 31,934,133
Wyeth 451,800 20,904,786
----------------
73,760,806
----------------
Publishing & Printing -- 0.9%
The McGraw-Hill Companies, Inc. 250,100 12,014,804
----------------
Railroad & Shipping -- 1.0%
Burlington Northern Santa Fe Corp. 224,200 13,407,160
----------------
Real Estate -- 1.5%
Cendant Corp. 574,400 11,855,616
Centex Corp. 6,700 432,686
Simon Property Group, Inc. 99,500 7,374,940
----------------
19,663,242
----------------
Restaurants -- 0.9%
McDonald's Corp.(b) 347,600 11,641,124
----------------
Retail Merchandising -- 4.9%
AutoNation, Inc.(c) 340,800 6,805,776
Barnes & Noble, Inc. 160,928 6,066,986
Federated Department Stores, Inc. 114,900 7,683,363
The Home Depot, Inc. 386,300 14,733,482
The Kroger Co.(c) 326,900 6,730,871
Nordstrom, Inc. 264,900 9,091,368
Target Corp.(b) 184,800 9,596,664
Wal-Mart Stores, Inc.(b) 108,400 4,750,088
----------------
65,458,598
----------------
Security Brokers & Dealers -- 1.2%
E*TRADE Financial Corp.(c) 36,700 645,920
Lehman Brothers Holdings, Inc.(b) 133,800 15,585,024
----------------
16,230,944
----------------
Semiconductors & Related Devices -- 0.5%
Freescale Semiconductor, Inc. -
Class A(b)(c) 138,900 3,251,649
Freescale Semiconductor, Inc. -
Class B(b)(c) 138,900 3,275,262
----------------
6,526,911
----------------
Soaps & Cosmetics -- 1.1%
The Procter & Gamble Co.(b) 247,300 14,704,458
----------------
Telecommunications -- 4.3%
Motorola, Inc. 753,600 16,647,024
SBC Communications, Inc.(b) 696,800 16,702,296
Sprint Nextel Corp. 815,936 19,402,958
Verizon Communications, Inc. 155,900 5,096,371
----------------
57,848,649
----------------
Tobacco -- 1.6%
Altria Group, Inc. 286,900 21,147,399
----------------
Transportation -- 0.8%
CNF, Inc. 187,700 9,854,250
Ryder Systems, Inc. 9,200 314,824
----------------
10,169,074
----------------
TOTAL COMMON STOCKS
(Cost $1,069,980,495) 1,338,771,000
----------------
Par/Shares
Maturity (000)
---------------- ----------------
SHORT TERM INVESTMENTS -- 12.1%
Banco Santader, Certificate of Deposit
3.70%(e) 05/10/06 $ 14,026 14,026,480
Morgan Stanley, Floating Rate Notes
4.02%(e)(f) 11/07/05 33,292 33,292,270
4.01%(e)(f) 11/14/05 9,371 9,370,804
4.02%(e)(f) 01/05/06 8,858 8,858,290
Institutional Money Market Trust(e)(g) 97,006 97,006,460
----------------
TOTAL SHORT TERM INVESTMENTS
(Cost $162,554,304) 162,554,304
----------------
TOTAL INVESTMENTS IN SECURITIES -- 111.7%
(Cost $1,232,534,799(a)) 1,501,325,304
LIABILITIES IN EXCESS OF OTHER ASSETS -- (11.7)% (156,909,494)
----------------
NET ASSETS -- 100.0%
(Applicable to 39,159,907
Institutional shares, 116,987
Service shares, 41,837,322 Investor
A shares, 19,312,912 Investor B
shares and 1,895,366 Investor C
shares outstanding) $ 1,344,415,810
================
See accompanying notes to financial statements.
45
BlackRock Funds
STATEMENT OF NET ASSETS
INVESTMENT TRUST PORTFOLIO (Concluded)
AS OF SEPTEMBER 30, 2005
Value
-------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE
($523,607,060/39,159,907) $ 13.37
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
PER SERVICE SHARE
($1,565,888/116,987) $ 13.39
=======
NET ASSET VALUE AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($552,118,024/41,837,322) $ 13.20
=======
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE
($13.20/0.9425) $ 14.01
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($243,231,936/19,312,912) $ 12.59
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($23,892,902/1,895,366) $ 12.61
=======
- ----------
(a) Cost for Federal income tax purposes is $1,235,135,871. The gross
unrealized appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 288,803,128
Gross unrealized depreciation (22,613,695)
----------------
$ 266,189,433
================
(b) Total or partial securities on loan.
(c) Non-income producing security.
(d) Securities, or a portion thereof, pledged as collateral with a value of
$1,515,150 on 20 long S&P 500 futures contracts expiring December 2005. The
value of such contracts on September 30, 2005 was $6,171,500, with an
unrealized gain of $50,425 (including commissions of $63).
(e) Securities purchased with the cash proceeds from securities loaned.
(f) Rates shown are the rates as of September 30, 2005.
(g) Represents an investment in an affiliate.
See accompanying notes to financial statements.
46
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
INVESTMENT TRUST PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $1,232,534,799)............ $ 1,501,325,304
Dividends receivable ................................. 1,899,740
Interest receivable .................................. 22,368
Investments sold receivable .......................... 22,387,937
Capital shares sold receivable ....................... 248,283
Prepaid expenses ..................................... 54,546
Futures margin receivable ............................ 12,726
----------------
TOTAL ASSETS ...................................... 1,525,950,904
----------------
LIABILITIES
Cash Overdraft ....................................... 2,750,289
Payable upon return of securities loaned ............. 162,554,304
Investments purchased payable ........................ 13,604,393
Capital shares redeemed payable ...................... 1,514,189
Advisory fees payable ................................ 196,029
Administrative fees payable .......................... 153,534
Transfer agent fees payable .......................... 217,268
Other accrued expenses payable ....................... 545,082
Futures sold payable ................................. 6
----------------
TOTAL LIABILITIES ................................. 181,535,094
----------------
NET ASSETS (Applicable to 39,159,907 Institutional
shares,116,987 Service shares, 41,837,322 Investor A
shares, 19,312,912 Investor B shares and
1,895,366 Investor C shares outstanding) ............. $ 1,344,415,810
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($523,607,060/39,159,907)..... $ 13.37
=======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($1,565,888/116,987)................ $ 13.39
=======
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($552,118,024/41,837,322)........ $ 13.20
=======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($13.20/0.9425)....................................... $ 14.01
=======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales
charge of 4.5%)
PER INVESTOR B SHARE ($243,231,936/19,312,912)........ $ 12.59
=======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales
charge of 1.0%)
PER INVESTOR C SHARE ($23,892,902/1,895,366).......... $ 12.61
=======
See accompanying notes to financial statements.
47
BlackRock Funds
STATEMENT OF NET ASSETS
LARGE CAP VALUE EQUITY PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS -- 97.4%
Advertising -- 0.4%
R.H. Donnelley Corp.(b) 25,100 $ 1,587,826
----------------
Aerospace -- 1.6%
General Dynamics Corp. 19,800 2,367,090
Lockheed Martin Corp. 26,700 1,629,768
Raytheon Co. 48,600 1,847,772
----------------
5,844,630
----------------
Banks -- 16.5%
AmSouth Bancorp. 98,700 2,493,162
Bank of America Corp.(c) 338,300 14,242,430
Citigroup, Inc.(c)(d) 287,000 13,064,240
Comerica, Inc. 66,100 3,893,290
J.P. Morgan Chase & Co., Inc. 163,900 5,561,127
Key Corp.(c) 104,000 3,354,000
National City Corp.(c) 130,500 4,363,920
U.S. Bancorp. 174,800 4,908,384
Wachovia Corp.(c) 162,100 7,714,339
----------------
59,594,892
----------------
Beverages & Bottling -- 0.9%
Constellation Brands, Inc.(b) 60,200 1,565,200
Pepsi Bottling Group, Inc. 54,100 1,544,555
----------------
3,109,755
----------------
Broadcasting -- 0.3%
Liberty Media Corp. - Class A(b) 134,800 1,085,140
----------------
Chemicals -- 1.0%
Eastman Chemical Co. 37,900 1,780,163
The Lubrizol Corp. 41,600 1,802,528
----------------
3,582,691
----------------
Computer & Office Equipment -- 2.1%
Hewlett-Packard Co. 84,000 2,452,800
International Business Machines Corp. 44,800 3,593,856
Western Digital Corp.(b) 119,900 1,550,307
----------------
7,596,963
----------------
Computer Software & Services -- 0.6%
Microsoft Corp. 83,400 2,145,882
----------------
Electronics -- 0.5%
L-3 Communications Holdings, Inc.(c) 24,100 1,905,587
----------------
Energy & Utilities - 6.5%
CenterPoint Energy, Inc. 217,400 3,232,738
CMS Energy Corp.(b) 195,800 3,220,910
FirstEnergy Corp. 49,000 2,553,880
PG&E Corp. 97,300 3,819,025
PPL Corp. 185,500 5,997,215
Sempra Energy 55,800 2,625,948
TXU Corp. 18,300 2,065,704
----------------
23,515,420
----------------
Entertainment & Leisure -- 3.9%
Comcast Corp.(b) 80,400 2,362,152
GTECH Holdings Corp. 58,800 1,885,128
Time Warner, Inc. 245,600 4,447,816
The Walt Disney Co. 230,000 5,549,900
----------------
14,244,996
----------------
Finance -- 5.0%
Affiliated Managers Group, Inc.(b) 31,400 2,273,988
The Bear Stearns Cos., 27,600 3,029,100
Capital One Financial Corp.(c) 28,000 2,226,560
CIT Group, Inc. 54,100 2,444,238
Countrywide Financial Corp.(c) 56,200 1,853,476
Fannie Mae 57,500 2,577,150
Washington Mutual, Inc.(c) 90,400 3,545,488
----------------
17,950,000
----------------
Food & Agriculture -- 1.3%
Dean Foods Co.(b) 68,900 2,677,454
Tyson Foods, Inc. - Class A(c) 102,000 1,841,100
----------------
4,518,554
----------------
Insurance -- 7.0%
ACE Ltd. 38,300 1,802,781
The Allstate Corp. 58,000 3,206,820
American International Group, Inc. 74,000 4,585,040
CHUBB Corp.(c) 37,500 3,358,125
Genworth Financial, Inc.(c) 63,300 2,040,792
Hartford Financial Services Group 52,600 4,059,142
MetLife, Inc. 45,500 2,267,265
Nationwide Financial Services, Inc. 43,600 1,746,180
W.R. Berkley Corp. 52,550 2,074,674
----------------
25,140,819
----------------
Machinery & Heavy Equipment -- 0.4%
Caterpillar, Inc.(c) 25,400 1,492,250
----------------
Manufacturing -- 4.9%
Black & Decker Corp. 11,800 968,662
Cummins, Inc. 25,100 2,208,549
Energizer Holdings, Inc 25,900 1,468,530
Fortune Brands, Inc.(b)(c) 16,400 1,333,812
General Electric Co. 194,000 6,531,980
Nucor Corp.(c) 31,400 1,852,286
The Sherwin-Williams Co.(c) 42,100 1,855,347
The Stanley Works 34,100 1,591,788
----------------
17,810,954
----------------
Medical & Medical Services -- 1.5%
Coventry Health Care, Inc.(b) 36,750 3,161,235
HCA, Inc.(c) 44,700 2,142,024
----------------
5,303,259
----------------
Metal & Mining -- 1.2%
CONSOL Energy, Inc. 25,800 1,967,766
Phelps Dodge Corp.(c) 18,800 2,442,684
----------------
4,410,450
----------------
Motor Vehicles -- 0.5%
PACCAR, Inc. 24,500 1,663,305
----------------
Oil & Gas -- 15.5%
Amerada Hess Corp.(c) 36,000 4,950,000
ChevronTexaco Corp.(c) 95,200 6,162,296
ConocoPhillips 148,200 10,360,662
Devon Energy Corp. 52,900 3,631,056
Exxon Mobil Corp. 291,000 18,490,140
Kerr-McGee Corp. 40,100 3,894,111
Nabors Industries Ltd.(b) 26,000 1,867,580
Oneok, Inc. 84,000 2,857,680
See accompanying notes to financial statements.
48
Blackrock funds
STATEMENT OF NET ASSETS
LARGE CAP VALUE EQUITY PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS (Continued)
Oil & Gas (Continued)
Valero Energy Corp. 32,900 $ 3,719,674
----------------
55,933,199
----------------
Paper & Forest Products -- 1.1%
Georgia-Pacific Corp. 73,400 2,500,004
Louisiana-Pacific Corp. 53,300 1,475,877
----------------
3,975,881
----------------
Pharmaceuticals -- 5.2%
Merck & Co., Inc. 128,800 3,504,648
Pfizer, Inc. 456,900 11,408,793
Wyeth 85,500 3,956,085
----------------
18,869,526
----------------
Publishing & Printing -- 0.9%
The McGraw-Hill Companies, Inc. 65,400 3,141,816
----------------
Railroad & Shipping -- 1.3%
Burlington Northern Santa Fe Corp. 77,400 4,628,520
----------------
Real Estate -- 4.0%
Cendant Corp. 99,300 2,049,552
Centex Corp. 31,900 2,060,102
General Growth Properties, Inc.(c) 79,400 3,567,442
HRPT Properties Trust 216,900 2,691,729
Simon Property Group, Inc. 57,000 4,224,840
----------------
14,593,665
----------------
Restaurants -- 0.9%
McDonald's Corp.(c) 94,200 3,154,758
----------------
Retail Merchandising -- 2.3%
AutoNation, Inc.(b) 98,800 1,973,036
Barnes & Noble, Inc. 39,800 1,500,460
Federated Department Stores, Inc. 39,800 2,661,426
The Kroger Co.(b) 102,200 2,104,298
----------------
8,239,220
----------------
Security Brokers & Dealers -- 2.2%
E*TRADE Financial Corp.(b) 177,500 3,124,000
Lehman Brothers Holdings, Inc.(c) 41,700 4,857,216
----------------
7,981,216
----------------
Semiconductors & Related Devices -- 0.3%
Freescale Semiconductor, Inc. -
Class A(b) 26,350 616,854
Freescale Semiconductor, Inc. -
Class B(b)(c) 26,350 621,333
----------------
1,238,187
----------------
Telecommunications -- 6.0%
ALLTEL Corp.(c) 37,000 2,409,070
Motorola, Inc. 92,000 2,032,280
SBC Communications, Inc.(c) 312,900 7,500,213
Sprint Nextel Corp. 214,914 5,110,655
Verizon Communications, Inc. 136,500 4,462,185
----------------
21,514,403
----------------
Tobacco -- 1.6%
Altria Group, Inc.(c) 79,800 5,882,058
----------------
TOTAL COMMON STOCKS
(Cost $272,234,909) 351,655,822
----------------
Par/Shares
Maturity (000)
---------------- ----------------
SHORT TERM INVESTMENTS -- 24.3%
Banco Santader, Certificate of
Deposit
3.70%(e) 05/10/06 $ 9,548 9,547,507
Federal Home Loan Bank, Discount
Notes
3.18%(f) 10/03/05 600 599,894
Morgan Stanley, Floating Rate
Notes
4.02%(e)(g) 11/07/05 15,839 15,839,367
4.01%(e)(g) 11/14/05 2,115 2,115,453
4.02%(e)(g) 01/05/06 5,238 5,238,181
Galileo Money Market Fund 9,690 9,690,482
Institutional Money Market
Trust(e)(h) 44,756 44,756,386
----------------
TOTAL SHORT TERM INVESTMENTS
(Cost $87,787,270) 87,787,270
----------------
See accompanying notes to financial statements.
49
BlackRock Funds
STATEMENT OF NET ASSETS
LARGE CAP VALUE EQUITY PORTFOLIO (Concluded)
As of September 30, 2005
Value
----------------
TOTAL INVESTMENTS IN SECURITIES -- 121.7%
(Cost $360,022,179(a)) $ 439,443,092
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (21.7)% (78,300,420)
----------------
NET ASSETS -- 100.0%
(Applicable to 8,805,230
Institutional shares, 1,677,290
Service shares, 10,576,576
Investor A shares, 3,018,140
Investor B shares and 735,580
Investor C shares outstanding) $ 361,142,672
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($128,501,167/8,805,230) $ 14.59
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($24,542,202/1,677,290) $ 14.63
=======
NET ASSET VALUE AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($154,336,701/10,576,576) $ 14.59
=======
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE
($14.59/0.9425) $ 15.48
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($43,219,288/3,018,140) $ 14.32
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($10,543,314/735,580) $ 14.33
=======
- ----------
(a) Cost for Federal income tax purposes is $362,259,969. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 83,278,253
Gross unrealized depreciation (6,095,130)
----------------
$ 77,183,123
================
(b) Non-income producing security.
(c) Total or partial securities on loan.
(d) Securities, or a portion thereof, pledged as collateral with a value of
$3,148,650 on 26 long S&P 500 futures contracts expiring December 2005. The
value of such contracts on September 30, 2005 was $8,022,950, with an
unrealized gain of $17,150 (including commissions of $82).
(e) Securities purchased with the cash proceeds from securities loaned.
(f) The rate shown is the effective yield on the discount notes at the time of
purchase.
(g) Rates shown are the rates as of September 30, 2005.
(h) Represents an investment in an affiliate.
See accompanying notes to financial statements.
50
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
LARGE CAP VALUE EQUITY PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $360,022,179).............. $ 439,443,092
Dividends receivable ................................. 561,360
Interest receivable .................................. 16,229
Investments sold receivable .......................... 8,578,746
Capital shares sold receivable ....................... 179,081
Prepaid expenses ..................................... 27,390
Other assets ......................................... 2,035
Futures margin receivable ............................ 16,464
----------------
TOTAL ASSETS ...................................... 448,824,397
----------------
LIABILITIES
Payable upon return of securities loaned ............. 77,496,894
Investments purchased payable ........................ 9,260,679
Capital shares redeemed payable ...................... 494,062
Advisory fees payable ................................ 139,308
Administrative fees payable .......................... 54,622
Transfer agent fees payable .......................... 45,522
Other accrued expenses payable ....................... 190,635
Futures sold payable ................................. 3
----------------
TOTAL LIABILITIES ................................. 87,681,725
----------------
NET ASSETS (Applicable to 8,805,230 Institutional
shares,1,677,290 Service shares, 10,576,576 Investor
A shares, 3,018,140 Investor B shares and
735,580 Investor C shares outstanding) ............... $ 361,142,672
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($128,501,167/8,805,230)...... $ 14.59
=======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($24,542,202/1,677,290)............. $ 14.63
=======
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($154,336,701/10,576,576)........ $ 14.59
=======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($14.59/0.9425) ...................................... $ 15.48
=======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales
charge of 4.5%)
PER INVESTOR B SHARE ($43,219,288/3,018,140).......... $ 14.32
=======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales
charge of 1.0%)
PER INVESTOR C SHARE ($10,543,314/735,580)............ $ 14.33
================
See accompanying notes to financial statements.
51
BlackRock Funds
STATEMENT OF NET ASSETS
LARGE CAP GROWTH EQUITY PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS -- 99.7%
Advertising - 0.6%
R.H. Donnelley Corp.(b) 5,700 $ 360,582
----------------
Aerospace -- 2.4%
The Boeing Co. 8,800 597,960
General Dynamics Corp. 2,600 310,830
Lockheed Martin Corp. 7,200 439,488
----------------
1,348,278
----------------
Banks --0.6%
Synovus Financial Corp. 11,600 321,552
----------------
Beverages & Bottling -- 3.0%
Constellation Brands, Inc.(b) 10,400 270,400
Pepsi Bottling Group, Inc. 12,100 345,455
PepsiCo, Inc. 18,800 1,066,148
----------------
1,682,003
----------------
Business Services -- 1.0%
Alliance Data Systems Corp.(b)(c) 13,600 532,440
----------------
Chemicals -- 0.5%
The Dow Chemical Co. 7,000 291,690
----------------
Computer & Office Equipment -- 7.2%
Apple Computer, Inc.(b) 17,400 932,814
Cisco Systems, Inc.(b)(d) 62,600 1,122,418
Hewlett-Packard Co. 18,900 551,880
International Business Machines
Corp. 17,600 1,411,872
----------------
4,018,984
----------------
Computer Software & Services -- 9.7%
Activision, Inc.(b) 22,201 454,011
Checkfree Corp.(b) 4,300 162,626
Computer Sciences Corp.(b) 11,000 520,410
eBay, Inc.(b) 9,700 399,640
Google, Inc. - Class A(b) 1,700 537,982
Microsoft Corp. 88,200 2,269,386
Oracle Corp.(b) 64,700 801,633
VeriSign, Inc.(b) 14,100 301,317
----------------
5,447,005
----------------
Construction -- 0.8%
Lennar Corp. 7,800 466,128
----------------
Electronics -- 5.6%
AES Corp.(b) 28,400 466,612
Amphenol Corp. 7,800 314,652
Intel Corp. 70,800 1,745,220
L-3 Communications Holdings, Inc.(c) 7,400 585,118
----------------
3,111,602
----------------
Entertainment & Leisure -- 3.3%
Comcast Corp.(b) 24,400 716,872
GTECH Holdings Corp. 14,800 474,488
The Walt Disney Co. 27,800 670,814
----------------
1,862,174
----------------
Finance -- 2.9%
Affiliated Managers Group, Inc.(b)(c) 4,600 333,132
American Express Co. 12,700 729,488
Capital One Financial Corp.(c) 3,700 294,224
Providian Financial Corp.(b) 15,900 281,112
----------------
1,637,956
----------------
Food & Agriculture -- 1.0%
Campbell Soup Co. 10,300 306,425
Hershey Foods Corp. 4,700 264,657
----------------
571,082
----------------
Insurance -- 3.3%
American International Group, Inc. 9,100 563,836
The Progressive Corp. 2,900 303,833
W.R. Berkley Corp. 7,800 307,944
WellPoint, Inc.(b) 9,000 682,380
----------------
1,857,993
----------------
Machinery & Heavy Equipment -- 1.2%
Caterpillar, Inc.(c) 11,200 658,000
----------------
Manufacturing -- 12.9%
Black & Decker Corp. 5,900 484,331
Corning, Inc.(b) 17,600 340,208
Dade Behring Holdings, Inc. 16,500 604,890
Fortune Brands, Inc.(c) 5,000 406,650
General Electric Co. 89,900 3,026,933
ITT Industries, Inc. 3,600 408,960
Nike, Inc. 6,900 563,592
Nucor Corp. 6,700 395,233
The Sherwin-Williams Co.(c) 12,000 528,840
The Stanley Works 10,100 471,468
----------------
7,231,105
----------------
Medical & Medical Services -- 5.7%
Amgen, Inc.(b) 13,800 1,099,446
Coventry Health Care, Inc.(b) 6,999 602,054
McKesson Corp.(c) 10,900 517,205
UnitedHealth Group, Inc. 17,100 961,020
----------------
3,179,725
----------------
Medical Instruments & Supplies -- 7.2%
Bausch & Lomb, Inc. 6,100 492,148
Becton, Dickinson & Co. 10,800 566,244
C.R. Bard, Inc. 4,900 323,547
Invitrogen Corp.(b) 3,400 255,782
Johnson & Johnson 31,100 1,968,008
Respironics, Inc.(b) 10,600 447,108
----------------
4,052,837
----------------
Oil & Gas -- 3.0%
Devon Energy Corp. 8,300 569,712
Newfield Exploration Co.(b) 8,200 402,620
Patterson-UTI Energy, Inc. 19,200 692,736
----------------
1,665,068
----------------
Pharmaceuticals -- 4.4%
Genentech, Inc.(b) 3,300 277,893
Gilead Sciences, Inc.(b) 11,200 546,112
Merck & Co., Inc. 19,300 525,153
Pfizer, Inc. 19,400 484,418
Wyeth 13,600 629,272
----------------
2,462,848
----------------
Publishing & Printing -- 1.0%
The McGraw-Hill Companies, Inc. 11,800 566,872
----------------
Railroad & Shipping -- 0.7%
Burlington Northern Santa Fe Corp. 6,400 382,720
----------------
Real Estate -- 0.6%
Cendant Corp. 17,500 361,200
----------------
See accompanying notes to financial statements.
52
BlackRock Funds
STATEMENT OF NET ASSETS
LARGE CAP GROWTH EQUITY PORTFOLIO (Concluded)
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS (Continued)
Restaurants -- 0.8%
Darden Restaurants, Inc. 14,900 $ 452,513
----------------
Retail Merchandising -- 8.5%
Advance Auto Parts, Inc.(b) 9,500 367,460
Barnes & Noble, Inc. 7,500 282,750
Coach, Inc.(b) 14,900 467,264
The Home Depot, Inc. 25,400 968,756
Michaels Stores, Inc. 15,300 505,818
Nordstrom, Inc. 15,800 542,256
Staples, Inc. 14,500 309,140
Target Corp.(c) 14,200 737,406
Wal-Mart Stores, Inc.(c) 13,600 595,952
----------------
4,776,802
----------------
Security Brokers & Dealers -- 0.7%
E*TRADE Financial Corp.(b) 22,600 397,760
----------------
Semiconductors & Related Devices -- 3.0%
Freescale Semiconductor, Inc. -
Class A(b) 6,200 145,142
Freescale Semiconductor, Inc. -
Class B(b)(c) 6,200 146,196
LSI Logic Corp.(b) 53,000 522,050
Texas Instruments, Inc. 26,000 881,400
----------------
1,694,788
----------------
Soaps & Cosmetics -- 3.8%
The Gillette Co. 12,400 721,680
The Procter & Gamble Co.(c) 23,400 1,391,364
----------------
2,113,044
----------------
Telecommunications -- 1.9%
Motorola, Inc.(c) 36,300 801,867
Sprint Nextel Corp. 10,954 260,486
----------------
1,062,353
----------------
Tobacco -- 1.1%
Altria Group, Inc. 8,300 611,793
----------------
Transportation -- 1.3%
CNF, Inc. 8,200 430,500
Ryder Systems, Inc. 8,800 301,136
----------------
731,636
----------------
TOTAL COMMON STOCKS
(Cost $40,600,037) 55,910,533
----------------
Par/Shares
Maturity (000)
---------------- ----------------
SHORT TERM INVESTMENTS -- 9.2%
Morgan Stanley, Floating Rate Notes
4.02%(e)(f) 11/07/05 $ 1,915 1,915,250
Galileo Money Market Fund 203 203,363
Institutional Money
Market Trust(f)(g) 3,029 3,029,234
----------------
TOTAL SHORT TERM INVESTMENTS
(Cost $5,147,847) 5,147,847
----------------
TOTAL INVESTMENTS IN SECURITIES -- 108.9%
(Cost $45,747,884(a)) $ 61,058,380
LIABILITIES IN EXCESS OF OTHER
ASSETS - (8.9)% (4,998,978)
----------------
NET ASSETS -- 100.0%
(Applicable to 2,165,249
Institutional shares, 607,128
Service shares, 1,652,300 Investor
A shares, 1,129,962 Investor B
shares and 252,877 Investor C
shares outstanding) $ 56,059,402
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($21,841,472/2,165,249) $ 10.09
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($5,971,748/607,128) $ 9.84
=======
NET ASSET VALUE AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($16,001,952/1,652,300) $ 9.68
=======
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE
($9.68/0.9425) $ 10.27
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($10,008,260/1,129,962) $ 8.86
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($2,235,970/252,877) $ 8.84
=======
(a) Cost for Federal income tax purposes is $45,972,593. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 15,730,083
Gross unrealized depreciation (644,296)
----------------
$ 15,085,787
================
(b) Non-income producing security.
(c) Total or partial securities on loan.
(d) Securities, or a portion thereof, pledged as collateral with a value of
$670,582 on 1 long S&P 500 futures contract expiring December 2005. The
value of such contract on September 30, 2005 was $308,575, with an
unrealized loss of $1,425 (including commissions of $3).
(e) Rates shown are the rates as of September 30, 2005.
(f) Securities purchased with the cash proceeds from securities loaned.
(g) Represents an investment in an affiliate.
See accompanying notes to financial statements.
53
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
LARGE CAP GROWTH EQUITY PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $45,747,884)............... $ 61,058,380
Dividends receivable ................................. 51,052
Interest receivable .................................. 1,898
Investments sold receivable .......................... 716,780
Capital shares sold receivable ....................... 14,068
Prepaid expenses ..................................... 19,396
Futures margin receivable ............................ 631
----------------
TOTAL ASSETS ...................................... 61,862,205
----------------
LIABILITIES
Payable upon return of securities loaned ............. 4,944,484
Investments purchased payable ........................ 522,608
Capital shares redeemed payable ...................... 249,503
Advisory fees payable ................................ 18,634
Administrative fees payable .......................... 7,334
Transfer agent fees payable .......................... 17,763
Other accrued expenses payable ....................... 42,477
----------------
TOTAL LIABILITIES ................................. 5,802,803
----------------
NET ASSETS (Applicable to 2,165,249 Institutional
shares,607,128 Service shares,
1,652,300 Investor A shares, 1,129,962 Investor B
shares and 252,877 Investor C shares outstanding) .... $ 56,059,402
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($21,841,472/2,165,249)....... $ 10.09
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($5,971,748/607,128)................ $ 9.84
================
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($16,001,952/1,652,300).......... $ 9.68
================
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.68/0.9425) ....................................... $ 10.27
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales
charge of 4.5%)
PER INVESTOR B SHARE ($10,008,260/1,129,962).......... $ 8.86
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales
charge of 1.0%)
PER INVESTOR C SHARE ($2,235,970/252,877)............. $ 8.84
================
See accompanying notes to financial statements.
54
BlackRock Funds
STATEMENT OF NET ASSETS
DIVIDEND ACHIEVERS(TM) PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS -- 97.8%
Aerospace - 2.1%
General Dynamics Corp.(b) 3,900 $ 466,245
United Technologies Corp. 4,100 212,544
----------------
678,789
----------------
Banks -- 16.0%
AmSouth Bancorp.(b) 7,700 194,502
Bank of America Corp.(b) 33,200 1,397,720
Bank of Hawaii Corp. 4,050 199,341
BB&T Corp. 5,250 205,012
Citigroup, Inc.(b) 24,700 1,124,344
Comerica, Inc.(b) 6,700 394,630
Key Corp.(b) 12,350 398,287
National City Corp.(b) 12,800 428,032
TD Banknorth, Inc. 7,000 210,980
Wachovia Corp.(b) 7,450 354,546
Wells Fargo & Co. 6,500 380,705
----------------
5,288,099
----------------
Beverages & Bottling -- 0.6%
The Coca-Cola Co. 4,250 183,558
----------------
Broadcasting -- 0.6%
Media General, Inc. - Class A 3,600 208,836
----------------
Chemicals -- 0.6%
Rohm and Haas Co. 5,200 213,876
----------------
Computer & Office Equipment -- 1.6%
International Business Machines Corp. 2,800 224,616
Pitney Bowes, Inc. 6,900 288,006
----------------
512,622
----------------
Computer Software & Services-- 1.2%
Diebold, Inc. 6,300 217,098
Microsoft Corp. 6,800 174,964
----------------
392,062
----------------
Construction -- 1.1%
Martin Marietta Materials, Inc. 4,750 372,685
----------------
Electronics -- 0.5%
Emerson Electric Co. 2,300 165,140
----------------
Energy & Utilities -- 5.7%
Consolidated Edison, Inc. 8,350 405,392
MDU Resources Group, Inc. 11,000 392,150
Pinnacle West Capital Corp. 8,700 383,496
Progress Energy, Inc. 5,450 243,888
UGI Corp. 9,200 258,980
Vectren Corp. 6,650 188,528
----------------
1,872,434
----------------
Entertainment & Leisure -- 0.8%
The Walt Disney Co. 11,200 270,256
----------------
Finance -- 6.2%
American Capital Strategies Ltd. 3,000 109,980
CIT Group, Inc. 6,000 271,080
Fannie Mae 5,200 233,064
Franklin Resources, Inc. 4,000 335,840
Freddie Mac 3,100 175,026
Indymac Bancorp, Inc. 3,850 152,383
Nuveen Investments - Class A(b) 5,500 216,645
Protective Life Corp. 5,100 210,018
Washington Mutual, Inc.(b) 9,050 354,941
----------------
2,058,977
----------------
Insurance -- 6.6%
The Allstate Corp. 8,750 483,787
American International Group, Inc.(b) 5,700 353,172
CHUBB Corp.(b) 4,400 394,020
Lincoln National Corp. 3,600 187,272
Mercury General Corp.(b) 3,900 233,961
Old Republic International Corp. 5,900 157,353
The St. Paul Travelers Cos., Inc.(b) 8,050 361,204
----------------
2,170,769
----------------
Machinery & Heavy Equipment -- 1.0%
Caterpillar, Inc.(b) 5,400 317,250
----------------
Manufacturing -- 6.7%
General Electric Co. 22,400 754,208
Nucor Corp.(b) 4,900 289,051
Reynold American, Inc. 2,200 182,644
The Sherwin-Williams Co.(b) 6,500 286,455
The Stanley Works 4,900 228,732
V.F. Corp. 5,500 318,835
Wolverine World Wide, Inc. 7,450 156,823
----------------
2,216,748
----------------
Medical & Medical Services -- 0.8%
Health Care Property Investors, Inc. 9,400 253,706
----------------
Medical Instruments & Supplies -- 1.0%
Hillenbrand Industries, Inc. 3,300 155,265
Johnson & Johnson 3,000 189,840
----------------
345,105
----------------
Motor Vehicles -- 1.0%
Ford Motor Co.(b) 15,450 152,337
Harley-Davidson, Inc.(b) 3,600 174,384
----------------
326,721
----------------
Motor Vehicles & Car Bodies -- 0.4%
Genuine Parts Co. 2,850 122,265
----------------
Oil & Gas -- 15.9%
ChevronTexaco Corp.(b)(c) 20,900 1,352,857
ConocoPhillips 11,600 810,956
Devon Energy Corp. 3,300 226,512
Energen Corp. 5,600 242,256
Exxon Mobil Corp.(c) 29,100 1,849,014
Helmerich & Payne, Inc. 7,550 455,944
National Fuel Gas Co. 9,400 321,480
----------------
5,259,019
----------------
Personal Services -- 0.6%
The Servicemaster Co. 13,600 184,144
----------------
Pharmaceuticals -- 6.1%
Bristol-Myers Squibb Co.(b) 6,300 151,578
Merck & Co., Inc. 18,500 503,385
Pfizer, Inc. 49,100 1,226,027
West Pharmaceutical Services, Inc. 5,100 151,317
----------------
2,032,307
----------------
See accompanying notes to financial statements.
55
BlackRock Funds
STATEMENT OF NET ASSETS
DIVIDEND ACHIEVERS(TM) PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS (Continued)
Plastics -- 1.0%
Sonoco Products Co. 12,150 $ 331,816
----------------
Publishing & Printing -- 1.9%
The McGraw-Hill Companies, Inc. 5,500 264,220
R.R. Donnelley & Sons Corp.(b) 9,700 359,579
----------------
623,799
----------------
Real Estate -- 4.6%
CBL & Associates Properties, Inc. 5,200 213,148
Cendant Corp. 6,300 130,032
Commercial Net Lease Realty 7,800 156,000
General Growth Properties, Inc.(b) 8,000 359,440
HRPT Properties Trust 12,900 160,089
Kimco Realty Corp. 8,800 276,496
Tanger Factory Outlet Centers, Inc. 8,600 239,166
----------------
1,534,371
----------------
Restaurants -- 1.8%
McDonald's Corp. 18,100 606,169
----------------
Retail Merchandising -- 1.5%
The Home Depot, Inc. 6,800 259,352
RPM International, Inc. 13,600 250,240
----------------
509,592
----------------
Semiconductors & Related Devices -- 0.4%
Linear Technology Corp. 3,900 146,601
----------------
Soaps & Cosmetics -- 1.0%
Colgate-Palmolive Co. 3,100 163,649
Kimberly-Clark Corp. 2,950 175,613
----------------
339,262
----------------
Telecommunications -- 5.6%
ALLTEL Corp.(b) 5,650 367,872
AT&T Corp. 8,000 158,400
BellSouth Corp. 16,700 439,210
CenturyTel, Inc. 4,400 153,912
SBC Communications, Inc.(b) 31,000 743,070
----------------
1,862,464
----------------
Tobacco -- 2.9%
Altria Group, Inc.(b) 11,100 818,181
Loews Corp. - Carolina Group 3,900 154,557
----------------
972,738
----------------
TOTAL COMMON STOCKS
(Cost $31,217,349) 32,372,180
----------------
Par/Shares
Maturity (000) Value
---------------- ---------------- ----------------
SHORT TERM INVESTMENTS - 33.1%
Banco Santader, Certificate of
Deposit 3.70%(d) 05/10/06 $ 927 $ 926,522
Morgan Stanley, Floating Rate Notes
4.02%(d)(e) 11/07/05 1,249 1,249,055
4.01%(d)(e) 11/14/05 367 366,727
4.02%(d)(e) 01/05/06 396 396,323
Galileo Money Market Fund 403 402,777
Institutional Money Market
Trust(d)(f) 7,614 7,614,238
----------------
TOTAL SHORT TERM INVESTMENTS
(Cost $10,955,642) 10,955,642
----------------
TOTAL INVESTMENTS IN SECURITIES - 130.9%
(Cost $42,172,990(a)) 43,327,822
LIABILITIES IN EXCESS OF
OTHER ASSETS - (30.9)% (10,229,366)
----------------
NET ASSETS - 100.0%
(Applicable to 314,473
Institutional shares, 35,113
Service shares, 1,361,194
Investor A shares, 327,966
Investor B shares and 1,041,844
Investor C shares outstanding) $ 33,098,456
================
See accompanying notes to financial statements.
56
BlackRock Funds
STATEMENT OF NET ASSETS
DIVIDEND ACHIEVERS(TM) PORTFOLIO (Concluded)
As of September 30, 2005
Value
----------------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($3,379,415/314,473) $ 10.75
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($376,455/35,113) $ 10.72
================
NET ASSET VALUE AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($14,636,761/1,361,194) $ 10.75
================
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE
($10.75/0.9425) $ 11.41
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($3,522,968/327,966) $ 10.74
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($11,182,857/1,041,844) $ 10.73
================
- ----------
(a) Cost for Federal income tax purposes is $42,211,958. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 2,198,565
Gross unrealized depreciation (1,082,701)
----------------
$ 1,115,864
================
(b) Total or partial securities on loan.
(c) Securities, or a portion thereof, pledged as collateral with a value of
$385,762 on 9 long E-Mini S&P 500 futures contracts expiring December 2005.
The value of such contracts on September 30, 2005 was $555,435, with an
unrealized gain of $2,948 (including commissions of $14).
(d) Securities purchased with the cash proceeds from securities loaned.
(e) Rates shown are the rates as of September 30, 2005.
(f) Represents an investment in an affiliate.
See accompanying notes to financial statements.
57
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
DIVIDEND ACHIEVERS(TM) PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $42,172,990)............... $ 43,327,822
Dividends receivable ................................. 52,212
Interest receivable .................................. 1,051
Capital shares sold receivable ....................... 338,218
Prepaid expenses ..................................... 31,188
Futures margin receivable ............................ 1,159
----------------
TOTAL ASSETS ...................................... 43,751,650
----------------
LIABILITIES
Payable upon return of securities loaned ............. 10,552,865
Capital shares redeemed payable ...................... 40,058
Advisory fees payable ................................ 8,315
Administrative fees payable .......................... 5,383
Transfer agent fees payable .......................... 2,890
Other accrued expenses payable ....................... 43,681
Futures sold payable ................................. 2
----------------
TOTAL LIABILITIES ................................. 10,653,194
----------------
NET ASSETS (Applicable to 314,473 Institutional
shares,35,113 Service shares,
1,361,194 Investor A shares,
327,966 Investor B shares and
1,041,844 Investor C shares outstanding) ............. $ 33,098,456
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($3,379,415/314,473).......... $ 10.75
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($376,455/35,113)................... $ 10.72
================
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($14,636,761/1,361,194).......... $ 10.75
================
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($10.75/0.9425) ...................................... $ 11.41
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE ($3,522,968/327,966)............. $ 10.74
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred
sales charge of 1.0%)
PER INVESTOR C SHARE ($11,182,857/1,041,844).......... $ 10.73
================
See accompanying notes to financial statements.
58
BlackRock Funds
STATEMENT OF NET ASSETS
LEGACY PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS -- 99.6%
Aerospace - 1.1%
General Dynamics Corp.(b) 24,800 $ 2,964,840
----------------
Beverages & Bottling -- 2.2%
PepsiCo, Inc. 108,100 6,130,351
----------------
Broadcasting -- 1.0%
XM Satellite Radio
Holdings, Inc.(b)(c) 80,700 2,897,937
----------------
Business Services -- 1.2%
Alliance Data Systems Corp.(b)(c) 86,700 3,394,305
----------------
Computer & Office Equipment -- 2.5%
Apple Computer, Inc.(c) 47,700 2,557,197
Hewlett-Packard Co. 150,400 4,391,680
----------------
6,948,877
----------------
Computer Software & Services -- 17.6%
Adobe Systems, Inc.(b) 103,700 3,095,445
Cognizant Technology Solutions Corp.(c) 60,700 2,828,013
Electronic Arts, Inc.(c) 23,900 1,359,671
EMC Corp.(b)(c) 466,600 6,037,804
Google, Inc. - Class A(c) 36,711 11,617,563
Microsoft Corp. 522,340 13,439,808
Salesforce.Com, Inc.(c) 101,700 2,351,304
Yahoo!, Inc.(c) 249,900 8,456,616
----------------
49,186,224
----------------
Electronics -- 1.7%
Intel Corp. 195,300 4,814,145
----------------
Entertainment & Leisure -- 2.2%
Comcast Corp. - Class A(c) 115,190 3,315,168
Marriott International, Inc. - Class A(b) 22,300 1,404,900
Starwood Hotels & Resorts Worldwide, Inc.(b) 23,700 1,354,929
----------------
6,074,997
----------------
Finance -- 8.6%
American Express Co. 149,450 8,584,408
Chicago Mercantile Exchange(b) 9,600 3,238,080
Franklin Resources, Inc. 56,276 4,724,933
The Goldman Sachs Group, Inc.(b) 18,500 2,249,230
SLM Corp. 94,600 5,074,344
----------------
23,870,995
----------------
Food & Agriculture -- 0.9%
Monsanto Co. 40,200 2,522,550
----------------
Insurance -- 1.1%
WellPoint, Inc.(c) 39,100 2,964,562
----------------
Manufacturing -- 10.0%
Corning, Inc.(c) 245,400 4,743,582
Danaher Corp. 103,300 5,560,639
General Electric Co. 357,030 12,021,200
Nike, Inc. 26,700 2,180,856
Polo Ralph Lauren Corp. 68,400 3,440,520
----------------
27,946,797
----------------
Medical & Medical Services -- 8.6%
Amgen, Inc.(c) 90,002 7,170,459
Caremark Rx, Inc.(c) 55,500 2,771,115
PacifiCare Health Systems, Inc.(c) 21,300 1,699,314
Quest Diagnostics, Inc. 66,100 3,340,694
UnitedHealth Group, Inc. 159,000 8,935,800
----------------
23,917,382
----------------
Medical Instruments & Supplies -- 7.5%
Cytyc Corp.(c) 58,500 1,570,725
Johnson & Johnson 149,820 9,480,610
St. Jude Medical, Inc.(c) 156,500 7,324,200
Stryker Corp. 50,500 2,496,215
----------------
20,871,750
----------------
Metal & Mining -- 2.9%
CONSOL Energy, Inc. 104,900 8,000,723
----------------
Oil & Gas - 7.8%
EOG Resources, Inc. 90,600 6,785,940
Exxon Mobil Corp.(b) 65,027 4,131,816
GlobalSantaFe Corp. 89,400 4,078,428
Newfield Exploration Co.(c) 67,200 3,299,520
Schlumberger Ltd.(b) 42,700 3,603,026
----------------
21,898,730
----------------
Pharmaceuticals -- 7.3%
Allergan, Inc.(b) 34,500 3,160,890
Amylin Pharmaceuticals, Inc.(c) 39,600 1,377,684
Genentech, Inc.(c) 31,500 2,652,615
Genzyme Corp.(c) 57,900 4,147,956
Novartis AG - ADR 56,300 2,871,300
Sanofi-Aventis - ADR 72,600 3,016,530
Teva Pharmaceutical Industries Ltd. - ADR(b) 93,200 3,114,744
----------------
20,341,719
----------------
Retail Merchandising -- 7.4%
Chico's FAS, Inc.(b)(c) 54,200 1,994,560
Coach, Inc.(c) 65,700 2,060,352
CVS Corp.(b) 138,200 4,009,182
Kohl's Corp.(c) 69,400 3,482,492
Staples, Inc. 114,550 2,442,206
Target Corp.(b) 72,700 3,775,311
Walgreen Co. 64,600 2,806,870
----------------
20,570,973
----------------
Semiconductors & Related Devices -- 3.0%
Broadcom Corp. - Class A(c) 53,000 2,486,230
Freescale Semiconductor, Inc. - Class A(b)(c) 130,800 3,062,028
Texas Instruments, Inc.(b) 84,000 2,847,600
----------------
8,395,858
----------------
Soaps & Cosmetics -- 2.7%
The Procter & Gamble Co. 127,000 7,551,420
----------------
Telecommunications -- 2.3%
Harman International Industries, Inc. 16,200 1,656,774
Qualcomm, Inc. 59,400 2,658,150
Sprint Nextel Corp. 86,000 2,045,080
----------------
6,360,004
----------------
TOTAL COMMON STOCKS
(Cost $225,891,548) 277,625,139
----------------
See accompanying notes to financial statements.
59
BlackRock Funds
STATEMENT OF NET ASSETS
LEGACY PORTFOLIO (Concluded)
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
WARRANTS -- 0.0%
Lucent Technologies, Inc. (issued
12/10/04, expiring 12/10/07,
strike price $2.75)(c)(d)
(Cost $8,011) 12,138 $ 11,531
----------------
Par/Shares
Maturity (000)
-------------- ----------------
SHORT TERM INVESTMENTS -- 17.7%
Banco Santader, Certificate of
Deposit 3.70%(e) 05/10/06 $ 582 $ 581,979
Morgan Stanley, Floating Rate Notes
4.02%(e)(f) 11/07/05 9,560 9,560,171
4.01%(e)(f) 11/14/05 892 892,216
4.02%(e)(f) 01/05/06 5,791 5,791,094
Galileo Money Market Fund 2,099 2,098,685
Institutional Money Market
Trust(e)(g) 30,309 30,309,454
----------------
TOTAL SHORT TERM INVESTMENTS
(Cost $49,233,599) 49,233,599
----------------
TOTAL INVESTMENTS IN SECURITIES -- 117.3%
(Cost $275,133,158(a)) 326,870,269
LIABILITIES IN EXCESS OF OTHER
ASSETS - (17.3)% (48,310,373)
----------------
NET ASSETS -- 100.0%
(Applicable to 3,674,169 Institutional
shares, 8 Service shares, 8,711,263
Investor A shares, 6,545,757 Investor
B shares and 1,575,132 Investor C
shares outstanding) $ 278,559,896
===============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER INSTITUTIONAL SHARE
($52,154,290/3,674,169) $ 14.19
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER SERVICE SHARE ($107/8)(h) $ 13.81
================
NET ASSET VALUE AND
REDEMPTION PRICE PER INVESTOR A SHARE
($120,370,757/8,711,263) $ 13.82
================
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($13.82/0.9425) $ 14.66
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($85,464,627/6,545,757) $ 13.06
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($20,570,115/1,575,132) $ 13.06
================
- ----------
(a) Cost for Federal income tax purposes is $275,335,960. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 54,849,190
Gross unrealized depreciation (3,314,881)
----------------
$ 51,534,309
================
(b) Total or partial securities on loan.
(c) Non-income producing security.
(d) As of September 30, 2005, the aggregate amount of shares called for by
these warrants is 12,138. These warrants were exercisable as of 12/10/04.
(e) Securities purchased with the cash proceeds from securities loaned.
(f) Rates shown are the rates as of September 30, 2005.
(g) Represents an investment in an affiliate.
(h) Exact net assets and shares outstanding at September 30, 2005 were $106.57
and 7.717, respectively.
See accompanying notes to financial statements.
60
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
LEGACY PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $275,133,158).............. $ 326,870,269
Dividends and reclaims receivable .................... 140,437
Interest receivable .................................. 11,237
Investments sold receivable .......................... 4,465,463
Capital shares sold receivable ....................... 57,958
Prepaid expenses ..................................... 64,127
----------------
TOTAL ASSETS ...................................... 331,609,491
----------------
LIABILITIES
Payable upon return of securities loaned ............. 47,134,914
Investments purchased payable ........................ 5,039,151
Capital shares redeemed payable ...................... 510,423
Advisory fees payable ................................ 147,302
Transfer agent fees payable .......................... 44,357
Other accrued expenses payable ....................... 173,448
----------------
TOTAL LIABILITIES ................................. 53,049,595
----------------
NET ASSETS (Applicable to 3,674,169 Institutional
shares, 8 Service shares, 8,711,263 Investor A shares,
6,545,757 Investor B shares and 1,575,132 Investor C
shares outstanding) .................................. $ 278,559,896
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($52,154,290/3,674,169)....... $ 14.19
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($107/8)(a)......................... $ 13.81
================
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($120,370,757/8,711,263)......... $ 13.82
================
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($13.82/0.9425) ...................................... $ 14.66
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE ($85,464,627/6,545,757).......... $ 13.06
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred
sales charge of 1.0%)
PER INVESTOR C SHARE ($20,570,115/1,575,132).......... $ 13.06
================
- ---------
(a) Exact net assets and shares outstanding at September 30, 2005 were $106.57
and 7.717, respectively.
See accompanying notes to financial statements.
61
BlackRock Funds
STATEMENT OF NET ASSETS
MID-CAP VALUE EQUITY PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS -- 96.4%
Banks -- 7.0%
City National Corp. 164,500 $ 11,529,805
Comerica, Inc.(b) 199,800 11,768,220
Hudson City Bancorp., Inc. 836,700 9,956,730
North Fork Bancorp., Inc. 359,850 9,176,175
Sovereign Bancorp., Inc. 584,500 12,882,380
----------------
55,313,310
----------------
Beverages & Bottling -- 0.7%
Coca-Cola Enterprises, Inc. 297,800 5,807,100
----------------
Broadcasting -- 1.5%
Belo Corp. 248,300 5,676,138
Lin TV Corp.(c) 465,820 6,498,189
----------------
12,174,327
----------------
Business Services -- 3.5%
The Brink's Co. 357,900 14,695,374
W.W. Grainger, Inc. 207,090 13,030,103
----------------
27,725,477
----------------
Chemicals -- 2.2%
Ashland, Inc. 179,500 9,915,580
FMC Corp.(b)(c) 85,700 4,903,754
Lyondell Chemical Co.(b) 88,600 2,535,732
----------------
17,355,066
----------------
Computer & Office Equipment -- 4.1%
American Power Conversion Corp. 155,700 4,032,630
Avery Dennison Corp.(b) 149,900 7,853,261
Lexmark International, Inc.(b)(c) 108,100 6,599,505
NCR Corp.(c) 445,000 14,199,950
Phase Metrics, Inc.(c)(d)(e) 108,409 2,168
----------------
32,687,514
----------------
Computer Software & Services -- 4.1%
DST Systems, Inc.(c) 190,400 10,439,632
IAC/InterActiveCorp(b)(c) 218,600 5,541,510
TIBCO Software, Inc.(c) 671,000 5,609,560
Unisys Corp.(c) 1,631,900 10,835,816
----------------
32,426,518
----------------
Construction -- 0.6%
Dycom Industries, Inc.(b)(c) 222,200 4,492,884
----------------
Containers - 3.5%
Owens-Illinois, Inc.(c) 488,000 10,062,560
Pactiv Corp.(b)(c) 550,300 9,641,256
Smurfit-Stone Container Corp.(c) 773,400 8,012,424
----------------
27,716,240
----------------
Energy & Utilities -- 8.6%
Constellation Energy Group 180,900 11,143,440
PPL Corp. 377,200 12,194,876
Public Service Enterprise Group, Inc.(b) 195,600 12,588,816
Questar Corp. 165,600 14,592,672
Reliant Energy, Inc.(c) 562,300 8,681,912
Sempra Energy(b) 190,800 8,979,048
----------------
68,180,764
----------------
Entertainment & Leisure -- 0.9%
Hilton Hotels Corp. 327,700 7,314,264
----------------
Finance -- 8.2%
Ambac Financial Group, Inc. 181,250 13,060,875
Capital One Financial Corp.(b) 111,500 8,866,480
CIT Group, Inc. 326,400 14,746,752
Freedom Pay, Inc.(d)(e) 43,051 431
H&R Block, Inc. 456,500 10,946,870
Mellon Financial Corp. 181,300 5,796,161
Nuveen Investments - Class A 277,600 10,934,664
----------------
64,352,233
----------------
Food & Agriculture -- 3.6%
Dean Foods Co.(c) 246,000 9,559,560
Del Monte Foods Co.(c) 687,800 7,380,094
The J. M. Smucker Co. 132,500 6,431,550
Treehouse Foods, Inc.(c) 175,280 4,711,526
----------------
28,082,730
----------------
Insurance -- 7.2%
Allmerica Financial Corp.(c) 274,100 11,276,474
Assurant, Inc.(b) 106,600 4,057,196
Axis Capital Holdings Ltd. 370,000 10,548,700
Endurance Specialty Holdings Ltd. 308,100 10,509,291
Everest Re Group Ltd. 67,500 6,608,250
Radian Group, Inc. 255,100 13,545,810
----------------
56,545,721
----------------
Manufacturing -- 10.1%
American Standard Co. Inc. 177,000 8,239,350
Briggs & Stratton Corp. 109,000 3,770,310
Brunswick Corp. 174,400 6,580,112
ITT Industries, Inc. 28,200 3,203,520
Jones Apparel Group, Inc. 342,400 9,758,400
Newell Rubbermaid, Inc. 302,800 6,858,420
The Sherwin-Williams Co.(b) 230,000 10,136,100
Snap-On, Inc. 308,500 11,143,020
The Stanley Works 201,200 9,392,016
Textron, Inc. 152,500 10,937,300
----------------
80,018,548
----------------
Measuring & Controlling Devices -- 1.1%
Thermo Electron Corp.(c) 272,300 8,414,070
----------------
Medical & Medical Services -- 1.4%
MedImmune, Inc.(b)(c) 124,000 4,172,600
Universal Health Service, Inc. 141,600 6,744,408
----------------
10,917,008
----------------
Medical Instruments & Supplies -- 1.3%
Hillenbrand Industries, Inc. 225,000 10,586,250
----------------
Metal & Mining -- 1.8%
CONSOL Energy, Inc. 183,900 14,026,053
----------------
Oil & Gas -- 6.0%
CNX Gas Corp.(c)(e) 62,300 1,209,558
Diamond Offshore Drilling, Inc. 186,800 11,441,500
EOG Resources, Inc. 165,400 12,388,460
KeySpan Corp. 254,300 9,353,154
Newfield Exploration Co.(c) 259,300 12,731,630
----------------
47,124,302
----------------
Paper & Forest Products -- 1.3%
Bowater, Inc.(b) 356,200 10,069,774
----------------
See accompanying notes to financial statements.
62
BlackRock Funds
STATEMENT OF NET ASSETS
MID-CAP VALUE EQUITY PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS (Continued)
Pharmaceuticals -- 1.2%
Watson 258,000 $ 9,445,380
----------------
Pharmaceuticals, Inc.(b)(c)
Publishing & Printing -- 2.1%
Dow Jones & Company, Inc.(b) 212,200 8,103,918
R.R. Donnelley & Sons Corp.(b) 221,900 8,225,833
----------------
16,329,751
----------------
Railroad & Shipping -- 0.8%
CSX Corp. 135,800 6,311,984
----------------
Real Estate -- 4.6%
Boston Properties, Inc. 188,600 13,371,740
Cendant Corp. 589,600 12,169,344
Reckson Associates Realty Corp. 306,900 10,603,395
----------------
36,144,479
----------------
Retail Merchandising -- 7.7%
AnnTaylor Stores Corp.(c) 378,200 10,041,210
Federated Department Stores, Inc. 150,900 10,090,683
The Kroger Co.(b)(c) 348,400 7,173,556
Linens 'n Things, Inc.(c) 346,500 9,251,550
Office Depot, Inc.(b)(c) 283,100 8,408,070
Officemax, Inc. 374,000 11,844,580
Saks, Inc.(c) 213,600 3,951,600
----------------
60,761,249
----------------
Semiconductors & Related Devices -- 1.0%
Cypress Semiconductor Corp.(b)(c) 532,700 8,017,135
----------------
Telecommunications -- 0.3%
Scientific-Atlanta, Inc. 67,600 2,535,676
----------------
TOTAL COMMON STOCKS
(Cost $651,506,320) 760,875,807
----------------
Par/Shares
Maturity (000) Value
-------------- ---------------- ----------------
SHORT TERM INVESTMENTS -- 14.2%
Banco Santader, Certificate of
Deposit 3.70%(f) 05/10/06 $ 10,396 $ 10,395,862
Morgan Stanley, Floating Rate
Notes
4.02%(f)(g) 11/07/05 3,759 3,759,272
4.01%(f)(g) 11/14/05 6,426 6,425,595
4.02%(f)(g) 01/05/06 2,660 2,659,912
Federal Home Loan Bank, Discount
Notes 3.18%(h) 10/03/05 24,800 24,795,619
Galileo Money Market Fund 9,936 9,936,043
Institutional Money Market
Trust(f)(i) 54,169 54,169,221
----------------
TOTAL SHORT TERM INVESTMENTS
(Cost $112,141,524) 112,141,524
----------------
TOTAL INVESTMENTS IN SECURITIES -- 110.6%
(Cost $763,647,844(a)) 873,017,331
LIABILITIES IN EXCESS OF OTHER
ASSETS - (10.6)% (83,543,128)
----------------
NET ASSETS -- 100.0%
(Applicable to 3,865,844
Institutional shares, 65,358 Service
shares, 37,087,717 Investor A
shares, 10,340,355 Investor B
shares and 8,117,221 Investor C
shares outstanding) $ 789,474,203
================
See accompanying notes to financial statements.
63
BlackRock Funds
STATEMENT OF NET ASSETS
MID-CAP VALUE EQUITY PORTFOLIO (Concluded)
As of September 30, 2005
Value
--------------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($53,110,958/3,865,844) $ 13.74
==============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($889,459/65,358) $ 13.61
==============
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($500,479,129/37,087,717) $ 13.49
==============
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($13.49/0.9425) $ 14.31
==============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($131,650,619/10,340,355) $ 12.73
==============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($103,344,038/8,117,221) $ 12.73
==============
- ----------
(a) Cost for Federal income tax purposes is $767,343,803. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 131,934,354
Gross unrealized depreciation (26,260,826)
--------------
$ 105,673,528
==============
(b) Total or partial securities on loan.
(c) Non-income producing security.
(d) Security is illiquid. As of September 30, 2005, the Portfolio held less
than 0.01% of its net assets, with a current market value of $2,599 in
these securities.
(e) Securities valued at fair value as determined in good faith by or under the
direction of the Trustees. As of September 30, 2005, this security had a
total market value of $1,212,157 which represents less than 0.15% of net
assets.
(f) Securities purchased with the cash proceeds from securities loaned.
(g) Rates shown are the rates as of September 30, 2005.
(h) The rate shown is the effective yield on the discount notes at the time of
purchase.
(i) Represents an investment in an affiliate.
See accompanying notes to financial statements.
64
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
MID-CAP VALUE EQUITY PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $763,647,844).............. $ 873,017,331
Dividends receivable ................................. 1,202,608
Interest receivable .................................. 31,185
Investments sold receivable .......................... 3,490,670
Capital shares sold receivable ....................... 2,199,666
Prepaid expenses ..................................... 26,975
Other assets ......................................... 4,070
----------------
TOTAL ASSETS ...................................... 879,972,505
----------------
LIABILITIES
Payable upon return of securities loaned ............. 77,409,862
Investments purchased payable ........................ 2,064,128
Capital shares redeemed payable ...................... 10,134,700
Advisory fees payable ................................ 349,696
Administrative fees payable .......................... 48,094
Transfer agent fees payable .......................... 90,698
Other accrued expenses payable ....................... 401,124
----------------
TOTAL LIABILITIES ................................. 90,498,302
----------------
NET ASSETS (Applicable to 3,865,844 Institutional
shares, 65,358 Service shares,
37,087,717 Investor A shares,
10,340,355 Investor B shares and
8,117,221 Investor C shares outstanding) ............. $ 789,474,203
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($53,110,958/3,865,844)....... $ 13.74
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($889,459/65,358)................... $ 13.61
================
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($500,479,129/37,087,717)........ $ 13.49
================
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($13.49/0.9425) ...................................... $ 14.31
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE ($131,650,619/10,340,355)........ $ 12.73
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred
sales charge of 1.0%)
PER INVESTOR C SHARE ($103,344,038/8,117,221)......... $ 12.73
================
See accompanying notes to financial statements.
65
BlackRock Funds
STATEMENT OF NET ASSETS
MID-CAP GROWTH EQUITY PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS -- 98.1%
Advertising -- 1.3%
Getty Images, Inc.(b) 66,900 $ 5,756,076
----------------
Aerospace -- 1.7%
Alliant Techsystems, Inc.(b) 101,300 7,562,045
----------------
Broadcasting -- 2.9%
CKX, Inc.(b) 307,700 3,867,789
Univision Communications, Inc. -- Class A(b) 168,700 4,475,611
XM Satellite Radio Holdings, Inc.(b)(c) 130,600 4,689,846
----------------
13,033,246
----------------
Business Services -- 3.0%
Alliance Data Systems Corp.(b)(c) 131,500 5,148,225
The Corporate Executive Board Co. 73,100 5,700,338
Equifax, Inc. 71,300 2,491,222
----------------
13,339,785
----------------
Computer Software & Services -- 9.0%
Adobe Systems, Inc.(c) 244,000 7,283,400
CACI International, Inc.(b) 64,300 3,896,580
Ceridian Corp.(b) 420,100 8,717,075
Enterasys Networks, Inc.(b) 29,413 39,413
Foundry Networks, Inc.(b) 251,100 3,188,970
NAVTEQ Corp.(b) 181,500 9,065,925
Symantec Corp.(b) 154,603 3,503,304
VeriFone Holdings, Inc.(b) 109,500 2,202,045
VeriSign, Inc.(b) 106,000 2,265,220
----------------
40,161,932
----------------
Containers -- 0.9%
Owens-Illinois, Inc.(b) 204,900 4,225,038
----------------
Electronics -- 3.1%
Amphenol Corp. 133,500 5,385,390
Cogent, Inc.(b)(c) 125,400 2,978,250
National Semiconductor Corp. 216,256 5,687,533
----------------
14,051,173
----------------
Entertainment & Leisure -- 3.9%
GTECH Holdings Corp. 137,500 4,408,250
Marriott International, Inc. - Class A 35,500 2,236,500
Marvel Entertainment, Inc.(b) 253,200 4,524,684
Orient-Express Hotels Ltd. - Class A 148,500 4,220,370
Starwood Hotels & Resorts Worldwide, Inc.(c) 38,000 2,172,460
----------------
17,562,264
----------------
Finance -- 2.6%
Nuveen Investments - Class A 120,400 4,742,556
Providian Financial Corp.(b)(c) 118,900 2,102,152
T. Rowe Price Group, Inc. 74,200 4,845,260
----------------
11,689,968
----------------
Insurance -- 2.9%
Endurance Specialty Holdings Ltd. 129,900 4,430,889
WellPoint, Inc.(b) 109,300 8,287,126
----------------
12,718,015
----------------
Machinery & Heavy Equipment -- 0.7%
Dresser-Rand Group, Inc.(b) 28,100 692,103
Lennox International, Inc. 92,000 2,521,720
----------------
3,213,823
----------------
Manufacturing -- 3.8%
IDEX Corp. 83,000 3,531,650
Pentair, Inc. 186,100 6,792,650
Sealed Air Corp.(b) 69,600 3,303,216
The Warnaco Group, Inc.(b) 142,000 3,111,220
----------------
16,738,736
----------------
Medical & Medical Services -- 9.1%
Caremark Rx, Inc.(b) 153,700 7,674,241
Community Health Systems, Inc.(b) 221,400 8,592,534
Coventry Health Care, Inc.(b) 66,900 5,754,738
Medco Health Solutions, Inc.(b) 132,100 7,243,043
Omnicare, Inc.(c) 123,600 6,950,028
Triad Hospitals, Inc.(b) 99,975 4,525,868
----------------
40,740,452
----------------
Medical Instruments & Supplies -- 7.4%
Charles River Laboratories International, Inc.(b) 148,800 6,490,656
Cytyc Corp.(b) 253,100 6,795,735
Fisher Scientific International, Inc.(b) 84,000 5,212,200
Kinetic Concepts, Inc.(b)(c) 80,100 4,549,680
Martek Biosciences Corp.(b)(c) 123,100 4,324,503
Varian Medical Systems, Inc.(b)(c) 146,100 5,772,411
----------------
33,145,185
----------------
Metal & Mining -- 5.5%
CONSOL Energy, Inc. 172,000 13,118,440
Massey Energy Co. 111,800 5,709,626
MSC Industrial Direct Co., Inc. 174,400 5,784,848
----------------
24,612,914
----------------
Oil & Gas -- 9.4%
Amerada Hess Corp. 17,500 2,406,250
CNX Gas Corp.(b)(d) 36,700 712,532
ENSCO International, Inc. 172,800 8,050,752
EOG Resources, Inc. 186,600 13,976,340
Newfield Exploration Co.(b) 195,400 9,594,140
Noble Corp. 74,500 5,100,270
Stolt Offshore SA - ADR(b) 190,800 2,209,464
----------------
42,049,748
----------------
Personal Services -- 0.7%
Laureate Education, Inc.(b) 65,300 3,197,741
----------------
Pharmaceuticals -- 3.2%
Cephalon, Inc.(b) 48,700 2,260,654
Forest Laboratories, Inc.(b) 83,100 3,238,407
Shire Pharmaceuticals Group PLC - ADR 234,256 8,665,130
----------------
14,164,191
----------------
Restaurants -- 0.9%
Ruby Tuesday, Inc. 181,300 3,945,088
----------------
Retail Merchandising -- 8.4%
Abercrombie & Fitch Co. - Class A 45,100 2,248,235
Bed, Bath & Beyond, Inc.(b) 156,500 6,288,170
CDW Corp.(c) 79,600 4,690,032
Chico's FAS, Inc.(b)(c) 149,200 5,490,560
Coach, Inc.(b) 105,400 3,305,344
Staples, Inc. 241,072 5,139,655
Urban Outfitters, Inc.(b) 78,800 2,316,720
See accompanying notes to financial statements.
66
BlackRock Funds
STATEMENT OF NET ASSETS
MID-CAP GROWTH EQUITY PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS (Continued)
Retail Merchandising (Continued)
Williams-Sonoma, Inc.(b)(c) 205,000 $ 7,861,750
----------------
37,340,466
----------------
Semiconductors & Related Devices - 4.3%
Altera Corp.(b)(c) 308,200 5,889,702
Freescale Semiconductor, Inc. - Class B(b)(c) 211,800 4,994,244
Lam Research Corp.(b)(c) 160,000 4,875,200
Linear Technology Corp. 97,300 3,657,507
----------------
19,416,653
----------------
Telecommunications - 11.7%
ADTRAN, Inc. 147,000 4,630,500
Amdocs Ltd.(b) 245,800 6,816,034
American Tower Corp. - Class A(b) 350,900 8,754,955
Avid Technology, Inc.(b) 191,300 7,919,820
Harris Corp. 161,500 6,750,700
Nextel Partners, Inc. - Class A(b)(c) 264,800 6,646,480
Polycom, Inc.(b) 204,600 3,308,382
Scientific-Atlanta, Inc. 140,300 5,262,653
Syniverse Holdings, Inc.(b) 142,600 2,196,040
----------------
52,285,564
----------------
Transportation - 0.7%
Landstar System, Inc. 75,700 3,030,271
----------------
Waste Management - 1.0%
Stericycle, Inc.(b) 75,700 4,326,255
----------------
TOTAL COMMON STOCKS
(Cost $341,400,312) 438,306,629
----------------
WARRANTS - 0.0%
Dime Bancorp, Inc. (issued 12/26/00,
no expiration date, strike price $0.30)(e) 57,900 9,264
MicroStrategy, Inc. (issued 06/21/02,
expiring 06/24/07, strike price $400)(d)(f) 13 2
----------------
TOTAL WARRANTS
(Cost $17,331) 9,266
================
Par/Shares
Maturity (000) Value
-------------- ---------------- ----------------
SHORT TERM INVESTMENTS -- 9.7%
Banco Santader, Certificate of
Deposit 3.70%(g) 05/10/06 $ 1,947 $ 1,946,858
Morgan Stanley, Floating Rate
Notes
4.02%(g)(h) 11/07/05 4,844 4,843,764
4.01%(g)(h) 11/14/05 134 133,645
4.02%(g)(h) 01/05/06 3,802 3,801,905
Galileo Money Market Fund 1,153 1,152,750
Institutional Money Market
Trust(g)(i) 31,437 31,436,669
----------------
TOTAL SHORT TERM INVESTMENTS
(Cost $43,315,591) 43,315,591
----------------
TOTAL INVESTMENTS IN SECURITIES -- 107.8%
(Cost $384,733,234(a)) 481,631,486
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (7.8)% (34,956,229)
----------------
NET ASSETS -- 100.0%
(Applicable to 7,219,597
Institutional shares, 112,752
Service shares, 29,568,600
Investor A shares, 6,567,268
Investor B shares and 2,305,471
Investor C shares outstanding) $ 446,675,257
================
See accompanying notes to financial statements.
67
BlackRock Funds
STATEMENT OF NET ASSETS
MID-CAP GROWTH EQUITY PORTFOLIO (Concluded)
As of September 30, 2005
Value
----------------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($75,406,653/7,219,597) $ 10.44
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
PER SERVICE SHARE
($1,135,542/112,752) $ 10.07
================
NET ASSET VALUE AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($290,284,864/29,568,600) $ 9.82
================
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.82/0.9425) $ 10.42
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($59,100,472/6,567,268) $ 9.00
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($20,747,726/2,305,471) $ 9.00
================
- ----------
(a) Cost for Federal income tax purposes is $385,555,123. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 102,374,333
Gross unrealized depreciation (6,297,970)
----------------
$ 96,076,363
================
(b) Non-income producing security.
(c) Total or partial securities on loan.
(d) Security valued at fair value as determined in good faith by or under the
direction of the Trustees. As of September 30, 2005, this security had a
total market value of $712,534 which represents less than 0.16% of net
assets.
(e) As of September 30, 2005, the aggregate amount of shares called for by
these warrants is 57,900. These warrants were exercisable as of 12/26/00.
(f) As of September 30, 2005, the aggregate amount of shares called for by
these warrants is 1.30. These warrants were exercisable as of 6/24/02.
(g) Securities purchased with the cash proceeds from securities loaned.
(h) Rates shown are the rates as of September 30, 2005.
(i) Represents an investment in an affiliate.
See accompanying notes to financial statements.
68
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
MID-CAP GROWTH EQUITY PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $384,733,234).............. $ 481,631,486
Dividends receivable ................................. 47,353
Interest receivable .................................. 9,952
Investments sold receivable .......................... 19,396,999
Capital shares sold receivable ....................... 75,297
Prepaid expenses ..................................... 24,420
Other assets ......................................... 2,035
----------------
TOTAL ASSETS ...................................... 501,187,542
----------------
LIABILITIES
Payable upon return of securities loaned ............. 42,162,841
Investments purchased payable ........................ 11,121,051
Capital shares redeemed payable ...................... 628,655
Advisory fees payable ................................ 285,227
Administrative fees payable .......................... 34,614
Transfer agent fees payable .......................... 87,667
Other accrued expenses payable ....................... 192,230
----------------
TOTAL LIABILITIES ................................. 54,512,285
----------------
NET ASSETS (Applicable to 7,219,597 Institutional
shares,112,752 Service shares,
29,568,600 Investor A shares,
6,567,268 Investor B shares and
2,305,471 Investor C shares outstanding) ............. $ 446,675,257
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($75,406,653/7,219,597)....... $ 10.44
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($1,135,542/112,752)................ $ 10.07
================
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($290,284,864/29,568,600)........ $ 9.82
================
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.82/0.9425) ....................................... $ 10.42
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE ($59,100,472/6,567,268).......... $ 9.00
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred
sales charge of 1.0%)
PER INVESTOR C SHARE ($20,747,726/2,305,471).......... $ 9.00
================
See accompanying notes to financial statements.
69
BlackRock Funds
STATEMENT OF NET ASSETS
AURORA PORTFOLIO
As of September 30, 2005
Number
of Shares Value
------------ -------------
COMMON STOCKS -- 100.2%
Aerospace -- 4.3%
AAR Corp.(b) 365,892 $ 6,286,025
Alliant Techsystems,Inc.(b) 281,300 20,999,045
Esterline Technologies Corp.(b) 533,700 20,221,893
Goodrich Corp. 532,300 23,602,182
HEICO Corp. 650,300 15,086,960
Teledyne Technologies,Inc.(b) 477,700 16,466,319
Triumph Group,Inc.(b) 360,000 13,381,200
-------------
116,043,624
-------------
Banks -- 5.3%
City National Corp. 457,900 32,094,211
First Niagara Financial Group, Inc. 885,200 12,782,288
Hudson City Bancorp.,Inc. 1,299,000 15,458,100
Sovereign Bancorp.,Inc.(c) 1,477,400 32,561,896
Sterling Bancshares,Inc. 1,190,941 17,518,742
TD Banknorth, Inc.(c) 329,538 9,932,276
Zions Bancorp.(c) 311,200 22,160,552
-------------
142,508,065
-------------
Broadcasting -- 0.3%
Gray Communications,Inc. 735,100 7,784,709
-------------
Business Services -- 4.6%
The Brink's Co. 967,100 39,709,126
Hiedrick & Struggles International,Inc.(b) 753,700 24,404,806
Manpower, Inc. 294,900 13,090,611
National Financial Partners Corp. 423,600 19,121,304
NCO Group, Inc.(b) 519,900 10,741,134
Stewart Enterprises,Inc. - Class A 2,761,200 18,306,756
-------------
125,373,737
-------------
Chemicals -- 1.0%
Church & Dwight Co.,Inc.(c) 491,200 18,144,928
Minerals Technologies, Inc.(c) 154,000 8,810,340
-------------
26,955,268
-------------
Computer & Office Equipment -- 0.7%
Electronics for Imaging, Inc.(b) 875,300 20,079,382
-------------
Computer Software & Services -- 4.1%
Ceridian Corp.(b) 814,000 16,890,500
DST Systems, Inc.(b) 413,176 22,654,440
Hyperion Solutions Corp.(b) 179,300 8,722,945
Mercury Interactive Corp.(b) 215,800 8,545,680
MRO Software, Inc.(b) 854,440 14,388,770
ProQuest Co.(b) 433,900 15,707,180
Sybase, Inc.(b) 355,800 8,332,836
Veritas DGC, Inc.(b) 403,800 14,787,156
-------------
110,029,507
-------------
Construction -- 2.8%
Apogee Enterprises,Inc. 948,496 16,219,282
Champion Enterprises, Inc.(b) 1,497,400 22,131,572
ElkCorp(c) 420,200 15,030,554
Martin Marietta Materials, Inc. 296,600 23,271,236
-------------
76,652,644
-------------
Containers -- 1.1%
Packaging Corp. of America 880,900 17,098,269
Smurfit-Stone Container Corp.(b) 1,257,300 13,025,628
-------------
30,123,897
-------------
Electronics -- 0.7%
Amphenol Corp. 282,800 11,408,152
COMMON STOCKS (Continued)
Electronics (Continued)
Excel Technology,Inc.(b) 300,286 $ 7,714,347
-------------
19,122,499
-------------
Energy & Utilities -- 5.2%
CMS Energy Corp.(b) 1,828,900 30,085,405
Constellation Energy Group 254,797 15,695,495
DPL, Inc. 657,800 18,286,840
MDU Resources Group, Inc. 395,300 14,092,445
UGI Corp. 584,800 16,462,120
Westar Energy, Inc. 660,100 15,928,213
Wisconsin Energy Corp.(c) 714,200 28,510,864
-------------
139,061,382
-------------
Entertainment & Leisure -- 4.1%
Boyd Gaming Corp. 222,500 9,594,200
Gaylord Entertainment Co.(b) 438,400 20,889,760
GTECH Holdings Corp. 1,547,800 49,622,468
Pinnacle Entertainment,Inc.(b) 1,044,600 19,147,518
Steiner Leisure Ltd.(b) 324,100 11,009,677
-------------
110,263,623
-------------
Finance -- 4.2%
Affiliated Managers Group,Inc.(b)(c) 530,900 38,447,778
American Capital Strategies Ltd.(c) 471,100 17,270,526
CIT Group, Inc. 370,300 16,730,154
MCG Capital Corp. 1,057,700 17,843,399
MoneyGram International, Inc. 542,000 11,766,820
Nuveen Investments - Class A(c) 292,100 11,505,819
-------------
113,564,496
-------------
Food & Agriculture -- 1.2%
Dean Foods Co.(b) 720,400 27,994,744
TreeHouse Foods, Inc.(b) 144,080 3,872,870
-------------
31,867,614
-------------
Furniture -- 1.7%
Steelcase, Inc. 562,400 8,132,304
Walter Industries, Inc. 765,200 37,433,584
-------------
45,565,888
-------------
Insurance -- 10.3%
Allmerica Financial Corp.(b) 948,200 39,008,948
AmerUs Group Co. 346,800 19,895,916
CIGNA Corp. 194,800 22,959,128
Harleysville Group, Inc. 488,777 11,730,648
Hub International Ltd. 678,600 15,390,648
Humana, Inc.(b) 874,000 41,847,120
Odyssey Re Holdings Corp.(c) 747,700 19,096,258
Ohio Casualty Corp. 939,100 25,468,392
Platinum Underwriters Holdings Ltd. 501,300 14,983,857
Radian Group, Inc.(c) 698,200 37,074,420
United America Indemnity Ltd.(b) 881,700 16,179,195
Universal American Financial Corp.(b) 600,000 13,644,000
-------------
277,278,530
-------------
Machinery & Heavy Equipment -- 3.9%
Flowserve Corp.(b) 306,600 11,144,910
JLG Industries, Inc. 588,000 21,514,920
The Manitowoc Co., Inc. 653,400 32,833,350
Stewart & Stevenson Services, Inc. 504,700 12,037,095
See accompanying notes to financial statements.
70
BlackRock Funds
STATEMENT OF NET ASSETS
AURORA PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
------------ -------------
COMMON STOCKS (Continued)
Machinery & Heavy Equipment (Continued)
Wabtec Corp. 1,025,337 $ 27,971,193
-------------
105,501,468
-------------
Manufacturing -- 6.7%
Belden CDT, Inc. 738,900 14,356,827
Briggs & Stratton Corp.(c) 409,000 14,147,310
Crown Holdings, Inc.(b) 1,731,200 27,595,328
Herley Microwave Systems, Inc.(b) 929,000 17,307,270
K2, Inc.(b) 1,088,000 12,403,200
Ladish Co., Inc.(b) 738,100 12,872,464
Playtex Products, Inc.(b) 1,455,500 16,010,500
Rinker Group Ltd. - ADR(c) 540,200 34,362,122
Roper Industries, Inc. 508,800 19,990,752
Valmont Industries, Inc. 437,169 12,835,282
-------------
181,881,055
-------------
Measuring & Controlling Devices -- 0.7%
LeCroy Corp.(b) 513,133 7,620,025
Watts Water Technologies, Inc. 353,400 10,195,590
-------------
17,815,615
-------------
Medical & Medical Services -- 2.4%
LifePoint Hospitals, Inc.(b)(c) 656,336 28,701,573
RehabCare Group,Inc.(b) 744,800 15,283,296
STERIS Corp. 861,500 20,495,085
-------------
64,479,954
-------------
Medical Instruments & Supplies -- 2.7%
Bausch & Lomb, Inc. 464,300 37,459,724
Cytyc Corp.(b) 193,300 5,190,105
Fisher Scientific
International, Inc.(b) 217,900 13,520,695
Viasys Healthcare, Inc.(b) 702,900 17,565,471
-------------
73,735,995
-------------
Metal & Mining -- 3.0%
Alpha Natural Resources, Inc.(b) 739,300 22,208,572
Massey Energy Co.(c) 702,900 35,897,103
RTI International Metals, Inc.(b) 602,800 23,720,180
------------
81,825,855
------------
Motor Vehicles -- 1.0%
Oshkosh Truck Corp. 615,600 26,569,296
-------------
Oil & Gas - 5.5%
CNX Gas Corp.(b)(c)(d) 591,100 11,476,236
Core Laboratories NV(b) 692,800 22,349,728
EOG Resources, Inc. 469,700 35,180,530
Global Industries, Inc.(b) 1,388,400 20,465,016
Oneok, Inc.(c) 424,700 14,448,294
Vintage Petroleum, Inc. 991,000 45,249,060
-------------
149,168,864
-------------
Paper & Forest Products -- 2.1%
Caraustar Industries, Inc.(b) 788,021 8,652,471
Kadant, Inc.(b) 1,214,600 24,364,876
Rayonier, Inc. 396,233 22,830,945
-------------
55,848,292
-------------
Pharmaceuticals -- 0.4%
Valeant Pharmaceuticals
International(c) 500,100 10,042,008
-------------
Publishing & Printing -- 0.3%
Journal Register Co. 467,300 7,560,914
-------------
COMMON STOCKS (Continued)
Railroad & Shipping -- 0.4%
RailAmerica, Inc.(b) 956,000 $ 11,376,400
-------------
Real Estate -- 2.8%
Heritage Property Investment Trust(c) 484,700 16,964,500
Highland Hospitality Corp. 594,600 6,100,596
Host Marriott Corp. 1,536,700 25,970,230
Ryland Group, Inc. 373,500 25,554,870
-------------
74,590,196
-------------
Restaurants -- 1.0%
CKE Restaurants, Inc.(c) 982,900 12,954,622
Papa John's International, Inc.(b) 260,100 13,036,212
-------------
25,990,834
-------------
Retail Merchandising -- 8.0%
AnnTaylor Stores Corp .(b)(c) 1,124,300 29,850,165
BJ's Wholesale Club, Inc.(b)(c) 1,182,600 32,876,280
Federated Department Stores, Inc. 327,500 21,899,925
Linens 'n Things, Inc.(b)(c) 1,361,200 36,344,040
Longs Drug Stores Corp.(c) 452,979 19,428,269
Officemax, Inc.(c) 764,400 24,208,548
Pier 1 Imports, Inc. 1,077,500 12,143,425
Reebok International Ltd 200,300 11,330,971
Saks, Inc.(b) 1,540,600 28,501,100
-------------
216,582,723
-------------
Security Brokers & Dealers -- 0.6%
A.G. Edwards, Inc. 366,400 16,051,984
-------------
Semiconductors & Related Devices -- 0.8%
Cypress Semiconductor Corp.(b)(c) 1,012,900 15,244,145
IXYS Corp.(b) 701,271 7,405,422
-------------
22,649,567
-------------
Telecommunications -- 4.6%
Amdocs Ltd.(b) 521,100 14,450,103
Anaren, Inc.(b) 934,170 13,171,797
Avaya, Inc.(b) 1,325,600 13,653,680
Cablevision Systems New York
Group - Class A(b) 519,000 15,917,730
Nextel Partners, Inc.- Class A(b)(c) 1,368,100 34,339,310
Premiere Global Services, Inc.(b) 1,466,600 11,996,788
Scientific-Atlanta, Inc. 565,500 21,211,905
-------------
124,741,313
-------------
Transportation -- 1.7%
Kirby Corp.(b) 251,300 12,421,759
Laidlaw International, Inc. 1,363,500 32,955,795
-------------
45,377,554
-------------
TOTAL COMMON STOCKS
(Cost $2,000,165,305) 2,704,064,752
-------------
See accompanying notes to financial statements.
71
BlackRock Funds
STATEMENT OF NET ASSETS
AURORA PORTFOLIO (Concluded)
As of September 30, 2005
Par/shares
Maturity (000) Value
-------- ---------- ---------------
SHORT TERM INVESTMENTS -- 6.6%
Morgan Stanley, Floating Rate
Notes
4.01%(e)(f) 11/14/05 $ 7,747 $ 7,746,680
Galileo Money Market Fund 903 903,032
Institutional Money Market
Trust(f)(g) 168,828 168,827,843
---------------
TOTAL SHORT TERM INVESTMENTS
(Cost $177,477,555) 177,477,555
---------------
TOTAL INVESTMENTS IN SECURITIES -- 106.8%
(Cost $2,177,642,860(a)) 2,881,542,307
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (6.8)% (182,613,055)
---------------
NET ASSETS -- 100.0%
(Applicable to 3,818,832
Institutional shares, 4 Service
shares, 40,363,015 Investor A
shares, 11,394,466 Investor B
shares and 10,594,522 Investor C
shares outstanding) $ 2,698,929,252
===============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($165,837,474/3,818,832) $ 43.43
===============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($159/4)(h) $ 41.88
===============
NET ASSET VALUE AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($1,690,496,896/40,363,015) $ 41.88
===============
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE
($41.88/0.9425) $ 44.44
===============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($436,642,428/11,394,466) $ 38.32
===============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($405,952,295/10,594,522) $ 38.32
===============
- ----------
(a) Cost for Federal income tax purposes is $2,183,317,284. The gross
unrealized appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 708,547,402
Gross unrealized depreciation (10,322,379)
---------------
$ 698,225,023
===============
(b) Non-income producing security.
(c) Total or partial securities on loan.
(d) Security valued at fair value as determined in good faith by or under
the direction of the Trustees. As of September 30, 2005, these
securities had a total market value of $11,476,236 which represents less
than 0.43% of net assets.
(e) Rates shown are the rates as of September 30, 2005.
(f) Securities purchased with the cash proceeds from securities loaned.
(g) Represents an investment in an affiliate.
(h) Exact net assets and shares outstanding at September 30, 2005 were
$159.30 and 3.804, respectively.
See accompanying notes to financial statements.
72
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
AURORA PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $2,177,642,860) ............................... $ 2,881,542,307
Dividends receivable ..................................................... 2,768,463
Interest receivable ...................................................... 77,431
Investments sold receivable .............................................. 11,723,681
Capital shares sold receivable ........................................... 2,355,836
Prepaid expenses ......................................................... 83,069
---------------
TOTAL ASSETS ........................................................... 2,898,550,787
---------------
LIABILITIES
Payable upon return of securities loaned ................................. 176,574,523
Investments purchased payable ............................................ 1,572,075
Capital shares redeemed payable .......................................... 17,380,868
Advisory fees payable .................................................... 1,805,047
Administrative fees payable .............................................. 494,178
Transfer agent fees payable .............................................. 245,709
Other accrued expenses payable ........................................... 1,549,135
---------------
TOTAL LIABILITIES ...................................................... 199,621,535
---------------
NET ASSETS (Applicable to 3,818,832 Institutional shares, 4 Service shares,
40,363,015 Investor A shares, 11,394,466 Investor B shares and
10,594,522 Investor C shares outstanding) ................................ $ 2,698,929,252
===============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($165,837,474/3,818,832) ......................... $ 43.43
===============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($159/4)(a) ............................................ $ 41.88
===============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($1,690,496,896/40,363,015) ......................... $ 41.88
===============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($41.88/0.9425) ............... $ 44.44
===============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($436,642,428/11,394,466) ........................... $ 38.32
===============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($405,952,295/10,594,522) ........................... $ 38.32
===============
- ---------
(a) Exact net assets and shares outstanding at September 30, 2005 were $159.30
and 3.804, respectively.
See accompanying notes to financial statements.
73
BlackRock Funds
STATEMENT OF NET ASSETS
SMALL/MID-CAP GROWTH PORTFOLIO
As of September 30, 2005
Number
of Shares Value
----------- ------------
COMMON STOCKS -- 98.5%
Advertising -- 0.9%
Getty Images, Inc.(b) 29,000 $ 2,495,160
------------
Aerospace -- 0.8%
Alliant Techsystems,Inc.(b) 30,600 2,284,290
------------
Air Transportation -- 0.2%
ExpressJet Holdings, Inc.(b) 68,600 615,342
------------
Broadcasting -- 1.5%
CKX, Inc.(b) 227,700 2,862,189
Radio One, Inc. - Class D(b) 107,300 1,410,995
------------
4,273,184
------------
Business Services -- 11.8%
Advisory Board Co.(b) 61,500 3,200,460
The Corporate Executive Board Co. 49,200 3,836,616
CoStar Group, Inc.(b)(c) 67,600 3,158,272
Digitas, Inc.(b) 503,700 5,722,032
Equifax, Inc. 60,700 2,120,858
Gartner, Inc. - Class A(b) 250,700 2,930,683
Global Cash Access, Inc.(b) 24,500 345,450
Global Payments, Inc. 42,500 3,303,100
Heartland Payment Systems, Inc.(b) 135,800 3,240,188
Navigant Consulting, Inc.(b)(c) 120,100 2,301,116
Net 1 UEPS Technologies, Inc.(b) 109,800 2,461,716
VistaPrint Ltd.(b) 46,500 709,125
------------
33,329,616
------------
Chemicals -- 1.3%
Agrium, Inc. 169,800 3,730,506
------------
Computer & Office Equipment -- 0.5%
Hutchinson Technology, Inc.(b) 54,500 1,423,540
------------
Computer Software & Services -- 11.3%
Anteon International Corp.(b)(c) 50,000 2,138,000
Autobytel, Inc.(b)(d) 73,042 365,940
BEA Systems, Inc.(b) 254,500 2,285,410
Borland Software Corp.(b) 422,100 2,456,622
CACI International, Inc.(b) 39,300 2,381,580
Ceridian Corp.(b) 111,600 2,315,700
Foundry Networks, Inc.(b) 356,700 4,530,090
Hyperion Solutions Corp.(b) 53,500 2,602,775
McData Corp. - Class A(b) 707,700 3,708,348
SonicWALL, Inc.(b) 774,300 4,916,805
VeriFone Holdings, Inc.(b) 208,000 4,182,880
------------
31,884,150
------------
Construction -- 0.5%
Jacobs Engineering Group, Inc.(b) 19,400 1,307,560
-----------
Entertainment & Leisure -- 5.3%
GTECH Holdings Corp. 98,300 3,151,498
Marvel Entertainment, Inc.(b) 102,500 1,831,675
Orient-Express Hotels
Ltd. - Class A 86,500 2,458,330
Scientific Games
Corp. - Class A(b)(c) 87,100 2,700,100
Station Casinos, Inc. 70,200 4,658,472
-----------
14,800,075
-----------
Finance -- 2.5%
Affiliated Managers Group, Inc.(b)(c) 39,600 2,867,832
Nuveen Investments - Class A(c) 55,100 2,170,389
COMMON STOCKS (Continued)
Finance (Continued)
Wright Express Corp.(b) 98,000 $ 2,115,820
------------
7,154,041
------------
Machinery & Heavy Equipment -- 1.0%
Bucyrus International, Inc. - Class A 6,600 324,258
Dresser-Rand Group, Inc 43,400 1,068,942
Lennox International, Inc. 51,900 1,422,579
------------
2,815,779
------------
Manufacturing -- 2.8%
Actuant Corp. - Class A 55,400 2,592,720
Gardner Denver, Inc.(b) 69,900 3,117,540
The Warnaco Group, Inc.(b) 106,100 2,324,651
------------
8,034,911
------------
Medical & Medical Services -- 9.3%
Community Health Systems, Inc.(b) 133,900 5,196,659
Coventry Health Care, Inc.(b) 42,100 3,621,442
Digene Corp.(b) 97,400 2,775,900
Medco Health Solutions, Inc.(b) 22,687 1,243,928
Noven Pharmaceuticals, Inc.(b) 200,900 2,812,600
Omnicare, Inc.(c) 64,700 3,638,081
Pediatrix Medical Group, Inc.(b) 40,100 3,080,482
Triad Hospitals, Inc.(b) 84,200 3,811,734
------------
26,180,826
------------
Medical Instruments & Supplies -- 7.3%
Advanced Medical Optics, Inc.(b) 93,900 3,563,505
Charles River Laboratories International, Inc.(b) 44,400 1,936,728
Hologic, Inc.(b) 38,100 2,200,275
Kyphon, Inc.(b) 82,500 3,625,050
Martek Biosciences Corp.(b)(c) 76,900 2,701,497
Varian Medical Systems, Inc.(b)(c) 79,200 3,129,192
Wright Medical Group, Inc.(b) 140,200 3,460,136
------------
20,616,383
------------
Metal & Mining -- 3.9%
Alpha Natural Resources, Inc.(b) 113,900 3,421,556
CONSOL Energy, Inc. 39,800 3,035,546
Massey Energy Co. 89,000 4,545,230
------------
11,002,332
------------
Motor Vehicles -- 0.7%
Wabash National Corp. 99,000 1,946,340
-----------
Oil & Gas -- 8.9%
Airgas, Inc.(c) 163,900 4,856,357
Diamond Offshore Drilling, Inc. 39,500 2,419,375
Energy Partners Ltd.(b) 64,200 2,004,324
ENSCO International, Inc. 79,100 3,685,269
National-Oilwell, Inc.(b) 45,700 3,007,060
Pride International, Inc.(b) 117,100 3,338,521
Vintage Petroleum, Inc. 123,500 5,639,010
------------
24,949,916
------------
Personal Services -- 4.0%
Corinthian Colleges, Inc.(b) 133,400 1,770,218
Educate, Inc.(b) 196,100 2,941,500
Laureate Education, Inc.(b) 131,500 6,439,555
------------
11,151,273
------------
See accompanying notes to financial statements.
74
BlackRock Funds
STATEMENT OF NET ASSETS
SMALL/MID-CAP GROWTH PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
----------- ------------
COMMON STOCKS (Continued)
Pharmaceuticals -- 3.8%
Alkermes, Inc.(b) 264,800 $ 4,448,640
Endo Pharmaceuticals Holdings, Inc.(b) 141,200 3,765,804
Shire Pharmaceuticals Group PLC - ADR 65,500 2,422,845
------------
10,637,289
------------
Restaurants -- 2.6%
RARE Hospitality International, Inc.(b) 94,000 2,415,800
Ruth's Chris Steak House, Inc.(b) 127,900 2,350,802
Texas Roadhouse, Inc.(b) 165,200 2,461,480
------------
7,228,082
------------
Retail Merchandising -- 4.6%
99 Cents Only Stores(b) 56,600 523,550
Central Garden & Pet Co.(b) 66,900 3,027,225
Coldwater Creek, Inc.(b) 73,000 1,841,060
Dick's Sporting Goods, Inc.(b)(c) 88,915 2,677,231
Jos. A. Bank Clothiers, Inc.(b) 65,600 2,835,232
Williams-Sonoma, Inc.(b) 56,800 2,178,280
------------
13,082,578
------------
Semiconductors & Related Devices -- 3.8%
Integrated Device Technology, Inc.(b) 270,400 2,904,096
Microsemi Corp.(b) 173,300 4,426,082
O2Micro International Ltd.(b) 208,200 3,277,068
------------
10,607,246
------------
Telecommunications -- 7.7%
ADTRAN, Inc.(c) 152,700 4,810,050
Amdocs Ltd.(b) 111,000 3,078,030
American Tower Corp. - Class A(b) 145,700 3,635,215
Avid Technology, Inc.(b) 50,400 2,086,560
Harris Corp. 45,500 1,901,900
NeuStar, Inc. - Class A(b) 10,900 348,691
Polycom, Inc.(b) 122,300 1,977,591
Scientific-Atlanta, Inc. 55,100 2,066,801
Syniverse Holdings, Inc.(b) 109,400 1,684,760
------------
21,589,598
------------
Transportation -- 0.7%
Landstar System, Inc. 47,400 1,897,422
------------
Waste Management -- 0.8%
Stericycle, Inc.(b) 41,800 2,388,870
------------
TOTAL COMMON STOCKS
(Cost $236,235,571) 277,426,309
------------
Par/Shares
Maturity (000) value
-------- ----------- -------------
SHORT TERM INVESTMENTS - 12.0%
Morgan Stanley, Floating Rate
Notes
4.02%(e)(f) 11/07/05 $ 1,097 $ 1,097,384
4.01%(e)(f) 11/14/05 2,989 2,988,972
4.02%(e)(f) 01/05/06 1,335 1,334,604
Galileo Money Market Fund 7,080 7,079,941
Institutional Money Market Trust(f)(g) 21,269 21,268,527
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $33,769,428) 33,769,428
-------------
TOTAL INVESTMENTS IN SECURITIES - 110.5%
(Cost $270,004,999(a)) 311,195,737
LIABILITIES IN EXCESS OF OTHER
ASSETS - (10.5)% (29,552,840)
-------------
NET ASSETS - 100.0%
(Applicable to 1,327,781 Institutional
shares, 8 Service Shares, 14,892,838
Investor A shares, 1,912,217 Investor B
shares and 1,605,120 Investor C shares
outstanding) $ 281,642,897
=============
See accompanying notes to financial statements.
75
BlackRock Funds
STATEMENT OF NET ASSETS
SMALL/MID-CAP GROWTH PORTFOLIO (Concluded)
As of September 30, 2005
Value
-------------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($20,132,511/1,327,781) $ 15.16
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($113/8)(h) $ 14.47
=============
NET ASSET VALUE AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($215,623,072/14,892,838) $ 14.48
=========
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE
($14.48/0.9425) $ 15.36
=========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($24,924,537/1,912,217) $ 13.03
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($20,962,664/1,605,120) $ 13.06
=======
- ----------
(a) Cost for Federal income tax purposes is $270,946,080. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 48,454,048
Gross unrealized depreciation (8,204,391)
-------------
$ 40,249,657
=============
- ----------
(b) Non-income producing security.
(c) Total or partial securities on loan.
(d) Security valued at fair value as determined in good faith by or under the
direction of the Trustees. As of September 30, 2005, this security had a
total market value of $365,940 which represents 0.13% of net assets.
(e) Rates shown are the rates as of September 30, 2005.
(f) Securities purchased with the cash proceeds from securities loaned.
(g) Represents an investment in an affiliate.
(h) Exact net assets and shares outstanding at September 30, 2005 were $112.90
and 7.805, respectively.
See accompanying notes to financial statements.
76
Blackrock funds
STATEMENT OF ASSETS AND LIABILITIES
SMALL/MID-CAP GROWTH PORTFOLIO
As of september 30, 2005
ASSETS
Investments at value (Cost $274,004,999) ................................. $ 311,195,737
Dividends receivable ..................................................... 22,824
Interest receivable ...................................................... 4,633
Investments sold receivable .............................................. 2,065,182
Capital shares sold receivable ........................................... 514,360
Prepaid expenses ......................................................... 59,266
Other assets ............................................................. 13,387
-------------
TOTAL ASSETS ........................................................... 313,875,389
------------
LIABILITIES
Payable upon return of securities loaned ................................. 26,689,488
Investments purchased payable ............................................ 3,745,834
Capital shares redeemed payable .......................................... 1,380,061
Advisory fees payable .................................................... 208,576
Administrative fees payable .............................................. 20,302
Transfer agent fees payable .............................................. 39,378
Other accrued expenses payable ........................................... 148,853
-------------
TOTAL LIABILITIES ...................................................... 32,232,492
-------------
NET ASSETS (Applicable to 1,327,781 Institutional shares, 8 Service shares,
14,892,838 Investor A shares, 1,912,217 Investor B shares and
1,605,120 Investor C shares outstanding) ................................. $ 281,642,897
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($20,132,511/1,327,781) .......................... $ 15.16
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($113/8)(a) ............................................ $ 14.47
=============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($215,623,072/14,892,838) ........................... $ 14.48
=============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($14.48/0.9425) ............... $ 15.36
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($24,924,537/1,912,217) ............................. $ 13.03
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($20,962,664/1,605,120) ............................. $ 13.06
=============
- ---------
(a) Exact net assets and shares outstanding at September 30, 2005 were $112.90
and 7.805, respectively.
See accompanying notes to financial statements.
77
BlackRock Funds
STATEMENT OF NET ASSETS
SMALL CAP VALUE EQUITY PORTFOLIO
As of september 30, 2005
Number
of shares value
----------- -------------
COMMON STOCKS -- 94.8%
Aerospace -- 0.7%
K&F Industries 56,100 $ 938,553
------------
Holdings, Inc.(b)
Banks -- 10.2%
Cathay General Bancorp. 31,800 1,127,628
Central Pacific Financial Corp. 27,200 956,896
First Niagara Financial Group, Inc. 123,200 1,779,008
Gold Banc Corp., Inc. 129,700 1,932,530
Sterling Financial Corp. 74,025 1,669,264
Taylor Capital Group, Inc. 23,400 884,988
Trustmark Corp. 64,400 1,793,540
Umpqua Holdings Corp. 45,100 1,096,832
Wintrust Financial Corp 38,400 1,929,984
------------
13,170,670
------------
Business Services -- 5.0%
The Brink's Co. 49,000 2,011,940
Digitas, Inc.(b) 102,100 1,159,856
Hiedrick & Struggles
International, Inc.(b) 56,300 1,822,994
National Financial Partners Corp. 30,800 1,390,312
------------
6,385,102
------------
Chemicals -- 0.4%
Church & Dwight Co., Inc. 14,500 535,630
------------
Computer & Office Equipment -- 2.3%
Electronics for Imaging, Inc.(b) 86,600 1,986,604
Imation Corp. 22,700 973,149
------------
2,959,753
------------
Computer Software & Services -- 6.2%
Borland Software Corp.(b) 185,500 1,079,610
Brooks Automation, Inc.(b) 39,700 529,201
FileNET Corp.(b) 32,800 915,120
Hyperion Solutions Corp.(b) 24,400 1,187,060
Manhattan Associates, Inc.(b) 46,600 1,081,120
Novatel Wireless, Inc.(b)(c) 41,500 600,505
ProQuest Co.(b) 14,600 528,520
RSA Security, Inc.(b) 68,300 868,093
TIBCO Software, Inc.(b) 147,800 1,235,608
------------
8,024,837
------------
Construction -- 3.6%
Dycom Industries, Inc.(b) 78,700 1,591,314
Washington Group International, Inc.(b) 57,500 3,098,675
------------
4,689,989
------------
Containers -- 0.2%
Packaging Corp. of America 10,500 203,805
------------
Energy & Utilities -- 5.2%
Black Hills Corp. 22,700 984,499
ITC Holdings Corp.(c) 43,400 1,257,732
Northwestern Corp. 61,600 1,859,704
PNM Resources, Inc. 63,300 1,814,811
Thomas & Betts Corp.(b) 24,000 825,840
-----------
6,742,586
-----------
Entertainment & Leisure -- 3.4%
Gaylord Entertainment Co.(b) 58,000 2,763,700
Kerzner International Ltd.(b) 15,400 855,470
Pinnacle Entertainment, Inc.(b) 39,100 716,703
------------
4,335,873
------------
COMMON STOCKS (Continued)
Finance -- 1.8%
Affiliated Managers Group,Inc.(b)(c) 31,800 $ 2,302,956
------------
Food & Agriculture -- 3.5%
Chiquita Brands International, Inc.(c) 48,100 1,344,395
Diamond Foods, Inc.(b) 31,600 540,360
Hain Celestial Group, Inc.(b) 44,200 857,480
Lance, Inc. 37,700 658,242
TreeHouse Foods, Inc.(b) 40,100 1,077,888
------------
4,478,365
------------
Furniture -- 1.1%
Walter Industries, Inc. 28,000 1,369,760
------------
Insurance -- 5.0%
Allmerica Financial Corp.(b) 31,500 1,295,910
Aspen Insurance Holding 37,000 1,093,350
Max Re Capital Ltd. 97,300 2,412,067
Universal American Financial Corp.(b) 71,700 1,630,458
------------
6,431,785
------------
Machinery & Heavy Equipment -- 2.7%
Axcelis Technologies, Inc.(b) 113,100 590,382
Lennox International, Inc. 66,700 1,828,247
Lone Star Technologies, Inc.(b) 19,000 1,056,210
------------
3,474,839
------------
Manufacturing -- 3.8%
Actuant Corp. - Class A 19,000 889,200
Aptargroup, Inc. 21,400 1,065,934
Briggs & Stratton Corp 37,900 1,310,961
Fleetwood Enterprises, Inc.(b) 39,100 480,930
K2, Inc.(b) 99,700 1,136,580
------------
4,883,605
------------
Medical & Medical Services -- 1.2%
Amedisys, Inc.(b)(c) 20,100 783,900
Per-Se Technologies,Inc.(b) 38,500 795,410
------------
1,579,310
------------
Medical Instruments & Supplies -- 3.9%
DJ Orthopedics, Inc.(b) 53,100 1,536,714
Polymedica Corp. 31,900 1,114,586
Sybron Dental Specialties, Inc.(b) 55,500 2,307,690
------------
4,958,990
------------
Metal & Mining -- 2.8%
Alpha Natural Resources Inc. (b) 43,800 1,315,752
Foundation Coal Holdings, Inc. 59,600 2,291,620
------------
3,607,372
------------
Motor Vehicles -- 1.4%
Tenneco Automotive, Inc.(b) 54,300 950,793
Winnebago Industries, Inc.(c) 31,400 909,658
------------
1,860,451
------------
Oil & Gas -- 4.6%
Airgas, Inc. 46,100 1,365,943
CNX Gas Corp.(b)(d) 28,000 543,621
Comstock Resources, Inc.(b) 33,300 1,092,573
Vintage Petroleum, Inc. 17,300 789,918
See accompanying notes to financial statements.
78
BlackRock Funds
STATEMENT OF NET ASSETS
SMALL CAP VALUE EQUITY PORTFOLIO (Continued)
As of September 30, 2005
Number
of shares value
----------- -------------
COMMON STOCKS (Continued)
Oil & Gas (Continued)
Whiting Petroleum Corp.(b) 49,400 $ 2,165,696
-------------
5,957,751
-------------
Paper & Forest Products -- 0.9%
Bowater, Inc.(c) 41,500 1,173,205
-------------
Publishing & Printing -- 3.3%
Banta Corp. 61,200 3,114,468
PRIMEDIA, Inc.(b) 265,000 1,083,850
-------------
4,198,318
-------------
Real Estate -- 2.9%
HomeBanc Corp. 75,000 579,000
Sunstone Hotel Investors, Inc. 27,200 663,408
Trustreet Properties, Inc. 53,900 843,535
U-Store-It Trust 83,100 1,684,437
-------------
3,770,380
-------------
Restaurants -- 2.1%
Landry's Restaurants, Inc. 21,300 624,090
Lone Star Steakhouse & Saloon, Inc. 36,700 954,200
Triarc Cos. - Class A(c) 66,500 1,117,200
-------------
2,695,490
-------------
Retail Merchandising -- 10.9%
AnnTaylor Stores Corp.(b) 23,700 629,235
BJ's Wholesale Club, Inc.(b) 33,400 928,520
The Finish Line, Inc. - Class A 69,400 1,012,546
Handleman Co. 117,100 1,478,973
Jarden Corp.(b) 63,800 2,620,266
Linens 'n Things, Inc.(b) 70,100 1,871,670
Officemax, Inc. 39,600 1,254,132
Pier 1 Imports, Inc. 81,200 915,124
RC2 Corp.(b) 34,300 1,157,968
Saks, Inc.(b) 20,200 373,700
The Sports Authority, Inc.(b) 38,100 1,121,664
Stage Stores, Inc. 22,800 612,636
-------------
13,976,434
-------------
Semiconductors & Related Devices -- 0.5%
Integrated Device Technology, Inc.(b) 54,300 583,182
-------------
Telecommunications -- 2.9%
Dobson Communications Corp. - Class A(b) 98,900 759,552
Polycom, Inc.(b) 37,700 609,60
Tekelec(b) 63,700 1,334,51
Ubiquitel, Inc.(b) 120,100 1,049,67
-------------
3,753,350
-------------
Transportation -- 2.3%
Laidlaw International, Inc. 120,000 2,900,400
-------------
TOTAL COMMON STOCKS
(Cost $105,755,760) 121,942,741
-------------
Par/Shares
Maturity (000)
-------- ------------
SHORT TERM INVESTMENTS - 9.4%
Federal Home Loan Bank, Discount
Notes
3.18%(e) 10/03/05 $ 1,000 999,823
Galileo Money Market Fund 6,023 6,023,040
Institutional Money Market
Trust(f)(g) 5,002 5,001,530
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $12,024,393) 12,024,393
-------------
TOTAL INVESTMENTS IN SECURITIES - 104.2%
(Cost $117,780,153(a)) 133,967,134
LIABILITIES IN EXCESS OF OTHER
ASSETS - (4.2)% (5,368,468)
-------------
NET ASSETS - 100.0%
(Applicable to 340,461 BlackRock,
4,540,622 Institutional shares,
227,752 Service shares, 2,145,848
Investor A shares, 967,654 Investor B
shares and 482,906 Investor C shares
outstanding) $ 128,598,666
=============
See accompanying notes to financial statements.
79
BlackRock Funds
STATEMENT OF NET ASSETS
SMALL CAP VALUE EQUITY PORTFOLIO (Concluded)
As of September 30, 2005
Value
-------------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
BLACKROCK SHARE
($5,162,286/340,461) $ 15.16
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($68,880,491/4,540,622) $ 15.17
============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
PER SERVICE SHARE
($3,405,045/227,752) $ 14.95
=============
NET ASSET VALUE AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($31,888,964/2,145,848) $ 14.86
=============
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE
($14.86/0.9425) $ 15.77
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($12,848,079/967,654) $ 13.28
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($6,413,801/482,906) $ 13.28
=============
- ----------
(a) Cost for Federal income tax purposes is $117,902,070. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 19,235,338
Gross unrealized depreciation (3,170,274)
-------------
$ 16,065,064
=============
(b) Non-income producing security.
(c) Total or partial securities on loan.
(d) Security valued at fair value as determined in good faith by or under the
direction of the Trustees. As of September 30, 2005, these securities had a
total market value of $543,621 which represents 0.42% of net assets.
(e) The rate shown is the effective yield on the discount notes at the time of
purchase.
(f) Represents an investment in an affiliate.
(g) Securities purchased with the cash proceeds from securities loaned.
See accompanying notes to financial statements.
80
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
SMALL CAP VALUE EQUITY PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $117,780,153)........................... $ 133,967,134
Dividends receivable .............................................. 68,459
Interest receivable ............................................... 17,571
Investments sold receivable ....................................... 1,734,435
Capital shares sold receivable .................................... 25,169
Prepaid expenses .................................................. 25,806
--------------
TOTAL ASSETS ................................................... 135,838,574
--------------
LIABILITIES
Payable upon return of securities loaned .......................... 5,001,530
Investments purchased payable ..................................... 1,952,979
Capital shares redeemed payable ................................... 132,604
Advisory fees payable ............................................. 58,274
Administrative fees payable ....................................... 20,510
Transfer agent fees payable ....................................... 14,349
Other accrued expenses payable .................................... 59,662
--------------
TOTAL LIABILITIES .............................................. 7,239,908
--------------
NET ASSETS (Applicable to 340,461 BlackRock shares, 4,540,622
Institutional shares, 227,752 Service shares, 2,145,848
Investor A shares, 967,654 Investor B shares and
482,906 Investor C shares outstanding) ............................ $ 128,598,666
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER BLACKROCK SHARE ($5,162,286/340,461)........................... $ 15.16
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($68,880,491/4,540,622).................... $ 15.17
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($3,405,045/227,752)............................. $ 14.95
==============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($31,888,964/2,145,848)....................... $ 14.86
==============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($14.86/0.9425)......... $ 15.77
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($12,848,079/967,654)......................... $ 13.28
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($6,413,801/482,906).......................... $ 13.28
==============
See accompanying notes to financial statements.
81
BlackRock Funds
STATEMENT OF NET ASSETS
SMALL CAP CORE EQUITY PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS -- 95.5%
Aerospace -- 4.9%
AAR Corp.(b) 22,300 $ 383,114
Aviall, Inc.(b) 40,700 1,374,846
Orbital Sciences Corp.(b) 50,250 628,125
----------------
2,386,085
----------------
Banks -- 7.4%
Cathay General Bancorp. 16,700 592,182
Central Pacific Financial Corp. 18,450 649,071
Gold Banc Corp., Inc. 39,600 590,040
Umpqua Holdings Corp. 24,150 587,328
Wintrust Financial Corp 15,000 753,900
WSFS Financial Corp. 6,700 394,563
----------------
3,567,084
----------------
Broadcasting -- 0.7%
Alliance Atlantis Communications,Inc.(b) 13,300 363,422
----------------
Business Services -- 6.4%
The Brink's Co. 21,250 872,525
Digitas, Inc.(b) 31,800 361,248
HMS Holdings Corp.(b) 55,650 385,655
National Financial Partners Corp. 16,150 729,011
Navigant Consulting, Inc.(b)(c) 12,900 247,164
Watson Wyatt & Co. Holdings 17,950 483,752
----------------
3,079,355
----------------
Computer & Office Equipment -- 0.7%
Electronics for Imaging, Inc.(b) 15,050 345,247
----------------
Computer Software & Services -- 7.6%
Borland Software Corp.(b) 62,450 363,459
CACI International, 9,600 581,760
Foundry Networks, Inc.(b) 34,950 443,865
Micromuse, Inc.(b) 73,950 582,726
Progress Software Corp.(b ) 14,500 460,665
SkillSoft PLC - ADR(b) 157,500 721,350
TIBCO Software, Inc.(b) 63,650 532,114
----------------
3,685,939
----------------
Construction -- 1.0%
Dycom Industries, Inc.(b) 23,200 469,104
----------------
Energy & Utilities -- 1.1%
ITC Holdings Corp.(c) 17,900 518,742
----------------
Entertainment & Leisure -- 5.0%
Gaylord Entertainment Co.(b) 17,400 829,110
Kerzner International Ltd.(b) 7,450 413,847
Marvel Entertainment, Inc.(b) 12,400 221,588
Orient-Express Hotels Ltd. - Class A 15,350 436,247
Pinnacle Entertainment, Inc.(b) 15,100 276,783
Scientific Games Corp. - Class A(b)(c) 7,250 224,750
----------------
2,402,325
----------------
Finance -- 0.9%
Affiliated Managers Group, Inc.(b)(c) 5,900 427,278
----------------
Food & Agriculture -- 2.6%
Chiquita Brands International, Inc.(c) 17,750 496,112
Diamond Foods, Inc.(b) 12,900 220,590
Lance, Inc. 29,950 522,927
----------------
1,239,629
----------------
Insurance -- 4.5%
Allmerica Financial Corp.(b) 16,750 689,095
Max Re Capital Ltd. 24,300 602,397
Universal American Financial Corp.(b) 38,600 877,764
----------------
2,169,256
----------------
Machinery & Heavy Equipment -- 0.7%
Lennox International, Inc. 13,250 363,182
----------------
Manufacturing -- 4.5%
Applied Films Corp.(b) 11,550 242,550
Aptargroup, Inc. 11,900 592,739
Fleetwood Enterprises, 25,450 313,035
Hexel Corp.(b) 33,800 618,202
K2, Inc.(b) 17,100 194,940
Maidenform Brands, Inc.(b) 17,150 235,813
----------------
2,197,279
----------------
Medical & Medical Services -- 5.2%
Amedisys, Inc.(b)(c) 6,300 245,700
Community Health Systems, Inc.(b) 6,700 260,027
Digirad Corp.(b) 55,600 268,326
Pediatrix Medical Group, Inc.(b) 8,450 649,129
Per-Se Technologies, In 27,750 573,315
VCA Antech, Inc.(b) 6,250 159,500
Vital Images, Inc.(b) 16,000 356,160
----------------
2,512,157
----------------
Medical Instruments & Supplies -- 5.9%
DJ Orthopedics, Inc.(b) 19,800 573,012
Hologic, Inc.(b) 10,850 626,587
IntraLase Corp.(b) 14,400 211,824
Martek Biosciences Corp.(b) 6,500 228,345
MWI Veterinary Supply, Inc.(b) 20,500 408,975
Symmetry Medical, Inc.(b) 10,100 239,370
Syneron Medical Ltd.(b)15,000 548,100
----------------
2,836,213
----------------
Metal & Mining -- 1.7%
Foundation Coal Holdings, Inc. 21,100 811,295
----------------
Motor Vehicles -- 0.8%
Tenneco Automotive, Inc.(b) 21,100 369,461
----------------
Oil & Gas -- 13.2%
Airgas, Inc.(c) 30,700 909,641
Cimarex Energy Co.(b)(c) 9,520 431,542
Double Eagle Petroleum Co.(b) 20,700 495,765
Energy Partners Ltd.(b) 7,800 243,516
Goodrich Petroleum Corp.(b) 20,250 475,267
KCS Energy, Inc.(b) 34,150 940,150
Superior Energy Serivces, Inc.(b) 22,000 507,980
TETRA Technologies, Inc 34,200 1,067,724
Tidewater, Inc.(c) 9,400 457,498
Vintage Petroleum, Inc. 18,150 828,729
----------------
6,357,812
----------------
Personal Services -- 2.6%
Laureate Education, Inc.(b) 25,950 1,270,772
----------------
See accompanying notes to financial statements.
82
BlackRock Funds
STATEMENT OF NET ASSETS
SMALL CAP CORE EQUITY PORTFOLIO (Concluded)
As of September 30, 2005
Number
Of Shares Value
--------------- ----------------
COMMON STOCKS (Continued)
Pharmaceuticals -- 1.9%
Nabi Biopharmaceuticals(b)(c) 47,300 $ 619,630
Valeant Pharmaceuticals International 14,100 283,128
----------------
902,758
----------------
Publishing & Printing -- 0.9%
Banta Corp. 8,200 417,298
----------------
Real Estate -- 2.5%
Eagle Hospitality Properties Trust, Inc. 63,150 630,237
LaSalle Hotel Properties 17,600 606,320
----------------
1,236,557
----------------
Restaurants -- 0.6%
RARE Hospitality International,Inc.(b) 11,200 287,840
----------------
Retail Merchandising -- 5.2%
Dick's Sporting Goods, Inc.(b)(c) 11,700 352,287
DSW, Inc. - Class A(b) 17,100 362,520
Handleman Co. 52,950 668,759
Hot Topic, Inc.(b) 14,600 224,256
Jarden Corp.(b) 11,975 491,813
Pier 1 Imports, Inc. 19,000 214,130
The Sports Authority, Inc.(b) 7,050 207,552
----------------
2,521,317
----------------
Semiconductors & Related Devices -- 3.6%
Integrated Device Technology, Inc.(b) 39,875 428,258
O2Micro International Ltd.(b) 49,300 775,982
Rudolph Technologies, Inc.(b) 41,750 562,372
----------------
1,766,612
----------------
Telecommunications -- 2.7%
ADTRAN, Inc.(c) 23,350 735,525
Ubiquitel, Inc.(b) 65,850 575,529
----------------
1,311,054
----------------
Transportation -- 0.7%
SCS Transportation, Inc.(b) 21,450 336,980
----------------
TOTAL COMMON STOCKS
(Cost $42,255,890) 46,152,053
----------------
Par/shares
Maturity (000)
---------------- ----------------
SHORT TERM INVESTMENTS -- 14.0%
Morgan Stanley, Floating Rate Notes
4.02%(d)(e) 11/07/05 $ 245 245,144
4.01%(d)(e) 11/14/05 169 168,509
4.02%(d)(e) 01/05/06 160 160,455
Galileo Money Market Fund 1,373 1,372,906
Institutional Money Market Trust(e)(f) 4,800 4,799,682
----------------
TOTAL SHORT TERM INVESTMENTS
(Cost $6,746,696) 6,746,696
----------------
TOTAL INVESTMENTS IN SECURITIES --109.5%
(Cost $49,002,586(a)) $ 52,898,749
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (9.5)% (4,597,833)
----------------
NET ASSETS -- 100.0%
(Applicable to 717,302 Institutional
shares, 5,349 Service shares, 686,068
Investor A shares, 365,661 Investor B
shares and 1,002,007 Investor C shares $ 48,300,916
outstanding) ================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER INSTITUTIONALSHARE
($12,640,920/717,302) $ 17.62
================
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SERVICE SHARE
($94,121/5,349)(g) $ 17.59
================
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($11,996,852/686,068) $ 17.49
================
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($17.49/0.9425) $ 18.56
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($6,302,814/365,661) $ 17.24
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($17,266,209/1,002,007) $ 17.23
================
- ----------
(a) Cost for Federal income tax purposes is $49,122,268. The gross
unrealized appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 5,045,812
Gross unrealized depreciation (1,269,331)
------------
$ 3,776,481
================
(b) Non-income producing security.
(c) Total or partial securities on loan.
(d) Rates shown are the rates as of September 30, 2005.
(e) Securities purchased with the cash proceeds from securities loaned.
(f) Represents an investment in an affiliate.
(g) Exact net assets and shares outstanding at September 30, 2005 were
$94,121.46 and 5,349.333, respectively.
See accompanying notes to financial statements.
83
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
SMALL CAP CORE EQUITY PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $49,002,586) ........................... $ 52,898,749
Dividends and reclaims receivable ................................. 26,118
Interest receivable ............................................... 5,150
Investments sold receivable ....................................... 266,770
Capital shares sold receivable .................................... 566,793
Prepaid expenses .................................................. 11,489
--------------
TOTAL ASSETS ................................................... 53,775,069
--------------
LIABILITIES
Payable upon return of securities loaned .......................... 5,373,790
Capital shares redeemed payable ................................... 22,874
Advisory fees payable ............................................. 29,444
Administrative fees payable ....................................... 7,213
Transfer agent fees payable ....................................... 868
Other accrued expenses payable .................................... 39,964
--------------
TOTAL LIABILITIES .............................................. 5,474,153
--------------
NET ASSETS (Applicable to 717,302 Institutional shares,
5,349 Service shares, 686,068 Investor A shares, 365,661
Investor B shares and
1,002,007 Investor C shares outstanding) .......................... $ 48,300,916
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($12,640,920/717,302) ..................... $ 17.62
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($94,121/5,349)(a) .............................. $ 17.59
==============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($11,996,852/686,068) ........................ $ 17.49
==============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($17.49/0.9425) ................................................... $ 18.56
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($6,302,814/365,661) ......................... $ 17.24
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($17,266,209/1,002,007) ...................... $ 17.23
==============
- ---------
(a) Exact net assets and shares outstanding at September 30, 2005 were
$94,121.46 and 5,349.333, respectively.
See Accompanying Notes to Financial Statements.
84
Blackrock Funds
STATEMENT OF NET ASSETS
SMALL CAP GROWTH EQUITY PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS -- 98.1%
Air Transportation -- 0.5%
ExpressJet Holdings, Inc.(b) 348,100 $ 3,122,457
----------------
Broadcasting -- 2.8%
CKX, Inc.(b) 464,500 5,838,765
Outdoor Channel Holdings, Inc.(b) 338,300 4,993,308
Spanish Broadcasting Systems, Inc.
- Class A(b) 717,600 5,152,368
----------------
15,984,441
----------------
Business Services -- 14.4%
Advisory Board Co.(b) 96,400 5,016,656
CoStar Group, Inc.(b)(c) 137,500 6,424,000
DiamondCluster International, Inc.(b) 595,700 4,515,406
Digitas, Inc.(b) 1,003,110 11,395,330
Forrester Research, Inc.(b) 253,500 5,277,870
Gartner, Inc.-- Class A(b) 525,800 6,146,602
Global Cash Access, Inc.(b) 50,300 709,230
Global Payments, Inc. 116,900 9,085,468
Heartland Payment Systems, Inc.(b) 279,200 6,661,712
Hudson Highland Group, Inc.(b) 197,000 4,919,090
Navigant Consulting, Inc.(b)(c) 231,900 4,443,204
Net 1 UEPS Technologies, Inc.(b) 229,900 5,154,358
VistaPrint Ltd.(b) 94,700 1,444,175
Watson Wyatt & Co. Holdings 415,200 11,189,640
----------------
82,382,741
----------------
Chemicals -- 1.2%
Agrium, Inc. 318,900 7,006,233
----------------
Computer & Office Equipment -- 0.5%
Hutchinson Technology, Inc.(b) 109,100 2,849,692
----------------
Computer Software & Services -- 16.2%
Anteon International Corp.(b)(c) 101,900 4,357,244
The BISYS Group, Inc.(b) 336,398 4,517,825
Borland Software Corp.(b) 1,255,700 7,308,174
CACI International, Inc.(b) 80,100 4,854,060
Foundry Networks, Inc.(b) 742,000 9,423,400
Interwoven, Inc.(b) 665,300 5,435,501
McData Corp.-- Class A(b) 1,665,278 8,726,057
Micromuse, Inc.(b) 1,298,500 10,232,180
Progress Software Corp.(b) 195,000 6,195,150
SkillSoft PLC-- ADR(b) 2,015,730 9,232,043
SonicWALL, Inc.(b) 1,800,500 11,433,175
VeriFone Holdings, Inc.(b) 424,000 8,526,640
Verity, Inc.(b) 270,600 2,873,772
----------------
93,115,221
----------------
Entertainment & Leisure -- 5.6%
Argosy Gaming Co.(b) 119,106 5,596,791
Orient-Express Hotels Ltd. - Class A 176,400 5,013,288
Scientific Games Corp.- Class A(b)(c) 189,700 5,880,700
Vail Resorts, Inc.(b) 320,900 9,225,875
World Wrestling Entertainment, Inc. 474,200 6,164,600
----------------
31,881,254
----------------
Finance -- 1.4%
Affiliated Managers Group, Inc.(b) 51,900 3,758,598
Wright Express Corp.(b) 199,900 4,315,841
-----------
8,074,439
----------------
Food & Agriculture -- 0.1%
Diamond Foods, Inc.(b) 34,100 $ 583,110
----------------
Machinery & Heavy Equipment -- 1.0%
Bucyrus International, Inc.- Class A 13,300 653,429
Dresser-Rand Group, Inc.(b) 85,700 2,110,791
Lennox International, Inc. 105,800 2,899,978
----------------
5,664,198
----------------
Manufacturing -- 2.9%
Actuant Corp.- Class A 112,900 5,283,720
Gardner Denver, Inc.(b) 146,000 6,511,600
The Warnaco Group, Inc.(b ) 216,600 4,745,706
----------------
16,541,026
----------------
Medical & Medical Services -- 5.3%
CryoLife(b) 875,000 6,081,250
Digene Corp.(b) 240,500 6,854,250
Digirad Corp.(b) 405,600 1,957,426
Noven Pharmaceuticals, Inc.(b) 409,700 5,735,800
Pediatrix Medical Group, Inc.(b) 124,900 9,594,818
----------------
30,223,544
----------------
Medical Instruments & Supplies -- 8.4%
Advanced Medical Optics, Inc.(b) 209,000 7,931,550
Bruker BioSciences Corp.(b) 463,100 2,028,378
Charles River Laboratories
International, Inc.(b) 146,488 6,389,807
Hologic, Inc.(b) 140,475 8,112,431
IntraLase Corp.(b) 256,500 3,773,115
Kyphon, Inc.(b) 164,200 7,214,948
Martek Biosciences Corp.(b)(C) 134,400 4,721,472
Wright Medical Group, Inc.(b) 318,234 7,854,015
----------------
48,025,716
----------------
Metal & Mining -- 3.2%
Alpha Natural Resources, Inc.(b) 213,700 6,419,548
Massey Energy Co.(c) 234,200 11,960,594
----------------
18,380,142
----------------
Motor Vehicles -- 0.7%
Wabash National Corp. 201,500 3,961,490
----------------
Oil & Gas -- 12.4%
Airgas, Inc. 344,200 10,198,646
Atwood Oceanics, Inc.(b) 93,700 7,890,477
Energy Partners Ltd.(b) 132,000 4,121,040
KCS Energy, Inc.(b) 344,000 9,470,320
Oceaneering Internationa Inc.(b) 163,900 8,753,899
Remington Oil & Gas Corp.- Class B(b) 194,443 8,069,385
TETRA Technologies, Inc.(b) 366,450 11,440,569
Vintage Petroleum, Inc. 250,100 11,419,566
----------------
71,363,902
----------------
Personal Services -- 3.9%
Corinthian Colleges, Inc.(b) 266,700 3,539,109
Educate, Inc.(b) 420,800 6,312,000
Laureate Education, Inc.(b) 261,800 12,820,346
----------------
22,671,455
----------------
Pharmaceuticals -- 1.2%
Nabi Biopharmaceuticals(b)(c) 513,600 6,728,160
----------------
See accompanying notes to financial statements.
85
BlackRock Funds
STATEMENT OF NET ASSETS
SMALL CAP GROWTH EQUITY PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS (Continued)
Publishing & Printing -- 1.0%
Playboy Enterprises, B(b) 415,503 $ 5,858,592
----------------
Restaurants -- 1.9%
RARE Hospitality International,
Inc.(b) 46,050 1,183,485
Ruth's Chris Steak House, Inc.(b) 256,000 4,705,280
Texas Roadhouse, Inc.(b) 337,300 5,025,770
----------------
10,914,535
----------------
Retail Merchandising -- 5.5%
99 Cents Only Stores(b) 118,000 1,091,500
Central Garden & Pet Co.(b) 136,300 6,167,575
Coldwater Creek, Inc.(b) 149,700 3,775,434
Design Within Reach, Inc.(b) 307,800 2,779,434
Dick's Sporting Goods, Inc.(b)(c) 181,621 5,468,608
J. Jill Group, Inc.(b) 404,900 6,405,518
Jos. A. Bank Clothiers, Inc.(b) 134,100 5,795,802
----------------
31,483,871
----------------
Semiconductors & Related Devices -- 4.9%
Integrated Device Technology, Inc.(b) 526,080 5,650,099
Microsemi Corp.(b) 286,100 7,306,994
O2Micro International Ltd.(b) 627,800 9,881,572
Rudolph Technologies, Inc.(b) 410,630 5,531,186
----------------
28,369,851
----------------
Telecommunications -- 3.1%
ADTRAN, Inc.(c) 311,400 9,809,100
NeuStar, Inc. -- Class A(b) 21,800 697,382
Polycom, Inc.(b) 249,400 4,032,798
Syniverse Holdings, Inc.(b) 195,300 3,007,620
----------------
17,546,900
----------------
TOTAL COMMON STOCKS
(Cost $461,377,477) 562,732,970
----------------
WARRANTS -- 0.0%
MicroStrategy, Inc. (issued 06/21/02,
expiring 06/24/07, strike price
$400)(d)(e) 638 121
TIMCO Aviation Services, Inc. (issued
02/28/02, expiring 12/31/07, strike
price $5.16)(e)(f) 692 0
----------------
TOTAL WARRANTS
(Cost $6) 121
----------------
Par/shares
Maturity (000) Value
---------------- ---------------- ----------------
SHORT TERM INVESTMENTS -- 6.5%
Federal Home Loan Bank, Discount
Notes
3.18%(g) 10/03/05 $ 3,400 $ 3,399,399
Morgan Stanley, Floating Rate
Notes
4.01%(h)(i) 11/14/05 6,024 6,023,986
4.02%(h)(i) 01/05/06 227 226,524
Galileo Money Market Fund 9,992 9,991,868
Institutional Money Market Trust(i)(j) 17,448 17,448,244
----------------
TOTAL SHORT TERM INVESTMENTS
(Cost $37,090,021) 37,090,021
----------------
TOTAL INVESTMENTS IN SECURITIES --104.6%
(Cost $498,467,504(a)) 599,823,112
LIABILITIES IN EXCESS OF OTHER ASSETS -- (4.6)% (26,151,944)
----------------
NET ASSETS -- 100.0%
(Applicable to 20,697,398
Institutional shares, 1,480,731
Service shares, 9,950,356
Investor A shares, 1,061,979
Investor B shares and 1,055,928
Investor C shares outstanding) $ 573,671,168
================
See accompanying notes to financial statements.
86
BlackRock Funds
STATEMENT OF NET ASSETS
SMALL CAP GROWTH EQUITY PORTFOLIO (Concluded)
As of September 30, 2005
Value
----------------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE
($357,856,729/20,697,398) $ 17.29
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
PER SERVICE SHARE
($24,490,617/1,480,731) $ 16.54
================
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($160,373,647/9,950,356) $ 16.12
================
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE
($16.12/0.9425) $ 17.10
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($15,516,301/1,061,979) $ 14.61
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($15,433,874/1,055,928) $ 14.62
================
- ----------
(a) Cost for Federal income tax purposes is $500,871,465. The gross
unrealized appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 119,623,710
Gross unrealized depreciation (20,672,063)
----------------
$ 98,951,647
================
(b) Non-income producing security.
(c) Total or partial securities on loan.
(d) As of September 30, 2005, the aggregate amount of shares called for by
these warrants is 63.80. These warrants were exercisable as of 6/24/02.
(e) Security valued at fair value as determined in good faith by or under
the direction of the Trustees. As of September 30, 2005, this security
had a total market value of $121 which represents less than 0.01% of net
assets.
(f) As of September 30, 2005, the aggregate amount of shares called for by
these warrants is 692. These warrants were exercisable as of 5/30/02.
(g) The rate shown is the effective yield on the discount notes at the time
of purchase.
(h) Rates shown are the rates as of September 30, 2005.
(i) Securities purchased with the cash proceeds from securities loaned.
(j) Represents an investment in an affiliate.
See accompanying notes to financial statements.
87
BlackRock Funds
STATEMENT OF NET ASSETS
GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS -- 98.2%
Belgium -- 1.1%
Telecommunications -- 1.1%
Option NV(b) 4,800 $ 263,892
----------------
Canada -- 0.8%
Pharmaceuticals -- 0.8%
Cardiome Pharma Corp.(b) 22,100 194,259
----------------
Finland -- 0.7%
Telecommunications -- 0.7%
Nokia Corp. - ADR 10,600 179,246
----------------
Germany -- 1.3%
Computer Software & Services -- 0.8%
SAP AG - ADR 4,300 186,319
----------------
Pharmaceuticals -- 0.5%
Merck KGAA 1,500 126,647
----------------
Total Germany 312,966
----------------
India -- 1.1%
Telecommunications -- 1.1%
Bharti Tele-Ventures Ltd.(b) 35,000 266,534
----------------
Japan -- 6.9%
Computer Software & Services -- 0.5%
Otsuka Corp. 1,300 126,742
----------------
Electronic Components & Accessories -- 1.4%
Hoya Corp.- When Issued Shs(b) 5,400 183,907
Omron Corp. 6,000 146,374
----------------
330,281
----------------
Machinery & Heavy Equipment -- 2.4%
Hitachi Construction Machinery Co.,
Ltd. 13,100 250,811
Komatsu Ltd. 13,300 181,417
Nabtesco Corp. 19,000 166,464
----------------
598,692
----------------
Manufacturing -- 2.6%
Hoya Corp. 1,800 59,873
Ibiden Co., Ltd. 9,400 392,289
Shimadzu Corp. 27,000 190,815
----------------
642,977
----------------
Total Japan 1,698,692
----------------
Mexico -- 0.9%
Telecommunications -- 0.9%
America Movil S.A. - ADR 8,600 226,352
----------------
Norway -- 0.5%
Computer Software & Services -- 0.5%
Fast Search & Transfer ASA(b) 30,000 113,576
----------------
Russia -- 0.9%
Telecommunications -- 0.9%
Mobile Telesystems - ADR 5,600 227,808
----------------
South Korea -- 1.6%
Electronics -- 1.6%
Samsung Electronics Co. Ltd. 700 395,199
----------------
Switzerland -- 1.7%
Pharmaceuticals -- 1.7%
Roche Holding AG 3,000 418,383
----------------
Taiwan -- 4.1%
Computer & Office Equipment -- 2.4%
High Tech Computer Corp. 10,800 131,642
Lite-On Technology Corp. 200,867 $ 224,258
Mitac Technology Corp. 140,000 116,858
Quanta Computer, Inc. 63,123 103,476
----------------
576,234
----------------
Electronics -- 1.0%
Hon Hai Precision Industry Co. Ltd. 51,895 241,606
----------------
Semiconductors & Related Devices -- 0.7%
Powerchip Semiconducto319,000 177,834
Taiwan Semiconductor
Manufacturing Co. Ltd. 1 1
----------------
177,835
----------------
Total Taiwan 995,675
----------------
United Kingdom -- 1.1%
Aerospace -- 0.8%
Meggitt PLC 35,900 205,933
----------------
Computer Software & Services -- 0.3%
Autonomy Corp. PLC(b) 10,500 62,832
----------------
Total United Kingdom 268,765
----------------
United States -- 75.5%
Aerospace -- 2.0%
Goodrich Corp. 5,500 243,870
Raytheon Co. 6,300 239,526
----------------
483,396
----------------
Business Services -- 2.0%
Aquantive, Inc.(b) 15,400 310,002
Global Payments, Inc. 2,200 170,984
----------------
480,986
----------------
Computer & Office Equipment -- 6.1%
Apple Computer, Inc.(b) 7,900 423,519
Cisco Systems, Inc.(b) 15,600 279,708
Computer Associates International,
Inc. 31 862
Dell, Inc.(b) 6,700 229,140
Hewlett-Packard Co.(c) 10,800 315,360
International Business Machines Corp. 3,100 248,682
----------------
1,497,271
----------------
Computer Software & Services -- 15.0%
Adobe Systems, Inc.(c) 5,900 176,115
Advanced Micro Devices, Inc. (b) 12,100 304,920
Autodesk, Inc. 2,900 134,676
BEA Systems, Inc.(b) 18,600 167,028
Cadence Design Systems, Inc.(b)(c) 7,900 127,664
Compuware Corp.(b) 25,900 246,050
Electronic Arts, Inc.(b) 3,200 182,048
EMC Corp.(b) 8,600 111,284
Enterasys Networks, Inc.(b) 2,414 3,235
Google, Inc. - Class A(b) 1,000 316,460
Informatica Corp.(b)(c) 26,900 323,338
Juniper Networks, Inc.(b) 10,400 247,416
Microsoft Corp. 9,400 241,862
OpenTV Corp.(b) 51,100 146,657
Oracle Corp.(b)(c) 20,500 253,995
Progress Software Corp.(b) 4,500 142,965
See accompanying notes to financial statements.
88
BlackRock Funds
STATEMENT OF NET ASSETS
GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO (CONTINUED)
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS (Continued)
United States (Continued)
Computer Software & Services (Continued)
Sybase, Inc.(b) 5,500 $ 128,810
Symantec Corp.(b) 5,700 129,162
Unica Corp.(b) 3,200 35,136
Yahoo!, Inc.(b) 7,300 247,032
----------------
3,665,853
----------------
Electronics -- 3.6%
Agilent Technologies, Inc.(b) 6,500 212,875
Coherent, Inc.(b) 4,300 125,904
Intel Corp. 7,000 172,550
Intersil Corp. - Class A 8,600 187,308
National Semiconductor Corp. 6,800 178,840
----------------
877,477
----------------
Insurance -- 0.7%
WellPoint, Inc.(b) 2,400 181,968
----------------
Manufacturing -- 1.8%
Powerwave Technologies, Inc.(b)(c) 33,200 431,268
----------------
Measuring & Controlling Devices -- 1.5%
KLA-Tencor Corp.(c) 7,400 360,824
----------------
Medical & Medical Services -- 8.3%
Amgen, Inc.(b) 3,700 294,779
Baxter International, Inc. 6,300 251,181
Caremark Rx, Inc.(b) 3,400 169,762
Coventry Health Care, Inc.(b) 2,500 215,050
Express Scripts, Inc.(b) 2,800 174,160
LifePoint Hospitals, Inc.(b)(c) 3,600 157,428
Medco Health Solutions, Inc.(b) 2,500 137,075
Millipore Corp.(b) 4,200 264,138
UnitedHealth Group, Inc.(c) 4,200 236,040
WebMD Corp.(b) 12,000 132,960
----------------
2,032,573
----------------
Medical Instruments & Supplies -- 4.6%
Alcon, Inc. 2,100 268,548
Boston Scientific Corp.(b) 3,267 76,350
Cytyc Corp.(b) 7,400 198,690
MWI Veterinary Supply, Inc.(b) 5,100 101,745
St. Jude Medical, Inc.(b) 2,800 131,040
Varian Medical Systems, Inc.(b) 3,400 134,334
Zimmer Holdings, Inc.(b) 3,000 206,670
----------------
1,117,377
----------------
Pharmaceuticals -- 6.0%
Amylin Pharmaceuticals, Inc.(b)(c) 3,642 126,705
First Horizon Pharmaceutical Corp.(b) 5,625 111,769
Genentech, Inc.(b) 5,505 463,576
Gilead Sciences, Inc.(b) 3,900 190,164
Keryx Biopharmaceuticals, Inc.(b) 7,000 110,320
Momenta Pharmaceuticals, Inc.(b) 3,100 84,475
Panacos Pharmaceuticals, Inc.(b) 11,218 109,263
Shire Pharmaceuticals Group PLC - ADR 3,400 125,766
Vertex Pharmaceuticals, Inc.(b) 6,400 143,040
----------------
1,465,078
----------------
Semiconductors & Related Devices -- 13.6%
Agere Systems, Inc. - ADR(b) 11,400 118,674
Applied Materials, Inc. 14,800 251,008
Broadcom Corp. - Class A(b) 8,800 412,808
Lam Research Corp.(b)(c) 4,400 134,068
LSI Logic Corp.(b) 19,300 190,105
Marvell Technology Group Ltd.(b) 4,300 198,273
MEMC Electronic Materials, Inc.(b) 11,600 264,364
Microsemi Corp.(b) 7,400 188,996
Novellus Systems, Inc.(b) 9,100 228,228
NVIDIA Corp.(b) 8,100 277,668
O2Micro International Ltd.(b) 8,100 127,494
SiRF Technology Holdings, Inc.(b) 10,600 319,378
Texas Instruments, Inc.(c) 11,500 389,850
Varian Semiconductor Equipment
Associates, Inc.(b) 5,600 237,272
----------------
3,338,186
----------------
Telecommunications -- 10.3%
ADC Telecommunications, (b) 4,900 112,014
ADTRAN, Inc.(c) 6,400 201,600
Alamosa Holdings, Inc.(b) 10,800 184,788
Amdocs Ltd.(b) 4,500 124,785
Comverse Technology, Inc.(b) 9,500 249,565
Harris Corp. 9,400 392,920
Motorola, Inc.(c) 17,300 382,157
Qualcomm, Inc. 7,100 317,725
Scientific-Atlanta, Inc. 9,100 341,341
Sprint Nextel Corp. 8,745 207,956
----------------
2,514,851
----------------
Total United States 18,447,108
----------------
TOTAL COMMON STOCKS
(Cost $19,021,319) 24,008,455
----------------
Par/shares
Maturity (000) Value
---------------- ---------------- ----------------
SHORT TERM INVESTMENTS -- 16.2%
Banco Santader, Certificate of
Deposit
3.70%(d) 05/10/06 $ 224 224,141
Morgan Stanley, Floating Rate
Notes
4.01%(d)(e) 11/14/05 171 171,414
Galileo Money Market Fund 465 464,657
Institutional Money Market
Trust(d)(f) 3,104 3,104,457
----------------
TOTAL SHORT TERM INVESTMENTS
(Cost $3,964,669) 3,964,669
----------------
See accompanying notes to financial statements.
89
BlackRock Funds
STATEMENT OF NET ASSETS
GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO (Concluded)
As of September 30, 2005
Value
----------------
TOTAL INVESTMENTS IN SECURITIES -- 114.4%
(Cost $22,985,988(a)) $27,973,124
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (14.4)% (3,529,626)
----------------
NET ASSETS -- 100.0%
(Applicable to 128,124
Institutional shares, 17,846
Service shares, 1,502,340
Investor A shares, 1,776,468
Investor B shares and 451,217
Investor C shares) $24,443,498
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($846,582/128,124) $ 6.61
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($116,221/17,846) $ 6.51
================
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($9,688,352/1,502,340) $ 6.45
================
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($6.45/0.9425) $ 6.84
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($10,998,463/1,776,468) $ 6.19
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($2,793,880/451,217) $ 6.19
================
- ----------
(a) Cost for Federal income tax purposes is $23,077,532. The gross
unrealized appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $5,197,269
Gross unrealized depreciation (301,677)
----------------
$4,895,592
================
(b) Non-income producing security.
(c) Total or partial securities on loan.
(d) Securities purchased with the cash proceeds from securities loaned.
(e) Rates shown are the rates as of September 30, 2005.
(f) Represents an investment in an affiliate.
See accompanying notes to financial statements.
90
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $22,985,988) ........................... $ 27,973,124
Cash denominated in foreign currencies (Cost $14,011) 13,910
Dividends and reclaims receivable (net of withholding
tax of $2,757) .................................................... 9,378
Interest receivable ............................................... 1,084
Investments sold receivable ....................................... 268,189
Capital shares sold receivable .................................... 19,079
Prepaid expenses .................................................. 15,385
--------------
TOTAL ASSETS ................................................... 28,300,149
--------------
LIABILITIES
Payable upon return of securities loaned .......................... 3,500,012
Investments purchased payable ..................................... 202,276
Capital shares redeemed payable ................................... 86,888
Advisory fees payable ............................................. 15,842
Administrative fees payable ....................................... 4,472
Transfer agent fees payable ....................................... 9,159
Other accrued expenses payable .................................... 38,002
--------------
TOTAL LIABILITIES .............................................. 3,856,651
--------------
NET ASSETS (Applicable to 128,124 Institutional
shares,17,846 Service shares, 1,502,340 Investor
A shares, 1,776,468 Investor B shares and
451,217 Investor C shares outstanding) ............................ $ 24,443,498
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($846,582/128,124) ........................ $ 6.61
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($116,221/17,846) ............................... $ 6.51
==============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($9,688,352/1,502,340) ....................... $ 6.45
==============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE($6.45/0.9425) .......... $ 6.84
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($10,998,463/1,776,468) ..................... $ 6.19
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($2,793,880/451,217) ........................ $ 6.19
==============
See accompanying notes to financial statements.
91
BlackRock Funds
STATEMENT OF NET ASSETS
GLOBAL RESOURCES PORTFOLIO
As of September 30, 2005
Number
of shares Value
---------------- ----------------
COMMON STOCKS -- 98.8%
Canada -- 24.9%
Banks -- 0.0%
Quest Capital Corp.(b) 61,000 $ 121,411
----------------
Energy & Utilities -- 0.1%
Tusk Energy Corp.(c) 300,846 1,254,605
----------------
Metal & Mining -- 3.7%
AXMIN, Inc.(b) 2,581,000 1,267,594
Bema Gold Corp.(b) 250,000 672,500
Canico Resource Corp.(b) 450,000 7,719,714
Crystallex International Corp.(b) 2,600,000 4,085,385
Fording Canadian Coal Trust(d) 18,979 807,936
Gateway Gold Corp.(b) 500,000 452,352
Gold Reserve, Inc.(b) 1,000,000 2,300,000
Mag Silver Corp.(b) 2,026,200 2,094,985
Mena Resources, Inc.(b) 20,000 6,893
Minefinders Corp. Ltd.(b) 250,000 1,220,000
Nevsun Resources Ltd. (acquired
8/8/97 through 9/9/04, cost
$4,883,732)(b)(e)(f) (g) 1,554,800 3,295,544
NovaGold Resources, Inc.(b) 691,418 5,538,258
Orezone Resources, Inc.(b) 334,182 630,586
Radius Gold, Inc.(b) 569,700 343,607
Romarco Minerals, Inc.(b) 223,000 38,428
Southwestern Resources Corp.(b) 566,900 5,250,883
St. Jude Resources Ltd.(b) 1,096,400 2,503,412
Stratagold Corp.(b) 1,000,000 620,369
Sunridge Gold Corp.(b) 870,700 870,250
Virginia Gold Mines, Inc.(b) 823,100 5,489,225
X-Cal Resources Ltd.(b) 1,755,500 400,834
----------------
45,608,755
----------------
Motor Vehicles -- 0.1%
Westport Innovations, Inc. (acquired
12/17/03 through 9/15/04, cost
$1,052,339)(b)(e)(f) 959,500 1,157,419
----------------
Oil & Gas -- 20.9%
Accrete Energy, Inc.(b) 13,690 120,315
Alberta Clipper Energy, Inc.(b) 379,215 1,552,017
Baytex Energy Trust 1,112,748 17,785,176
Bow Valley Energy Ltd.(b) 634,600 3,193,231
C1 Energy Ltd.(b)(d) 647,099 1,756,300
Canadian Superior Energy, Inc. 85,468 213,670
Canex Energy, Inc(b) 403,200 1,146,441
Capitol Energy Resources Ltd.(b) 438,026 2,075,772
Chamaelo Exploration Ltd.(b) 52,180 357,428
Cinch Energy Corp.(b) 901,980 2,844,431
Compton Petroleum Corp.(b) 1,171,300 15,844,744
Crew Energy, Inc. (acquired 6/24/98
through 6/18/04, cost
$1,910,170)(b)(f)(g) 811,615 13,986,128
Cyries Energy, Inc.(b) 69,096 1,056,146
Delphi Energy Corp.(b) 747,963 3,415,650
Drillers Technology Corp.(b) 200,000 284,336
Ember Resources, Inc.(b) 274,224 1,682,298
Endev Energy, Inc.(b) 1,538,300 2,730,396
Equinox Minerals Ltd.(b) 1,552,114 1,337,338
Esprit Energy Trust 533,525 6,661,018
Fairborne Energy Trust 317,020 5,050,577
Fairquest Energy Ltd.(b) 105,567 976,900
First Calgary Petroleums Ltd.(b) 652,612 5,319,412
Galleon Energy, Inc. - Class A(b) 1,222,178 24,115,006
Hawker Resources, Inc.(b) 227,509 1,117,354
HSE Integrated Ltd.(b) 28,238 $ 66,909
KICK Energy Ltd.(b) 219,700 1,527,640
Leader Energy Services Ltd.(b) 454,104 1,752,874
Masters Energy, Inc.(b) 27,741 108,755
Midnight Oil Exploration Ltd.(b) 550,300 2,086,266
Midnight Oil Exploration Ltd.
(acquired 9/29/05, cost
$1,971,490)(b)(f)(g) 577,400 1,970,105
Niko Resources Ltd.
(acquired 5/2/03 through 11/10/03,
cost $689,948)(f)(g) 39,000 1,713,769
Oilexco, Inc.(b) 1,498,900 5,217,608
Pacific Rodera Energy, Inc.(b) 990,200 1,134,729
Paramount Resources Ltd. - Class A(b) 408,900 12,049,268
Penn West Energy Trust 1,701,400 53,522,414
Precision Drilling Corp.(b) 312,000 15,350,400
ProEx Energy Ltd.(b) 69,096 1,069,839
ProspEx Resources Ltd.(b) 1,504,120 4,924,742
Purcell Energy Ltd.(b)(e) 735,620 2,218,396
Real Resources, Inc.(b) 412,737 9,708,530
Sequoia Oil & Gas Trust 297,320 5,369,487
Tag Oil Ltd.(c) 198,000 198,239
Technicoil Corp. (acquired 6/15/04,
cost $548,935)(b)(f)(g) 753,100 2,439,821
Tempest Energy Corp. - Class A(b) 357,600 1,750,102
Thunder Energy Trust 568,896 6,646,760
Trilogy Energy Trust 308,900 7,425,737
True Energy, Inc.(b) 553,735 2,814,955
Vault Energy Trust 130,450 1,543,235
West Energy Ltd.(b) 2,735 19,347
White Fire Energy Ltd.(b) 297,320 791,590
Zenas Energy Corp.(b) 143,628 785,833
----------------
258,829,434
----------------
Transportation -- 0.1%
Railpower Technologies Corp.(b) 360,600 1,684,001
----------------
Total Canada 308,655,625
----------------
Norway -- 0.6%
Transportation -- 0.6%
Stolt-Nielsen SA(b) 170,000 6,813,758
----------------
United Kingdom -- 1.4%
Finance -- 0.1%
Archipelago Holdings, Inc.(c) 2,247,400 1,288,181
----------------
Oil & Gas -- 1.3%
Expro International Group PLC 563,941 5,457,235
Tullow Oil PLC 1,244,198 5,722,878
Venture Production PLC(b) 514,729 4,389,119
----------------
15,569,232
----------------
Total United Kingdom 16,857,413
----------------
United States -- 71.9%
Conglomerates -- 2.2% (acquired 2/18/04
Stolt-Nielsen SA through 9/9/04, cost
$9,786,849)(b)(d)(f)(g) 676,100 27,098,764
----------------
Energy & Utilities -- 1.9%
KFX, Inc.(b)(d) 393,400 6,735,008
See accompanying notes to financial statements.
92
BlackRock Funds
STATEMENT OF NET ASSETS
GLOBAL RESOURCES PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS (Continued)
United States (Continued)
Energy & Utilities (Continued)
Longview Energy Co. (acquired
8/13/04, cost
$1,281,000)(c)(e)(f)(g) 85,400 $ 1,281,000
McDermott International, Inc.(b) 415,000 15,193,150
----------------
23,209,158
----------------
Finance -- 0.1%
NGP Capital Resources Co. 64,500 971,370
----------------
Manufacturing -- 1.4%
Maverick Tube Corp.(b) 401,579 12,047,370
NS Group, Inc.(b) 150,000 5,887,500
----------------
17,934,870
----------------
Metal & Mining -- 24.6%
Alpha Natural Resources, Inc.(b) 27,500 826,100
Arch Coal, Inc.(d) 806,300 54,425,250
Coeur d'Alene Mines Corp.(b) 500,000 2,115,000
CONSOL Energy, Inc. (acquired
8/13/01 through 4/21/04, cost
$22,890,341)(f)(g) 1,181,600 90,120,632
Massey Energy Co.(d) 1,148,400 58,648,788
Peabody Energy Corp. 1,132,000 95,484,200
Randgold Resources Ltd.(b) 200,000 3,144,000
----------------
304,763,970
----------------
Oil & Gas -- 41.5%
Allis-Chalmers Energy, Inc.(b) 131,700 1,559,328
BJ Services Co.(d) 957,200 34,449,628
Bois d'Arc Energy, Inc.(b) 101,900 1,753,699
Brigham Exploration Co.(b) 81,900 1,052,415
CanArgo Energy Corp.(b)(d) 5,024,200 9,495,738
Clayton Williams Energy, Inc.(b) 321,130 13,872,816
Comstock Resources, Inc.(b) 275,300 9,032,593
Cross Timbers Royalty Trust 2,490 135,207
Denbury Resources, Inc.(b) 273,800 13,810,472
Diamond Offshore Drilling, Inc. 333,400 20,420,750
The Exploration Co.(b) 282,200 2,031,840
Global Industries, Inc.(b) 189,496 2,793,171
Goodrich Petroleum Corp.(b) 62,600 1,469,222
Grey Wolf, Inc.(b) 471,900 3,978,117
Halliburton Co.(d) 390,000 26,722,800
Matador Resources Co. (acquired
10/14/03, cost
$978,460)(c)(e)(f)(g) 97,846 1,320,921
Nabors Industries Ltd.(b)(d) 346,500 24,889,095
National-Oilwell, Inc.(b) 128,600 8,461,880
Newfield Exploration Co.(b) 993,924 48,801,668
Newpark Resources, Inc.(b) 500,000 4,210,000
Noble Corp. 90,700 6,209,322
Parallel Petroleum Corp.(b) 192,300 2,692,200
Patterson-UTI Energy, Inc. 1,272,408 45,908,481
Penn Virginia Corp. 560,000 32,317,600
PetroQuest Energy, Inc.(b) 411,600 4,297,104
Pioneer Drilling Co. (acquired
2/13/04 through 3/23/05, cost
$1,400,445)(b)(f)(g) 176,000 3,435,520
Pioneer Natural Resources Co. 379,200 20,825,664
Plains Exploration & Production Co.(b) 1,137,505 48,707,964
Pride International, Inc.(b) 334,300 9,530,893
Rowan Cos., Inc.(d) 481,700 17,095,533
Transocean, Inc.(b) 420,800 25,799,248
Treasure Island Royalty Trust(b) 507,439 403,414
Universal Compression Holdings,
Inc.(b) 35,200 $ 1,399,904
Vintage Petroleum, Inc. 952,600 43,495,716
Weatherford International Ltd.(b)(d)
301,100 20,673,526
----------------
513,053,449
----------------
Transportation -- 0.2%
Hornbeck Offshore Service, Inc.(b) 65,900 2,413,917
----------------
Waste Management -- 0.0%
Republic Resources, Inc.(b) 28,750 1,078
----------------
Total United States
889,446,576
----------------
TOTAL COMMON STOCKS
(Cost $559,119,398) 1,221,773,372
----------------
WARRANTS -- 0.0%
Nevsun Resources
Ltd. (issued
12/18/03, expiring
12/18/08, strike
price 10.00
CAD)(c)(h) 250,000 2,154
Oilexco Inc. (issued
01/21/04, expiring
12/22/05, strike
price 1.65 CAD)(i) 118,775 245,615
Purcell Energy Ltd.
(issued 07/24/03,
expiring 07/23/08,
strike price 5.00
CAD)(c)(j) 735,620 304,237
Westport
Innovations, Inc.
(issued 09/29/04,
expiring 3/29/06,
strike price 2.10
CAD)(k) 92,850 12,000
----------------
TOTAL WARRANTS
(Cost $195) 564,006
----------------
Par/shares
Maturity (000) Value
---------------- ---------------- ----------------
SHORT TERM INVESTMENTS -- 11.7%
Banco Santader, Certificate of
Deposit
3.70%(l) 05/10/06 $ 4,067 $ 4,066,925
Morgan Stanley, Floating Rate
Notes
4.02%(l)(m) 11/07/05 5,878 5,877,714
4.01%(l)(m) 11/14/05 7,237 7,237,263
Galileo Money Market Fund 17,976 17,975,598
Institutional Money Market
Trust(l)(n) 109,250 109,250,270
----------------
TOTAL SHORT TERM INVESTMENTS
(Cost $144,407,770) 144,407,770
----------------
See accompanying notes to financial statements.
93
BlackRock Funds
STATEMENT OF NET ASSETS
GLOBAL RESOURCES PORTFOLIO (Continued)
As of September 30, 2005
Value
----------------
TOTAL INVESTMENTS IN SECURITIES -- 110.5%
(Cost $703,527,363(a)) $ 1,366,745,148
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (10.5)% (129,609,246)
----------------
NET ASSETS -- 100.0%
(Applicable to 513,754
Institutional shares, 11,539,035
Investor A shares, 1,697,316
Investor B shares and 2,901,440
Investor C shares outstanding) $ 1,237,135,902
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($40,905,448/513,754) $ 79.62
================
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($877,120,397/11,539,035) $ 76.01
================
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($76.01/0.9425) $ 80.65
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($117,844,759/1,697,316) $ 69.43
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($201,265,298/2,901,440) $ 69.37
================
- ----------
(a) Cost for Federal income tax purposes is $703,758,557. The gross
unrealized appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 677,722,363
Gross unrealized depreciation (14,735,772)
----------------
$ 662,986,591
================
(b) Non-income producing security.
(c) Security valued at fair value as determined in good faith by or under
the direction of the Trustees. As of September 30, 2005, this security
had a total market value of $5,649,337 which represents 0.46% of net
assets.
(d) Total or partial securities on loan.
(e) Security is illiquid. As of September 30, 2005, the Portfolio held 0.75%
of its net assets, with a current market value of $9,273,280 in these
securities.
(f) Security restricted as to public resale. These securities are ineligible
for resale into the public market until such time that either (I) a
resale Registration Statement has been filed with the SEC and declared
effective or (II) resale is permitted under Rule 144A without the need
for an effective registration statement. As of September 30, 2005, the
Portfolio held 11.95% of its net assets, with a current market value of
$147,819,623 and a current cost of $47,393,709 in these securities.
(g) Security valued under consistently applied procedures established by the
Board.
(h) As of September 30, 2005, the aggregate amount of shares called for by
these warrants is 250,000. These warrants were exercisable as of
12/18/03.
(i) As of September 30, 2005, the aggregate amount of shares called for by
these warrants is 118,775. These warrants were exercisable as of
1/21/04.
(j) As of September 30, 2005, the aggregate amount of shares called for by
these warrants is 735,620. These warrants were exercisable as of
7/24/03.
(k) As of September 30, 2005, the aggregate amount of shares called for by
these warrants is 92,850. These warrants were exercisable as of 9/29/04.
(l) Securities purchased with the cash proceeds from securities loaned.
(m) Rates shown are the rates as of September 30, 2005.
(n) Represents an investment in an affiliate.
See accompanying notes to financial statements.
94
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
GLOBAL RESOURCES PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $703,527,363) .......................... $1,366,745,148
Dividends receivable (net of withholding tax of $24,260) .......... 845,325
Interest receivable ............................................... 54,711
Investments sold receivable ....................................... 3,848,237
Capital shares sold receivable .................................... 1,351,922
Prepaid expenses .................................................. 96,679
Other assets ...................................................... 4,071
--------------
TOTAL ASSETS ................................................... 1,372,946,093
--------------
LIABILITIES
Payable upon return of securities loaned .......................... 126,432,172
Investments purchased payable ..................................... 5,303,755
Capital shares redeemed payable ................................... 2,612,450
Advisory fees payable ............................................. 713,755
Administrative fees payable ....................................... 46,167
Transfer agent fees payable ....................................... 69,892
Other accrued expenses payable .................................... 632,000
--------------
TOTAL LIABILITIES .............................................. 135,810,191
--------------
NET ASSETS (Applicable to 513,754 Institutional shares,
11,539,035 Investor A shares, 1,697,316 Investor B shares and
2,901,440 Investor C shares outstanding) .......................... $1,237,135,902
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($40,905,448/513,754) ..................... $ 79.62
==============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($877,120,397/11,539,035) .................... $ 76.01
==============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($76.01/0.9425) ........ $ 80.65
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($117,844,759/1,697,316) ..................... $ 69.43
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($201,265,298/2,901,440) ..................... $ 69.37
==============
See accompanying notes to financial statements.
95
BlackRock Funds
STATEMENT OF NET ASSETS
ALL-CAP GLOBAL RESOURCES PORTFOLIO
As of September 30, 2005
Number
of Shares Value
-------------- ----------------
COMMON STOCKS -- 94.5%
Australia -- 3.7%
Metal & Mining -- 3.2%
BHP Billiton Ltd. - ADR 143,900 $ 4,918,502
Macarthur Coal Ltd. 588,300 2,906,682
----------------
7,825,184
----------------
Oil & Gas -- 0.5%
Santos Ltd. 130,200 1,243,834
----------------
Total Australia 9,069,018
----------------
Austria -- 1.9%
Oil & Gas -- 1.9%
OMV AG 76,400 4,551,227
----------------
Canada -- 11.5%
Metal & Mining -- 1.2%
Teck Cominco Ltd. 67,100 3,015,048
----------------
Oil & Gas -- 10.3%
Canadian Natural Resources Ltd. 8,000 361,882
Compton Petroleum Corp.(b) 172,400 2,332,139
Galleon Energy, Inc. -- Class A(b) 192,100 3,790,358
Husky Energy, Inc. 64,000 3,560,641
Nexen, Inc. 39,200 1,872,859
Pason Systems, Inc. 56,000 1,311,460
Penn West Energy Trust 83,100 2,614,149
Petro Canada 58,500 2,452,705
Real Resources, Inc.(b) 75,072 1,765,867
Talisman Energy, Inc. - ADR 104,000 5,079,360
----------------
25,141,420
----------------
Total Canada 28,156,468
----------------
Denmark -- 0.2%
Oil & Gas -- 0.2%
A P Moller - Maersk A/S 40 409,713
----------------
France -- 1.2%
Oil & Gas -- 1.2%
Total SA - ADR(c) 21,300 2,892,966
----------------
Netherlands -- 2.5%
Oil & Gas -- 2.5%
Core Laboratories NV(b) 82,500 2,661,450
SBM Offshore NV 40,200 3,363,611
----------------
6,025,061
----------------
Norway -- 3.2%
Oil & Gas -- 3.2%
Statoil ASA - ADR(c) 237,900 5,873,751
Stolt Offshores SA(b) 176,700 2,051,565
----------------
7,925,316
----------------
United Kingdom -- 4.9%
Metal & Mining -- 1.4%
Rio Tinto PLC - ADR 21,300 3,499,590
----------------
Oil & Gas -- 3.5%
BG Group PLC - ADR(c) 64,000 3,052,160
Cairn Energy PLC(b) 158,100 5,484,804
----------------
8,536,964
----------------
Total United Kingdom 12,036,554
----------------
United States -- 65.4%
Energy & Utilities -- 3.9%
McDermott International, Inc.(b) 143,900 5,268,179
Questar Corp. 47,900 $ 4,220,948
----------------
9,489,127
----------------
Metal & Mining -- 16.8%
Arch Coal, Inc.(c) 93,900 6,338,251
CONSOL Energy, Inc. 93,900 7,161,753
Goldcorp, Inc. 229,225 4,593,669
Massey Energy Co.(c) 143,900 7,348,973
Natural Resource Partners LP(c) 37,459 2,336,692
Newmont Mining Corp. 27,800 1,311,326
Pan American Silver Corp.(b) 118,000 2,083,880
Peabody Energy Corp. 93,100 7,852,985
Silver StandarResources(b)(c) 143,900 1,971,430
----------------
40,998,959
----------------
Oil & Gas -- 43.4%
Amerada Hess Corp.(c) 27,800 3,822,500
Bois d'Arc Energy, Inc.(b) 39,500 679,795
BP PLC 27,800 1,969,630
Burlington Resources, Inc. 46,500 3,781,380
Canadian Natural Resources 119,300 5,391,167
Chesapeake Energy Corp.(c) 118,000 4,513,500
CNX Gas Corp.(b)(c)(d) 9,600 186,384
Comstock Resources, Inc.(b) 70,400 2,309,824
Double Eagle Petroleum Co.(b)(c) 82,591 1,978,054
Encana Corp. 79,400 4,629,814
ENSCO International, Inc. 103,400 4,817,406
EOG Resources, Inc. 104,000 7,789,600
Exxon Mobil Corp.(c) 31,600 2,007,864
Global Industries, Inc.(b) 158,100 2,330,394
GlobalSantaFe Corp. 20,700 944,334
Goodrich Petroleum Corp.(b) 79,400 1,863,518
Hydril(b) 40,200 2,759,328
Kerr-McGee Corp. 47,500 4,612,725
Nabors Industries Ltd.(b)(c) 21,300 1,529,979
National-Oilwell, Inc.(b) 54,139 3,562,346
Newfield Exploration Co.(b) 79,400 3,898,540
Noble Corp. 64,000 4,381,440
Noble Energy, Inc. 80,600 3,780,140
Occidental Petroleum Corp. 24,050 2,054,592
Patterson-UTI Energy, Inc. 40,200 1,450,416
Range Resources Corp. 35,600 1,374,516
Rowan Cos., Inc.(c) 96,600 3,428,334
Schlumberger Ltd.(c) 17,800 1,501,964
Suncor Energy, Inc. 67,100 4,061,563
Transocean, Inc.(b) 79,500 4,874,145
Vintage Petroleum, Inc. 106,500 4,862,790
Weatherford International Ltd.(b)(c) 46,500 3,192,690
The Williams Companies, Inc. 141,500 3,544,575
XTO Energy, Inc. 50,433 2,285,624
----------------
106,170,871
----------------
Transportation -- 1.3%
Stolt-Nielsen SA(b)(c) 79,500 3,186,440
----------------
Total United States 159,845,397
----------------
TOTAL COMMON STOCKS
(Cost $190,499,560) 230,911,720
----------------
See accompanying notes to financial statements.
96
BlackRock Funds
STATEMENT OF NET ASSETS
ALL-CAP GLOBAL RESOURCES PORTFOLIO (Concluded)
As of September 30, 2005
Par/shares
Maturity (000) Value
---------------- ---------------- ----------------
SHORT TERM INVESTMENTS -- 19.3%
Banco Santader, Certificate of
Deposit
3.70%(e) 05/10/06 $ 35 $ 34,642
Morgan Stanley, Floating Rate
Notes
4.02%(e)(f) 11/07/05 5,037 5,037,004
4.02%(e)(f) 01/05/06 6,051 6,050,836
Galileo Money Market Fund 12,257 12,256,922
Institutional Money Market
Trust(e)(g) 23,896 23,895,901
----------------
TOTAL SHORT TERM INVESTMENTS
(Cost $47,275,305) 47,275,305
----------------
TOTAL INVESTMENTS IN SECURITIES -- 113.8%
(Cost $237,774,865(a)) 278,187,025
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (13.8)% (33,785,801)
----------------
NET ASSETS -- 100.0%
(Applicable to 6,797,862
Institutional shares, 10 Service
shares, 6,514,504 Investor A shares
1,192,091 Investor B shares and
3,588,594 Investor C shares
outstanding) $ 244,401,224
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($92,145,462/6,797,862) $ 13.56
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($135/10)(h) $ 13.52
================
NET ASSET VALUE AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($87,948,632/6,514,504) $ 13.50
================
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE
($13.50/0.9425) $ 14.32
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($16,019,462/1,192,091) $ 13.44
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($48,287,533/3,588,594) $ 13.46
================
- -------------------
(a) Cost for Federal income tax purposes is $237,816,284. The gross
unrealized appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 40,577,450
Gross unrealized depreciation (206,708)
----------------
$ 40,370,742
================
(b) Non-income producing security.
(c) Total or partial securities on loan.
(d) Securities valued at fair value as determined in good faith by or under
the direction of the Trustees. As of September 30, 2005, these
securities had a total market value of $186,384 which represents 0.08%
of net assets.
(e) Securities purchased with the cash proceeds from securities loaned. (f)
Rates shown are the rates as of September 30, 2005.
(g) Represents an investment in an affiliate.
(h) Exact net assets and shares outstanding at September 30, 2005 were
$135.22 and 10, respectively.
See accompanying notes to financial statements.
97
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
ALL-CAP GLOBAL RESOURCES PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $237,774,865) .......................... $ 278,187,025
Dividends and reclaims receivable ................................. 130,665
Interest receivable ............................................... 36,763
Capital shares sold receivable .................................... 10,313,043
Prepaid expenses .................................................. 62,120
--------------
TOTAL ASSETS ................................................... 288,729,616
--------------
LIABILITIES
Payable upon return of securities loaned .......................... 35,018,383
Investments purchased payable ..................................... 8,544,102
Capital shares redeemed payable ................................... 558,091
Advisory fees payable ............................................. 47,924
Administrative fees payable ....................................... 22,074
Transfer agent fees payable ....................................... 10,006
Other accrued expenses payable .................................... 127,805
Foreign taxes payable ............................................. 7
--------------
TOTAL LIABILITIES .............................................. 44,328,392
--------------
NET ASSETS (Applicable to 6,797,862 Institutional shares,10
Service shares, 6,514,504 Investor A shares, 1,192,091
Investor B shares and 3,588,594 Investor C shares outstanding) ... $ 244,401,224
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($92,145,462/6,797,862) ................... $ 13.56
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($135/10)(a) .................................... $ 13.52
==============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($87,948,632/6,514,504) ...................... $ 13.50
==============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($13.50/0.9425) ........ $ 14.32
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($16,019,462/1,192,091) ...................... $ 13.44
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($48,287,533/3,588,594) ...................... $ 13.46
==============
- ---------
(a) Exact net assets and shares outstanding at September 30, 2005 were
$135.22 and 10, respectively.
See accompanying notes to financial statements.
98
BlackRock Funds
STATEMENT OF NET ASSETS
HEALTH SCIENCES PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS - 91.3%
Insurance - 8.5%
CIGNA Corp. 84,300 $ 9,935,598
WellPoint, Inc.(b) 260,936 19,784,167
----------------
29,719,765
----------------
Medical & Medical Services -- 31.1%
Amgen, Inc.(b) 119,123 9,490,529
Baxter International, Inc. 365,150 14,558,531
Caremark Rx, Inc.(b) 298,670 14,912,593
Community Health Systems, Inc.(b) 126,530 4,910,629
Coventry Health Care, Inc.(b) 33,700 2,898,874
Express Scripts, Inc.(b)(c) 101,986 6,343,529
LifePoint Hospitals, Inc.(b)(c) 27,800 1,215,694
Manor Care, Inc. 74,700 2,869,227
Medco Health Solutions, Inc.(b) 149,920 8,220,114
MedImmune, Inc.(b)(c) 165,200 5,558,980
Millipore Corp.(b) 108,100 6,798,409
Omnicare, Inc.(c) 59,000 3,317,570
Orchid Cellmark Inc.(b) 29,809 253,377
Triad Hospitals, Inc.(b) 30,800 1,394,316
UnitedHealth Group, Inc.(c) 325,800 18,309,960
Viropharma, Inc.(b) 146,800 3,053,440
WebMD Corp.(b) 341,700 3,786,036
----------------
107,891,808
----------------
Medical Instruments & Supplies -- 14.1%
Aspect Medical Systems, Inc.(b) 111,381 3,300,219
Bausch & Lomb, Inc. 48,300 3,896,844
Boston Scientific Corp.(b)(c) 72,300 1,689,651
Cytyc Corp.(b) 274,000 7,356,900
DENTSPLY International, Inc. 43,710 2,361,214
DJ Orthopedics, Inc.(b) 38,940 1,126,924
Kinetic Concepts, Inc.(b)(c) 71,740 4,074,832
MWI Veterinary Supply, Inc.(b) 71,600 1,428,420
Respironics, Inc.(b) 193,700 8,170,266
St. Jude Medical, Inc.(b) 33,400 1,563,120
Symmetry Medical, Inc.(b) 44,500 1,054,650
Varian Medical Systems, Inc.(b)(c) 146,900 5,804,019
Zimmer Holdings, Inc.(b)(c) 102,500 7,061,225
----------------
48,888,284
----------------
Pharmaceuticals -- 37.6%
Abbott Laboratories(c) 49,750 2,109,400
Alexion Pharmaceuticals, Inc.(b) 92,580 2,562,614
Amylin Pharmaceuticals, Inc.(b)(c) 150,744 5,244,384
Arena Pharmaceuticals, Inc.(b) 409,200 4,051,080
AstraZeneca PLC - ADR 107,530 5,064,663
BioMarin Pharmaceutical, Inc.(b) 369,822 3,228,546
Bristol-Myers Squibb Co.(c) 102,960 2,477,218
Cardiome Pharma Corp.(b) 652,700 5,737,233
Gene Logic, Inc.(b) 645,380 3,155,908
Genentech, Inc.(b) 139,839 11,775,842
Gilead Sciences, Inc.(b) 56,200 2,740,312
Hospira, Inc.(b) 83,400 3,416,898
ICOS Corp.(b) 573 15,826
InterMune, Inc.(b) 67,381 1,115,156
iShares Nasdaq Biotechnology
Index Fund(b) 40 3,066
Keryx Biopharmaceuticals, Inc.(b) 192,100 3,027,496
Merck & Co., Inc. 130,700 3,556,347
Momenta Pharmaceuticals, Inc.(b) 137,540 3,747,965
Myriad Genetics, Inc.(b) 34,800 760,728
Panacos Pharmaceuticals, Inc.(b) 297,300 2,895,702
Pfizer, Inc. 196,059 4,895,593
Renovis, Inc.(b) 102,000 1,380,060
Roche Holding AG 313,600 21,867,485
Sanofi-Aventis - ADR 160,140 6,653,817
Schering-Plough Corp. 329,600 6,938,080
Shire Pharmaceuticals Group PLC -- ADR 80,400 2,973,996
Taro Pharmaceutical Industries
Ltd.(b)(c) 176,004 4,528,583
Vertex Pharmaceuticals, Inc.(b) 144,600 3,231,810
Wyeth 247,700 11,461,079
----------------
130,616,887
----------------
TOTAL COMMON STOCKS
(Cost $280,350,757) 317,116,744
----------------
Par/shares
Maturity (000) Value
---------------- ---------------- ----------------
SHORT TERM INVESTMENTS -- 16.6%
Banco Santader, Certificate of
Deposit
3.70%(d) 05/10/06 $ 374 373,568
Federal Home Loan Bank, Discount
Notes
3.18%(e) 10/03/05 19,300 19,296,590
Morgan Stanley, Floating Rate
Notes
4.02%(d)(f) 11/07/05 4,152 4,151,686
4.01%(d)(f) 11/14/05 761 761,008
4.02%(d)(f) 01/05/06 3,268 3,267,534
U.S. Treasury Bills
3.00% 10/13/05 2,500 2,497,500
Galileo Money Market Fund 9,982 9,981,563
Institutional Money Market
Trust(d)(g) 17,440 17,439,518
----------------
TOTAL SHORT TERM INVESTMENTS
(Cost $57,768,967) 57,768,967
----------------
TOTAL INVESTMENTS IN SECURITIES -- 107.9%
(Cost $338,119,724(a)) 374,885,711
See accompanying notes to financial statements.
99
BlackRock Funds
STATEMENT OF NET ASSETS
HEALTH SCIENCES PORTFOLIO (CONCLUDED)
As of September 30, 2005
Number of
Contracts Value
----------- -------------
OPTIONS -- (0.1)%
Genentech, Inc., Strike Price 85, Expires 10/22/05 (360) $ (90,000)
Genentech, Inc., Strike Price 90, Expires 11/19/05 (360) (68,040)
Martek Biosciences Corp., Strike Price 35, Expires 10/22/05 (450) (51,750)
Momenta Pharmaceuticals, Inc., Strike Price 30, Expires 10/22/05 (830) (91,300)
Momenta Pharmaceuticals, Inc., Strike Price 35, Expires 11/19/05 (355) (30,175)
Myriad Genetics, Inc., Strike Price 20, Expires 10/22/05 (348) (62,640)
Renovis, Inc., Strike Price 12.5, Expires 10/22/05 (570) (14,250)
Shire Pharmaceuticals, Strike Price 40, Expires 10/22/05 (664) (13,280)
Viropharma, Inc., Strike Price 20, Expires 10/22/05 (470) (79,900)
Zimmer Holdings, Inc., Strike Price 75, Expires 10/22/05 (483) (4,830)
------------
TOTAL OPTIONS
(Premiums received $(632,059)) (506,165)
------------
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (7.8)% (27,035,251)
------------
NET ASSETS -- 100.0%
(Applicable to 1,277,264 Institutional shares, 2,720 Service
shares, 7,738,823 Investor A shares, 1,933,676 Investor B
shares and 3,629,824 Investor C shares outstanding) $347,344,295
============
Value
-------------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER INSTITUTIONAL SHARE
($31,229,254/1,277,264) $ 24.45
============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER SERVICE SHARE
($65,671/2,720)(h) $ 24.15
============
NET ASSET VALUE AND
REDEMPTION PRICE PER INVESTOR A SHARE
($186,544,720/7,738,823) $ 24.11
============
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE ($24.11/0.9425) $ 25.58
============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($45,073,384/1,933,676) $ 23.31
============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($84,431,266/3,629,824) $ 23.26
============
- ----------
(a) Cost for Federal income tax purposes is $339,117,729. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 38,698,271
Gross unrealized depreciation (2,930,289)
------------
$ 35,767,982
============
(b) Non-income producing security.
(c) Total or partial securities on loan.
(d) Securities purchased with the cash proceeds from securities loaned.
(e) The rate shown is the effective yield on the discount notes at the time of
purchase.
(f) Rates shown are the rates as of September 30, 2005.
(g) Represents an investment in an affiliate.
(h) Exact net assets and shares outstanding at September 30, 2005 were
$65,670.73 and 2,719.678, respectively.
See accompanying notes to financial statements.
100
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
HEALTH SCIENCES PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $338,119,724)........................... $ 374,885,711
Dividends and reclaims receivable ................................. 65,564
Interest receivable ............................................... 32,464
Investments sold receivable ....................................... 8,992,456
Capital shares sold receivable .................................... 8,930,598
Prepaid expenses .................................................. 67,989
--------------
TOTAL ASSETS ................................................... 392,974,782
--------------
LIABILITIES
Payable upon return of securities loaned .......................... 25,993,314
Investments purchased payable ..................................... 18,061,945
Capital shares redeemed payable ................................... 610,984
Advisory fees payable ............................................. 193,266
Administrative fees payable ....................................... 33,382
Transfer agent fees payable ....................................... 24,219
Options written at fair value (premiums received $632,059)......... 506,165
Other accrued expenses payable .................................... 207,212
--------------
TOTAL LIABILITIES .............................................. 45,630,487
--------------
NET ASSETS (Applicable to 1,277,264 Institutional shares, 2,720
Service shares, 7,738,823 Investor A shares, 1,933,676 Investor B
shares and 3,629,824 Investor C shares outstanding) ............... $ 347,344,295
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($31,229,254/1,277,264).................... $ 24.45
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($65,671/2,720)(a)............................... $ 24.15
==============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($186,544,720/7,738,823)...................... $ 24.11
==============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($24.11/0.9425)......... $ 25.58
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($45,073,384/1,933,676)....................... $ 23.31
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($84,431,266/3,629,824)....................... $ 23.26
==============
- ---------
(a) Exact net assets and shares outstanding at September 30, 2005 were
$65,670.73 and 2,719.678, respectively.
See accompanying notes to financial statements.
101
BlackRock Funds
STATEMENT OF NET ASSETS
U.S. OPPORTUNITIES PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS -- 95.7%
Aerospace -- 3.3%
Curtiss - Wright Corp. 11,000 $ 678,810
Esterline Technologies Corp.(b)(c) 13,500 511,515
Goodrich Corp. 27,800 1,232,652
Teledyne Technologies, Inc.(b) 20,500 706,635
----------
3,129,612
----------
Banks -- 4.1%
City National Corp. 12,300 862,107
Colonial BancGroup, Inc. 36,300 813,120
Compass Bancshares, Inc. 13,800 632,454
Cullen/Frost Bankers, Inc. 14,500 715,430
Franklin Bank Corp.(b) 23,500 379,525
Sovereign Bancorp., Inc.(c) 23,000 506,920
----------
3,909,556
----------
Business Services -- 4.1%
Alliance Data Systems Corp.(b)(c) 11,800 461,970
Aquantive, Inc.(b) 58,100 1,169,553
Cohen & Steers, Inc. 25,700 514,000
The Dun & Bradstreet Corp.(b) 11,500 757,505
Global Payments, Inc. 10,000 777,200
Korn/Ferry International(b) 15,600 255,684
Tidel Technologies, Inc.(b) 28,993 9,060
----------
3,944,972
----------
Chemicals -- 2.1%
Church & Dwight Co., Inc.(c) 14,000 517,160
The Lubrizol Corp. 17,000 736,610
Olin Corp. 38,700 734,913
----------
1,988,683
----------
Computer Software & Services -- 3.1%
Advanced Micro Devices, Inc.(b) 34,500 869,400
Informatica Corp.(b)(c) 77,400 930,348
Interwoven, Inc.(b) 64,500 526,965
Salesforce.Com, Inc.(b)(c) 21,500 497,080
Unica Corp.(b) 12,500 137,250
----------
2,961,043
----------
Construction -- 3.1%
Beacon Roofing Supply, Inc.(b) 13,700 447,579
EMCor Group, Inc.(b) 12,000 711,600
Hovanian Enterprises, Inc.(b)(c) 12,700 650,240
Washington Group International, Inc.(b) 22,500 1,212,525
----------
3,021,944
----------
Electronics -- 0.8%
Amphenol Corp. 18,300 738,222
----------
Energy & Utilities -- 6.2%
Atmos Energy Corp. 26,000 734,500
Equitable Resources, Inc. 24,800 968,688
MDU Resources Group, Inc. 33,800 1,204,970
PPL Corp. 36,200 1,170,346
Sempra Energy(c) 21,200 997,672
UGI Corp. 30,500 858,575
----------
5,934,751
----------
Entertainment & Leisure -- 5.3%
Gaylord Entertainment Co.(b) 14,900 709,985
Hilton Hotels Corp. 38,700 863,784
Kerzner International Ltd.(b) 10,300 572,165
Penn National Gaming, Inc.(b) 27,600 858,636
Scientific Games Corp. - Class A(b)(c) 19,300 598,300
Station Casinos, Inc. 13,500 895,860
Warner Music Group Corp.(b) 32,500 601,575
----------
5,100,305
----------
Finance -- 1.4%
T. Rowe Price Group, Inc. 19,900 1,299,470
----------
Food & Agriculture -- 0.3%
Diamond Foods, Inc.(b) 19,400 331,740
----------
Furniture -- 0.6%
Herman Miller, Inc. 19,000 575,700
----------
Insurance -- 3.3%
Aspen Insurance Holdings Ltd. 23,600 697,380
Assurant, Inc.(c) 26,100 993,366
Endurance Specialty Holdings Ltd. 16,500 562,815
The PMI Group, Inc. 16,200 645,894
Willis Group Holdings Ltd. 8,000 300,400
----------
3,199,855
----------
Machinery & Heavy Equipment -- 1.7%
Astec Industries, Inc.(b) 15,000 425,850
Dresser-Rand Group, Inc.(b) 19,300 475,359
Joy Global, Inc.(c) 15,250 769,515
----------
1,670,724
----------
Manufacturing -- 6.9%
Cooper Industries, Inc. 8,500 587,690
Gardner Denver, Inc.(b) 18,600 829,560
ITT Industries, Inc.(c) 7,000 795,200
Paralux Fragrance, Inc.(b) 15,000 437,100
Polo Ralph Lauren Corp. 21,000 1,056,300
Powerwave Technologies, Inc.(b) 100,100 1,300,299
Rexam PLC - Sponsored ADR 15,500 700,600
Rockwell Automation, Inc. 7,900 417,910
V.F. Corp. 8,000 463,760
----------
6,588,419
----------
Medical & Medical Services -- 4.5%
LifePoint Hospitals, Inc.(b)(c) 16,100 704,053
Manor Care, Inc. 8,500 326,485
Medco Health Solutions, Inc.(b) 14,700 806,001
Millipore Corp.(b) 18,100 1,138,309
Triad Hospitals, Inc.(b) 15,000 679,050
WebMD Corp.(b) 64,000 709,120
----------
4,363,018
----------
Medical Instruments & Supplies -- 2.0%
Bausch & Lomb, Inc. 6,100 492,148
DENTSPLY International, Inc. 8,500 459,170
MWI Veterinary Supply, Inc.(b) 19,700 393,015
Varian Medical Systems, Inc.(b) 15,000 592,650
----------
1,936,983
----------
Metal & Mining -- 5.4%
Arch Coal, Inc.(c) 15,500 1,046,250
CONSOL Energy, Inc. 8,500 648,295
Freeport-McMoRan Copper & Gold,
Inc. - Class B 12,900 626,811
Inco Ltd. 17,000 804,950
See accompanying notes to financial statements.
102
BlackRock Funds
STATEMENT OF NET ASSETS
U.S. OPPORTUNITIES PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS (Continued)
Metal & Mining (Continued)
Oregon Steel Mills, Inc.(b) 28,900 $ 806,310
Phelps Dodge Corp.(c) 10,000 1,299,300
----------
5,231,916
----------
Motor Vehicles -- 0.4%
Rush Enterprises, Inc. CL A(b) 25,000 382,000
----------
Oil & Gas -- 9.3%
Chesapeake Energy Corp. 22,000 841,500
Cimarex Energy Co.(b)(c) 11,377 515,720
CNX Gas Corp.(b)(d) 7,600 147,554
Diamond Offshore Drilling, Inc. 17,000 1,041,250
ENSCO International, Inc. 25,500 1,188,045
Grant Prideco, Inc.(b) 19,700 800,805
National-Oilwell, Inc.(b) 11,300 743,540
Newfield Exploration Co.(b) 22,000 1,080,200
Noble Energy, Inc. 15,600 731,640
St. Mary Land & Exploration Co. 22,500 823,500
Weatherford International Ltd.(b) 14,500 995,570
----------
8,909,324
----------
Personal Services -- 0.6%
Educate, Inc.(b) 36,000 540,000
----------
Pharmaceuticals -- 4.5%
Amylin Pharmaceuticals, Inc.(b)(c) 18,500 643,615
BioMarin Pharmaceutical, Inc.(b) 50,000 436,500
Cardiome Pharma Corp.(b) 58,200 511,578
Caremark Rx, Inc.(b) 15,500 773,915
First Horizon Pharmaceutical Corp.(b) 22,350 444,095
Hospira, Inc.(b) 18,000 737,460
Keryx Biopharmaceuticals, Inc.(b) 26,800 422,368
Momenta Pharmaceuticals, Inc.(b) 12,200 332,450
----------
4,301,981
----------
Real Estate -- 4.6%
Archstone-Smith Trust 22,500 897,075
CB Richard Ellis Group, Inc. - Class
A(b) 24,800 1,220,160
Host Marriott Corp. 52,500 887,250
Kimco Realty Corp. 29,000 911,180
Strategic Hotel Capital, Inc. 30,000 547,800
----------
4,463,465
----------
Restaurants -- 0.1%
Ruth's Chris Steak House, Inc.(b) 6,000 110,280
----------
Retail Merchandising -- 4.9%
Abercrombie & Fitch Co. - Class A 8,600 428,710
BJ's Wholesale Club, Inc.(b) 14,700 408,660
Charming Shoppes, Inc.(b) 56,500 602,855
Dick's Sporting Goods, Inc.(b)(c) 15,000 451,650
Pacific Sunwear of California, Inc.(b) 20,800 445,952
The Pantry, Inc.(b) 18,204 680,283
Saks, Inc.(b) 21,900 405,150
Tiffany & Co. New 14,000 556,780
Urban Outfitters, Inc.(b) 23,400 687,960
----------
4,668,000
----------
Security Brokers & Dealers -- 1.3%
E*TRADE Financial Corp.(b) 72,900 1,283,040
----------
Semiconductors & Related Devices -- 3.5%
Integrated Device Technology, Inc.(b) 51,500 553,110
Lam Research Corp.(b)(c) 9,000 274,230
MEMC Electronic Materials, Inc.(b) 35,000 797,650
Microsemi Corp.(b) 29,100 743,214
O2Micro International Ltd.(b) 33,600 528,864
Varian Semiconductor Equipment
Associates, Inc.(b) 12,000 508,440
----------
3,405,508
----------
Telecommunications -- 6.2%
Alamosa Holdings, Inc.(b) 42,700 730,597
Amdocs Ltd.(b) 23,000 637,790
American Tower Corp. - Class A(b) 52,500 1,309,875
Comverse Technology, Inc.(b) 37,300 979,871
New Skies Satellites Holdings Ltd. 25,000 526,250
Nextel Partners, Inc. - Class A(b)(c) 11,000 276,100
NII Holdings, Inc.(b) 11,200 945,840
Otelco, Inc. 37,319 578,071
----------
5,984,394
----------
Transportation -- 0.9%
Pacer International, Inc. 18,000 474,480
Trinity Industries, Inc. 9,600 388,704
-----------
863,184
----------
Waste Management -- 1.2%
URS Corp.(b) 27,500 1,110,725
----------
TOTAL COMMON STOCKS
(Cost $69,733,431) 91,948,814
----------
WARRANTS -- 0.0%
Bioject Medical Technologies, Inc.
(issued 07/19/02, expiring
05/23/06, strike price $.01)(d)(e)
(Cost $0) 15,000 150
----------
Par/shares
Maturity (000) Value
---------------- ---------------- ----------------
SHORT TERM INVESTMENTS - 18.9%
Morgan Stanley, Floating Rate
Notes
4.02%(f)(g) 11/07/05 $ 2,861 $ 2,861,276
4.01%(f)(g) 11/14/05 1,515 1,514,706
Galileo Money Market Fund 4,492 4,492,190
Institutional Money Market
Trust(g)(h) 9,254 9,254,249
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $18,122,421) 18,122,421
-----------
See accompanying notes to financial statements.
103
BlackRock Funds
STATEMENT OF NET ASSETS
U.S. OPPORTUNITIES PORTFOLIO (Concluded)
As of September 30, 2005
VALUE
-------------
TOTAL INVESTMENTS IN SECURITIES -- 114.6%
(Cost $87,855,852(a)) $ 110,071,385
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (14.6)% (14,026,143)
-------------
NET ASSETS -- 100.0%
(Applicable to 249,982 Institutional
shares, 18,902 Service shares,
1,263,181 Investor A shares,
1,583,519 Investor B shares and
886,764 Investor C shares outstanding) $ 96,045,242
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($6,389,565/249,982) $ 25.56
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($471,859/18,902) $ 24.96
=============
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($31,276,954/1,263,181) $ 24.76
=============
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($24.76/0.9425) $ 26.27
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($37,132,433/1,583,519) $ 23.45
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($20,774,431/886,764) $ 23.43
=============
- ----------
(a) Cost for Federal income tax purposes is $87,856,681. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 23,063,168
Gross unrealized depreciation (848,464)
-------------
$ 22,214,704
=============
(b) Non-income producing security.
(c) Total or partial securities on loan.
(d) Security valued at fair value as determined in good faith by or under the
direction of the Trustees. As of September 30, 2005, these securities had a
total market value of $147,704 which represents less than 0.02% of net
assets.
(e) As of September 30, 2005, the aggregate amount of shares called for by
these warrants is 15,000. These warrants will become exercisable on
5/23/06.
(f) Rates shown are the rates as of September 30, 2005.
(g) Securities purchased with the cash proceeds from securities loaned.
(h) Represents an investment in an affiliate.
See accompanying notes to financial statements.
104
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
U.S. OPPORTUNITIES PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $87,855,852)............................ $ 110,071,385
Dividends receivable .............................................. 81,129
Interest receivable ............................................... 12,083
Investments sold receivable ....................................... 686,294
Capital shares sold receivable .................................... 92,225
Prepaid expenses .................................................. 17,460
--------------
TOTAL ASSETS ................................................... 110,960,576
--------------
LIABILITIES
Payable upon return of securities loaned .......................... 13,630,231
Investments purchased payable ..................................... 508,680
Capital shares redeemed payable ................................... 561,026
Advisory fees payable ............................................. 88,760
Administrative fees payable ....................................... 16,764
Transfer agent fees payable ....................................... 25,480
Other accrued expenses payable .................................... 84,393
--------------
TOTAL LIABILITIES .............................................. 14,915,334
--------------
NET ASSETS (Applicable to 249,982 Institutional shares,18,902
Service shares, 1,263,181 Investor A shares, 1,583,519 Investor B
shares and 886,764 Investor C shares outstanding) ................. $ 96,045,242
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($6,389,565/249,982)....................... $ 25.56
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($471,859/18,902)................................ $ 24.96
==============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($31,276,954/1,263,181)....................... $ 24.76
==============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($24.76/0.9425)......... $ 26.27
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($37,132,433/1,583,519)....................... $ 23.45
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($20,774,431/886,764)......................... $ 23.43
==============
See accompanying notes to financial statements.
105
BlackRock Funds
STATEMENT OF NET ASSETS
INTERNATIONAL OPPORTUNITIES PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS -- 96.9%
Australia -- 1.1%
Metal & Mining - 1.1%
Zinifex Ltd.(b) 2,283,900 $ 7,953,097
-------------
Austria -- 1.7%
Construction - 0.6%
Wienerberger AG 99,483 3,932,879
-------------
Machinery & Heavy Equipment -- 0.4%
Andritz AG 30,600 3,061,365
-------------
Telecommunications -- 0.7%
Telekom Austria AG 252,600 5,040,244
-------------
Total Austria 12,034,488
-------------
Belgium -- 0.6%
Metal & Mining - 0.6%
Umicore 40,716 4,454,839
-------------
Brazil -- 0.7%
Telecommunications -- 0.7%
Telemig Celular Participacoes SA-ADR 53,000 1,791,400
Tim Participacoes SA-ADR 184,600 3,429,868
-------------
5,221,268
-------------
Canada -- 3.9%
Metal & Mining - 3.3%
First Quantum Minerals Ltd. 213,300 5,559,473
Inco Ltd. 151,100 7,159,218
Inmet Mining Corp.(b) 296,100 5,319,391
Teck Cominco Ltd. 125,200 5,625,694
-------------
23,663,776
-------------
Transportation -- 0.6%
Canadian Pacific Railway Ltd. 101,900 4,393,483
-------------
Total Canada Denmark -- 0.8% 28,057,259
-------------
Food & Agriculture -- 0.8%
Danisco A/S 84,200 5,692,958
-------------
Finland -- 2.9%
Banks -- 0.5%
OKO Bank -- Class A 220,900 3,648,686
-------------
Machinery & Heavy Equipment -- 1.2%
Kone Oyj -- New Class B Shares(b) 63,100 4,298,313
Metso Oyj 168,600 4,291,075
-------------
8,589,388
-------------
Retail Merchandising -- 0.9%
Kesko Oyj -- Class B 222,000 6,177,447
-------------
Transportation -- 0.3%
Cargotec Corporation -- B Share(b) 63,100 1,907,995
-------------
Total Finland France -- 1.3% 20,323,516
-------------
Computer & Office Equipment -- 0.8%
Neopost SA 62,000 6,028,598
-------------
Computer Software & Services -- 0.5%
Atos Origin SA(b) 54,100 3,838,522
-------------
Total France Germany -- 8.8% 9,867,120
-------------
Aerospace -- 0.6%
MTU Aero Engines Holding AG(b) 128,900 4,040,606
-------------
Air Transportation -- 0.8%
Deutsche Lufthansa 437,900 5,823,321
-------------
Construction -- 1.0%
Bilfinger Berger AG 139,400 7,495,798
-------------
Durable Goods -- 0.0%
Gerry Weber International A 13,888 253,672
-------------
Electronics -- 0.4%
Techem AG(b)
62,100 2,687,858
-------------
Energy & Utilities -- 0.5%
Solarworld AG 23,400 3,504,231
-------------
Finance -- 0.7%
AWD Holding AG 131,500 5,060,680
-------------
Machinery & Heavy Equipment -- 1.3%
Rheinmetall AG 138,500 9,184,018
-------------
Manufacturing -- 2.4%
Adidas-Salomon AG 32,100 5,595,430
MAN AG 73,500 3,782,091
Norddeutsche Affinerie AG 238,100 5,281,989
Solon AG Fuer Solartechnik(b) 70,000 2,451,684
-------------
17,111,194
-------------
Real Estate -- 0.6%
IVG Immobilien AG 213,100 4,393,391
-------------
Telecommunications -- 0.5%
Freenet.De AG 151,500 3,894,217
-------------
Total Germany 63,448,986
-------------
Greece -- 0.6%
Banks -- 0.6%
Piraeus Bank SA 202,200 4,241,805
-------------
Hong Kong -- 2.6%
Containers -- 0.4%
Cosco Pacific Ltd. 1,564,200 3,044,622
-------------
Entertainment & Leisure -- 0.7%
Regal Hotels International Holdings
Ltd. 67,131,000 5,192,047
-------------
Real Estate -- 1.5%
New World Development Co., Ltd. 5,164,100 6,789,832
Wheelock & Co., Ltd. 2,045,000 3,637,782
-------------
10,427,614
-------------
Total Hong Kong 18,664,283
-------------
India - 2.2%
Banks -- 0.6%
Industrial Development Bank of India
Ltd. 1,521,100 4,184,251
-------------
Telecommunications -- 1.6%
Bharti Tele-Ventures Ltd.(b) 1,493,257 11,635,201
-------------
Total India 15,819,452
-------------
Italy -- 0.9%
Construction -- 0.9%
Buzzi Unicem SpA 400,600 6,317,408
-------------
See accompanying notes to financial statements.
106
BlackRock Funds
STATEMENT OF NET ASSETS
INTERNATIONAL OPPORTUNITIES PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
COMMON STOCKS (Continued)
Japan -- 31.1%
Banks -- 4.0%
Bank of Kyoto Ltd. 357,000 $ 3,578,189
The Bank of Yokohama Ltd. 836,000 6,380,272
The Chiba Bank Ltd. 650,000 5,293,365
The Iyo Bank Ltd. 550,600 5,499,199
The Joyo Bank Ltd. 789,200 4,818,479
The Musashino Bank Ltd. 49,700 3,056,370
-------------
28,625,874
-------------
Chemicals -- 0.7%
Tokai Carbon Co., Ltd. 1,197,000 5,343,939
-------------
Electronics -- 0.8%
Daido Steel Co., Ltd. 882,000 5,680,783
-------------
Finance -- 5.0%
K.K. DaVinci Advisors(b) 1,250 4,764,426
Mitsui Trust Holdings, Inc. 683,400 9,478,603
Nissin Co., Ltd. 1,753,860 2,336,623
Nissin Co., Ltd. 1,700,160 2,220,078
Orix Corp. 29,900 5,408,064
Pacific Management Corp. 1,150 4,748,544
Sanyo Shinpan Finance Co. Ltd. 81,800 6,654,279
-------------
35,610,617
-------------
Food & Agriculture -- 1.5%
Morinaga & Co., Ltd 1,604,000 4,443,762
The Nisshin Oillio V 1,057,000 6,267,020
-------------
10,710,782
-------------
Machinery & Heavy Equipment -- 4.5%
Hitachi Construction
Machinery Co., Ltd. 366,600 7,018,899
Juki Corp. 1,030,200 5,726,363
Komatsu Ltd. 384,600 5,246,088
Miura Co., Ltd 159,800 3,722,181
Nabtesco Corp. 532,000 4,660,985
Sumitomo Heavy Industries Ltd. 855,400 6,075,498
-------------
32,450,014
-------------
Manufacturing -- 3.9%
Asahi Diamond 558,600 4,361,752
Industry Co. Ltd.
Ibiden Co., Ltd. 168,600 7,036,157
Kobe Steel Ltd. 1,723,800 5,247,141
Koyo Seiko Co., Ltd. 477,700 7,215,656
Shimadzu Corp. 602,000 4,254,473
-------------
28,115,179
-------------
Medical Instruments & Supplies -- 1.1%
Nihon Kohden Corp. 267,000 4,379,328
Terumo Corp. 106,600 3,432,945
-------------
7,812,273
-------------
Motor Vehicles -- 2.7%
Futaba Industrial Co., Ltd. 191,800 4,205,250
Keihin Corp. 264,300 5,316,781
SHOWA Corp. 138,300 2,004,825
Yamaha Motor Co., Ltd. 395,000 8,172,534
-------------
19,699,390
-------------
Real Estate -- 1.0%
Joint Corp. 158,100 7,379,116
-------------
Retail Merchandising -- 4.3%
Culture Convenience Club Co., Ltd. 169,000 5,576,672
Japan (Continued)
Retail Merchandising (Continued)
FamilyMart Co., Ltd. 133,400 4,013,535
Sundrug Co., Ltd. 89,200 5,099,841
Takashimaya Co., Ltd. 318,900 4,068,549
Tsuruha Co., Ltd. 94,000 3,690,665
Xebio Co., Ltd. 85,200 3,397,777
Yamada Denki Co., Ltd. 69,000 5,253,838
-------------
31,100,877
-------------
Security Brokers & Dealers -- 0.6%
Ichiyoshi Securities Co., Ltd. 392,700 4,455,728
-------------
Tires & Rubber -- 1.0%
Zeon Corp. 645,700 7,064,302
-------------
Total Japan 224,048,874
-------------
Mexico -- 0.6%
Metal & Mining -- 0.6%
Grupo Mexico SA-Series B 2,332,800 4,586,143
-------------
Netherlands -- 0.8%
Construction -- 0.8%
Koninklijke BAM Groep NV 60,000 5,526,687
-------------
Norway -- 4.5%
Banks -- 0.7%
Sparebanken Midt-Norge 34,700 1,925,325
Sparebanken Nord-Norge 66,520 1,279,564
Sparebanken Rogaland 56,500 1,731,987
-------------
4,936,876
-------------
Electronics -- 0.7%
Eltek ASA(b) 295,000 4,928,498
-------------
Manufacturing -- 0.6%
Orkla ASA 111,700 4,254,472
-------------
Oil & Gas -- 2.5%
Prosafe ASA 268,500 10,082,691
Smedvig ASA -- Class A 316,900 7,795,847
-------------
17,878,538
-------------
Total Norway 31,998,384
-------------
Portugal -- 0.5%
Telecommunications -- 0.5%
PT Multimedia -- Servicos de
Telecomunicacoes e Multimedia,
SGPS, SA 330,400 3,505,443
-------------
Singapore -- 1.6%
Oil & Gas -- 0.8%
Singapore Petroleum Co., Ltd. 1,569,500 5,480,941
-------------
Real Estate -- 0.8%
Capitaland Ltd. 3,006,000 5,586,765
-------------
Total Singapore 11,067,706
-------------
South Africa -- 0.6%
Retail Merchandising -- 0.6%
Edgars Consolidated 830,500 4,147,471
------------
Stores Ltd.
South Korea -- 3.8%
Chemicals -- 0.7%
Honam Petrochemical Corp. 98,200 4,902,929
-------------
Construction -- 1.0%
Hanjin Heavy Industries Co., Ltd. 334,600 7,132,136
-------------
See accompanying notes to financial statements.
107
BlackRock Funds
STATEMENT OF NET ASSETS
INTERNATIONAL OPPORTUNITIES PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
-------------- -------------
COMMON STOCKS (Continued)
South Korea (Continued)
Machinery & Heavy Equipment -- 0.7%
Doosan Infracore Co., Ltd. 443,000 $ 5,019,107
-------------
Retail Merchandising -- 0.5%
Hyundai Department Store Co., Ltd. 54,100 3,641,296
-------------
Security Brokers & Dealers -- 0.9%
Korea Investment Holdings Co., Ltd. 225,700 6,609,554
-------------
Total South Korea Spain -- 1.0% 27,305,022
-------------
Air Transportation -- 0.5%
Iberia Lineas Aereas de Espana SA 1,560,000 3,987,317
-------------
Construction -- 0.5%
ACS, Actividades de Construccion y
Servicios SA 120,500 3,523,052
-------------
Total Spain Sweden -- 3.4% 7,510,369
-------------
Manufacturing -- 1.8%
SKF AB -- B Shares 548,200 7,163,185
SSAB Svenskt Stal AB -- Series A 191,740 5,817,031
-------------
12,980,216
-------------
Motor Vehicles -- 0.4%
Scania AB 81,800 2,963,174
-------------
Oil & Gas -- 0.3%
PA Resources AB(b) 161,500 2,376,347
-------------
Retail Merchandising -- 0.9%
Lindex AB 117,500 6,103,363
-------------
Total Sweden 24,423,100
-------------
Switzerland -- 2.4%
Food Distribution -- 0.8%
Barry Callebaut AG(b) 18,542 5,493,926
-------------
Industrial -- 0.9%
SGS Societe Generale de Surveillance Holding SA 8,900 6,892,884
-------------
Machinery & Heavy Equipment -- 0.7%
Sauer AG(b) 72,500 4,920,496
-------------
Total Switzerland 17,307,306
-------------
Taiwan -- 0.9%
Computer & Office Equipment -- 0.5%
High Tech Computer Corp. 304,800 3,715,225
Quanta Computer, Inc. 1 1
-------------
3,715,226
-------------
Security Brokers & Dealers -- 0.4%
Yuanta Core Pacific Securities Co. 3,987,123 2,547,106
-------------
Total Taiwan 6,262,332
-------------
Thailand -- 1.1%
Banks -- 0.6%
Siam Commercial Bank Public Co.
Ltd. (Foreign Shares)(d) 3,568,500 4,445,456
-------------
Telecommunications -- 0.5%
Advanced Info Service Public Co.
Ltd. (Foreign Shares)(d) 1,240,100 3,186,903
-------------
Total Thailand 7,632,359
-------------
United Kingdom -- 15.4%
Aerospace - 0.9%
Meggitt PLC
1,071,565 6,146,815
-------------
Construction -- 1.3%
Carillion PLC 887,400 4,160,226
Taylor Woodrow PLC 854,200 4,899,945
-------------
9,060,171
-------------
Electronics -- 0.6%
Ultra Electronics Holdings PLC
254,800 4,219,169
-------------
Energy & Utilities -- 0.5%
Viridian Group PLC 269,130 3,780,370
-------------
Entertainment & Leisure -- 2.3%
Hilton Group PLC 467,600 2,601,638
IG Group Holdings PLC(b) 1,175,200 3,596,744
Intercontinental Hotels Group PLC 302,422 3,836,054
Millennium & Copthorne Hotels PLC 447,600 2,929,837
Whitbread PLC 194,914 3,274,087
-------------
16,238,360
-------------
Manufacturing -- 1.4%
IMI PLC 509,700 3,868,330
Rexam PLC 705,500 6,421,464
-------------
10,289,794
-------------
Measuring & Controlling Devices -- 1.0%
Rotork PLC 683,900 7,210,917
-------------
Medical Instruments & Supplies -- 0.7%
Alliance Unichem PLC 322,828 4,948,703
------------
Metal & Mining -- 1.4%
Antofagasta PLC 369,500 10,145,134
-------------
Miscellaneous Services -- 0.6%
Aggreko PLC
1,033,200 4,277,125
-------------
Oil & Gas -- 1.2%
Tullow Oil PLC 1,928,000 8,868,130
-------------
Soaps & Cosmetics -- 0.4%
McBride PLC 949,800 2,570,841
-------------
Transportation -- 1.9%
Arriva PLC 389,300 4,046,168
Exel PLC 440,310 9,557,730
-------------
13,603,898
-------------
Waste Management -- 1.2%
Kelda Group PLC 385,400 4,789,715
Severn Trent PLC 233,500 4,093,664
-------------
8,883,379
-------------
Total United Kingdom 110,242,806
-------------
See accompanying notes to financial statements.
108
BlackRock Funds
STATEMENT OF NET ASSETS
INTERNATIONAL OPPORTUNITIES PORTFOLIO (Concluded)
As of September 30, 2005
Number
of shares Value
---------------- --------------
COMMON STOCKS (Continued)
United States -- 1.1%
Broadcasting -- 0.6%
Central European Media Enterprises Ltd. -- A shares(b) 81,800 $ 4,319,858
-------------
Telecommunications -- 0.5%
NII Holdings, Inc.(b) 45,400 3,834,030
-------------
Total United States 8,153,888
-------------
TOTAL COMMON STOCKS
(Cost $548,297,671) 695,814,369
-------------
PREFERRED STOCKS -- 0.8%
Brazil -- 0.8%
Companhia Siderurgica de Tubarao
(Cost $4,317,774) 78,654,800 5,664,959
-------------
WARRANTS -- 0.0%
Playmates Holdings Ltd. (issued
05/24/05, expiring 05/23/06, strike
price $2.03)(e)
(Cost $784) 1,170,300 22,930
-------------
Par/shares
Maturity (000)
---------------- ----------------
SHORT TERM INVESTMENTS -- 2.3%
Federal Home Loan Bank Discount Notes
3.18%(f) 10/03/05 $ 10,000 9,998,055
Galileo Money Market Fund 6,937 6,936,738
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $16,934,793) 16,934,793
-------------
TOTAL INVESTMENTS IN SECURITIES -- 100.0%
(Cost $569,551,022(a)) 718,437,051
LIABILITIES IN EXCESS OF
OTHER ASSETS -- 0.0% (264,673)
-------------
NET ASSETS -- 100.0%
(Applicable to 6,292,278
Institutional shares, 1,320,766
Service shares, 7,604,596
Investor A shares, 2,313,284
Investor B shares and 4,075,744
Investor C shares outstanding) $ 718,172,378
=============
Value
-------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER INSTITUTIONAL SHARE
($216,069,795/6,292,278) $ 34.34
=============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SERVICE SHARE
($44,308,300/1,320,766) $ 33.55
=============
NET ASSET VALUE AND REDEMPTION PRICE PER
INVESTOR A SHARE
($253,709,608/7,604,596) $ 33.36
=============
MAXIMUM OFFERING PRICE PER INVESTOR A
SHARE
($33.36/0.950) $ 35.12
=============
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE
(subject to a maximum
contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($73,946,244/2,313,284) $ 31.97
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($130,138,431/4,075,744) $ 31.93
=============
- ----------
(a) Cost for Federal income tax purposes is $571,585,581. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 151,397,224
Gross unrealized depreciation (4,545,754)
-------------
$ 146,851,470
=============
(b) Non-income producing security.
(c) When-issued security.
(d) Security valued at fair value as determined in good faith by or under the
direction of the Trustees. As of September 30, 2005, the securities had a
total market value of $7,609,409 which represents 1.06% of net assets.
(e) As of September 30, 2005, the aggregate amount of shares called for by
these warrants is 1,170,300. These warrants were exercisable as of 5/24/05.
(f) The rate shown is the effective yield on the discount notes at the time of
purchase.
See accompanying notes to financial statements.
109
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------------- -------------
COMMON STOCKS -- 67.1%
Australia -- 0.8%
Metal & Mining -- 0.4%
BHP Billiton Ltd. 167,054 $ 2,838,450
-------------
Pharmaceuticals -- 0.1%
CSL Ltd. 39,550 1,159,771
-------------
Retail Merchandising -- 0.3%
Woolworths Ltd. 155,314 1,972,410
-------------
Total Australia 5,970,631
-------------
Belgium -- 0.2%
Beverages & Bottling -- 0.2%
Inbev NV 38,670 1,534,343
-------------
Canada -- 1.2%
Energy & Utilities -- 0.0%
Tusk Energy Corp.(b) 10,557 44,025
-------------
Metal & Mining -- 0.3%
Bema Gold Corp.(c) 50,000 134,500
Fording Canadian Coal Trust(d) 6,394 272,193
Gateway Gold Corp.(c) 100,000 90,470
Gold Reserve, Inc.(c) 100,000 230,000
Minefinders Corp. Ltd.(c) 40,000 195,200
NovaGold Resources, Inc.(c) 66,700 534,267
Southwestern Resources Corp.(c) 47,300 438,114
Stratagold Corp.(c) 200,000 124,074
Sunridge Gold Corp.(c) 76,700 76,660
-------------
2,095,478
-------------
Motor Vehicles -- 0.0%
Westport Innovations, Inc. (acquired
12/17/03 through 9/15/04, cost
$75,001)(c)(e)(f)(g) 70,500 85,042
-------------
Oil & Gas -- 0.9%
Accrete Energy, Inc.(c) 4,960 43,591
Alberta Clipper Energy, Inc.(c) 20,126 82,370
C1 Energy Ltd.(c) 85,733 232,689
Canadian Superior Energy, Inc.(c) 1,723 4,308
Canex Energy, Inc(c) 7,800 22,178
Capitol Energy Resources Ltd.(c) 9,422 44,650
Chamaelo Exploration Ltd.(c) 2,340 16,029
Cinch Energy Corp.(c) 40,320 127,151
Compton Petroleum Corp.(c) 66,500 899,578
Crew Energy, Inc. (acquired
5/12/04, cost $36,232)(c)(e)(f) 9,400 161,985
Delphi Energy Corp.(c) 23,028 105,160
Ember Resources, Inc.(c) 12,136 74,454
Endev Energy, Inc.(c) 231,700 411,255
Esprit Energy Trust 36,375 454,139
First Calgary Petroleums Ltd.(c) 12,822 104,512
Galleon Energy, Inc. - Class A(c) 51,563 1,017,398
Hawker Resources, Inc.(c) 7,921 38,902
HSE Integrated Ltd.(c) 561 1,329
KICK Energy Ltd.(c) 9,100 63,275
Leader Energy Services Ltd.(c) 15,957 61,595
Midnight Oil Exploration Ltd.(c) 81,200 303,443
Niko Resources Ltd. (acquired
6/20/03 through 11/10/03, cost
$40,606)(e)(f) 2,000 87,886
Oilexco, Inc.(c) 62,300 216,864
Pacific Rodera Energy, Inc.(c) 37,300 42,744
Paramount Resources Ltd. -- Class A(c) 15,600 459,693
Precision Drilling Corp.(c) 6,800 334,560
ProspEx Resources Ltd.(c) 43,140 141,248
Purcell Energy Ltd.(c)(g) 68,773 207,397
Real Resources, Inc.(c) 6,185 145,486
Sequoia Oil & Gas Trust 11,220 202,624
Tag Oil Ltd.(b) 4,000 4,005
Technicoil Corp. (acquired 6/15/04,
cost $24,418)(c)(e)(f) 33,500 108,530
Tempest Energy Corp. -- Class A(c) 14,700 71,942
Thunder Energy Trust 30,194 352,769
True Energy, Inc.(c) 26,870 136,596
Vault Energy Trust 5,850 69,206
West Energy Ltd.(c) 143 1,012
White Fire Energy Ltd.(c) 11,220 29,872
Zenas Energy Corp.(c) 4,327 23,674
-------------
6,906,099
-------------
Transportation -- 0.0%
Railpower Technologies Corp.(c) 17,600 82,192
-------------
Total Canada 9,212,836
-------------
Finland -- 0.2%
Finance -- 0.2%
Sampo Oyj 112,854 1,796,020
-------------
France -- 1.8%
Banks -- 0.2%
Credit Agricole SA 53,465 1,572,822
-------------
Construction -- 0.4%
Autoroutes du Sud de la France 25,894 1,503,196
Vinci SA 14,789 1,277,542
-------------
2,780,738
-------------
Entertainment & Leisure -- 0.2%
Vivendi Universal SA 51,174 1,675,712
-------------
Insurance -- 0.3%
Axa 69,787 1,921,723
-------------
Medical Instruments & Supplies -- 0.2%
Essilor International SA 20,316 1,687,632
-------------
Oil & Gas -- 0.3%
Gaz de France 18,812 630,976
Technip SA 32,590 1,934,740
-------------
2,565,716
-------------
Telecommunications -- 0.2%
SES Global 111,395 1,751,159
-------------
Total France 13,955,502
-------------
Germany -- 1.0%
Chemicals -- 0.2%
Bayer AG 40,922 1,504,300
-------------
Finance -- 0.2%
Hypo Real Estate Holding AG 37,138 1,883,250
-------------
Insurance -- 0.3%
Allianz AG 14,579 1,974,615
-------------
Motor Vehicles -- 0.2%
Bayerische Motoren Werke AG 29,031 1,367,145
-------------
Retail Merchandising -- 0.1%
Metro AG 21,380 1,056,073
-------------
Total Germany 7,785,383
-------------
See accompanying notes to financial statements.
110
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
---------------- -------------
COMMON STOCKS (Continued)
Greece -- 0.2%
Telecommunications -- 0.2%
Hellenic Telecommunications
Organization SA(c) 78,856 $ 1,582,007
-------------
Hong Kong -- 0.1%
Machinery & Heavy Equipment -- 0.1%
Techtronics Industries Co. Ltd. 444,000 1,136,077
-------------
Italy -- 0.3%
Oil & Gas -- 0.3%
Eni SpA 71,458 2,128,844
-------------
Japan -- 2.8%
Banks -- 0.3%
Mizuho Financial Group, Inc. 328 2,089,430
-------------
Chemicals -- 0.2%
Daicel Chemical Industries Ltd. 240,000 1,556,379
-------------
Conglomerates -- 0.3%
Mitsui & Co. Ltd. 200,000 2,507,500
-------------
Construction -- 0.3%
Daiwa House Industry Co. Ltd. 82,000 1,074,378
Obayashi Corp. 202,000 1,397,282
-------------
2,471,660
-------------
Electronics -- 0.2%
Sony Corp. 35,900 1,181,463
-------------
Energy & Utilities -- 0.2%
Hokkaido Electric Power Co. 21,100 449,590
Tokyo Electric Power Co. 49,000 1,240,780
-------------
1,690,370
-------------
Finance -- 0.1%
Sanyo Shinpan Finance Co. Ltd. 11,200 911,099
-------------
Machinery & Heavy Equipment -- 0.4%
Komatsu Ltd. 133,000 1,814,170
Toyoda Machine Works Ltd. 97,000 1,084,339
-------------
2,898,509
-------------
Metal & Mining -- 0.1%
Marubeni Corp. 164,000 764,002
-------------
Motor Vehicles -- 0.1%
Suzuki Motor Corp. 43,800 811,540
-------------
Oil & Gas -- 0.1%
Nippon Oil Corp. 130,000 1,152,726
-------------
Pharmaceuticals -- 0.2%
Astellas Pharma, Inc. 36,800 1,386,413
-------------
Real Estate -- 0.3%
Tokyo Tatemono Co. Ltd. 214,000 1,744,627
Urban Corp. 14,000 692,959
-------------
2,437,586
-------------
Total Japan 21,858,677
-------------
Norway -- 0.3%
Banks -- 0.2%
DNB NOR ASA 142,139 1,470,561
-------------
Transportation -- 0.1%
Stolt-Nielsen SA(c) 13,000 521,052
-------------
Total Norway 1,991,613
-------------
Singapore -- 0.2%
Business Services -- 0.1%
Jardine Matheson Holdings Ltd. 49,600 848,160
-------------
Conglomerates -- 0.1%
Keppel Corp. Ltd. 116,000 871,974
-------------
Total Singapore 1,720,134
-------------
South Africa -- 0.2%
Banks -- 0.1%
ABSA Group Ltd. 61,364 905,350
-------------
Telecommunications -- 0.1%
MTN Group Ltd. 116,000 961,360
-------------
Total South Africa 1,866,710
-------------
Spain -- 0.3%
Banks -- 0.3%
Banco Bilbao Vizcaya Argentaria SA 124,573 2,191,288
-------------
Sweden -- 0.3%
Telecommunications -- 0.3%
Telefonaktiebolaget LM Ericsson 602,571 2,206,178
-------------
Switzerland -- 1.0%
Banks -- 0.2%
Credit Suisse Group
36,768 1,634,133
-------------
Chemicals -- 0.1%
Syngenta AG(c) 7,462 784,255
-------------
Food & Agriculture -- 0.3%
Nestle SA 9,038 2,656,895
-------------
Pharmaceuticals -- 0.4%
Roche Holding AG
19,375 2,702,056
-------------
Total Switzerland 7,777,339
-------------
Thailand -- 0.2%
Banks -- 0.2%
Kasikornbank Public Co.Ltd. 779,200 1,271,311
-------------
United Kingdom -- 2.1%
Air Transportation -- 0.2%
BAA PLC
161,042 1,777,769
-------------
Energy & Utilities -- 0.2%
Scottish Power PLC 154,718 1,564,259
-------------
Finance -- 0.0%
Archipelago Holdings, I78,900 45,225
-------------
Insurance -- 0.3%
Prudential PLC 217,484 1,979,540
-------------
Oil & Gas -- 0.4%
BG Group PLC 226,117 2,152,123
Expro International Group PLC 22,880 221,409
Tullow Oil PLC 97,735 449,547
Venture Production PLC(c) 20,752 176,954
-------------
3,000,033
-------------
Pharmaceuticals -- 0.6%
AstraZeneca PLC 37,525 1,749,255
Glaxosmithkline PLC 114,449 2,919,637
-------------
4,668,892
-------------
Publishing & Printing -- 0.3%
Reed Elsevier PLC 219,868 2,040,136
-------------
See accompanying notes to financial statements.
111
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
--------------- -------------
COMMON STOCKS (Continued)
United Kingdom (Continued)
Retail Merchandising -- 0.1%
Next PLC 37,434 $ 921,843
-------------
Total United Kingdom 15,997,697
-------------
United States -- 53.9%
Advertising -- 0.1%
Getty Images, Inc.(c) 6,400 550,656
R.H. Donnelley Corp.(c) 6,225 393,794
-------------
944,450
-------------
Aerospace -- 0.8%
AAR Corp.(c) 10,000 171,800
Alliant Techsystems, Inc.(c) 8,500 634,525
Aviall, Inc.(c) 18,100 611,418
General Dynamics Corp.(d) 22,450 2,683,897
Lockheed Martin Corp. 5,800 354,032
Orbital Sciences Corp.(c) 22,600 282,500
Raytheon Co. 31,400 1,193,828
-------------
5,932,000
-------------
Air Transportation -- 0.1%
ExpressJet Holdings, Inc.(c) 1,700 15,249
Ryanair Holdings PLC -- ADR(c) 23,129 1,053,063
SkyWest, Inc. 1,375 36,878
-------------
1,105,190
-------------
Banks -- 3.8%
AmSouth Bancorp.(d) 49,100 1,240,266
Associated Banc-Corp. 1,575 48,006
Bank of America Corp.(d) 141,700 5,965,570
Bank of Hawaii Corp. 1,000 49,220
Cathay General Bancorp. 7,000 248,220
Central Pacific Financial Corp. 8,650 304,307
Citigroup, Inc.(d) 112,400 5,116,448
City National Corp. 9,250 648,332
Colonial BancGroup, Inc. 2,600 58,240
Comerica, Inc.(d) 41,565 2,448,178
Cullen/Frost Bankers, Inc. 1,025 50,574
Flagstar Bancorp., Inc. 1,800 28,980
Gold Banc Corp., Inc. 18,650 277,885
Hudson City Bancorp., Inc. 47,275 562,572
J.P. Morgan Chase & Co., Inc. 36,100 1,224,873
Key Corp.(d) 48,600 1,567,350
National City Corp.(d) 62,000 2,073,280
North Fork Bancorp., Inc. 20,305 517,778
Sovereign Bancorp., Inc.(d) 31,650 697,566
TD Banknorth, Inc. 1,500 45,210
U.S. Bancorp. 75,900 2,131,272
Umpqua Holdings Corp. 10,000 243,200
Wachovia Corp.(d) 67,700 3,221,843
Wintrust Financial Corp 6,600 331,716
WSFS Financial Corp. 3,500 206,115
Zions Bancorp.(d) 575 40,946
-------------
29,347,947
-------------
Beverages & Bottling -- 0.7%
The Coca-Cola Co. 5,600 241,864
Coca-Cola Enterprises, Inc. 16,760 326,820
Constellation Brands, Inc.(c)(d) 42,550 1,106,300
Pepsi Bottling Group, Inc. 37,300 1,064,915
PepsiAmericas, Inc. 1,500 34,095
PepsiCo, Inc. 50,950 2,889,374
-------------
5,663,368
-------------
Broadcasting -- 0.4%
Alliance Atlantis Communications, Inc.(c) 8,400 $ 229,530
Belo Corp.(d) 13,980 319,583
CKX, Inc.(c) 34,500 433,665
Liberty Media Corp. - Class A(c)(d) 29,300 235,865
Lin TV Corp.(c) 26,125 364,444
Media General, Inc. - Class A 575 33,356
Outdoor Channel Holdings, Inc.(c) 1,600 23,616
Spanish Broadcasting Systems, Inc. - Class A(c) 3,800 27,284
Univision Communications, Inc. - Class A(c)(d) 15,500 411,215
XM Satellite Radio Holdings, Inc.(c)(d) 34,450 1,237,099
-------------
3,315,657
-------------
Business Services -- 0.7%
Advisory Board Co.(c) 400 20,816
Alliance Data Systems Corp.(c)(d) 37,325 1,461,274
The Brink's Co. 29,970 1,230,568
The Corporate Executive Board Co. 6,700 522,466
CoStar Group, Inc.(c)(d) 700 32,704
DiamondCluster International, Inc.(c) 2,900 21,982
Digitas, Inc.(c) 20,750 235,720
Equifax, Inc. 6,200 216,628
Forrester Research, Inc.(c) 1,200 24,984
FTI Consulting, Inc.(c) 1,500 37,890
Gartner, Inc. - Class A(c) 2,800 32,732
Global Cash Access, Inc.(c) 200 2,820
Global Payments, Inc. 600 46,632
Heartland Payment Systems, Inc.(c) 1,400 33,404
HMS Holdings Corp.(c) 25,800 178,794
Hudson Highland Group, Inc.(c) 900 22,473
National Financial Partners Corp. 7,000 315,980
Navigant Consulting, Inc.(c)(d) 7,200 137,952
Net 1 UEPS Technologies, Inc.(c) 1,100 24,662
VistaPrint Ltd.(c) 500 7,625
W.W. Grainger, Inc. 11,936 751,013
Watson Wyatt & Co. Holdings 10,500 282,975
-------------
5,642,094
-------------
Chemicals -- 0.5%
Agrium, Inc. 1,600 35,152
Ashland, Inc. 10,110 558,477
The Dow Chemical Co. 18,400 766,728
Eastman Chemical Co. 8,100 380,457
FMC Corp.(c) 5,805 332,162
The Lubrizol Corp. 28,325 1,227,322
Lyondell Chemical Co.(d) 23,300 666,846
-------------
3,967,144
-------------
Computer & Office Equipment -- 1.4%
American Power Conversion Corp. 8,390 217,301
Apple Computer, Inc.(c) 12,800 686,208
Avery Dennison Corp.(d) 8,415 440,862
Cisco Systems, Inc.(c) 97,500 1,748,175
Electronics for Imaging, Inc.(c) 6,750 154,845
Hewlett-Packard Co.(d) 109,000 3,182,800
Hutchinson Technology, Inc.(c) 500 13,060
International Business Machines Corp.(d) 38,800 3,112,536
Lexmark International, Inc.(c)(d) 5,825 355,616
See accompanying notes to financial statements.
112
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
--------------- -------------
COMMON STOCKS (Continued)
United States (Continued)
Computer & Office Equipment (Continued)
NCR Corp.(c) 25,860 $ 825,193
Phase Metrics, Inc.(b)(c)(g) 50,574 1,011
Western Digital Corp.(c) 26,600 343,938
-------------
11,081,545
-------------
Computer Software & Services -- 3.8%
Activision, Inc.(c) 1,751 35,808
Adobe Systems, Inc.(d) 50,900 1,519,365
Anteon International Corp.(c)(d) 500 21,380
The BISYS Group, Inc.(c) 1,700 22,831
Borland Software Corp.(c) 32,800 190,896
CACI International, Inc.(c) 10,400 630,240
Cadence Design Systems, Inc.(c)(d) 1,700 27,472
Ceridian Corp.(c) 40,200 834,150
Checkfree Corp.(c)(d) 17,100 646,722
Cognizant Technology Solutions Corp.(c) 16,600 773,394
Computer Sciences Corp.(c) 16,300 771,153
DST Systems, Inc.(c) 10,780 591,067
eBay, Inc.(c) 14,400 593,280
Electronic Arts, Inc.(c) 6,600 375,474
EMC Corp.(c) 126,800 1,640,792
Emulex Corp.(c) 33,600 679,056
Foundry Networks, Inc.(c) 41,900 532,130
Google, Inc. -- Class A(c) 10,120 3,202,575
IAC/InterActiveCorp(c (d) 12,301 311,830
Ingram Micro, Inc. - Class A(c) 2,600 48,204
Interwoven, Inc.(c) 3,500 28,595
McAfee, Inc.(c) 1,550 48,701
McData Corp. -- Class A(c) 8,200 42,968
Micromuse, Inc.(c) 38,400 302,592
Microsoft Corp.(d) 313,820 8,074,589
NAVTEQ Corp.(c) 17,100 854,145
Oracle Corp.(c)(d) 88,500 1,096,515
Progress Software Corp.(c) 7,250 230,333
Salesforce.Com, Inc.(c)(d) 28,400 656,608
Sandisk Corp.(c) 1,550 74,788
SkillSoft PLC -- ADR(c) 79,200 362,736
SonicWALL, Inc.(c) 10,100 64,135
Sybase, Inc.(c) 1,300 30,446
Symantec Corp.(c) 14,168 321,047
TIBCO Software, Inc.(c) 68,675 574,123
Unisys Corp.(c) 91,910 610,282
VeriFone Holdings, Inc.(c) 12,100 243,331
VeriSign, Inc.(c) 9,700 207,289
Verity, Inc.(c) 1,200 12,744
Yahoo!, Inc.(c) 69,750 2,360,340
-------------
29,644,126
-------------
Construction -- 0.2%
D.R. Horton, Inc. 1,700 61,574
Dycom Industries, Inc.(c) 22,500 454,950
Lennar Corp. 1,675 100,098
Pulte Homes, Inc. 23,200 995,744
-------------
1,612,366
-------------
Containers -- 0.3%
Owens-Illinois, Inc.(c) 44,760 922,951
Pactiv Corp.(c)(d) 30,990 542,945
Smurfit-Stone Container Corp.(c) 41,810 433,152
-------------
1,899,048
-------------
Credit Institutions -- 0.0%
CSG Systems Inc.(c) 2,650 57,532
-------------
Electronics -- 1.0%
Amphenol Corp. 15,300 617,202
Arrow Electronics, Inc.(c) 2,450 76,832
Cogent, Inc.(c)(d) 11,000 261,250
Intel Corp. 186,154 4,588,696
L-3 Communications Holdings, Inc.(d) 19,775 1,563,609
National Semiconductor Corp. 19,100 502,330
-------------
7,609,919
-------------
Energy & Utilities -- 1.9%
Alliant Energy Corp. 2,000 58,260
CenterPoint Energy, Inc. 52,400 779,188
CMS Energy Corp.(c) 46,300 761,635
Constellation Energy Group 10,200 628,320
FirstEnergy Corp. 28,200 1,469,784
ITC Holdings Corp.(d) 7,750 224,595
KFX, Inc.(c)(d) 11,500 196,880
Longview Energy Co. (acquired 8/13/04, cost $48,000)
(b)(e)(f)(g) 3,200 48,000
McDermott International, Inc.(c) 8,200 300,202
MDU Resources Group, Inc. 1,400 49,910
NSTAR 2,100 60,732
PG&E Corp. 57,600 2,260,800
Pinnacle West Capital Corp. 675 29,754
PPL Corp. 111,360 3,600,269
Public Service Enterprise Group, Inc.(d) 10,980 706,673
Questar Corp. 9,320 821,278
Reliant Energy, Inc.(c)(d) 31,655 488,753
Sempra Energy(d) 39,100 1,840,046
TXU Corp. 4,700 530,536
-------------
14,855,615
-------------
Entertainment & Leisure -- 1.5%
Ameristar Casinos, Inc. 1,300 27,092
Argosy Gaming Co.(c) 500 23,495
Comcast Corp.(c)(d) 46,700 1,372,046
Comcast Corp. -- Class A(c) 32,000 920,960
Expedia, Inc.(c) 1 20
Gaylord Entertainment Co.(c) 8,300 395,495
GTECH Holdings Corp. 26,125 837,567
Harrah's Entertainment, Inc.(h) 0 19
Hilton Hotels Corp. 18,480 412,474
Kerzner International Ltd.(c) 1,500 83,325
Marriott International, Inc. -- Class A(d) 9,500 598,500
Marvel Entertainment, Inc.(c) 30,000 536,100
Orient-Express Hotels Ltd. -- Class A 22,100 628,082
Pinnacle Entertainment, Inc.(c) 6,800 124,644
Scientific Games Corp. -- Class A(c)(d) 800 24,800
Starwood Hotels & Resorts Worldwide, Inc.(d) 10,100 577,417
Time Warner, Inc. 126,500 2,290,915
Vail Resorts, Inc.(c) 1,600 46,000
The Walt Disney Co. 108,300 2,613,279
World Wrestling Entertainment, Inc. 2,300 29,900
-------------
11,542,130
-------------
See accompanying notes to financial statements.
113
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
-------------- -------------
COMMON STOCKS (Continued)
United States (Continued)
Finance -- 2.6%
Affiliated Managers Group, Inc.(c)(d) 10,250 $ 742,305
Ambac Financial Group, Inc. 9,835 708,710
American Express Co. 53,640 3,081,082
The Bear Stearns Cos., Inc. 15,900 1,745,025
Capital One Financial Corp.(d) 24,145 1,920,010
Chicago Mercantile Exchange(d) 2,600 876,980
CIT Group, Inc. 43,620 1,970,752
Countrywide Financial Corp.(d) 36,400 1,200,472
Fannie Mae 12,500 560,250
Franklin Resources, Inc. 15,270 1,282,069
The Goldman Sachs Group, Inc.(d) 5,050 613,979
H&R Block, Inc. 25,710 616,526
Indymac Bancorp, Inc. 1,075 42,548
Legg Mason, Inc. 425 46,618
Mellon Financial Corp. 10,100 322,897
MoneyGram International, Inc. 2,650 57,532
NGP Capital Resources Co. 2,700 40,662
Nuveen Investments -- Class A(d) 25,720 1,013,111
Protective Life Corp. 850 35,003
Providian Financial Corp.(c)(d) 11,200 198,016
SLM Corp. 25,900 1,389,276
T. Rowe Price Group, Inc. 5,800 378,740
Washington Mutual, Inc.(d) 37,500 1,470,750
Wright Express Corp.(c) 1,000 21,590
-------------
20,334,903
-------------
Food & Agriculture -- 0.7%
Chiquita Brands International, Inc.(d) 8,000 223,600
ConAgra Foods, Inc. 26,700 660,825
Dean Foods Co.(c) 29,940 1,163,468
Del Monte Foods Co.(c) 38,760 415,895
Diamond Foods, Inc.(c) 5,800 99,180
Flowers Foods, Inc. 1,275 34,782
The J. M. Smucker Co. 7,500 364,050
Lance, Inc. 6,700 116,982
Monsanto Co. 11,050 693,387
TreeHouse Foods, Inc.(c) 9,903 266,193
Tyson Foods, Inc. -- Class A(d) 55,900 1,008,995
-------------
5,047,357
-------------
Insurance -- 2.4%
ACE Ltd. 8,200 385,974
Aetna, Inc. 9,600 826,944
Allmerica Financial Corp.(c) 20,625 848,512
The Allstate Corp. 26,200 1,448,598
American Financial Group, Inc. 1,275 43,261
American International Group, Inc.(d) 42,000 2,602,320
Assurant, Inc.(d) 6,000 228,360
Axis Capital Holdings Ltd. 20,870 595,004
CHUBB Corp.(d) 15,800 1,414,890
Endurance Specialty Holdings Ltd. 29,300 999,423
Everest Re Group Ltd. 4,430 433,697
First American Corp. 1,400 63,938
Genworth Financial, Inc.(d) 36,400 1,173,536
Hartford Financial Services Group(d) 20,200 1,558,834
Max Re Capital Ltd. 11,050 273,929
MetLife, Inc. 9,800 488,334
Nationwide Financial Services, Inc. 10,500 $ 420,525
Ohio Casualty Corp. 1,800 48,816
Prudential Financial, Inc.(d) 11,900 803,964
Radian Group, Inc.(d) 13,880 737,028
Universal American Financial Corp.(c) 17,000 386,580
W.R. Berkley Corp. 36,000 1,421,280
WellPoint, Inc.(c) 20,400 1,546,728
-------------
18,750,475
-------------
Machinery & Heavy Equipment -- 0.1%
Caterpillar, Inc.(d) 5,600 329,000
Dresser-Rand Group, Inc.(c) 3,000 73,890
Kennametal, Inc. 850 41,684
Lennox International, Inc. 14,500 397,445
Terex Corp.(c) 500 24,715
-------------
866,734
-------------
Manufacturing -- 4.2%
Actuant Corp. -- Class A 600 28,080
American Standard Co. Inc. 9,570 445,484
Applied Films Corp.(c) 5,400 113,400
Aptargroup, Inc. 5,650 281,427
Black & Decker Corp. 12,125 995,341
BorgWarner, Inc. 750 42,345
Briggs & Stratton Corp.(d) 5,875 203,216
Brunswick Corp. 10,125 382,016
Corning, Inc.(c) 66,500 1,285,445
Cummins, Inc. 6,150 541,139
Danaher Corp. 28,450 1,531,464
Eaton Corp. 14,800 940,540
Energizer Holdings, Inc.(c)(d) 16,150 915,705
Fleetwood Enterprises, Inc.(c) 13,000 159,900
Fortune Brands, Inc.(d) 14,400 1,171,152
Gardner Denver, Inc.(c) 700 31,220
General Electric Co. 273,470 9,207,735
Harsco Corp. 875 57,374
Hexel Corp.(c) 17,850 326,476
IDEX Corp. 7,600 323,380
Ingersoll-Rand Co. - Class A 19,600 749,308
ITT Industries, Inc.(d) 7,935 901,416
Jones Apparel Group, In1 9,310 550,335
K2, Inc.(c) 8,100 92,340
Maidenform Brands, Inc.(c) 7,950 109,312
Newell Rubbermaid, Inc.(d) 42,725 967,721
Nike, Inc. 14,500 1,184,360
Nucor Corp.(d) 23,100 1,362,669
Pentair, Inc. 16,500 602,250
Polo Ralph Lauren Corp. 20,150 1,013,545
Precision Castparts Corp. 1,300 69,030
Sealed Air Corp.(c) 6,600 313,236
The Sherwin-Williams Co.(d) 23,555 1,038,069
Snap-On, Inc. 19,350 698,922
The Stanley Works 42,250 1,972,230
Textron, Inc. 16,400 1,176,208
Timken Co. 1,300 38,519
V.F. Corp. 625 36,231
The Warnaco Group, Inc.(c) 14,500 317,695
-------------
32,176,235
-------------
See accompanying notes to financial statements.
114
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
------------- -------------
COMMON STOCKS (Continued)
United States (Continued)
Measuring & Controlling Devices -- 0.1%
Thermo Electron Corp.(c) 15,350 $ 474,315
-------------
Medical & Medical Services -- 2.4%
Amedisys, Inc.(c)(d) 3,150 122,850
Amgen, Inc.(c) 49,002 3,903,989
Caremark Rx, Inc.(c) 29,250 1,460,453
Community Health Systems, Inc.(c) 20,700 803,367
Covance, Inc.(c) 975 46,790
Coventry Health Care, Inc.(c) 27,972 2,406,151
CryoLife(c) 7,400 51,430
Digene Corp.(c) 1,000 28,500
Digirad Corp.(c) 32,450 156,604
HCA, Inc. 23,900 1,145,288
LifePoint Hospitals, Inc.(c)(d) 1,250 54,663
McKesson Corp.(d) 23,000 1,091,350
Medco Health Solutions, Inc.(c) 12,600 690,858
MedImmune, Inc.(c)(d) 6,705 225,623
Noven Pharmaceuticals, Inc.(c) 2,000 28,000
Omnicare, Inc.(d) 11,000 618,530
PacifiCare Health Systems, Inc.(c) 6,550 522,559
Pediatrix Medical Group, Inc.(c) 4,300 330,326
Per-Se Technologies, Inc.(c) 11,900 245,854
Pharmaceutical Product Development, Inc.(c) 500 28,755
Quest Diagnostics, Inc. 18,000 909,720
Triad Hospitals, Inc.(c) 9,900 448,173
UnitedHealth Group, Inc.(d) 43,800 2,461,560
Universal Health Services, Inc. 7,945 378,420
VCA Antech, Inc.(c) 3,700 94,424
Vital Images, Inc.(c) 7,550 168,063
-------------
18,422,300
-------------
Medical Instruments & Supplies -- 1.9%
Advanced Medical Optics, Inc.(c) 1,000 37,950
Bausch & Lomb, Inc. 14,300 1,153,724
Becton, Dickinson & Co. 15,400 807,422
Biosite, Inc.(c) 450 27,837
Bruker BioSciences Corp.(c) 2,300 10,074
Charles River Laboratories International, Inc.(c) 14,800 645,576
Cytyc Corp.(c) 41,100 1,103,535
DJ Orthopedics, Inc.(c) 8,800 254,672
Edwards Lifesciences Corp.(c) 925 41,079
Fisher Scientific International, Inc.(c) 7,800 483,990
Hillenbrand Industries, Inc. 12,645 594,947
Hologic, Inc.(c) 6,750 389,813
IntraLase Corp.(c) 7,750 114,003
Invitrogen Corp.(c) 700 52,661
Johnson & Johnson 67,740 4,286,587
Kinetic Concepts, Inc.(c)(d) 7,500 426,000
Kyphon, Inc.(c) 700 30,758
Martek Biosciences Corp.(c)(d) 14,850 521,680
Mentor Corp.(d) 1,025 56,385
MWI Veterinary Supply, Inc.(c) 8,500 169,575
Respironics, Inc.(c) 1,250 52,725
St. Jude Medical, Inc.(c) 43,000 2,012,400
Stryker Corp. 14,100 696,963
Symmetry Medical, Inc.(c) 4,550 107,835
Syneron Medical Ltd. 6,900 252,102
Varian Medical Systems, Inc.(c) 13,500 533,385
Wright Medical Group, Inc.(c) 1,500 37,020
-------------
14,900,698
-------------
Metal & Mining -- 1.6%
Alpha Natural Resources, Inc.(c) 2,000 60,080
Arch Coal, Inc.(d) 14,700 992,250
CONSOL Energy, Inc. (acquired 6/11/03 through 8/30/05,
cost $1,882,214)(e)(f) 84,440 6,440,239
Foundation Coal Holdings, Inc. 11,300 434,485
Massey Energy Co. 35,900 1,833,413
MSC Industrial Direct Co., Inc. 15,200 504,184
Peabody Energy Corp. 18,800 1,585,780
Phelps Dodge Corp. 4,100 532,713
-------------
12,383,144
-------------
Motor Vehicles -- 0.3%
Ford Motor Co.(d) 39,900 393,414
Harley-Davidson, Inc. 15,600 755,664
PACCAR, Inc. 13,100 889,359
Tenneco Automotive, 9,400 164,594
Wabash National Corp. 1,000 19,660
-------------
2,222,691
-------------
Oil & Gas -- 6.5%
Airgas, Inc.(d) 15,600 462,228
Allis-Chalmers Energy, Inc.(c) 2,600 30,784
Amerada Hess Corp.(d) 9,500 1,306,250
Atwood Oceanics, Inc.(c) 400 33,684
Bois d'Arc Energy, Inc.(c) 2,400 41,304
Cal Dive International, Inc.(c) 675 42,802
CanArgo Energy Corp.(c) 191,100 361,179
Chesapeake Energy Corp.(d) 1,975 75,544
ChevronTexaco Corp.(d) 20,900 1,352,857
Cimarex Energy Co.(c)(d) 6,326 286,758
Clayton Williams Energy, Inc.(c) 35,000 1,512,000
CNX Gas Corp.(b)(c)(d) 7,500 145,613
Comstock Resources, Inc.(c) 3,200 104,992
ConocoPhillips 71,600 5,005,556
Devon Energy Corp. 31,002 2,127,977
Diamond Offshore Drilling, Inc. 10,130 620,462
Double Eagle Petroleum Co.(c) 9,300 222,735
Energen Corp. 1,650 71,379
Energy Partners Ltd.(c) 4,400 137,368
ENSCO International, Inc. 16,100 750,099
EOG Resources, Inc. 51,850 3,883,565
The Exploration Co.(c) 10,900 78,480
Exxon Mobil Corp.(d) 137,204 8,717,942
GlobalSantaFe Corp. 24,800 1,131,376
Goodrich Petroleum Corp.(c) 10,300 241,741
Grant Prideco, Inc.(c) 1,450 58,942
Grey Wolf, Inc.(c) 38,900 327,927
Helmerich & Payne, Inc. 1,075 64,919
KCS Energy, Inc.(c) 17,700 487,281
Kerr-McGee Corp. 21,700 2,107,287
KeySpan Corp. 13,725 504,805
Matador Resources Co. (acquired 10/14/03, cost $8,950)
(b)(e)(f)(g) 895 12,082
Nabors Industries Ltd.(c)(d) 20,300 1,458,149
National-Oilwell, Inc.(c) 2,600 171,080
See accompanying notes to financial statements.
115
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
------------- -------------
COMMON STOCKS (Continued)
United States (Continued)
Oil & Gas (Continued)
Newfield Exploration Co.(c) 71,945 $ 3,532,500
Noble Corp. 11,200 766,752
Noble Energy, Inc. 1,650 77,385
Novatek Oao - ADR(c) 46,192 1,103,989
Oceaneering International, Inc.(c) 700 37,387
Oneok, Inc.(d) 18,975 645,530
Parallel Petroleum Corp.(c) 7,000 98,000
Patterson-UTI Energy, Inc. 52,550 1,896,004
PetroQuest Energy, Inc.(c) 8,100 84,564
Pioneer Drilling Co. (acquired 2/13/04 through 3/23/05,
cost $74,615)(c)(e)(f) 10,900 212,768
Plains Exploration & Production Co.(c) 14,500 620,890
Pride International, Inc.(c) 9,700 276,547
Remington Oil & Gas Corp. - Class B(c) 800 33,200
Rowan Cos., Inc.(d) 9,300 330,057
Schlumberger Ltd.(d) 11,700 987,246
Stolt Offshore SA - ADR (acquired 8/10/05 through
8/16/05, cost $212,229)(c)(e)(f) 17,000 196,860
Superior Energy Serivces, Inc.(c) 9,750 225,128
Tel Offshore Trust(h) 0 4
TETRA Technologies, Inc.(c) 16,675 520,594
Tidewater, Inc.(d) 4,550 221,448
Transocean, Inc.(c) 12,400 760,244
Treasure Island Royalty Trust(c) 300,000 238,500
Valero Energy Corp. 14,300 1,616,758
Vintage Petroleum, Inc. 42,800 1,954,248
-------------
50,373,750
-------------
Paper & Forest Products -- 0.3%
Bowater, Inc.(d) 20,055 566,955
Georgia-Pacific Corp. 34,600 1,178,476
Louisiana-Pacific Corp. 19,000 526,110
-------------
2,271,541
-------------
Personal Services -- 0.1%
Corinthian Colleges, Inc.(c)(d) 1,300 17,251
Educate, Inc.(c) 2,100 31,500
Education Management Corp.(c) 1,925 62,062
Laureate Education, Inc.(c)(d) 19,200 940,224
-------------
1,051,037
-------------
Pharmaceuticals -- 2.5%
Allergan, Inc.(d) 9,350 856,647
Amylin Pharmaceuticals, Inc.(c) 11,000 382,690
Barr Pharmaceuticals, Inc.(c) 650 35,698
Cephalon, Inc.(c)(d) 4,775 221,656
Forest Laboratories, Inc.(c) 7,600 296,172
Genentech, Inc.(c) 8,600 724,206
Genzyme Corp.(c) 16,100 1,153,404
Hospira, Inc.(c) 12,900 528,513
Kos Pharmaceuticals, Inc.(c) 850 56,890
Merck & Co., Inc. 77,800 2,116,938
Nabi Biopharmaceuticals(c)(d) 23,950 313,745
Novartis AG - ADR 15,680 799,680
Pfizer, Inc. 223,800 5,588,286
Sanofi-Aventis - ADR 19,650 816,458
Shire Pharmaceuticals Group PLC - ADR 21,600 798,984
Teva Pharmaceutical Industries Ltd. - ADR(d) 25,500 $ 852,210
Valeant Pharmaceuticals International 7,850 157,628
Vertex Pharmaceuticals, Inc.(c) 2,000 44,700
Watson Pharmaceuticals, Inc.(c)(d) 14,520 531,577
Wyeth 60,800 2,813,216
-------------
19,089,298
-------------
Publishing & Printing -- 0.4%
Banta Corp. 3,800 193,382
Dow Jones & Company, Inc.(d) 11,535 440,522
The McGraw-Hill Companies, Inc. 37,600 1,806,304
Playboy Enterprises, Inc. - Class B(c) 2,200 31,020
R.R. Donnelley & Sons Corp.(d) 12,020 445,581
Scholastic Corp.(c) 1,525 56,364
-------------
2,973,173
-------------
Railroad & Shipping -- 0.4%
Burlington Northern Santa Fe Corp. 36,900 2,206,620
CSX Corp. 7,635 354,875
-------------
2,561,495
-------------
Real Estate -- 1.0%
Boston Properties, Inc. 10,040 711,836
Cendant Corp. 107,200 2,212,608
Centex Corp. 7,000 452,060
Developers Diversified Realty Corp.(d) 1,025 47,868
Eagle Hospitality Properties Trust, Inc. 28,400 283,432
General Growth Properties, Inc.(d) 17,700 795,261
Highwoods Property 1,000 29,510
HRPT Properties Trust 47,700 591,957
LaSalle Hotel Properties 8,300 285,935
The Macerich Co. 875 56,822
Reckson Associates Realty Corp. 17,265 596,506
Simon Property Group, Inc. 21,000 1,556,520
Trizec Properties, Inc. 2,200 50,732
-------------
7,671,047
-------------
Restaurants -- 0.3%
Darden Restaurants, Inc. 1,350 41,000
Jack in the Box, Inc.(c) 1,150 34,396
McDonald's Corp.(d) 49,200 1,647,708
RARE Hospitality International, Inc.(c) 4,300 110,510
Ruby Tuesday, Inc. 16,100 350,336
Ruth's Chris Steak House, Inc.(c) 1,300 23,894
Texas Roadhouse, Inc.(c) 1,700 25,330
-------------
2,233,174
-------------
Retail Merchandising -- 2.9%
99 Cents Only Stores(c) 600 5,550
Abercrombie & Fitch Co. - Class A 4,200 209,370
Advance Auto Parts, Inc.(c) 1,050 40,614
American Eagle Outfitters, Inc. 2,000 47,060
AnnTaylor Stores Corp.(c) 21,325 566,179
AutoNation, Inc.(c)(d) 54,850 1,095,355
Barnes & Noble, Inc. 21,675 817,148
Bed, Bath & Beyond, Inc.(c) 15,200 610,736
See accompanying notes to financial statements.
116
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Comtinued)
As of September 30, 2005
Number
of Shares Value
------------- -------------
COMMON STOCKS (Continued)
United States (Continued)
Retail Merchandising (Continued)
CDW Corp.(d) 7,200 $ 424,224
Central Garden & Pet Co.(c) 700 31,675
Chico's FAS, Inc.(c)(d) 28,200 1,037,760
Coach, Inc.(c) 27,270 855,187
Coldwater Creek, Inc.(c) 700 17,654
CVS Corp. 37,800 1,096,578
Design Within Reach, Inc.(c) 1,500 13,545
Dick's Sporting Goods, Inc.(c)(d) 6,438 193,848
DSW, Inc. - Class A(c) 7,900 167,480
Federated Department Stores, Inc. 32,685 2,185,646
Handleman Co. 28,000 353,640
The Home Depot, Inc. 34,800 1,327,272
Hot Topic, Inc.(c) 6,650 102,144
J. Jill Group, Inc.(c) 2,100 33,222
Jarden Corp.(c) 5,700 234,099
Jos. A. Bank Clothiers, Inc.(c) 700 30,254
Kohl's Corp.(c) 19,250 965,965
The Kroger Co.(c)(d) 72,790 1,498,746
Linens 'n Things, Inc.(c)(d) 19,545 521,852
Longs Drug Stores Corp.(d) 1,300 55,757
Michaels Stores, Inc. 1,850 61,161
The Neiman-Marcus Group, Inc. - Class A 250 24,988
Nordstrom, Inc. 26,100 895,752
Office Depot, Inc.(c)(d) 15,925 472,972
Officemax, Inc.(d) 21,100 668,237
Payless ShoeSource, Inc.(c) 1,950 33,930
Pier 1 Imports, Inc. 8,350 94,104
Saks, Inc.(c) 12,000 222,000
The Sports Authority, Inc.(c) 3,300 97,152
Staples, Inc. 52,700 1,123,564
Target Corp.(d) 37,200 1,931,796
Urban Outfitters, Inc.(c) 7,200 211,680
Walgreen Co. 18,000 782,100
Wal-Mart Stores, Inc. 10,100 442,582
Whole Foods Market, Inc. 250 33,612
Williams-Sonoma, Inc.(c) 20,300 778,505
-------------
22,412,695
-------------
Security Brokers & Dealers -- 1.6%
A.G. Edwards, Inc. 800 35,048
E*TRADE Financial Corp.(c) 94,450 1,662,320
iShares Russell 2000 Value Index Fund 363 23,932
Lehman Brothers Holdings, Inc.(d) 20,100 2,341,248
Midcap SPDR Trust Series 1 61,977 8,111,550
-------------
12,174,098
-------------
Semiconductors & Related Devices -- 0.9%
Altera Corp.(c)(d) 29,200 558,012
Broadcom Corp. - Class A(c) 14,500 680,195
Cypress Semiconductor Corp.(c) 28,845 434,117
Freescale Semiconductor, Inc. - Class A(c)(d) 54,400 1,273,504
Freescale Semiconductor, Inc. - Class B(c)(d) 38,000 896,040
Integrated Device Technology, Inc.(c) 22,110 237,461
Lam Research Corp.(c)(d) 14,200 432,674
Linear Technology Corp. 9,100 342,069
LSI Logic Corp.(c) 5,150 50,728
Microsemi Corp.(c) 1,200 30,648
O2Micro International Ltd.(c) 24,600 $ 387,204
QLogic Corp.(c) 1,600 54,720
Rudolph Technologies, Inc.(c) 22,500 303,075
Texas Instruments, Inc.(d) 23,400 793,260
-------------
6,473,707
-------------
Soaps & Cosmetics -- 0.4%
The Procter & Gamble Co.(d) 56,180 3,340,463
-------------
Telecommunications -- 2.3%
ADTRAN, Inc.(d) 28,000 882,000
ALLTEL Corp.(d) 7,600 494,836
Amdocs Ltd.(c) 25,200 698,796
American Tower Corp. - Class A(c) 32,900 820,855
Anixter International Inc.(c) 900 36,297
Avid Technology, Inc.(c) 17,200 712,080
CenturyTel, Inc. 925 32,356
Harman International Industries, Inc. 4,450 455,102
Harris Corp. 16,950 708,510
Motorola, Inc.(d) 96,800 2,138,312
NeuStar, Inc. - Class A(c) 100 3,199
Nextel Partners, Inc. - Class A(c)(d) 24,600 617,460
Polycom, Inc.(c) 19,900 321,783
Qualcomm, Inc. 16,000 716,000
SBC Communications, Inc.(d) 133,000 3,188,010
Scientific-Atlanta, Inc. 16,870 632,794
Sprint Nextel Corp. 148,136 3,522,674
Syniverse Holdings, Inc.(c) 13,500 207,900
Ubiquitel, Inc.(c) 28,900 252,586
Verizon Communications, Inc. 44,300 1,448,167
West Corp.(c) 1,400 52,346
-------------
17,942,063
-------------
Tobacco -- 0.4%
Altria Group, Inc.(d) 40,800 3,007,368
-------------
Transportation -- 0.3%
C.H. Robinson 875 56,105
Worldwide, Inc.
CNF, Inc.(d) 18,425 967,313
Hornbeck Offshore Services, Inc.(c) 1,300 47,619
J.B. Hunt Transport Services, Inc.(d) 700 13,307
Landstar System, Inc. 7,000 280,210
Ryder Systems, Inc.(d) 14,375 491,912
SCS Transportation, Inc.(c) 12,200 191,662
-------------
2,048,128
-------------
Waste Management -- 0.1%
Republic Services, Inc. 1,375 48,524
Stericycle, Inc.(c) 7,000 400,050
-------------
448,574
-------------
Total United States 415,870,594
-------------
TOTAL COMMON STOCKS
(Cost $425,586,970) 517,853,184
-------------
PREFERRED STOCKS -- 0.3%
Netherlands -- 0.3%
Manufacturing -- 0.2%
STMicroelectronics N.V 90,528 1,561,863
-------------
See accompanying notes to financial statements.
117
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Number
of Shares Value
---------------- ----------------
PREFERRED STOCKS (Continued)
Netherlands (Continued)
Transportation -- 0.1%
TNT NV 26,642 $ 663,938
-------------
Total Netherlands 2,225,801
-------------
TOTAL PREFERRED STOCKS (Cost $2,279,603) 2,225,801
-------------
WARRANTS -- 0.0%
Oilexco Inc. (issued 01/21/04, expiring 12/22/05, strike
price 1.65 CAD)(i) 9,725 20,110
Purcell Energy Ltd. (issued 07/24/03, expiring 07/23/08,
strike price 5.00 CAD)(b)(j) 68,773 28,443
Westport Innovations, Inc. (issued 9/29/04, expiring
3/29/06, strike price 2.10 CAD)(k) 3,650 472
-------------
TOTAL WARRANTS (Cost $0) 49,025
-------------
Par
Maturity (000) Value
----------- ---------------- ----------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 4.8%
Federal Home Loan Bank,
Unsecured Bonds
2.25% 01/09/07 $ 3,250 $ 3,165,149
Federal Home Loan Mortgage
Corp., Unsecured Notes
3.25% 11/02/07 4,350 4,250,668
4.62% 05/28/13 150 146,590
Federal National Mortgage
Association, Unsecured Notes
2.35% 04/06-04/07 1,005 986,005
3.02% 06/01/06 4,750 4,705,132
1.75% 06/16/06 90 88,426
4.00% 10/16/06 2,450 2,440,097
5.00% 08/02/12 325 322,065
5.12% 05/27/15 900 889,575
Resolution Funding Corp. Strip
Bonds
6.29% 07/15/18 150 81,733
6.30% 10/15/18 150 80,665
Small Business Investment Cos.
Pass-Through, Series 97-P10C,
Class 1
6.85% 08/01/07 226 233,804
U.S. Treasury Bonds
10.38% 11/15/12 295 331,668
8.88% 02/15/19 635 909,662
8.50% 02/15/20 1,000 1,412,070
6.25% 08/23-05/30 5,330 6,501,242
5.38% 02/15/31 750 840,234
U.S. Treasury Notes
4.00% 08/07-09/07 8,045 8,017,923
4.12% 08/15/08 895 893,672
3.88% 09/15/10 1,000 985,859
-------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost $37,102,589) 37,282,239
-------------
Par
Maturity (000) Value
----------- ---------------- ----------------
MORTGAGE PASS-THROUGHS -- 7.3%
Federal Home Loan Mortgage
Corp. Gold
8.00% 08/08-08/27 $ 39 $ 41,773
8.50%(l) 07/01/09 0 9
4.00% 05/10-05/19 223 216,956
6.00% 04/13-06/16 195 200,669
4.50% 05/19-10/19 1,470 1,441,266
5.00% 06/20-09/35 7,108 7,062,795
9.50% 12/01/22 398 436,815
7.50% 09/01/27 0 489
6.50% 01/29-08/32 133 136,491
5.50% 07/33-10/35 2,520 2,521,175
Federal National Mortgage
Association
8.00% 04/08-02/33 321 342,099
7.00% 08/08-10/32 578 604,721
8.50% 02/01/09 21 21,647
6.50% 01/11-10/33 678 702,476
6.00% 09/11-02/34 3,053 3,109,573
5.50% 04/17-02/34 10,690 10,829,689
5.00% 01/18-10/35 15,731 15,536,290
4.50% 10/18-10/35 5,039 4,905,622
7.50% 07/29-01/31 784 830,094
Federal National Mortgage
Association 1 Year Treasury ARM
4.64%(m) 09/01/35 2,900 2,886,973
Government National Mortgage
Association
6.50% 02/09-11/28 601 624,722
7.50% 11/10-12/29 68 70,911
6.00% 10/23-10/35 1,957 2,001,679
7.00% 01/25-05/32 312 328,719
5.00% 10/20/33 1,571 1,552,560
5.50% 12/15/34 90 92,026
Government National Mortgage
Association 1 Year CMT
3.75%(m) 05/20/34 251 247,900
MLCC Mortgage Investors, Inc.,
Series 95-C2 (IO)
1.22%(n) 06/15/21 1,559 58,954
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $56,867,898) 56,805,093
-------------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS -- 0.0%
Structured Asset Securities Corp.,
Series 96-CFL, Class X1 (IO)
2.06%(n)
(Cost $120,053) 02/25/28 993 88,150
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 3.7%
Banc of America Alternative Loan
Trust, Series 04-6, Class 4A1
5.00% 07/25/19 82 79,611
Countrywide Alternative Loan Trust,
Series 04-27CB, Class A1
6.00% 12/25/34 201 200,994
Countrywide Home Loans, Series
03-27, Class M
3.96%(m) 06/25/33 794 768,788
Countrywide Home Loans, Series
03-58, Class B1
4.53%(m) 02/19/34 245 237,706
See accompanying notes to financial statements.
118
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
----------- ---------------- ----------------
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Fannie Mae Grantor Trust, Series
03-T1, Class R (IO)
0.53%(n) 11/25/12 $ 6,727 $ 215,212
Federal Home Loan Mortgage
Corp., Series 2529, Class MB
5.00% 11/15/17 100 99,887
Federal Home Loan Mortgage
Corp., Series 2574, Class HP
5.00% 02/15/18 1,420 1,409,048
Federal Home Loan Mortgage
Corp., Series 2668, Class AD
4.00% 01/15/15 237 234,273
Federal Home Loan Mortgage
Corp., Series 2707, Class PW
4.00% 07/15/14 439 435,182
Federal Home Loan Mortgage
Corp., Series 2730, Class PA
3.75% 03/15/11 484 482,606
Federal Home Loan Mortgage
Corp., Series 2748, Class LJ
4.00% 03/15/10 162 161,846
Federal Home Loan Mortgage
Corp., Series 2864, Class NA
5.50% 01/15/31 190 191,786
Federal Home Loan Mortgage
Corp., Series 2973, Class EB
5.50% 04/15/35 1,150 1,159,360
Federal Home Loan Mortgage
Corp., Series 2990, Class WF
4.17% 02/15/35 1,411 1,410,704
Federal Home Loan Mortgage
Corp., Series 2996, Class MK
5.50% 06/15/35 939 946,098
Federal National Mortgage
Association, Series 03-16, Class
BC
5.00% 03/25/18 50 49,758
Federal National Mortgage
Association, Series 03-84, Class
GA
4.50% 04/25/09 662 661,494
Federal National Mortgage
Association, Series 03-87, Class
TJ
4.50% 09/25/18 125 122,126
Federal National Mortgage
Association, Series 04-31, Class
PK
3.50% 06/25/10 583 578,794
Federal National Mortgage
Association, Series 04-88, Class
HA
6.50% 07/25/34 90 93,754
Federal National Mortgage
Association, Series 04-99, Class
AO
5.50% 01/25/34 152 152,724
Federal National Mortgage
Association, Series 05-3, Class
AP
5.50% 02/25/35 130 130,880
Federal National Mortgage
Association, Series 05-48, Class
AR
5.50% 02/25/35 2,168 2,183,994
Federal National Mortgage
Association, Series 05-51, Class
TA
5.50% 05/01/35 2,259 2,273,731
Federal National Mortgage
Association, Series 05-57, Class
EG
4.13%(m) 03/25/35 1,090 1,090,255
Federal National Mortgage
Association, Series 05-57, Class
PA
5.50% 05/25/27 794 802,108
Federal National Mortgage
Association, Series 05-80, Class
PB
5.50% 04/25/30 1,452 1,470,792
Harborview Mortgage Loan Trust,
Series 05-10, Class 2A1A
3.98%(m) 11/19/35 1,549 1,548,572
Impac CMB Trust, Series 02-4F,
Class M1
5.58%(m) 11/25/32 29 28,602
Impac CMB Trust, Series 02-8,
Class A
4.29%(m) 03/25/33 34 33,614
Impac CMB Trust, Series 03-5,
Class M1
4.39%(m) 08/25/33 73 73,070
Impac CMB Trust, Series 03-7,
Class M
5.48%(m) 08/25/33 40 40,012
Impac CMB Trust, Series 04-1,
Class M4
5.03%(m) 03/25/34 135 135,825
Impac CMB Trust, Series 04-5,
Class 1A1
4.19%(m) 10/25/34 305 305,465
Impac CMB Trust, Series 04-7,
Class 1A1
4.20%(m) 11/25/34 748 749,273
Impac CMB Trust, Series 04-7,
Class M4
5.03%(m) 11/25/34 357 358,051
Indymac Index Mortgage Loan
Trust, Series 05-AR18, Class 2A1B
4.48%(m) 10/25/35 2,150 2,174,859
Master Alternative Loans Trust,
Series 04-4, Class 1A1
5.50% 05/25/34 155 153,669
Salomon Brothers Mortgage
Securities VI, Series 87-1 (IO)
11.00%(n) 02/17/17 54 13,024
Salomon Brothers Mortgage
Securities VI, Series 87-1 (PO)
11.50%(o) 02/17/17 60 55,310
Salomon Brothers Mortgage
Securities VI, Series 87-2 (IO)
11.00%(n) 03/06/17 40 10,407
Salomon Brothers Mortgage
Securities VI, Series 87-2 (PO)
11.50%(o) 03/06/17 40 35,643
See accompanying notes to financial statements.
119
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
----------- ---------------- ---------------
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Structured Asset Securities Corp.,
Series 01-21A, Class B2
6.47%(m) 01/25/32 $ 45 $ 44,700
Structured Asset Securities Corp.,
Series 03-2A, Class B2II
5.39%(m) 02/25/33 214 211,528
Washington Mutual Mortgage Loan
Trust, Series 03-AR8, Class B1
4.20%(m) 08/25/33 397 390,917
Washington Mutual Mortgage
Securities Corp., Series 03-AR4,
Class A6
3.42%(m) 05/25/33 850 830,700
Washington Mutual, Series 03-AR3,
Class A5
3.93%(m) 04/25/33 298 292,726
Washington Mutual, Series 03-AR3,
Class B2
4.74%(m) 04/25/33 211 208,551
Washington Mutual, Series 03-AR5,
Class A6
3.70%(m) 06/25/33 850 825,181
Washington Mutual, Series 03-AR5,
Class B2
4.51%(m) 06/25/33 444 441,166
Washington Mutual, Series 04-AR1,
Class B1
4.51%(m) 03/25/34 1,245 1,199,416
Washington Mutual, Series 04-AR3,
Class B1
4.19%(m) 06/25/34 224 218,519
Wells Fargo Mortgage Backed
Securities, Series 04-K, Class
1A2
4.48%(m) 07/25/34 483 469,465
-------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $28,956,806) 28,491,776
-------------
COMMERCIAL MORTGAGE BACKED SECURITIES -- 4.6%
Bank of America-First Union
Commercial Mortgage, Series
01-3, Class A2
5.46% 04/11/37 1,375 1,413,141
Bear Stearns Commercial Mortgage
Securities, Inc., Series 00-WF2,
Class A2
7.32% 10/15/32 475 521,111
Bear Stearns Commercial Mortgage
Securities, Series 99-WF2, Class
A2
7.08% 07/15/31 250 267,585
Bear Stearns Commercial Mortgage
Securities, Series 02-TOP6,
Class A1
5.92% 10/15/36 836 864,424
Bear Stearns Commercial Mortgage
Securities, Series 04-PWR4,
Class A1
4.36% 06/11/41 874 866,508
CDC Commercial Mortgage Trust,
Series 02-FX1, Class A1
5.25% 05/15/19 1,641 1,665,563
Chase Commercial Mortgage
Securities Corp., Series 98-2,
Class A2
6.39% 11/18/30 1,475 1,540,853
Commercial Mortgage Acceptance
Corp., Series 98-C2, Class C
6.28%(m) 09/15/30 275 286,915
DLG Commercial Mortgage Corp.,
Series 99-CG1, Class A1B
6.46% 03/10/32 150 157,465
First Union-Chase Commercial
Mortgage Trust, Series 99-C2,
Class A2
6.64%(p) 04/15/09 1,984 2,084,584
First Union-Lehman Brothers-Bank
of America Commercial Mortgage
Trust, Series 98-C2, Class C3
6.56% 11/18/35 170 176,406
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 99-C3, Class A2
7.18% 08/15/36 177 189,241
GGP Mall Properties Trust, Series
01-C1A, Class C2
5.56%(q) 11/15/11 490 494,241
GGP Mall Properties Trust, Series
01-C1A, Class C3
5.07%(q) 02/15/14 41 40,776
J.P. Morgan Chase Commercial
Mortgage Securities Corp., Series
05-LDP3, Class A4A
4.94% 08/15/42 1,275 1,264,628
J.P. Morgan Chase Commercial
Mortgage Securities Corp., Series
FL1A, Class F
5.70%(m) 02/17/15 53 53,007
J.P. Morgan Commercial Mortgage
Finance Corp., Series 97-C5,
Class C
7.24% 09/15/29 1,600 1,705,501
J.P. Morgan Commercial Mortgage
Finance Corp., Series 99-C7,
Class A1
6.18% 10/15/35 19 19,471
J.P. Morgan Commercial Mortgage
Finance Corp., Series 99-C7,
Class A2
6.51% 10/15/35 600 625,474
J.P. Morgan Commercial Mortgage
Finance Corp., Series 99-PLS1,
Class A2
7.30%(m) 02/15/32 1,550 1,642,225
J.P. Morgan Commercial Mortgage
Finance Corp., Series 99-PLSI,
Class D
7.30%(m) 02/15/32 650 697,276
Lehman Brothers Commercial
Conduit Mortgage Trust, Series
98-C4, Class A1B
6.21% 10/15/35 460 476,504
Lehman Brothers Commercial
Conduit Mortgage Trust, Series
99-C2, Class A2
7.32% 10/15/32 250 270,648
Lehman Brothers Commercial
Conduit Mortgage Trust, Series
99-C2, Class E
7.47% 10/15/32 125 135,221
See accompanying notes to financial statements.
120
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
---------------- ---------------- ----------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (Continued)
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 01-C7,
Class A3
5.64% 12/15/25 $2,106 $ 2,150,074
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 01-C7,
Class A4
5.93% 12/15/25 825 857,535
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 01-WM,
Class A1
6.16%(q) 07/14/16 771 801,655
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 02-C4,
Class A3
4.07% 09/15/26 1,747 1,710,427
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 03-C8,
Class A1
3.64% 11/15/27 485 474,349
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 04-C2,
Class A1
2.95% 03/15/29 335 320,132
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 04-C2,
Class A2
3.25% 03/15/29 1,500 1,431,541
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 04-C6,
Class A1
3.88% 08/15/29 253 247,537
Morgan Stanley Capital I, Series
97-WF1, Class A2
7.22%(q) 07/15/29 376 385,797
Morgan Stanley Capital I, Series
99-WF1, Class A2
6.21% 11/15/31 475 492,059
Morgan Stanley Capital I, Series
04-XLF, Class G
4.82%(q) 04/15/16 300 301,767
Morgan Stanley Dean Witter Capital
I, Series 99-WF1, Class A1
5.91% 11/15/31 37 36,745
Morgan Stanley Dean Witter Capital
I, Series 02-TOP7, Class A1
5.38% 01/15/39 620 631,714
Mortgage Capital Funding, Inc.,
Series 98-MC2, Class B
6.55% 06/18/30 295 307,514
Nationslink Funding Corp., Series
98-2, Class A2
6.48% 08/20/30 216 224,889
Nationslink Funding Corp., Series
98-2, Class B
6.80% 08/20/30 525 552,540
Nationslink Funding Corp., Series
99, Class 1
6.32% 01/20/31 2,110 2,192,365
Nationslink Funding Corp., Series
99-2, Class D
7.55%(m) 06/20/31 175 188,206
Salomon Brothers Mortgage
Securities VII, Series 00-C1,
Class A2
7.52% 12/18/09 460 496,529
Salomon Brothers Mortgage
Securities VII, Series 00-C3,
Class A2
6.59% 12/18/33 $1,325 $ 1,414,155
Salomon Brothers Mortgage
Securities VII, Series 01-MMA,
Class A2
6.13%(q) 02/18/34 165 167,546
Wachovia Bank Commercial
Mortgage Trust, Series 03-C5,
Class A1
2.99% 06/15/35 1,056 985,823
Wachovia Bank Commercial
Mortgage Trust, Series 04-C12,
Class A1
3.40% 07/15/41 1,181 1,151,403
Wachovia Bank Commercial
Mortgage Trust, Series 04-WHL3,
Class G
4.35%(q) 03/15/14 250 250,249
-----------
TOTAL COMMERCIAL MORTGAGE BACKED
SECURITIES
(Cost $36,052,214) 35,231,319
-----------
ASSET BACKED SECURITIES -- 4.0%
Americredit Automobile Receivables
Trust, Series 02-D, Class A4
3.40% 04/13/09 330 327,572
Ameriquest Mortgage Securities,
Inc., Series 02-3, Class M2
5.08%(m) 08/25/32 425 427,938
Amortizing Residential Collateral
Trust, Series 02-BC1, Class B
5.88%(m) 01/25/32 114 114,100
Amortizing Residential Collateral
Trust, Series 02-BC3, Class M2
4.93%(m) 06/25/32 204 206,549
Amortizing Residential Collateral
Trust, Series 02-BC5, Class M2
5.03%(m) 07/25/32 250 251,785
Asset Backed Funding Corp. Net
Interest Margin Trust, Series
04-OPT4, Class N1
4.45% 05/26/34 40 40,164
Bank One Issuance Trust, Series
02-C3, Class C3
3.76% 08/15/08 300 299,795
Capital Auto Receivables Asset
Trust, Series 05-1, Class A4
4.05% 07/15/09 1,800 1,785,384
Caterpillar Financial Asset Trust,
Series 04-A, Class A3
3.13% 01/26/09 500 493,799
Centex Home Equity Loan Trust,
Series 03-B, Class M3
6.93%(m) 06/25/33 475 489,168
Centex Home Equity, Series 02-A,
Class MF2
6.54% 01/25/32 341 342,759
Chase Funding Mortgage Loan
Asset-Backed Certificates, Series
03-2, Class 1A4
3.99% 08/25/29 275 273,060
See accompanying notes to financial statements.
121
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
--------------- ---------------- ----------------
ASSET BACKED SECURITIES (Continued)
Chase Manhattan Auto Owner
Trust, Series 02-A, Class CTFS
4.17% 09/15/08 $ 214 $ 214,033
Chase Manhattan Auto Owner
Trust, Series 03-B, Class CTFS
2.43% 02/16/10 1,081 1,058,168
Citibank Credit Card Issuance
Trust, Series 01-C3, Class C3
6.65% 05/15/08 575 582,664
Citibank Credit Card Issuance
Trust, Series 03-A6, Class A6
2.90% 05/17/10 250 239,961
Citibank Credit Card Issuance
Trust, Series 04, Class A1
2.55% 01/20/07 450 439,272
Countrywide Asset-Backed
Certificates, Series 02-2, Class
M2
4.98%(m) 12/25/31 61 60,929
Countrywide Asset-Backed
Certificates, Series 03-2, Class
M2
5.48%(m) 03/26/33 1,075 1,093,276
Countrywide Asset-Backed
Certificates, Series 03-3, Class B
7.14%(m) 11/25/31 250 253,976
Countrywide Asset-Backed
Certificates, Series 03-3, Class
M6
6.54%(m) 07/25/32 1,500 1,533,521
Countrywide Asset-Backed
Certificates, Series 03-BCI, Class
M2
5.83%(m) 09/25/32 300 303,228
Countrywide Asset-Backed
Certificates, Series 04-13, Class
AV4
4.12%(m) 06/25/35 169 169,700
Credit-Based Asset Servicing and
Securitization, Series 04-CB4,
Class M1
5.77%(m) 05/25/35 275 277,945
DaimlerChrysler Auto Trust, Series
05-B, Class A3
4.04% 09/08/09 2,175 2,157,491
Distribution Financial Services
Trust, Series 01-1, Class A4
5.67% 01/17/17 5 4,855
Fleet Commercial Loan Master
LLC, Series 02-1A, Class B1
4.69%(q) 11/16/09 475 475,946
Fleet Commercial Loan Master
LLC, Series 02-1A, Class C1
5.89%(q) 11/16/09 750 753,809
Ford Credit Auto Owner Trust,
Series 03-A, Class B2
4.18%(m) 08/15/07 325 325,847
Ford Credit Auto Owner Trust,
Series 03-B, Class C
4.18% 01/15/08 75 74,759
General Electric Business Loan
Trust, Series 03-1, Class A
4.20%(q) 04/15/31 286 289,227
General Electric Business Loan
Trust, Series 03-1, Class B
5.07%(q) 04/15/31 191 196,598
General Electric Business Loan
Trust, Series 03-2A, Class B
4.77%(q) 11/15/31 $1,078 $1,111,309
General Electric Business Loan
Trust, Series 04-1, Class B
4.47%(q) 05/15/32 253 253,048
Granite Mortgages PLC, Series
04-2, Class 1C
4.59%(m) 06/20/44 160 160,058
Green Tree Financial Corp., Series
96-6, Class A6
7.95% 09/15/27 759 802,709
Green Tree Financial Corp., Series
96-7, Class A6
7.65% 10/15/27 403 424,617
Hedged Mutual Fund Fee Trust,
Series 03-1A, Class 2
5.22%(q) 11/30/10 1,383 1,382,651
HFG Healthco-4 LLC, Series 02-1A,
Class A
4.82%(q) 06/05/07 200 199,711
HFG Healthco-4 LLC, Series 02-1A,
Class B
5.02%(m) 06/05/07 125 124,864
Knollwood CDO Ltd., Series 04-1A,
Class C
6.76%(q) 01/10/39 193 192,434
Long Beach Asset Holdings Corp.
Net Interest Margin, Series 04-2,
Class N1
4.94% 06/25/34 20 20,245
Long Beach Mortgage Loan Trust,
Series 03-4, Class M5A
7.83%(m) 08/25/33 200 205,970
Long Beach Mortgage Loan Trust,
Series 04-1, Class M5
4.93%(m) 02/25/34 475 479,735
Lothian Mortgages PLC, Series 3A,
Class A1
3.79%(q) 07/24/19 183 182,718
Massachusetts RRB Special
Purpose Trust, Series 01-1, Class
A
6.53% 06/01/15 1,104 1,182,452
MBNA Credit Card Master Note
Trust, Series 04-A4, Class A4
2.70% 09/15/09 350 341,141
MBNA Credit Card Master Notes
Trust, Series 01-C3, Class C3
6.55% 12/15/08 575 584,087
Nissan Auto Receivables Owner
Trust, Series 03-C, Class A3
2.23% 03/15/07 620 617,511
Option One Mortgage Loan Trust,
Series 02-6, Class M1
4.58%(m) 11/25/32 150 150,887
Option One Mortgage Loan Trust,
Series 02-6, Class M2
5.53%(m) 11/25/32 575 579,837
Option One Mortgage Loan Trust,
Series 03-4, Class A4
4.15%(m) 07/25/33 209 209,294
Option One Mortgage Loan Trust,
Series 03-4, Class M5A
7.58%(m) 07/25/33 275 278,758
See accompanying notes to financial statements.
122
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
---------------- -------------- --------------
ASSET BACKED SECURITIES (Continued)
Option One Mortgage Loan Trust,
Series 03-5, Class M4
6.73%(m) 08/25/33 $ 125 $ 128,563
Pacific Coast Asset Backed
Securties CDO, Series 1A, Class
A
4.08%(q) 10/25/36 291 283,689
PSE&G Transition Funding LLC,
Series 01-1, Class A3
5.98% 06/15/08 366 368,944
Residential Asset Mortgage
Products, Inc., Series 03-RZ2,
Class B
5.50%(m) 04/25/33 963 958,452
Residential Asset Securities Corp.,
Series 02-KS4, Class AIIB
4.08%(m) 07/25/32 78 77,676
Residential Asset Securities Corp.,
Series 03-KS10, Class MII2
5.18%(m) 12/25/33 1,000 1,014,855
Residential Asset Securities Corp.,
Series 04-KS3, Class MII3
5.63%(m) 04/25/34 400 399,989
Residential Funding Mortgage
Securities ll, Series 04-HS2,
Class AI1
3.79%(m) 12/25/18 86 86,441
Small Business Administration
Participation Certificates, Series
97-20F, Class 1
7.20% 06/01/17 787 828,974
Structured Asset Investment Loan
Trust, Series 03-BC2, Class M2
5.78%(m) 04/25/33 350 351,476
Structured Asset Investment Loan
Trust, Series 03-BC3, Class M2
5.78%(m) 04/25/33 250 250,963
Structured Asset Receivables Trust,
Series 03-2
3.40%(q) 01/21/09 863 863,222
Sutter CBO Ltd., Series 01-1A,
Class A3L
5.37%(q) 05/15/07 425 426,062
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $30,919,239) 31,080,620
-----------
CORPORATE BONDS -- 6.3%
Aerospace -- 0.1%
Lockheed Martin Corp., Senior
Debentures
8.50% 12/01/29 45 61,966
Lockheed Martin Tactical Systems,
Inc., Senior Debentures
7.00% 09/15/23 150 174,321
Northrop Grumman Corp.,
Debentures
7.88% 03/01/26 75 94,738
Northrop Grumman Corp., Senior
Debentures
7.75% 02/15/31 200 258,292
Northrop Grumman Corp., Senior
Unsecured Notes
4.08% 11/16/06 280 278,647
-----------
867,964
-----------
Banks -- 1.5%
Bank of America Corp., Capital
Securities
8.07%(q) 12/31/26 $ 225 $ 241,618
Bank of America Corp., Senior
Notes
5.88% 02/15/09 45 46,657
Bank of America Corp., Senior
Unsecured Notes
3.25% 08/15/08 75 72,346
4.50% 08/01/10 460 455,538
5.38% 06/15/14 25 25,763
Bank of America Corp.,
Subordinated Notes
7.40% 01/15/11 325 362,948
Bank of New York Co., Inc., Senior
Subordinated Notes
3.80% 02/01/08 275 270,207
BankBoston N.A., Subordinated
Notes
7.38% 09/15/06 125 128,165
Barclays Bank PLC
6.28% 12/15/49 100 98,500
Citigroup Capital ll, Capital
Securities
7.75% 12/01/36 225 238,644
Citigroup, Inc., Senior Unsecured
Notes
3.50% 02/01/08 90 87,836
Citigroup, Inc., Subordinated Notes
5.00% 09/15/14 944 938,903
Citigroup, Inc., Unsecured Notes
3.62% 02/09/09 175 169,677
4.12% 02/22/10 1,425 1,392,524
Crestar Capital Trust I, Capital
Securities
8.16% 12/15/26 175 187,710
Depfa ACS Bank, Senior Notes
3.62% 10/29/08 150 146,192
First Union Capital l, Capital
Securities
7.94% 01/15/27 325 348,161
Fleetboston Financial Corp., Senior
Unsecured Notes
3.85% 02/15/08 60 59,109
HBOS Treasury Services PLC,
Senior Unsecured Notes
3.60%(q) 08/15/07 35 34,382
HBOS Treasury Services PLC,
Unsecured Notes
3.50%(q) 11/30/07 65 63,551
HSBC Bank USA, Subordinated
Notes
3.87% 06/07/07 1,000 990,418
J.P. Morgan Chase & Co., Senior
Unsecured Notes
5.35% 03/01/07 50 50,498
5.25% 05/30/07 25 25,294
J.P. Morgan Chase & Co.,
Subordinated Notes
6.75% 02/01/11 550 597,438
M&T Bank Corp., Senior Unsecured
Notes
3.85%(g)(m) 04/01/13 225 220,123
See accompanying notes to financial statements.
123
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
---------------- ---------------- ----------------
CORPORATE BONDS (Continued)
Banks (Continued)
The Royal Bank of Scotland Capital
Trust
4.71%(m) 12/29/49 $ 90 $ 86,829
Sumitomo Mitsui Banking Corp.,
Subordinated Notes
5.62%(q) 12/31/49 250 249,152
SunTrust Bank, Inc., Senior
Unsecured Notes
3.62% 10/15/07 170 166,802
Swedish Export Credit Corp.,
Unsecured Notes
2.88% 01/26/07 75 73,703
U.S. Bancorp., Senior Unsecured
Notes
3.95% 08/23/07 15 14,834
U.S. Bank N.A., Senior Bank Notes
3.53%(m) 10/01/07 250 249,558
4.40% 08/15/08 1,075 1,069,220
UBS Preferred Funding Trust I,
Capital Securities
8.62%(m) 10/29/49 35 40,546
Wachovia Bank N.A., Senior Bank
Notes
4.38% 08/15/08 600 596,659
Wachovia Corp., Unsecured Notes
3.62% 02/17/09 35 33,950
Wells Fargo & Co., Senior
Unsecured Notes
4.00% 08/15/08 195 191,929
4.20% 01/15/10 1,200 1,177,572
Wells Fargo & Co., Unsecured
Notes
3.50% 04/04/08 50 48,794
4.62% 08/09/10 40 39,785
-----------
11,291,535
-----------
Broadcasting -- 0.1%
Charter Communications Holdings
LLC, Senior Unsecured Notes
8.00%(q) 04/30/12 300 301,500
DirecTV Holdings LLC, Senior
Unsecured Notes
6.38%(q) 06/15/15 60 59,100
News America, Inc., Senior
Debentures
7.75% 01/20/24 25 28,678
7.28% 06/30/28 35 38,804
News America, Inc., Senior
Unsecured Notes
6.20% 12/15/34 525 525,793
-----------
953,875
-----------
Chemicals -- 0.1%
BCP Crystal U.S. Holdings Corp.,
Senior Subordinated Notes
9.62% 06/15/14 183 204,503
Equistar Chemical/Funding, Senior
Unsecured Notes
10.12% 09/01/08 250 270,000
Nalco Co., Senior Subordinated
Notes
8.88% 11/15/13 300 307,500
Rhodia SA, Senior Notes
10.25%(d) 06/01/10 $ 135 $ 142,762
-----------
924,765
-----------
Computer Software & Services -- 0.0%
Sungard Data Systems, Inc., Senior
Unsecured Notes
9.12%(q) 08/15/13 45 46,631
-----------
Construction -- 0.2%
Ainsworth Lumber Co. Ltd., Senior
Unsecured Notes
7.77%(m) 10/01/10 400 399,000
K. Hovnanian Enterprises, Inc.,
Senior Unsecured Notes
6.25%(q) 01/15/16 470 437,100
Lennar Corp., Senior Unsecured
Notes
5.60%(q) 05/31/15 90 88,148
Pulte Homes, Inc., Senior
Unsecured Notes
6.38% 05/15/33 250 238,463
-----------
1,162,711
-----------
Containers -- 0.0%
Crown Holdings, Inc., Senior
Secured Notes
9.50% 03/01/11 10 10,950
-----------
Energy & Utilities -- 0.5%
AES Eastern Energy LP,
Pass-Through Certificates
9.00% 01/02/17 510 595,495
Centerpoint Energy, Inc., Senior
Unsecured Notes
7.25% 09/01/10 355 385,428
Dominion Resources, Inc., Senior
Unsecured Notes
7.20% 09/15/14 450 505,736
DTE Energy Co., Senior Unsecured
Notes
6.45% 06/01/06 350 354,189
FirstEnergy Corp., Senior
Unsecured Notes
7.38% 11/15/31 80 94,176
Florida Power Corp., First Mortgage
Bonds
6.65% 07/15/11 100 108,489
Georgia Power Co., Senior
Unsecured Notes
4.88% 07/15/07 525 527,269
Indiana Michigan Power, Senior
Unsecured Notes
6.12% 12/15/06 325 330,159
Pennsylvania Electric Co., Senior
Unsecured Notes
5.12% 04/01/14 50 49,650
Progress Energy, Inc., Senior
Unsecured Notes
7.75% 03/01/31 200 238,810
Reliant Energy, Inc., Senior
Secured Notes
9.25% 07/15/10 50 54,250
See accompanying notes to financial statements.
124
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
---------------- ---------------- ----------------
CORPORATE BONDS (Continued)
Energy & Utilities (Continued)
6.75% 12/15/14 $ 10 $ 9,775
TXU Corp., Senior Unsecured
Notes
4.80% 11/15/09 825 794,893
----------
4,048,319
----------
Entertainment & Leisure -- 0.3%
Comcast Cable Communications
Corp., Senior Unsecured Notes
7.05% 03/15/33 815 907,054
Comcast Cable Holdings LLC,
Senior Debentures
7.88% 08/13-02/26 7 8,275
CSC Holdings, Inc., Senior
Unsecured Notes
8.12% 07/15/09 600 604,500
Riddell Bell Holdings, Inc., Senior
Subordinated Notes
8.38% 10/01/12 110 110,275
TCI Communications, Inc., Senior
Notes
7.12% 02/15/28 35 39,252
Time Warner Cos., Inc., Debentures
6.95% 01/15/28 205 222,131
Time Warner Cos., Inc., Senior
Debentures
7.57% 02/01/24 30 34,248
7.70% 05/01/32 525 622,277
Wynn Las Vegas LLC, First
Mortgage Notes
6.62% 12/01/14 25 23,813
----------
2,571,825
----------
Finance -- 1.0%
Associates Corp. NA, Subordinated
Debentures
6.88% 11/15/08 175 186,314
Berkshire Hathaway Finance Corp.,
Senior Unsecured Notes
3.38% 10/15/08 75 72,401
4.12% 01/15/10 35 34,258
Berkshire Hathaway Finance Corp.,
Unsecured Notes
4.75%(q) 05/15/12 425 422,144
Berkshire Hathaway, Inc., Senior
Unsecured Notes
3.57%(m) 01/11/08 60 60,034
Credit Suisse First Boston USA,
Inc., Senior Unsecured Notes
4.12% 01/15/10 350 341,168
Crown European Holdings SA,
Senior Secured Notes
10.88% 03/01/13 40 46,400
Eksportfinans ASA, Unsecured
Notes
3.38% 01/15/08 155 151,490
General Electric Capital Corp.,
Senior Unsecured Notes
4.25% 01/15/08 245 243,525
6.12% 02/22/11 975 1,034,066
6.75% 03/15/32 50 58,814
General Electric Capital Corp.,
Unsecured Notes
3.45%(m) 01/15/08 400 400,864
3.77%(m) 07/28/08 $ 150 $ 150,261
3.60% 10/15/08 70 68,055
4.12% 09/01/09 2,450 2,402,676
Household Finance Corp., Senior
Unsecured Notes
6.38% 10/15/11 225 240,670
HSBC Finance Corp., Senior
Unsecured Notes
4.75% 05/15/09 50 49,861
International Lease Finance Corp.,
Senior Unsecured Notes
5.75% 02/15/07 525 530,843
J.P. Morgan Capital Trust I, Capital
Securities
7.54% 01/15/27 175 186,225
Lehman Brothers Holdings, Inc.,
Unsecured Notes
4.00% 01/22/08 200 197,650
Lehman Brothers Holdings, Senior
Unsecured Notes
3.95% 11/10/09 375 363,644
Merrill Lynch & Co., Inc., Senior
Unsecured Notes
3.70% 04/21/08 425 415,562
Nationwide Building Society, Senior
Unsecured Notes
3.50%(q) 07/31/07 75 73,586
Student Loan Marketing Corp.,
Senior Unsecured Notes
5.62% 04/10/07 250 253,850
----------
7,984,361
----------
Insurance -- 0.3%
Allstate Financial Global Funding
LLC, Senior Unsecured Notes
6.15%(q) 02/01/06 50 50,292
Allstate Financial Global Funding
LLC, Unsecured Notes
2.50%(q)(r) 06/20/08 325 306,634
ASIF Global Financing, Unsecured
Notes
3.85%(q) 11/26/07 25 24,578
3.90%(q)(r) 10/22/08 95 92,507
Liberty Mutual Group, Inc.,
Unsecured Notes
6.50%(q) 03/15/35 265 243,334
Marsh & McLennan Cos., Inc.,
Senior Unsecured Notes
5.75% 09/15/15 175 173,325
MassMutual Global Funding II,
Senior Secured Notes
2.55%(q) 07/15/08 50 47,231
MetLife, Inc., Senior Unsecured
Notes
5.70% 06/15/35 310 307,359
Monumental Global Funding II,
Unsecured Note
3.45%(q) 11/30/07 350 343,323
Protective Life Corp., Secured
Notes
3.70% 11/24/08 60 58,280
Sun Life of Canada Capital Trust,
Capital Securities
8.53%(q) 05/29/49 195 210,844
See accompanying notes to financial statements.
125
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
---------------- ---------------- ----------------
CORPORATE BONDS (Continued)
Insurance (Continued)
TIAA Global Markets, Senior
Unsecured Notes
3.88%(q) 01/22/08 $ 55 $ 54,067
Wellpoint, Inc., Unsecured Notes
5.95% 12/15/34 300 312,768
----------
2,224,542
----------
Leasing -- 0.0%
United Rentals N.A., Inc., Senior
Subordinated Notes
7.75%(d) 11/15/13 200 193,000
----------
Manufacturing -- 0.0%
Ispat Inland ULC, Senior Secured
Notes
9.75% 04/01/14 10 11,600
----------
Medical & Medical Services -- 0.0%
Iasis Healthcare Corp., Senior
Subordinated Notes
8.75% 06/15/14 70 72,800
UnitedHealth Group, Inc., Senior
Unsecured Notes
7.50% 11/15/05 175 175,544
----------
248,344
----------
Metal & Mining -- 0.1%
Ipsco, Inc., Senior Notes
8.75% 06/01/13 450 497,250
TRIMAS Corp., Senior
Subordinated Notes
9.88% 06/15/12 395 325,875
----------
823,125
----------
Motor Vehicles -- 0.0%
Arvinmeritor, Inc., Senior
Unsecured Notes
8.75% 03/01/12 40 39,400
DaimlerChrysler AG, Senior
Debentures
7.45% 03/01/27 15 16,322
DaimlerChrysler NA Holdings Corp.,
Senior Unsecured Notes
8.50% 01/18/31 175 211,873
Delco Remy International, Inc.,
Senior Subordinated Notes
9.38%(g)(q) 04/15/12 50 28,000
----------
295,595
----------
Oil & Gas -- 0.3%
Anadarko Finance Co., Senior
Unsecured Notes
7.50% 05/01/31 160 196,978
ANR Pipeline Co., Senior
Debentures
9.62% 11/01/21 60 74,100
7.38% 02/15/24 15 15,466
Chesapeake Energy Corp., Senior
Unsecured Notes
6.25% 01/15/18 80 78,400
Consolidated Natural Gas, Inc.,
Senior Debentures
5.00% 03/01/14 20 19,732
Dynegy Holdings, Inc., Secured
Notes
10.12%(q) 07/15/13 130 144,950
El Paso Natural Gas Co., Senior
Notes
7.62% 08/01/10 $ 25 $ 25,995
El Paso Natural Gas Co., Senior
Unsecured Notes
8.38% 06/15/32 15 17,156
Enterprise Products Operating LP,
Senior Unsecured Notes
4.95% 06/01/10 125 122,854
5.60% 10/15/14 150 149,472
Gazstream SA, Unsecured Notes
5.62%(q) 07/22/13 290 289,556
Kern River Funding Corp., Senior
Unsecured Notes
4.89%(q) 04/30/18 246 243,494
Newfield Exploration Co., Senior
Subordinated Notes
6.62% 09/01/14 250 260,000
Northwest Pipeline Corp., Senior
Unsecured Notes
8.12% 03/01/10 120 128,100
Petro-Canada, Senior Unsecured
Notes
5.95% 05/15/35 220 220,899
----------
1,987,152
----------
Pharmaceuticals -- 0.1%
Bristol-Myers Squibb Co., Senior
Debentures
6.88% 08/01/97 25 28,770
Merck & Co., Inc., Senior
Unsecured Notes
4.38% 02/15/13 410 390,765
----------
419,535
----------
Railroad & Shipping -- 0.0%
Union Pacific Corp., Senior
Debentures
7.12% 02/01/28 150 176,508
----------
Real Estate -- 0.4%
Avalonbay Communities, Inc.,
Senior Unsecured Notes
7.50% 12/15/10 25 27,842
EOP Operating LP, Senior Notes
6.80% 01/15/09 775 817,719
EOP Operating LP, Senior
Unsecured Notes
7.50% 04/19/29 30 34,712
ERP Operating LP, Senior Notes
6.58% 04/13/15 170 185,915
The Rouse Co., Unsecured Notes
3.62% 03/15/09 1,200 1,121,693
Simon Property Group LP, Senior
Unsecured Notes
7.38% 01/20/06 400 403,269
----------
2,591,150
----------
Retail Merchandising -- 0.1%
May Department Stores Co.,
Debentures
7.88% 03/01/30 125 149,008
May Department Stores Co., Senior
Debentures
8.12% 08/15/35 200 225,417
See accompanying notes to financial statements.
126
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
---------------- ---------------- ----------------
CORPORATE BONDS (Continued)
Retail Merchandising (Continued)
Movie Gallery, Inc., Senior
Unsecured Notes
11.00%(d) 05/01/12 $ 55 $ 49,087
-----------
423,512
-----------
Semiconductors & Related Devices -- 0.0%
Magnachip Semiconductor, Secured
Notes
7.12%(m) 12/15/11 30 29,850
-----------
Telecommunications -- 0.8%
America Movil SA de CV,
Unsecured Notes
6.38% 03/01/35 75 72,722
American Tower Corp., Senior
Unsecured Notes
7.50%(d) 05/01/12 800 848,000
Cincinnati Bell, Inc., Senior
Unsecured Notes
7.25%(d) 07/15/13 20 21,250
Deutsche Telekom International
Finance BV (Netherlands), Senior
Unsecured Notes
8.75% 06/15/30 265 342,120
Eircom Funding (Ireland), Senior
Subordinated Notes
8.25% 08/15/13 600 651,000
L-3 Communications Corp., Senior
Subordinated Notes
6.38%(q) 10/15/15 35 35,262
Qwest Corp., Unsecured Notes
7.88% 09/01/11 100 104,500
7.12%(q) 06/15/13 75 78,000
Rogers Wireless, Inc., Senior
Secured Notes
9.62% 05/01/11 550 635,250
SBC Communications, Inc.,
Unsecured Notes
4.39%(q) 06/05/06 1,125 1,123,628
6.45% 06/15/34 15 15,832
6.15% 09/15/34 5 5,117
Sprint Capital Corp., Senior
Unsecured Notes
8.75% 03/15/32 325 435,802
Superior Essex Communications &
Essex Group, Senior Notes
9.00% 04/15/12 500 505,000
Verizon Global Funding Corp.,
Senior Unsecured Notes
7.75% 12/01/30 365 444,671
Verizon Maryland, Inc., Debentures
5.12% 06/15/33 10 8,657
Vodafone Group PLC, Unsecured
Notes
5.00% 09/15/15 400 396,959
-----------
5,723,770
-----------
Yankee -- 0.4%
AID-Israel, Unsecured Notes
5.50%(s) 4/24-09/33 185 198,396
Banque Centrale de Tunisie
(Tunisia), Senior Unsecured
Notes
7.38%(s) 04/25/12 $ 425 $ 480,250
Corp Andina de Fomento (Spain),
Senior Unsecured Notes
6.88%(s) 03/15/12 125 137,066
Japan Finance Corp. for Municipal
Enterprises, Unsecured Notes
4.62%(s) 04/21/15 900 893,362
Nationwide Building Society (United
Kingdom), Unsecured Notes
2.62%(q)(s) 01/30/07 550 536,502
Omi Corp. (Mali), Senior Notes
7.62%(s) 12/01/13 235 239,700
Suncor Energy, Inc. (Canada)
5.95%(s) 12/01/34 20 21,239
Teck Cominco Ltd. (Canada),
Senior Unsecured Notes
6.12%(s) 10/01/35 175 171,610
Telecom Italia Capital
(Luxembourg), Senior Unsecured
Notes
4.95%(q)(s) 09/30/14 475 459,673
United Mexican States, Bonds
8.12%(s) 12/30/19 180 218,970
United Mexican States, Senior
Unsecured Notes
8.30%(s) 08/15/31 25 31,250
Vodafone Group PLC (United
Kingdom), Senior Unsecured
Notes
7.75%(s) 02/15/10 70 78,079
-----------
3,466,097
-----------
TOTAL CORPORATE BONDS
(Cost $48,356,284)
48,476,716
-----------
FOREIGN BONDS -- 0.3%
Bundesrepublic Deutschland
(Germany) (EUR)
4.75%
(Cost $2,197,562) 07/04/34 1,500 2,179,298
-----------
TAXABLE MUNICIPAL BONDS -- 0.1%
Atlantic Marine Corp. Communities,
Notes
5.34%(q) 12/01/50 600 600,000
Ohana Military Communities LLC,
Military Housing Revenue Bonds
(Navy Hawaii Housing
Privatization Project) Series 04-A,
Class 1
6.19% 04/01/49 25 27,276
-----------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $625,000)
627,276
-----------
See accompanying notes to financial statements.
127
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
---------------- ---------------- ----------------
SHORT TERM INVESTMENTS -- 19.3%
Banco Santader, Certificate of
Deposit
3.70%(t) 05/10/06 $ 7,873 $ 7,873,017
Federal Home Loan Bank, Discount
Notes
3.18%(u) 10/03/05 10,000 9,998,233
Federal National Mortgage
Association, Discount Notes
3.50% 10/03/05 3,500 3,499,319
Morgan Stanley, Floating Rate
Notes
4.02%(m)(t) 11/07/05 10,271 10,270,644
4.01%(m)(t) 11/14/05 4,083 4,083,020
4.02%(m)(t) 01/05/06 12,214 12,214,343
U.S. Treasury Bills
3.15% 11/17/05 14,350 14,290,986
Galileo Money Market Fund 9,784 9,783,531
Institutional Money Market
Trust(t)(v) 77,248 77,247,763
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $149,260,856) 149,260,856
------------
TOTAL INVESTMENTS IN SECURITIES -- 117.8%
(Cost $818,325,074(a)) $909,651,353
------------
Number of
Contracts Value
---------------- ----------------
CALL SWAPTIONS WRITTEN -- (0.1)%
Barclays Capital,
Strike Price 5.135,
Expires 04/21/08 (320)(w) $(153,472)
Citibank, Strike
Price 5.67, Expires
01/04/10 (50)(w) (34,314)
Deutsche Bank, Strike
Price 5.015,
Expires 01/29/07 (35)(w) (12,996)
Union Bank, Strike
Price 4.725,
Expires 06/13/07 (790)(w) (231,865)
Warburg Dillon Read
LLC, Strike
Price 5.00, Expires (370)(w) (169,904)
06/16/10
-----------
TOTAL CALL SWAPTIONS WRITTEN
(Premiums received $668,790) (602,551)
-----------
PUT SWAPTIONS WRITTEN -- (0.1)%
Barclays Capital,
S trike Price 5.135,
Expires 04/21/08 (320)(w) (112,928)
Citibank, Strike
Price 5.67, Expires
01/04/10 (50)(w) (15,207)
Deutsche Bank, Strike
Price 5.015,
Expires 01/29/07 (35)(w) (9,384)
Union Bank, Strike
Price 4.725,
Expires 06/13/07 (790)(w) (329,114)
Warburg Dillon Read
LLC, Strike
Price 5.00, Expires (370)(w) (187,183)
06/16/10
----------
TOTAL PUT SWAPTIONS WRITTEN
(Premiums received $668,790) (653,816)
----------
See accompanying notes to financial statements.
128
BlackRock Funds
STATEMENT OF NET ASSETS
ASSET ALLOCATION PORTFOLIO (Concluded)
As of September 30, 2005
Value
----------------
LIABILITIES IN EXCESS OF OTHER ASSETS --
(17.6)% $(135,960,372)
----------------
NET ASSETS -- 100.0%
(Applicable to 1,918,215 Institutional
shares,
140,180 Service shares, 31,758,099
Investor A
shares, 11,838,472 Investor B shares
and 4,394,244
Investor C shares outstanding) $ 772,434,614
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($29,752,239/1,918,215) $15.51
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($2,171,034/140,180) $15.49
================
NET ASSET VALUE AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($491,556,692/31,758,099) $15.48
================
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE
($15.48/0.9425) $16.42
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($181,583,235/11,838,472) $15.34
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($67,371,414/4,394,244) $15.33
================
- -------------------
(a) Cost for Federal income tax purposes is $821,526,498. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $99,101,243
Gross unrealized depreciation (10,976,388)
-----------
$88,124,855
===========
(b) Securities valued at fair value as determined in good faith by or under the
direction of the Trustees. As of September 30, 2005, these securities had a
total market value of $328,405 which represents 0.04% of net assets.
(c) Non-income producing security.
(d) Total or partial securities on loan.
(e) Security valued under consistently applied procedures established by the
Board.
(f) Security restricted as to public resale. These securities are ineligible
for resale into the public market until such time that either (I) a resale
Registration Statement has been filed with the SEC and declared effective
or (II) resale is permitted under Rule 144A without the need for an
effective registration statement. As of September 30, 2005, the Portfolio
held 0.95% of its net assets, with a current market value of $7,353,392 and
a current cost of $2,402,265 in these securities.
(g) Security is illiquid. As of September 30, 2005, the Portfolio held 0.08% of
its net assets, with a current market value of $601,655 in these
securities.
(h) Shares held at end of period are less than 1.
(i) As of September 30, 2005, the aggregate amount of shares called for by
these warrants is 9,725. These warrants were exercisable as of 1/21/04.
(j) As of September 30, 2005, the aggregate amount of shares called for by
these warrants is 68,773. These warrants were exercisable as of 7/24/03.
(k) As of September 30, 2005, the aggregate amount of shares called for by
these warrants is 3,650. These warrants were exercisable as of 9/29/04.
(l) Par held at end of period is less than 1,000.
(m) Rates shown are the rates as of September 30, 2005.
(n) Rates shown are the effective yields as of September 30, 2005.
(o) Interest rate of underlying collateral.
(p) Securities, or a portion thereof, with a market value of $1,284,980 have
been pledged as collateral for swap and swaption contracts.
(q) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 2.0% of its net assets, with a current market
value of $15,981,244, in securities restricted as to resale.
(r) Securities, or a portion thereof, pledged as collateral with a value of
$403,066 on 217 Short U.S. Treasury Note future contract, 211 Long U.S.
Treasury Notes future contracts, 133 Long Treasury Bonds futures contracts,
and 58 short Euro-Bobl futures contracts expiring December 2005. The value
of such contracts on September 30, 2005 was $74,558,514, with an unrealized
loss of $522,151 (including commissions of $1,379).
(s) Security is a foreign domiciled issuer which is registered with the
Securities and Exchange Commission.
(t) Securities purchased with the cash proceeds from securities loaned.
(u) The rate shown is the effective yield on the discount notes at the time of
purchase.
(v) Represents an investment in an affiliate.
(w) Each swaption contract is equivalent to $10,000 notional amount.
See accompanying notes to financial statements.
129
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
ASSET ALLOCATION PORTFOLIO
As of September 30, 2005
ASSETS
Investments at value (Cost $818,325,074).............. $909,651,353
Cash denominated in foreign currencies
(Cost $3,093,400).......................... 3,090,502
Dividends and reclaims receivable .................... 714,759
Interest receivable .................................. 1,587,867
Investments sold receivable .......................... 62,926,900
Capital shares sold receivable ....................... 827,237
Prepaid expenses ..................................... 21,029
Unrealized appreciation on forward foreign currency
contracts .................... 8,439
Unrealized appreciation on interest rate swaps ....... 264,344
Futures margin receivable ............................ 3,808
------------
TOTAL ASSETS ...................................... 979,096,238
------------
LIABILITIES
Payable upon return of securities loaned ............. 111,688,786
Investments purchased payable ........................ 91,023,679
Capital shares redeemed payable ...................... 1,236,296
Advisory fees payable ................................ 218,472
Administrative fees payable .......................... 139,959
Transfer agent fees payable .......................... 93,975
Other accrued expenses payable ....................... 478,911
Swaptions written, at fair value
(premiums received $1,337,580)................... 1,256,367
Foreign taxes payable ................................ 2,869
Futures margin payable ............................... 58,266
Futures sold payable ................................. 35
Unrealized depreciation on forward foreign
currency contracts .................... 4,990
Unrealized depreciation on interest rate swaps ....... 459,019
------------
TOTAL LIABILITIES ................................. 206,661,624
------------
NET ASSETS (Applicable to 1,918,215 Institutional
shares,140,180 Service shares, 31,758,099 Investor
A shares, 11,838,472 Investor B shares and 4,394,244
Investor C shares outstanding) ....................... $772,434,614
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($29,752,239/1,918,215)....... $ 15.51
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($2,171,034/140,180)................ $ 15.49
============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($491,556,692/31,758,099)........ $ 15.48
============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($15.48/0.9425)........................ .............. $ 16.42
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales
charge of 4.5%)
PER INVESTOR B SHARE ($181,583,235/11,838,472)........ $ 15.34
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales
charge of 1.0%)
PER INVESTOR C SHARE ($67,371,414/4,394,244).......... $ 15.33
============
See accompanying notes to financial statements.
130
BlackRock Funds
STATEMENT OF NET ASSETS
INDEX EQUITY PORTFOLIO
As of September 30, 2005
Value
----------------
Investment in The U.S. Large Company
Series of The
DFA Investment Trust Company -- 100.2%
(Cost $1,040,173,789) $1,327,794,602
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.2)% (2,688,158)
----------------
NET ASSETS -- 100.0%
(Applicable to 25,183,897
Institutional shares,
2,923,124 Service shares, 12,628,189
Investor A
shares, 5,934,632 Investor B shares
and 9,902,270
Investor C shares outstanding) $1,325,106,444
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE
($595,049,925/25,183,897) $ 23.63
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
PER SERVICE SHARE
($68,636,772/2,923,124) $ 23.48
================
NET ASSET VALUE AND
REDEMPTION PRICE
PER INVESTOR A SHARE
($296,266,401/12,628,189) $ 23.46
================
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE
($23.46/0.970) $ 24.19
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($136,877,834/5,934,632) $ 23.06
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($228,275,512/9,902,270) $ 23.05
================
See accompanying notes to financial statements and accompanying financial
statements and related notes for The Dfa Investment Trust Company.
131
BlackRock Funds
INVESTMENT ABBREVIATIONS
ADR American Depository Receipts
CMT Constant Maturity Treasury
IO Interest Only
NVDR Non Voting Depository Receipts
PLC Public Limited Company
PO Principal Only
132
[THIS PAGE INTENTIONALLY LEFT BLANK.]
Blackrock Funds
STATEMENTS OF OPERATIONS
For the Period Ended September 30, 2005
Large Cap Large Cap
Investment Value Growth Divident
Trust Equity Equity AchiversTM
Portfolio Portfolio Portfolio Portfolio
10/1/04-9/30/05 10/1/04-9/30/05 10/1/04-9/30/05 10/1/04-9/30/05
----------------- ----------------- ----------------- ---------------
Investment income:
Interest ........................................ $ 100,359 $ 48,432 $ 17,126 $ 14,602
Securities lending income ....................... 57,942 19,629 3,516 2,137
Dividends and reclaims .......................... 18,298,686 7,770,890 1,083,548 630,260
Foreign taxes withheld .......................... -- -- (357) (45)
------------ ----------- ----------- ----------
Total investment income ....................... 18,456,987 7,838,951 1,103,833 646,954
------------ ----------- ----------- ----------
Expenses:
Investment advisory fee ......................... 5,239,291 1,766,013 377,793 121,609
Administration fee .............................. 742,418 272,929 58,386 18,794
Administration fee - class specific ............. 1,410,510 465,969 99,808 31,749
Custodian fee ................................... 123,935 58,342 32,266 26,127
Transfer agent fee .............................. 2,224,415 338,302 101,981 18,960
Transfer agent fee - class specific ............. 176,142 57,844 12,390 3,925
Shareholder servicing fees - class specific ..... 1,486,203 497,508 109,991 43,150
Distribution fees - class specific .............. 1,877,555 480,206 121,645 66,429
Legal and audit fee ............................. 177,258 62,490 23,857 22,107
Printing fee .................................... 367,072 94,997 26,944 3,652
Registration fees and expenses .................. 48,085 48,312 43,618 75,020
Trustees' fees .................................. 32,089 11,011 2,466 790
Licensing fees .................................. -- -- -- 32,147
Other ........................................... 86,225 9,696 11,180 6,457
------------ ----------- ----------- ----------
Total expenses ................................ 13,991,198 4,163,619 1,022,325 470,916
------------ ----------- ----------- ----------
Less investment advisory fees waived.......... (1,130,568) (156,151) (120,900) (107,888)
Less administration fees waived .............. -- -- -- (12,785)
Less administration fees waived - class
specific .................................... (780,624) (205,509) (48,090) (6,932)
Less distribution fees waived - class
specific .................................... (400,526) (121,392) (17,612) (9,364)
Less custodian fees waived ................... (9,700) (3,097) (1,520) (970)
Less transfer agent fees waived .............. (159,228) (23,735) (5,119) (1,495)
Less expenses reimbursed by advisor........... -- -- -- (8,157)
Less expenses reimbursed by
distributor (Note D) ........................ -- -- -- --
Reimbursement of distribution fees
(Note D) .................................... -- -- -- --
------------ ----------- ----------- ----------
Net expenses .................................. 11,510,552 3,653,735 829,084 323,325
------------ ----------- ----------- ----------
Net investment income (loss) .................... 6,946,435 4,185,216 274,749 323,629
------------ ----------- ----------- ----------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions:
Net increase from payment by affiliate
(Note D) ....................................... -- -- -- --
Investment transactions ........................ 161,357,593 46,991,163 15,245,011 (403,215)
Futures and options contracts .................. (24,969) 62,682 83,076 64,896
------------ ----------- ----------- ----------
161,332,624 47,053,845 15,328,087 (338,319)
------------ ----------- ----------- ----------
Change in unrealized appreciation
(depreciation) from:
Investments .................................... 243,695,510 21,728,980 (6,622,887) 1,162,011
Futures and options contracts .................. 50,486 (3,947) (8,387) 2,961
------------ ----------- ----------- ----------
243,745,996 21,725,033 (6,631,274) 1,164,972
------------ ----------- ----------- ----------
Net gain on investments and foreign currency
transactions .................................... 405,078,620 68,778,878 8,696,813 826,653
------------ ----------- ----------- ----------
Net increase in net assets resulting from
operations ...................................... $412,025,055 $72,964,094 $ 8,971,562 $1,150,282
============ =========== =========== ==========
Legacy Legacy
Portfolio Portfolio
11/1/04-9/30/05 11/1/03-10/31/04
----------------- -----------------
Investment income:
Interest ........................................ $ 52,748 $ 58,904
Securities lending income ....................... 30,012 71,531
Dividends and reclaims .......................... 4,027,170 2,660,940
Foreign taxes withheld .......................... (34,752) (32,242)
----------- -----------
Total investment income ....................... 4,075,178 2,759,133
----------- -----------
Expenses:
Investment advisory fee ......................... 1,758,575 2,172,192
Administration fee .............................. 178,866 107,908
Administration fee - class specific ............. 278,963 --
Custodian fee ................................... 44,300 153,507
Transfer agent fee .............................. 469,751 1,089,375
Transfer agent fee - class specific ............. 34,630 --
Shareholder servicing fees - class specific ..... 555,009 --
Distribution fees - class specific .............. 883,345 1,639,956
Legal and audit fee ............................. 63,391 63,000
Printing fee .................................... 118,562 103,808
Registration fees and expenses .................. 124,789 61,750
Trustees' fees .................................. 12,882 28,442
Licensing fees .................................. -- --
Other ........................................... 6,630 38,210
----------- -----------
Total expenses ................................ 4,529,693 5,458,148
----------- -----------
Less investment advisory fees waived.......... -- --
Less administration fees waived .............. -- --
Less administration fees waived - class
specific .................................... (241,385) --
Less distribution fees waived - class
specific .................................... (82,972) --
Less custodian fees waived ................... (2,607) (9,261)
Less transfer agent fees waived .............. (29,531) --
Less expenses reimbursed by advisor........... -- --
Less expenses reimbursed by
distributor (Note D) ........................ -- --
Reimbursement of distribution fees
(Note D) .................................... -- --
----------- -----------
Net expenses .................................. 4,173,198 5,448,887
----------- -----------
Net investment income (loss) .................... (98,020) (2,689,754)
----------- -----------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions:
Net increase from payment by affiliate
(Note D) ....................................... 294,363 15,707
Investment transactions ........................ 10,863,747 49,361,911
Futures and options contracts .................. -- --
----------- -----------
11,158,110 49,377,618
----------- -----------
Change in unrealized appreciation
(depreciation) from:
Investments .................................... 19,011,842 32,508,263)
Futures and options contracts .................. 3,519 --
----------- -----------
19,015,361 32,508,263)
----------- -----------
Net gain on investments and foreign currency
transactions .................................... 30,173,471 16,869,355
----------- -----------
Net increase in net assets resulting from
operations ...................................... $30,075,451 $14,179,601
=========== ===========
See accompanying notes to financial statements.
134
BlackRock Funds
Mid-cap Mid-cap Mid-cap
Value Value Growth
Equity Equity Equity Aurora
Portfolio Portfolio Portfolio Portfolio
3/1/05-9/30/05 7/1/04-2/28/05 10/1/04-9/30/05 10/1/04-9/30/05
----------------- ----------------- ----------------- ---------------
Investment income:
Interest ........................................ $ 383,740 $ 832,474 $ 112,575 $ 1,876,190
Securities lending income ....................... 29,730 95,612 27,704 1,185,253
Dividends and reclaims .......................... 6,061,244 9,546,084 1,474,895 29,579,151
Foreign taxes withheld .......................... (2,727) -- (975) (54,850)
----------- ----------- ------------ ------------
Total investment income ....................... 6,471,987 10,474,170 1,614,199 32,585,744
----------- ----------- ------------ ------------
Expenses:
Investment advisory fee ......................... 3,472,893 3,038,640 2,766,100 25,627,116
Administration fee .............................. 354,899 114,891 293,898 1,411,872
Administration fee - class specific ............. 629,456 88,510 501,885 2,688,100
Custodian fee ................................... 55,837 106,832 48,922 302,848
Transfer agent fee .............................. 608,564 1,108,449 932,440 3,467,756
Transfer agent fee - class specific ............. 78,150 10,987 62,303 353,170
Shareholder servicing fees - class specific ..... 998,678 1,047,061 702,359 7,388,439
Distribution fees - class specific .............. 1,242,773 1,174,289 732,269 8,496,367
Legal and audit fee ............................. 101,994 52,379 69,068 256,084
Printing fee .................................... 219,127 180,196 152,865 1,156,598
Registration fees and expenses .................. 49,170 171,370 48,709 61,966
Trustees' fees .................................. 14,621 14,829 11,477 105,727
Licensing fees .................................. -- -- -- --
Other ........................................... 42,253 32,265 28,627 289,362
----------- ----------- ------------ ------------
Total expenses ................................ 7,868,415 7,140,698 6,350,922 51,605,405
----------- ----------- ------------ ------------
Less investment advisory fees waived.......... (600,552) (61,303) (127,946) --
Less administration fees waived .............. -- -- -- --
Less administration fees waived - class
specific .................................... (607,206) (87,493) (185,273) --
Less distribution fees waived - class
specific .................................... (274,186) (38,049) (209,447) (1,267,403)
Less custodian fees waived ................... (4,726) (4,726) (4,112) (13,062)
Less transfer agent fees waived .............. (51,234) (51,234) (67,872) (141,720)
Less expenses reimbursed by advisor........... -- -- -- --
Less expenses reimbursed by
distributor (Note D) ........................ -- (271,500) -- --
Reimbursement of distribution fees
(Note D) .................................... -- (91,069) -- --
----------- ----------- ------------ ------------
Net expenses .................................. 6,330,511 6,535,324 5,756,272 50,183,220
----------- ----------- ------------ ------------
Net investment income (loss) .................... 141,476 3,938,846 (4,142,073) (17,597,476)
----------- ----------- ------------ ------------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions:
Net increase from payment by affiliate
(Note D) ....................................... -- 554,230 -- 203,165
Investment transactions ........................ 52,648,354 55,516,938 50,869,792 469,614,985
Futures and options contracts .................. -- -- -- --
----------- ----------- ------------ ------------
52,648,354 56,071,168 50,869,792 469,818,150
----------- ----------- ------------ ------------
Change in unrealized appreciation
(depreciation) from:
Investments .................................... 1,969,402 25,454,000 66,962,559 30,943,367
Futures and options contracts .................. -- -- -- --
----------- ----------- ------------ ------------
1,969,402 25,454,000 66,962,559 30,943,367
----------- ----------- ------------ ------------
Net gain on investments and foreign currency
transactions .................................... 54,617,756 81,525,168 117,832,351 500,761,517
----------- ----------- ------------ ------------
Net increase in net assets resulting from
operations ...................................... $54,759,232 $85,464,014 $113,690,278 $483,164,041
=========== =========== ============ ============
Small/Mid-cap Small Cap Small Cap Small Cap
Growth Value Equity Core Equity Growth Equity
Portfolio Portfolio Portfolio Portfolio
10/1/04-9/30/05 10/1/04-9/30/05 10/1/04-9/30/05 10/1/04-9/30/05
----------------- ----------------- --------------- ----------------
Investment income:
Interest ........................................ $ 118,943 $ 67,965 $ 28,323 $ 514,311
Securities lending income ....................... 84,191 21,000 8,266 43,199
Dividends and reclaims .......................... 1,452,521 1,540,045 142,529 2,251,007
Foreign taxes withheld .......................... (1,401) (3,277) (517) (4,976)
----------- ----------- ---------- -----------
Total investment income ....................... 1,654,254 1,625,733 178,601 2,803,541
----------- ----------- ---------- -----------
Expenses:
Investment advisory fee ......................... 2,534,041 727,645 253,984 2,903,801
Administration fee .............................. 201,632 112,454 21,589 445,733
Administration fee - class specific ............. 294,340 185,242 36,539 765,314
Custodian fee ................................... 23,303 31,754 19,348 85,046
Transfer agent fee .............................. 919,160 82,325 22,216 260,947
Transfer agent fee - class specific ............. 36,539 23,036 4,536 95,004
Shareholder servicing fees - class specific ..... 727,731 158,736 48,070 525,855
Distribution fees - class specific .............. 586,666 197,960 101,133 408,918
Legal and audit fee ............................. 79,148 33,145 19,285 89,455
Printing fee .................................... 165,609 39,778 12,729 220,379
Registration fees and expenses .................. 106,033 60,513 63,179 69,672
Trustees' fees .................................. 17,480 4,349 818 18,112
Licensing fees .................................. -- -- -- --
Other ........................................... 32,976 13,432 6,526 33,250
----------- ----------- ---------- -----------
Total expenses ................................ 5,724,658 1,670,369 609,952 5,921,486
----------- ----------- ---------- -----------
Less investment advisory fees waived.......... (29,657) -- (88,870) --
Less administration fees waived .............. -- -- -- --
Less administration fees waived - class
specific .................................... (267,930) (15,760) (8,721) --
Less distribution fees waived - class
specific .................................... (151,655) (33,539) (6,630) (147,507)
Less custodian fees waived ................... (2,798) (2,260) (1,356) (4,675)
Less transfer agent fees waived .............. (22,847) (4,878) (1,775) (17,260)
Less expenses reimbursed by advisor........... -- -- -- --
Less expenses reimbursed by
distributor (Note D) ........................ (355,506) -- -- --
Reimbursement of distribution fees
(Note D) .................................... -- -- -- --
----------- ----------- ---------- -----------
Net expenses .................................. 4,894,265 1,613,932 502,600 5,752,044
----------- ----------- ---------- -----------
Net investment income (loss) .................... (3,240,011) 11,801 (323,999) (2,948,503)
----------- ----------- ---------- -----------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions:
Net increase from payment by affiliate
(Note D) ....................................... -- -- -- --
Investment transactions ........................ 43,816,536 24,313,119 832,757 45,796,132
Futures and options contracts .................. -- -- -- --
----------- ----------- ---------- -----------
43,816,536 24,313,119 832,757 45,796,132
----------- ----------- ---------- -----------
Change in unrealized appreciation
(depreciation) from:
Investments .................................... 25,247,218 927,970 3,352,781 48,085,897
Futures and options contracts .................. -- -- -- --
----------- ----------- ---------- -----------
25,247,218 927,970 3,352,781 48,085,897
----------- ----------- ---------- -----------
Net gain on investments and foreign currency
transactions .................................... 69,063,754 25,241,089 4,185,538 93,882,029
----------- ----------- ---------- -----------
Net increase in net assets resulting from
operations ...................................... $65,823,743 $25,252,890 $3,861,539 $90,933,526
=========== =========== ========== ===========
135
BlackRock Funds
STATEMENTS OF OPERATIONS (Concluded)
For The Period Ended September 30, 2005
All-Cap
Global Science Global Global Global
& Technology Resources Resources Resources
Portfolio Portfolio Portfolio Portfolio
10/1/04-9/30/05 3/1/05-9/30/05 7/1/04-2/28/05 2/16/05 1-9/30/05
----------------- ---------------- ---------------- ------------------
Investment income:
Interest ........................................ $ 6,161 $ 345,661 $ 183,027 $ 90,467
Securities lending income ....................... 2,812 269,085 172,565 35,611
Dividends and reclaims .......................... 178,069 8,460,613 4,139,881 573,111
Foreign taxes withheld .......................... (14,882) (732,167) (338,237) (28,106)
Net investment income from Master (See
Note A) ........................................ -- -- -- --
---------- ------------ ------------ -----------
Total investment income ....................... 172,160 8,343,192 4,157,236 671,083
---------- ------------ ------------ -----------
Expenses:
Investment advisory fee ......................... 227,219 4,336,255 3,718,767 379,732
Administration fee .............................. 21,460 461,883 116,612 43,036
Administration fee - class specific ............. 36,714 830,407 108,534 71,357
Custodian fee ................................... 26,119 157,783 157,280 82,304
Transfer agent fee .............................. 86,862 358,882 712,293 42,937
Transfer agent fee - class specific ............. 4,557 104,523 13,597 8,858
Shareholder servicing fees - class specific ..... 60,455 1,404,385 1,198,486 70,168
Distribution fees - class specific .............. 117,886 1,560,886 1,420,045 103,879
Legal and audit fees ............................ 22,318 137,417 37,648 72,234
Printing fees ................................... 24,000 258,477 135,412 26,538
Registration fees and expenses .................. 45,901 85,497 40,502 35,228
Trustees' fees .................................. 847 23,662 21,374 1,336
Other ........................................... 9,163 45,142 20,267 13,661
---------- ------------ ------------ -----------
Total expenses ................................ 683,501 9,765,199 7,700,817 951,268
---------- ------------ ------------ -----------
Less investment advisory waived .............. (97,367) -- -- (170,780)
Less administration fees waived - class
specific .................................... (1,765) (521,273) (22,859) (52,956)
Less distribution fees waived - class
specific .................................... (9,630) (408,069) (52,480) (17,253)
Less custodian fees waived ................... (1,562) (13,321) -- (7,793)
Less transfer agent fees waived .............. (4,462) (35,595) -- (3,360)
Less expenses reimbursed by advisor........... -- -- -- --
Reimbursement of distribution fees
(Note D) .................................... -- -- -- --
---------- ------------ ------------ -----------
Net expenses .................................. 568,715 8,786,941 7,625,478 699,126
---------- ------------ ------------ -----------
Net investment income (loss) .................... (396,555) (443,749) (3,468,242) (28,043)
---------- ------------ ------------ -----------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions:
Net increase from payment by affiliate
(Note D) ....................................... -- -- 12,780 -
Net realized gain (loss) from:
Investment transactions ........................ 1,480,323 54,145,172 79,408,370 (77,770)
Futures and options contracts .................. -- -- -- --
Swap and swaption contracts .................... -- -- -- --
Foreign currency related transactions .......... 9,961 62,833 21,031 (63,267)
Master (See Note A) ............................ -- -- - --
---------- ------------ ------------ -----------
1,490,284 54,208,005 79,442,181 (141,037)
---------- ------------ ------------ -----------
Change in unrealized appreciation
(depreciation) from:
Investments .................................... 3,725,972 263,549,536 226,280,120 40,412,160
Futures and options contracts .................. -- -- -- --
Swap and swaption contracts .................... -- -- -- --
Foreign currency related transactions .......... (1,327) 117,154 2,148 (9,028)
Master (See Note A) ............................ -- -- -- --
---------- ------------ ------------ -----------
3,724,645 263,666,690 226,282,268 40,403,132
---------- ------------ ------------ -----------
Net gain on investments and foreign currency
transactions .................................... 5,214,929 317,874,695 305,724,449 40,262,095
---------- ------------ ------------ -----------
Net increase in net assets resulting from
operations ...................................... $4,818,374 $317,430,946 $302,256,207 $40,234,052
========== ============ ============ ===========
STATEMENTS OF OPERATIONS (Concluded)
For The Period Ended September 30, 2005
Health Health International
Sciences Sciences U.S. Opportunities Opportunities
Portfolio Portfolio Portfolio Portfolio
3/1/05-9/30/05 3/1/04-2/28/05 10/1/04-9/30/05 10/1/04-9/30/05
-------------- -------------- ------------------ ---------------
Investment income: $ 141,834 $ 97,627 $ 525,256
Interest ........................................ $ 311,352 46,298 12,111 2,304
Securities lending income ....................... 36,421 643,884 807,658 16,890,830
Dividends and reclaims .......................... 660,329 (15,258) (540) (1,168,882)
Foreign taxes withheld .......................... (31,911)
Net investment income from Master (See
Note A) ........................................ -- -- -- --
----------- ----------- ----------- ------------
Total investment income ....................... 976,191 816,758 916,856 16,249,508
----------- ----------- ----------- ------------
Expenses:
Investment advisory fee ......................... 849,899 902,820 1,059,732 4,989,791
Administration fee .............................. 96,322 109,056 81,888 419,855
Administration fee - class specific ............. 161,887 17,387 140,075 721,315
Custodian fee ................................... 28,990 105,866 20,398 486,297
Transfer agent fee .............................. 182,493 341,678 194,103 406,864
Transfer agent fee - class specific ............. 20,096 2,158 17,388 89,543
Shareholder servicing fees - class specific ..... 264,341 288,382 226,051 862,833
Distribution fees - class specific .............. 395,535 397,127 472,525 1,268,038
Legal and audit fees ............................ 57,334 49,176 30,014 87,376
Printing fees ................................... 62,815 67,679 60,281 211,559
Registration fees and expenses .................. 47,621 53,140 45,725 69,304
Trustees' fees .................................. 4,206 10,235 3,313 16,722
Other ........................................... 11,248 16,020 11,931 57,300
----------- ----------- ----------- ------------
Total expenses ................................ 2,182,787 2,360,724 2,363,424 9,686,797
----------- ----------- ----------- ------------
Less investment advisory waived .............. -- -- -- --
Less administration fees waived - class
specific .................................... (47,650) (371) (7,606) (82,065)
Less distribution fees waived - class
specific .................................... (62,415) (6,915) (30,821) (169,351)
Less custodian fees waived ................... (2,729) -- (1,344) (26,149)
Less transfer agent fees waived .............. (15,604) -- (9,178) (27,962)
Less expenses reimbursed by advisor........... -- (162,313) -- --
Reimbursement of distribution fees
(Note D) .................................... -- - -- --
----------- ----------- ----------- ------------
Net expenses .................................. 2,054,389 2,191,125 2,314,475 9,381,270
----------- ----------- ----------- ------------
Net investment income (loss) .................... (1,078,198) (1,374,367) (1,397,619) 6,868,238
----------- ----------- ----------- ------------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions:
Net increase from payment by affiliate
(Note D) ....................................... -- -- -- --
Net realized gain (loss) from:
Investment transactions ........................ 12,290,095 2,830,919 15,197,435 49,801,464
Futures and options contracts .................. -- (199,057) -- --
Swap and swaption contracts .................... 767,188 -- -- --
Foreign currency related transactions .......... -- -- -- (217,366)
Master (See Note A) ............................ -- -- -- --
----------- ----------- ----------- ------------
13,057,283 2,631,862 15,197,435 49,584,098
----------- ----------- ----------- ------------
Change in unrealized appreciation
(depreciation) from:
Investments .................................... 20,081,466 832,983 7,564,012 115,037,560
Futures and options contracts .................. 125,894 -- -- --
Swap and swaption contracts .................... -- - - -- --
Foreign currency related transactions .......... (295) 347 -- (686,312)
Master (See Note A) ............................ -- -- -- -
----------- ----------- ----------- ------------
20,207,065 833,330 7,564,012 114,351,248
----------- ----------- ----------- ------------
Net gain on investments and foreign currency
transactions .................................... 33,264,348 3,465,192 22,761,447 163,935,346
----------- ----------- ----------- ------------
Net increase in net assets resulting from
operations ...................................... $32,186,150 $ 2,090,825 $21,363,828 $170,803,584
=========== =========== =========== ============
- ---------
/1/ Commencement of operations.
See accompanying notes to financial statements.
136
BlackRock Funds
Asset Asset Index
Allocation Allocation Equity
Portfolio Portfolio Portfolio
3/1/05-9/30/05 4/1/04-2/28/05 10/1/04-9/30/05
---------------- ---------------- ----------------
Investment income:
Interest ........................................ $ 7,232,968 $ 11,943,413 $ --
Securities lending income ....................... 61,376 119,283 --
Dividends and reclaims .......................... 5,410,029 5,679,996 --
Foreign taxes withheld .......................... (178,351) (34,188) --
Net investment income from Master (See
Note A) ........................................ -- -- 28,700,247
------------ ------------ -------------
Total investment income ....................... 12,526,022 17,708,504 28,700,247
------------ ------------ -------------
Expenses:
Investment advisory fee ......................... 2,497,837 4,533,788 --
Administration fee .............................. 369,929 148,991 1,040,747
Administration fee - class specific ............. 658,948 100,077 1,982,888
Custodian fee ................................... 249,418 305,880 8,583
Transfer agent fee .............................. 733,538 1,268,250 434,170
Transfer agent fee - class specific ............. 81,827 12,455 247,026
Shareholder servicing fees - class specific ..... 1,091,456 1,417,703 1,812,585
Distribution fees - class specific .............. 1,372,280 1,558,927 3,465,271
Legal and audit fees ............................ 127,840 14,726 190,882
Printing fees ................................... 184,490 90,516 303,972
Registration fees and expenses .................. 49,734 70,094 74,936
Trustees' fees .................................. 15,556 25,940 44,851
Other ........................................... 55,608 49,780 68,512
------------ ------------ -------------
Total expenses ................................ 7,488,461 9,597,127 9,674,423
------------ ------------ -------------
Less investment advisory waived .............. (373,779) (3,438) (602,393)
Less administration fees waived - class
specific .................................... (26,306) (3,735) (820,119)
Less distribution fees waived - class
specific .................................... (291,627) (45,002) (310,324)
Less custodian fees waived ................... (20,434) -- (321)
Less transfer agent fees waived .............. (66,077) -- (33,580)
Less expenses reimbursed by advisor........... -- -- --
Reimbursement of distribution fees
(Note D) .................................... -- (294,508) --
------------ ------------ -------------
Net expenses .................................. 6,710,238 9,250,444 7,907,686
------------ ------------ -------------
Net investment income (loss) .................... 5,815,784 8,458,060 20,792,561
------------ ------------ -------------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions:
Net increase from payment by affiliate
(Note D) ....................................... -- 90,574 --
Net realized gain (loss) from:
Investment transactions ........................ 29,954,563 24,909,337 --
Futures and options contracts .................. 406,290 4,478,555 --
Swap and swaption contracts .................... (110,297) -- --
Foreign currency related transactions .......... (286,994) 3,502,916 --
Master (See Note A) ............................ -- -- (3,338,645)
------------ ------------ -------------
29,963,562 32,981,382 (3,338,645)
------------ ------------ -------------
Change in unrealized appreciation
(depreciation) from:
Investments .................................... (4,872,828) 10,705,967 --
Futures and options contracts .................. 225,878 (1,810,201) --
Swap and swaption contracts .................... 4,726 -- --
Foreign currency related transactions .......... (1,649) (1,406,191) --
Master (See Note A) ............................ -- -- 135,530,934
------------ ------------ -------------
(4,643,873) 7,489,575 135,530,934
------------ ------------ -------------
Net gain on investments and foreign currency
transactions .................................... 25,319,689 40,470,957 132,192,289
------------ ------------ -------------
Net increase in net assets resulting from
operations ...................................... $ 31,135,473 $ 48,929,017 $ 152,984,850
============ ============ =============
137
Blackrock Funds
STATEMENTS OF CHANGES IN NET ASSETS
Investment
Trust
Portfolio
------------------------------------
For the For the
Year Ended Year Ended
9/30/05 9/30/04
------------------- ----------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) .................................... $ 6,946,435 $ 464,290
Net increase from payment by affiliate (Note D) ................. -- --
Net realized gain (loss) on investments, futures, options and
foreign currency related transactions .......................... 161,332,624 15,696,575
Net unrealized gain (loss) on investments, futures, options and
foreign currency related transactions .......................... 243,745,996 591,617
--------------- -------------
Net increase (decrease) in net assets resulting from operations 412,025,055 16,752,482
--------------- -------------
Distributions to shareholders from:
Net investment income:
Institutional Class ............................................. (399,790) (709,723)
Service Class ................................................... (8,995) (17,360)
Investor A Class ................................................ (55,462) (136,214)
Investor B Class ................................................ -- (30,018)
Investor C Class ................................................ -- (379)
--------------- -------------
Total distributions from net investment income .................. (464,247) (893,694)
--------------- -------------
Net realized gains:
Institutional Class ............................................. -- --
Service Class ................................................... -- --
Investor A Class ................................................ -- --
Investor B Class ................................................ -- --
Investor C Class ................................................ -- --
--------------- -------------
Total distributions from net realized gains ..................... -- --
--------------- -------------
Total distributions to shareholders ............................. (464,247) (893,694)
--------------- -------------
Capital share transactions ........................................ 839,029,123 (27,355,965)
--------------- -------------
Redemption fees ................................................... 25,621 4,192
--------------- -------------
Total increase (decrease) in net assets ......................... 1,250,615,552 (11,492,985)
Net assets:
Beginning of period ............................................. 93,800,258 105,293,243
--------------- -------------
End of period ................................................... $ 1,344,415,810 $ 93,800,258
=============== =============
End of period undistributed net investment income (accumulated
net investment loss) ........................................... $ 6,946,198 $ 464,010
Large Cap
Value Equity
Portfolio
-----------------------------------
For the For the
Year Ended Year Ended
9/30/05 9/30/04
----------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) .................................... $ 4,185,216 $ 3,325,937
Net increase from payment by affiliate (Note D) ................. -- --
Net realized gain (loss) on investments, futures, options and
foreign currency related transactions .......................... 47,053,845 42,318,711
Net unrealized gain (loss) on investments, futures, options and
foreign currency related transactions .......................... 21,725,033 6,506,748
------------- --------------
Net increase (decrease) in net assets resulting from operations 72,964,094 52,151,396
------------- --------------
Distributions to shareholders from:
Net investment income:
Institutional Class ............................................. (2,034,319) (1,933,922)
Service Class ................................................... (344,743) (624,913)
Investor A Class ................................................ (1,525,700) (688,191)
Investor B Class ................................................ (178,881) (61,593)
Investor C Class ................................................ (54,665) (22,492)
------------- --------------
Total distributions from net investment income .................. (4,138,308) (3,331,111)
------------- --------------
Net realized gains:
Institutional Class ............................................. -- --
Service Class ................................................... -- --
Investor A Class ................................................ -- --
Investor B Class ................................................ -- --
Investor C Class ................................................ -- --
------------- --------------
Total distributions from net realized gains ..................... -- --
------------- --------------
Total distributions to shareholders ............................. (4,138,308) (3,331,111)
------------- --------------
Capital share transactions ........................................ 52,250,770 (108,979,335)
------------- --------------
Redemption fees ................................................... 19,462 14,983
------------- --------------
Total increase (decrease) in net assets ......................... 121,096,018 (60,144,067)
Net assets:
Beginning of period ............................................. 240,046,654 300,190,721
------------- --------------
End of period ................................................... $ 361,142,672 $ 240,046,654
============= ==============
End of period undistributed net investment income (accumulated
net investment loss) ........................................... $ 88,982 $ 42,074
See accompanying notes to financial statements.
138
Blackrock Funds
Dividend
Large Cap Achievers(TM) Legacy
Growth Equity Portfolio Portfolio Portfolio
- ------------------------------- ---------------------------------- -----------------------------------------------------
For the For the For the For the For the For the For the
Year Ended Year Ended Year Ended Period 9/08/04 1 Period 11/01/04 Year Ended Year Ended
9/30/05 9/30/04 9/30/05 Through 9/30/04 Through 9/30/05 10/31/04 10/31/03
- --------------- --------------- ---------------- ----------------- ----------------- ----------------- -----------------
$ 274,749 $ (207,097) $ 323,629 $ 1,692 $ (98,020) $ (2,689,754) $ (1,952,085)
-- -- -- -- 294,363 15,707 --
15,328,087 26,413,485 (338,319) (3,038) 10,863,747 49,361,911 (16,699,994)
(6,631,274) (14,892,253) 1,164,972 (7,180) 19,015,361 (32,508,263) 80,572,206
------------- ------------- ------------ ----------- ------------- ------------- -------------
8,971,562 11,314,135 1,150,282 (8,526) 30,075,451 14,179,601 61,920,127
------------- ------------- ------------ ----------- ------------- ------------- -------------
-- -- (82,607) -- -- --
-- -- (4,273) -- -- -- --
-- -- (154,885) -- -- -- --
-- -- (19,034) -- -- -- --
-- -- (62,561) -- -- -- --
------------- ------------- ------------ ----------- ------------- ------------- -------------
-- -- (323,360) -- -- -- --
------------- ------------- ------------ ----------- ------------- ------------- -------------
-- -- (4,624) -- -- -- --
-- -- (100) -- -- -- --
-- -- (5,999) -- -- -- --
-- -- (348) -- -- -- --
-- -- (2,127) -- -- -- --
------------- ------------- ------------ ----------- ------------- ------------- -------------
-- -- (13,198) -- -- -- --
------------- ------------- ------------ ----------- ------------- ------------- -------------
-- -- (336,558) -- -- -- --
------------- ------------- ------------ ----------- ------------- ------------- -------------
(48,061,594) (41,160,092) 30,277,478 2,000,500 (60,152,321) (55,470,941) 46,837,642
------------- ------------- ------------ ----------- ------------- ------------- -------------
6,781 2,387 15,280 -- 5,452 -- --
------------- ------------- ------------ ----------- ------------- ------------- -------------
(39,083,251) (29,843,570) 31,106,482 1,991,974 (30,071,418) (41,291,340) 108,757,769
95,142,653 124,986,223 1,991,974 -- 308,631,314 349,922,654 241,164,885
------------- ------------- ------------ ----------- ------------- ------------- -------------
$ 56,059,402 $ 95,142,653 $ 33,098,456 $ 1,991,974 $ 278,559,896 $ 308,631,314 349,922,654
============= ============= ============ =========== ============= ============= =============
$ 274,749 $ -- $ 1,961 $ 1,692 $ -- $ -- $ --
139
Blackrock Funds
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
Mid-Cap
Value Equity
Portfolio
----------------------------------------------------
For The For The
Period Ended For The Period Year Ended
3/1/05-9/30/05 7/1/04-2/28/05 6/30/04
---------------- ----------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ........................................... $ 141,476 $ 3,237,587 $ 2,069,311
Net increase from payment by affiliate (Note D) ........................ -- 554,230 40,116
Net realized gain (loss) on investments, futures, options and
foreign currency related transactions ................................. 52,648,354 55,516,938 95,045,065
Net unrealized gain (loss) on investments, futures, options and
foreign currency related transactions ................................. 1,969,402 25,454,000 48,344,054
------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations ........ 54,759,232 84,762,755 145,498,546
------------- ------------- -------------
Distributions to shareholders from:
Net investment income:
Institutional Class .................................................... -- (383,894) (242,767)
Service Class .......................................................... -- -- (1,614,937)
Investor A Class ....................................................... -- (4,857,110) --
Investor B Class ....................................................... -- (80,308) --
Investor C Class ....................................................... -- (80,956) --
------------- ------------- -------------
Total distributions from net investment income ......................... -- (5,402,268) (1,857,704)
------------- ------------- -------------
Net realized gains:
BlackRock Class ........................................................ -- -- --
Institutional Class .................................................... -- (2,033,124) --
Service Class .......................................................... -- -- --
Investor A Class ....................................................... -- (29,684,283) --
Investor B Class ....................................................... -- (7,665,103) --
Investor C Class ....................................................... -- (6,254,749) --
------------- ------------- -------------
Total distributions from net realized gains ............................ -- (45,637,259) --
------------- ------------- -------------
Total distributions to shareholders .................................... -- (51,039,527) (1,857,704)
------------- ------------- -------------
Capital share transactions ............................................... 14,437,796 45,632,219 84,026,827
------------- ------------- -------------
Redemption fees .......................................................... 58,561 610 --
------------- ------------- -------------
Total increase (decrease) in net assets ................................ 69,255,589 79,356,057 227,667,669
Net assets:
Beginning of period .................................................... 720,218,614 640,862,557 413,194,888
------------- ------------- -------------
End of period .......................................................... $ 789,474,203 $ 720,218,614 $ 640,862,557
============= ============= =============
End of period undistributed net investment income (accumulated
net investment loss) .................................................. $ 201,780 $ (163,219) $ 2,001,462
Mid-Cap
Growth Equity
Portfolio
-----------------------------------
For The For the
Year Ended Year Ended
9/30/05 9/30/04
----------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ........................................... $ (4,142,073) $ (1,638,806)
Net increase from payment by affiliate (Note D) ........................ -- --
Net realized gain (loss) on investments, futures, options and
foreign currency related transactions ................................. 50,869,792 15,836,766
Net unrealized gain (loss) on investments, futures, options and
foreign currency related transactions ................................. 66,962,559 5,337,808
------------- -------------
Net increase (decrease) in net assets resulting from operations ........ 113,690,278 19,535,768
------------- -------------
Distributions to shareholders from:
Net investment income:
Institutional Class .................................................... -- --
Service Class .......................................................... -- --
Investor A Class ....................................................... -- --
Investor B Class ....................................................... -- --
Investor C Class ....................................................... -- --
------------- -------------
Total distributions from net investment income ......................... -- --
------------- -------------
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 .................................... -- --
------------- -------------
Capital share transactions ............................................... 210,823,335 (30,635,659)
------------- -------------
Redemption fees .......................................................... 7,782 14,939
------------- -------------
Total increase (decrease) in net assets ................................ 324,521,395 (11,084,952)
Net assets:
Beginning of period .................................................... 122,153,862 133,238,814
------------- -------------
End of period .......................................................... $ 446,675,257 $ 122,153,862
============= =============
End of period undistributed net investment income (accumulated
net investment loss) .................................................. $ -- $ --
See accompanying notes to financial statements.
140
Blackrock funds
Small/Mid-Cap
Aurora Growth
Portfolio Portfolio
------------------------------------ -----------------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
9/30/05 9/30/04 9/30/05 9/30/04
----------------- ------------------ ----------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ...................... $ (17,597,476) $ (24,381,485) $ (3,240,011) $ (3,915,660)
Net increase from payment by
affiliate (Note D) ............................... 203,165 426,457 - 200,956
Net realized gain (loss) on investments,
futures, options and foreign currency
related transactions ............................. 469,614,985 376,473,622 43,816,536 (16,219,909)
Net unrealized gain (loss) on investments,
futures, options and foreign currency
related transactions ............................. 30,943,367 274,337,207 25,247,218 (10,056,987)
--------------- --------------- -------------- -------------
Net increase (decrease) in net assets
resulting from operations ........................ 483,164,041 626,855,801 65,823,743 (29,991,600)
--------------- --------------- -------------- -------------
Distributions to shareholders from:
Net investment income:
Institutional Class ............................... -- -- -- --
Service Class ..................................... -- -- -- --
Investor A Class .................................. -- -- -- --
Investor B Class .................................. -- -- -- --
Investor C Class .................................. -- -- -- --
--------------- --------------- -------------- -------------
Total distributions from net
investment income ................................ -- -- -- --
--------------- --------------- -------------- -------------
Net realized gains:
BlackRock Class ................................... -- -- -- --
Institutional Class ............................... (16,052,024) (83,129) -- --
Service Class ..................................... -- -- -- --
Investor A Class .................................. (223,189,239) (1,074,654) -- --
Investor B Class .................................. (47,894,772) (240,069) -- --
Investor C Class .................................. (50,120,639) (244,717) -- --
--------------- --------------- -------------- -------------
Total distributions from net realized gains ....... (337,256,674) (1,642,569) -- --
--------------- --------------- -------------- -------------
Total distributions to shareholders ............... (337,256,674) (1,642,569) -- --
--------------- --------------- -------------- -------------
Capital share transactions .......................... (966,776,906) 67,410,778 (217,664,309) 282,999,700
--------------- --------------- -------------- -------------
Redemption fees ..................................... 64,455 -- 17,328 --
--------------- --------------- -------------- -------------
Total increase (decrease) in net assets ........... (820,805,084) 692,624,010 (151,823,238) 253,008,100
Net assets:
Beginning of period ............................... 3,519,734,336 2,827,110,326 433,466,135 180,458,035
--------------- --------------- -------------- -------------
End of period ..................................... $ 2,698,929,252 $ 3,519,734,336 $ 281,642,897 $ 433,466,135
=============== =============== ============== =============
End of period undistributed net investment
income (accumulated net investment loss) ......... $ -- $ -- $ -- $ --
Small Cap Value Small Cap Core
Equity Portfolio Equity Portfolio
---------------------------- -----------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/05 9/30/05 9/30/04 9/30/05 9/30/04
---------------- ------------- ------------- ----------- -------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ...................... $ (17,597,476) $ 11,801 $ (639,504) $ (323,999) $ (71,169)
Net increase from payment by
affiliate (Note D) ............................... 203,165 -- -- - -
Net realized gain (loss) on investments,
futures, options and foreign currency
related transactions ............................. 469,614,985 24,313,119 27,881,364 832,757 53,507
Net unrealized gain (loss) on investments,
futures, options and foreign currency
related transactions ............................. 30,943,367 927,970 (1,229,217) 3,352,781 339,684
---------------- ------------- ------------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations ........................ 483,164,041 25,252,890 26,012,643 3,861,539 322,022
---------------- ------------- ------------- ----------- ----------
Distributions to shareholders from:
Net investment income:
Institutional Class ............................... -- -- -- -- --
Service Class ..................................... -- -- -- -- --
Investor A Class .................................. -- -- -- -- --
Investor B Class .................................. -- -- -- -- --
Investor C Class .................................. -- -- -- -- --
---------------- ------------- ------------- ----------- ----------
Total distributions from net
investment income ................................ -- -- -- -- --
---------------- ------------- ------------- ----------- ----------
Net realized gains:
BlackRock Class ................................... -- (1,130,480) -- -- --
Institutional Class ............................... (16,052,024) (12,364,497) (8,168,630) (23,123) (16,091)
Service Class ..................................... -- (436,328) (494,170) (1) (1)
Investor A Class .................................. (223,189,239) (6,644,284) (4,743,664) (29,098) (9,184)
Investor B Class .................................. (47,894,772) (3,267,502) (2,034,282) (12,855) (2,549)
Investor C Class .................................. (50,120,639) (1,382,122) (807,811) (38,775) (1,706)
---------------- ------------- ------------- ----------- ----------
Total distributions from net realized gains ....... (337,256,674) (25,225,213) (16,248,557) (103,852) (29,531)
---------------- ------------- ------------- ----------- ----------
Total distributions to shareholders ............... (337,256,674) (25,225,213) (16,248,557) (103,852) (29,531)
---------------- ------------- ------------- ----------- ----------
Capital share transactions .......................... (966,776,906) (3,500,476) (10,393,367) 35,071,402 7,908,888
---------------- ------------- ------------- ----------- ----------
Redemption fees ..................................... 64,455 6,303 4,681 6,903 18,007
---------------- ------------- ------------- ----------- ----------
Total increase (decrease) in net assets ........... (820,805,084) (3,466,496) (624,600) 38,835,992 8,219,386
---------------- ------------- ------------- ----------- ----------
Beginning of period ............................... 3,519,734,336 132,065,162 132,689,762 9,464,924 1,245,538
---------------- ------------- ------------- ----------- ----------
End of period ..................................... $ 2,698,929,252 $ 128,598,666 $ 132,065,162 $ 48,300,916 $ 9,464,924
================ ============= ============= ============ ==========
End of period undistributed net investment
income (accumulated net investment loss) ......... $ -- $ 11,801 $ -- $ -- $ --
141
BlackRock Funds
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
Small Cap
Growth Equity
Portfolio
-----------------------------------
For the For the
Year Ended Year Ended
9/30/05 9/30/04
----------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ................................... $ (2,948,503) $ (4,273,122)
Net increase from payment by affiliate (Note D) ................ -- --
Net realized gain (loss) on investments, futures, options and
foreign currency related transactions ......................... 45,796,132 58,198,019
Net unrealized gain (loss) on investments, futures, options and
foreign currency related transactions ......................... 48,085,897 2,050,695
------------- -------------
Net increase (decrease) in net assets resulting from operations 90,933,526 55,975,592
------------- -------------
Distributions to shareholders from:
Net investment income:
Institutional Class ............................................ -- --
Investor A Class ............................................... -- --
Investor B Class ............................................... -- --
Investor C Class ............................................... -- --
------------- -------------
Total distributions from net investment income ................. -- --
------------- -------------
Net realized gains:
Institutional Class ............................................ -- --
Investor A Class ............................................... -- --
Investor B Class ............................................... -- --
Investor C Class ............................................... -- --
------------- -------------
Total distributions from net realized gains .................... -- --
------------- -------------
Total distributions to shareholders ............................ -- --
------------- -------------
Capital share transactions ....................................... 10,896,279 89,115,438
------------- -------------
Redemption fees .................................................. 181,665 41,261
------------- -------------
Total increase (decrease) in net assets ........................ 102,011,470 145,132,291
Net assets:
Beginning of period ............................................ 471,659,698 326,527,407
------------- -------------
End of period .................................................. $ 573,671,168 $ 471,659,698
============= =============
End of period undistributed net investment income (accumulated
net investment loss) .......................................... $ -- $ --
Global Science
and Technology
Opportunities
Portfolio
-------------------------------
For the For the
Year Ended Year Ended
9/30/05 9/30/04
--------------- ---------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ................................... $ (396,555) $ (663,846)
Net increase from payment by affiliate (Note D) ................ -- --
Net realized gain (loss) on investments, futures, options and
foreign currency related transactions ......................... 1,490,284 4,229,223
Net unrealized gain (loss) on investments, futures, options and
foreign currency related transactions ......................... 3,724,645 (3,682,232)
------------ ------------
Net increase (decrease) in net assets resulting from operations 4,818,374 (116,855)
------------ ------------
Distributions to shareholders from:
Net investment income:
Institutional Class ............................................ -- --
Investor A Class ............................................... -- --
Investor B Class ............................................... -- --
Investor C Class ............................................... -- --
------------ ------------
Total distributions from net investment income ................. -- --
------------ ------------
Net realized gains:
Institutional Class ............................................ -- --
Investor A Class ............................................... -- --
Investor B Class ............................................... -- --
Investor C Class ............................................... -- --
------------ ------------
Total distributions from net realized gains .................... -- --
------------ ------------
Total distributions to shareholders ............................ -- --
------------ ------------
Capital share transactions ....................................... (7,543,976) (7,732,472)
------------ ------------
Redemption fees .................................................. 2,297 11,289
------------ ------------
Total increase (decrease) in net assets ........................ (2,723,305) (7,838,038)
Net assets:
Beginning of period ............................................ 27,166,803 35,004,841
------------ ------------
End of period .................................................. $ 24,443,498 $ 27,166,803
============ ============
End of period undistributed net investment income (accumulated
net investment loss) .......................................... $ -- $ --
See accompanying notes to financial statements.
142
BlackRock Funds
All-Cap
Global Global Health
Resources Resources Sciences
Portfolio Portfolio Portfolio
- ------------------------------------------------------- ------------------ --------------------------------------------------
For the For the For the For the For the For the For the
Period Ended Period Ended Year Ended Period Ended Period Ended Year Ended Year Ended
3/1/05-9/30/05 7/1/04-2/28/05 6/30/04 2/16/05 1-9/30/05 3/1/05-9/30/05 2/28/05 2/29/04
- ------------------- ----------------- ----------------- ------------------ ---------------- ----------------- ---------------
$ (443,749) $ (3,468,242) $ 1,224,536 $ (28,043) $ (1,078,198) $ (1,374,367) $ (492,038)
-- 12,780 274,458 -- -- -- --
54,208,005 79,429,401 49,398,915 (141,037) 13,057,283 2,631,862 10,260,728
263,666,690 226,282,268 113,653,804 40,403,132 20,207,065 833,330 15,869,865
--------------- ------------- ------------- ------------- ------------- ------------- ------------
317,430,946 302,256,207 164,551,713 40,234,052 32,186,150 2,090,825 25,638,555
--------------- ------------- ------------- ------------- ------------- ------------- ------------
-- (181,199) (239,164) -- -- -- --
-- (3,733,634) (3,857,057) -- -- -- --
-- (448,727) (681,846) -- -- -- --
-- (740,345) (992,836) -- -- -- --
--------------- ------------- ------------- ------------- ------------- ------------- ------------
-- (5,103,905) (5,770,903) -- -- -- --
--------------- ------------- ------------- ------------- ------------- ------------- ------------
-- (820,327) -- -- (2,568) (271,998) (59,350)
-- (17,122,033) -- -- (41,146) (3,693,722) (1,219,588)
-- (2,773,442) -- -- (15,739) (1,432,836) (617,283)
-- (4,875,287) -- -- (15,894) (970,853) (195,094)
--------------- ------------- ------------- ------------- ------------- ------------- ------------
-- (25,591,089) -- -- (75,347) (6,369,409) (2,091,315)
--------------- ------------- ------------- ------------- ------------- ------------- ------------
-- (30,694,994) (5,770,903) -- (75,347) (6,369,409) (2,091,315)
--------------- ------------- ------------- ------------- ------------- ------------- ------------
(50,140,775) 42,478,605 284,528,279 204,128,207 179,642,409 42,894,626 50,919,824
--------------- ------------- ------------- ------------- ------------- ------------- ------------
46,530 323 -- 38,965 36,207 306 --
--------------- ------------- ------------- ------------- ------------- ------------- ------------
267,336,701 314,040,141 443,309,089 244,401,224 211,789,419 38,616,348 74,467,064
969,799,201 655,759,060 212,449,971 -- 135,554,876 96,938,528 22,471,464
--------------- ------------- ------------- ------------- ------------- ------------- ------------
$ 1,237,135,902 $ 969,799,201 $ 655,759,060 $ 244,401,224 $ 347,344,295 $ 135,554,876 $ 96,938,528
=============== ============= ============= ============= ============= ============= ============
$ (3,567,059) $ (5,178,168) $ 3,393,979 $ -- $ -- $ -- $ --
143
BlackRock Funds
STATEMENTS OF CHANGES IN NET ASSETS (Concluded)
U.S. Opportunities
portfolio
-------------------------------------
For the For the
Year Ended Year Ended
9/30/05 9/30/04
----------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ........................................... $ (1,397,619) $ (1,910,678)
Net increase from payment by affiliate (Note D) ........................ -- --
Net realized gain (loss) on investments, futures, options and
foreign currency related transactions ................................. 15,197,435 21,382,725
Net unrealized gain (loss) on investments, futures, options and
foreign currency related transactions ................................. 7,564,012 1,106,908
------------- -------------
Net increase (decrease) in net assets resulting from operations ........ 21,363,828 20,578,955
------------- -------------
Distributions to shareholders from:
Net investment income:
Institutional Class .................................................... -- --
Service Class .......................................................... -- --
Investor A Class ....................................................... -- --
Investor B Class ....................................................... -- --
Investor C Class ....................................................... -- --
------------- -------------
Total distributions from net investment income ......................... -- --
------------- -------------
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 .................................... -- --
------------- -------------
Capital share transactions ............................................... (26,240,680) (18,603,484)
------------- -------------
Redemption fees .......................................................... 7,627 4,220
------------- -------------
Total increase (decrease) in net assets ................................ (4,869,225) 1,979,691
Net assets:
Beginning of period .................................................... 100,914,467 98,934,776
------------- -------------
End of period .......................................................... $ 96,045,242 $ 100,914,467
============= =============
End of period undistributed net investment income (accumulated
net investment loss) .................................................. $ -- $ --
- ---------
/1/ Commencement of operations.
See accompanying notes to financial statements.
144
BlackRock Funds
International Asset Index
Opportunities Allocation Equity
Portfolio Portfolio Portfolio
- ----------------------------------- ---------------------------------------------------- ---------------------------------------
For the For The For The For The For The For The
Year Ended Year Ended Period Ended For The Period Year Ended Year Ended Year Ended
9/30/05 9/30/04 3/1/05-9/30/05 4/1/04-2/28/05 3/31/04 9/30/05 9/30/04
- ----------------- ----------------- ---------------- ----------------- ----------------- ------------------- -------------------
$ 6,868,238 $ (549,024) $ 5,815,784 $ 8,458,060 $ 8,516,159 $ 20,792,561 $ 15,612,410
-- -- -- 90,574 -- -- --
49,584,098 27,213,448 29,963,562 32,890,808 88,662,078 (3,338,645) 4,494,513
114,351,248 11,162,948 (4,643,873) 7,489,575 61,187,645 135,530,934 170,850,631
------------- ------------- ------------- ------------- ------------- --------------- ---------------
170,803,584 37,827,372 31,135,473 48,929,017 158,365,882 152,984,850 190,957,554
------------- ------------- ------------- ------------- ------------- --------------- ---------------
(1,442,124) (52,346) (337,855) (549,136) (378,790) (11,360,943) (9,484,238)
(249,027) (2,626) (19,977) -- -- (1,107,048) (960,810)
(1,244,655) (38,301) (4,253,377) (13,021,288) (6,788,195) (5,058,819) (3,441,512)
(134,589) (31,274) (633,349) (2,669,527) (865,650) (1,445,481) (616,709)
(279,752) (29,065) (240,743) (1,074,297) (237,660) (2,325,818) (966,846)
------------- ------------- ------------- ------------- ------------- --------------- ---------------
(3,350,147) (153,612) (5,485,301) (17,314,248) (8,270,295) (21,298,109) (15,470,115)
------------- ------------- ------------- ------------- ------------- --------------- ---------------
-- -- -- -- -- -- --
-- -- -- (669,622) -- -- --
-- -- -- -- -- -- --
-- -- -- (17,005,778) -- -- --
-- -- -- (5,240,921) -- -- --
-- -- -- (2,030,016) -- -- --
------------- ------------- ------------- ------------- ------------- --------------- ---------------
-- -- -- (24,946,337) -- -- --
------------- ------------- ------------- ------------- ------------- --------------- ---------------
(3,350,147) (153,612) (5,485,301) (42,260,585) (8,270,295) (21,298,109) (15,470,115)
------------- ------------- ------------- ------------- ------------- --------------- ---------------
234,875,667 122,058,194 (66,734,439) 147,427,659 30,609,858 (197,754,594) (247,163,288)
------------- ------------- ------------- ------------- ------------- --------------- ---------------
201,642 86,362 44,269 4,202 -- 96,968 44,920
------------- ------------- ------------- ------------- ------------- --------------- ---------------
402,530,746 159,818,316 (41,039,998) 154,100,293 180,705,445 (65,970,885) (71,630,929)
315,641,632 155,823,316 813,474,612 659,374,319 478,668,874 1,391,077,329 1,462,708,258
------------- ------------- ------------- ------------- ------------- --------------- ---------------
$ 718,172,378 $ 315,641,632 $ 772,434,614 $ 813,474,612 $ 659,374,319 $ 1,325,106,444 $ 1,391,077,329
============= ============= ============= ============= ============= =============== ===============
$ 5,137,726 $ 1,566,230 $ 1,210,069 $ (4,173,594) $ 4,682,594 $ 324,224 $ 829,772
145
BlackRock Funds
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Gain (loss)
Net on investments, Distributions
asset foreign currency Distributions from net Net
value Net and options from net Distributions realized Asset value
beginning investment (both realized investment from capital end of
of period income (loss) and unrealized) income capital gains period
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------
Investment Trust
- ----------------
Institutional Class
9/30/05 $ 11.95 $ 0.14/5/ $ 1.38 $ (0.10) $ -- $ -- $ 13.37
9/30/04 10.32 0.09/5/ 1.67 (0.13) -- -- 11.95
9/30/03 /21/ 8.50 0.10 1.83 (0.11) -- -- 10.32
9/30/02 /21/ 11.25 0.11 (2.86) -- -- -- 8.50
9/30/01 /21/ 20.77 0.06 (6.46) (0.05) (0.02) (3.05) 11.25
Service Class
9/30/05 $ 11.97 $ 0.13/5/ $ 1.35 $ (0.06) $ -- $ -- $ 13.39
9/30/04 10.33 0.065 1.67 (0.09) -- -- 11.97
9/30/03 /21/ 8.44 0.10 1.79 -- -- -- 10.33
9/30/02 /21/ 11.21 0.01 (2.78) -- -- -- 8.44
9/30/01 /21/ 20.73 0.01 (6.43) (0.03) (0.02) (3.05) 11.21
Investor A Class
9/30/05 $ 11.79 $ 0.09/5/ $ 1.70 $ (0.38) $ -- $ -- $ 13.20
9/30/04 10.18 0.04/5/ 1.64 (0.07) -- -- 11.79
9/30/03 /21/ 8.41 0.06 1.79 (0.08) -- -- 10.18
9/30/02 /21/ 11.17 (0.01) (2.75) -- -- -- 8.41
9/30/01 /21/ 20.69 (0.02) (6.42) (0.01) (0.02) (3.05) 11.17
Investor B Class
9/30/05 $ 11.30 $ --/5/ $ 1.29 $ -- $ -- $ -- $ 12.59
9/30/04 9.78 (0.04)/5/ 1.57 (0.01) -- -- 11.30
9/30/03 /21/ 8.06 (0.02) 1.74 -- -- -- 9.78
9/30/02 /21/ 10.79 (0.10) (2.63) -- -- -- 8.06
9/30/01 /21/ 20.21 (0.13) (6.22) -- (0.02) (3.05) 10.79
Investor C Class
9/30/05 $ 11.31 $ --/5/ $ 1.30 $ -- $ -- $ -- $ 12.61
9/30/04 9.77 (0.04)/5/ 1.58 -- -- -- 11.31
9/30/03 /21/ 8.06 (0.02)/5/ 1.73 -- -- -- 9.77
9/30/02 /21/ 10.79 (0.11) (2.62) -- -- -- 8.06
9/30/01 /21/ 20.20 (0.15) (6.19) (0.02) -- (3.05) 10.79
- ----------------------
Large Cap Value Equity
- ----------------------
Institutional Class
9/30/05 $ 12.70 $ 0.23/5/ $ 1.89 $ (0.23) $ -- $ -- $ 14.59
9/30/04 10.77 0.18/5/ 1.93 (0.18) -- -- 12.70
9/30/03 /21/ 8.82 0.16 1.94 (0.15) -- -- 10.77
9/30/02 /21/ 12.60 0.10 (3.42) (0.09) -- (0.37) 8.82
9/30/01 /21/ 15.13 0.14 (1.28) (0.14) -- (1.25) 12.60
Service Class
9/30/05 $ 12.73 $ 0.19/5/ $ 1.88 $ (0.17) $ -- $ -- $ 14.63
9/30/04 10.79 0.14/5/ 1.94 (0.14) -- -- 12.73
9/30/03 /21/ 8.83 0.12 1.96 (0.12) -- -- 10.79
9/30/02 /21/ 12.61 0.06 (3.42) (0.05) -- (0.37) 8.83
9/30/01 /21/ 15.13 0.10 (1.27) (0.10) -- (1.25) 12.61
See accompanying notes to financial statements.
146
BlackRock Funds
Ratio of Net
Investment
Ratio of Total Income to
Ratio of Net Expense to Ratio of Net Average Net
Net Assets Expenses to Average Net Investment Income Assets Portfolio
Total End of Period Average Net Assets (Excluding to Average (Excluding Turnover
Return (000) Assets Waivers) Net Assets Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------
Investment Trust
- ----------------
Institutional Class
9/30/05 12.72%/10/ $ 523,607 0.81% 1.09% 1.09% 0.81% 105%
9/30/04 17.11 51,593 0.81 0.99 0.81 0.63 72
9/30/03 /21/ 22.80 60,886 0.81 0.96 0.93 0.79 98
9/30/02 /21/ (24.44) 134,859 0.81 0.87 0.36 0.30 124
9/30/01 /21/ (35.29) 755,701 0.81 0.82 0.38 0.37 114
Service Class
9/30/05 12.41%/10/ $ 1,566 1.11% 1.32% 1.02% 0.81% 105%
9/30/04 16.83 1,714 1.07 1.23 0.56 0.40 72
9/30/03 /21/ 22.39 1,988 1.11 1.26 0.64 0.49 98
9/30/02 /21/ (24.71) 3,797 1.11 1.16 0.06 0.02 124
9/30/01 /21/ (35.49) 143,283 1.11 1.12 0.07 0.06 114
Investor A Class
9/30/05 12.30%/3/,/10/ $ 552,118 1.16% 1.43% 0.71% 0.44% 105%
9/30/04 16.60/3/ 17,632 1.26 1.47 0.37 0.16 72
9/30/03 /21/ 22.09/3/ 19,408 1.28 1.43 0.45 0.30 98
9/30/02 /21/ (24.71)/3/ 24,816 1.28 1.36 (0.04) (0.11) 124
9/30/01 /21/ (35.65)/3/ 37,267 1.28 1.30 (0.09) (0.10) 114
Investor B Class
9/30/05 11.42%/4/,/10 $ 243,232 1.91% 2.08% (0.02)% (0.19)% 105%
9/30/04 15.70/4/ 20,448 2.01 2.13 (0.39) (0.50) 72
9/30/03 /21/ 21.34/4/ 21,182 2.03 2.18 (0.30) (0.45) 98
9/30/02 /21/ (25.30)/4/ 22,119 2.03 2.11 (0.78) (0.86) 124
9/30/01 /21/ (36.11)/4/ 40,403 2.03 2.05 (0.84) (0.85) 114
Investor C Class
9/30/05 11.49%/4/,/10/ $ 23,893 1.91% 2.07% (0.01)% (0.17)% 105%
9/30/04 15.78/4/,/10/ 2,413 2.03 2.14 (0.39) (0.50) 72
9/30/03 /21/ 21.22/4/ 1,829 2.03 2.18 (0.25) (0.40) 98
9/30/02 /21/ (25.30)/4/ 1,923 2.03 2.11 (0.80) (0.87) 124
9/30/01 /21/ (36.07)/4/ 3,955 2.03 2.04 (0.09) (0.09) 114
- ----------------------
Large Cap Value Equity
- ----------------------
Institutional Class
9/30/05 16.79%/10/ $ 128,501 0.79% 0.99% 1.66% 1.46% 93%
9/30/04 19.67/10/ 114,374 0.79 0.91 1.45 1.33 75
9/30/03 /21/ 23.93 151,602 0.79 0.91 1.27 1.15 150
9/30/02 /21/ (27.41) 369,792 0.79 0.84 0.72 0.68 128
9/30/01 /21/ (8.22) 1,345,903 0.79 0.80 1.00 0.99 114
Service Class
9/30/05 16.36%/10/ $ 24,542 1.09% 1.23% 1.37% 1.23% 93%
9/30/04 19.35/10/ 46,353 1.09 1.22 1.15 1.03 75
9/30/03 /21/ 23.60 62,080 1.09 1.21 0.98 0.87 150
9/30/02 /21/ (27.66) 133,903 1.09 1.15 0.45 0.40 128
9/30/01 /21/ (8.44) 254,166 1.09 1.10 0.69 0.69 114
147
BlackRock Funds
FINANCIAL HIGHLIGHTS (Concluded)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Gain (loss)
Net on investments, Distributions
asset foreign currency Distributions from net Net
value Net and options From net realized Asset value
beginning investment (both realized investment capital end of
of period income (loss) and unrealized) income gains period
- ------------------------------------------------------------------------------------------------------------------
- ----------------------
Large Cap Value Equity
(Continued)
- ----------------------
Invester A Class
9/30/05 $ 12.71 $ 0.17/5/ $ 1.89 $ (0.18) $ -- $ 14.59
9/30/04 10.78 0.13/5/ 1.93 (0.13) -- 12.71
9/30/03 /21/ 8.83 0.09 1.96 (0.10) -- 10.78
9/30/02 /21/ 12.59 0.02 (3.39) (0.02) (0.37) 8.83
9/30/01 /21/ 15.11 0.07 (1.27) (0.07) (1.25) 12.59
Investor B Class
9/30/05 $ 12.48 $ 0.07/5/ $ 1.85 $ (0.08) $ -- $ 14.32
9/30/04 10.58 0.03/5/ 1.91 (0.04) -- 12.48
9/30/03 /21/ 8.66 0.01 1.93 (0.02) -- 10.58
9/30/02 /21/ 12.43 (0.07) (3.33) -- (0.37) 8.66
9/30/01 /21/ 14.97 (0.03) (1.26) -- (1.25) 12.43
Investor C Class
9/30/05 $ 12.48 $ 0.07/5/ $ 1.86 $ (0.08) $ -- $ 14.33
9/30/04 10.59 0.03/5/ 1.90 (0.04) -- 12.48
9/30/03 /21/ 8.67 0.01 1.93 (0.02) -- 10.59
9/30/02 /21/ 12.44 (0.07) (3.33) -- (0.37) 8.67
9/30/01 /21/ 14.97 (0.03) (1.25) -- (1.25) 12.44
- -----------------------
Large Cap Growth Equity
- -----------------------
Institutional Class
9/30/05 $ 8.92 $ 0.07/5/ 1.10 $ -- $ -- $ 10.09
9/30/04 8.18 0.02/5/ 0.72 -- -- 8.92
9/30/03 /21/ 6.71 0.03 1.44 -- -- 8.18
9/30/02 /21/ 9.10 (0.01) (2.38) -- -- 6.71
9/30/01 /21/ 23.72 (0.02) (11.82) -- (2.78) 9.10
Service Class
9/30/05 $ 8.72 $ 0.05/5/ $ 1.07 $ -- $ -- $ 9.84
9/30/04 8.03 (0.01)/5/ 0.70 -- -- 8.72
9/30/03 /21/ 6.60 (0.01) 1.44 -- -- 8.03
9/30/02 /21/ 8.99 (0.02) (2.37) -- -- 6.60
9/30/01 /21/ 23.52 (0.05) (11.70) -- (2.78) 8.99
Investor A Class
9/30/05 $ 8.60 $ 0.04/5/ $ 1.04 $ -- $ -- $ 9.68
9/30/04 7.92 (0.02)/5/ 0.70 -- -- 8.60
9/30/03 /21/ 6.53 (0.02) 1.41 -- -- 7.92
9/30/02 /21/ 8.90 (0.05) (2.32) -- -- 6.53
9/30/01 /21/ 23.36 (0.09) (11.59) -- (2.78) 8.90
Investor B Class
9/30/05 $ 7.92 $ (0.03)/5/ $ 0.97 $ -- $ -- $ 8.86
9/30/04 7.35 (0.08)/5/ 0.65 -- -- 7.92
9/30/03 /21/ 6.11 (0.07) 1.31 -- -- 7.35
9/30/02 /21/ 8.39 (0.12) (2.16) -- -- 6.11
9/30/01 /21/ 22.34 (0.19) (10.98) -- (2.78) 8.39
Investor C Class
9/30/05 $ 7.91 $ (0.03)/5/ $ 0.96 $ -- $ -- $ 8.84
9/30/04 7.34 (0.08)/5/ 0.65 -- -- 7.91
9/30/03 /21/ 6.10 (0.07) 1.31 -- -- 7.34
9/30/02 /21/ 8.37 (0.13) (2.14) -- -- 6.10
9/30/01 /21/ 22.31 (0.19) (10.97) -- (2.78) 8.37
See accompanying notes to financial statements.
148
BlackRock Funds
Ratio of Net
Investment
Ratio of Total Income to
Ratio of Net Expense to Ratio of Net Average Net
Net Assets Expenses to Average Net Investment Income Assets Portfolio
Total End of Period Average Net Assets (Excluding to Average (Excluding Turnover
Return (000) Assets Waivers) Net Assets Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------------
Large Cap Value Equity
(Continued)
- ----------------------
Invester A Class
9/30/05 16.27%/3/,/10/ $ 154,337 1.18% 1.35% 1.25% 1.08% 93%
9/30/04 19.19/3/,/10/ 54,311 1.19 1.36 1.05 0.88 75
9/30/03 /21/ 23.32/3/ 63,733 1.26 1.38 0.83 0.71 150
9/30/02 /21/ (27.70)/3/ 76,044 1.27 1.32 0.22 0.17 128
9/30/01 /21/ (8.64)/3/ 57,672 1.27 1.27 0.53 0.52 114
Investor B Class
9/30/05 15.38%/4/,/10/ $ 43,219 1.96% 2.02% 0.48% 0.42% 93%
9/30/04 18.34/4/,/10/ 18,203 1.99 2.08 0.25 0.16 75
9/30/03 /21/ 22.42/4/ 17,634 2.01 2.13 0.09 (0.03) 150
9/30/02 /21/ (28.32)/4/ 17,312 2.01 2.07 (0.51) (0.56) 128
9/30/01 /21/ (9.36)/4/ 29,178 2.01 2.02 (0.23) (0.24) 114
Investor C Class
9/30/05 15.46%/4/,/10/ $ 10,543 1.93% 1.99% 0.51% 0.45% 93%
9/30/04 18.27/4/,/10/ 6,805 1.99 2.05 0.26 0.20 75
9/30/03 /21/ 22.40/4/ 5,141 2.01 2.13 0.09 (0.03) 150
9/30/02 /21/ (28.29)/4/ 5,868 2.01 2.06 (0.50) (0.55) 128
9/30/01 /21/ (9.29)/4/ 9,738 2.01 2.02 (0.24) (0.25) 114
- -----------------------
Large Cap Growth Equity
- -----------------------
Institutional Class
9/30/05 13.12%/10/ $ 21,841 0.82% 1.15% 0.77% 0.44% 63%
9/30/04 9.05/10/ 27,725 0.82 1.01 0.20 0.01 70
9/30/03 /21/ 21.91/10/ 36,686 0.82 0.93 0.19 0.08 90
9/30/02 /21/ (26.26) 100,521 0.82 0.87 (0.05) (0.09) 130
9/30/01 /21/ (55.58) 557,928 0.82 0.83 (0.11) (0.12) 164
Service Class
9/30/05 12.84%/10/ $ 5,972 1.12% 1.40% 0.55% 0.27% 63%
9/30/04 8.59/10/ 33,182 1.12 1.30 (0.10) (0.27) 70
9/30/03 /21/ 21.67/10/ 43,625 1.12 1.22 (0.11) (0.22) 90
9/30/02 /21/ (26.59) 130,932 1.12 1.17 (0.30) (0.34) 130
9/30/01 /21/ (55.68) 158,367 1.12 1.13 (0.41) (0.42) 164
Investor A Class
9/30/05 12.56%/3/,/10/ $ 16,002 1.22% 1.50% 0.38% 0.10% 63%
9/30/04 8.59/3/,/10/ 18,985 1.27 1.50 (0.26) (0.49) 70
9/30/03 /21/ 21.29/3/,/10/ 27,739 1.29 1.40 (0.27) (0.38) 90
9/30/02 /21/ (26.63)/3/ 34,513 1.29 1.34 (0.48) (0.52) 130
9/30/01 /21/ (55.78)/3/ 35,609 1.29 1.30 (0.59) (0.60) 164
Investor B Class
9/30/05 11.87%/4/,/10/ $ 10,008 1.97% 2.15% (0.37)% (0.55)% 63%
9/30/04 7.76/4/,/10/ 12,693 2.03 2.16 (1.01) (1.14) 70
9/30/03 /21/ 20.30/4/,/10/ 14,358 2.04 2.15 (1.01) (1.12) 90
9/30/02 /21/ (27.18)/4/ 14,332 2.04 2.09 (1.23) (1.28) 130
9/30/01 /21/ (56.08)/4/ 25,986 2.04 2.05 (1.33) (1.34) 164
Investor C Class
9/30/05 11.76%/4/,/10/ $ 2,236 1.97% 2.15% (0.40)% (0.58)% 63%
9/30/04 7.77/4/,/10/ 2,558 2.03 2.18 (1.01) (1.16) 70
9/30/03 /21/ 20.33/4/,/10/ 2,579 2.04 2.15 (1.01) (1.12) 90
9/30/02 /21/ (27.12)/4/ 2,424 2.04 2.09 (1.23) (1.28) 130
9/30/01 /21/ (56.11)/4/ 4,711 2.04 2.05 (1.33) (1.34) 164
149
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Gain (loss)
Net on investments,
asset foreign currency
value Net and options
beginning investment (both realized
of period income (loss) and unrealized)
- --------------------------------------------------------------------------------
- ----------------------
Dividend Achievers(TM)
- ----------------------
Institutional Class
9/30/05 $ 9.96 $ 0.22/5/ $ 0.71
9/08/04 /1/ through 9/30/04 10.00 0.01/5/ (0.05)
Service Class
9/30/05 $ 9.95 $ 0.18/5/ $ 0.75
9/08/04 /1/ through 9/30/0 10.00 --/5/ (0.05)
Investor A Class
9/30/05 $ 9.96 $ 0.17/5/ $ 0.77
9/08/04 /1/ through 9/30/04 10.00 0.01/5/ (0.05)
Investor B Class
9/30/05 $ 9.96 $ 0.09/5/ $ 0.79
9/08/04 /1/ through 9/30/04 10.00 0.01/5/ (0.05)
Investor C Class
9/30/05 $ 9.96 $ 0.10/5/ $ 0.77
9/08/04 /1/ through 9/30/04 10.00 0.01/5/ (0.05)
- ------
Legacy
- ------
Institutional Class
11/01/04 through 9/30/05 $ 12.78 $ 0.05/5/ $ 1.36
10/31/04 12.17 (0.04) 0.65
10/31/03 10.14 (0.02) 2.05
10/31/02 /21/ 11.74 -- (1.60)
10/31/01 /21/ 16.61 (0.01) (4.86)
Service Class
1/28/051 through 9/30/05 $ 12.96 $ (0.05)/5/ $ 0.90
Investor A Class
11/01/04 through 9/30/05 $ 12.47 $ 0.02/5/ $ 1.33
10/31/04 11.91 (0.08) 0.64
10/31/03 9.96 (0.05) 2.00
10/31/02 /21/ 11.56 (0.03) (1.57)
10/31/01 /21/ 16.39 (0.05) (4.78)
Investor B Class
11/01/04 through 9/30/05 $ 11.86 $ (0.06)/5/ $ 1.26
10/31/04 11.41 (0.15) 0.60
10/31/03 9.61 (0.12) 1.91
10/31/02 /21/ 11.23 (0.11) (1.51)
10/31/01 /21/ 16.05 (0.15) (4.67)
Investor C Class
11/01/04 through 9/30/05 $ 11.86 $ (0.06)/5/ $ 1.26
10/31/04 11.41 (0.15) 0.60
10/31/03 9.61 (0.11) 1.91
10/31/02 /21/ 11.23 (0.11) (1.51)
10/31/01 /21/ 16.05 (0.15) (4.67)
Distributions
from net Redemption Net
Distributions realized Fees Added Asset value
from net investment capital To Paid-In end of
income gains Capital period
- -------------------------------------------------------------------------------------------
- ----------------------
Dividend Achievers(TM)
- ----------------------
Institutional Class
9/30/05 $ (0.14) $ (0.01) $ 0.01 $ 10.75
9/08/04 /1/ through 9/30/04 -- -- -- 9.96
Service Class
9/30/05 $ (0.15) $ (0.01) $ 0.01 $ 10.72
9/08/04 /1/ through 9/30/04 -- -- -- 9.95
Investor A Class
9/30/05 $ (0.14) $ (0.01) $ 0.01 $ 10.75
9/08/04 /1/ through 9/30/04 -- -- -- 9.96
Investor B Class
9/30/05 $ (0.09) $ (0.01) $ 0.01 $ 10.74
9/08/04 /1/ through 9/30/04 -- -- -- 9.96
Investor C Class
9/30/05 $ (0.09) $ (0.01) $ 0.01 $ 10.73
9/08/04 /1/ through 9/30/04 -- -- -- 9.96
- ------
Legacy
- ------
Institutional Class
11/01/04 through 9/30/05 $ -- $ -- $ -- $ 14.19
10/31/04 -- -- -- 12.78
10/31/03 -- -- -- 12.17
10/31/02 /21/ -- -- -- 10.14
10/31/01 /21/ -- -- -- 11.74
Service Class
1/28/05 /1/ through 9/30/05 $ -- $ -- $ -- $ 13.81
Investor A Class
11/01/04 through 9/30/05 $ -- $ -- $ -- $ 13.82
10/31/04 -- -- -- 12.47
10/31/03 -- -- -- 11.91
10/31/02 /21/ -- -- -- 9.96
10/31/01 /21/ -- -- -- 11.56
Investor B Class
11/01/04 through 9/30/05 $ -- $ -- $ -- $ 13.06
10/31/04 -- -- -- 11.86
10/31/03 -- -- -- 11.41
10/31/02 /21/ -- -- -- 9.61
10/31/01 /21/ -- -- -- 11.23
Investor C Class
11/01/04 through 9/30/05 $ -- $ -- $ -- $ 13.06
10/31/04 -- -- -- 11.86
10/31/03 -- -- -- 11.41
10/31/02 /21/ -- -- -- 9.61
10/31/01 /21/ -- -- -- 11.23
See accompanying notes to financial statements.
150
Blackrock funds
Ratio of Net
Net Assets Expenses to
Total End of Period Average Net
Return (000) Assets
- --------------------------------------------------------------------------------
- ----------------------
Dividend Achievers(TM)
- ----------------------
Institutional Class
9/30/05 9.83%/17/ $ 3,379 0.90%
9/08/04 /1/ through 9/30/04 (0.40) 1,992 0.90/2/
Service Class
9/30/05 9.43%/17/ $ 376 1.20%
9/08/04 /1/ through 9/30/04 (0.50) --/20/ 1.20/2/
Investor A Class
9/30/05 9.50%/3/,/17/ $ 14,637 1.29%
9/08/04 /1/ through 9/30/04 (0.40)/3/ --/20/ 1.30/2/
Investor B Class
9/30/05 8.87%/4/,/17/ $ 3,523 2.03%
9/08/04 /1/ through 9/30/04 (0.40)/4/ --/20/ 2.05/2/
Investor C Class
9/30/05 8.72%/4/,/17/ $ 11,183 2.02%
9/08/04 /1/ through 9/30/04 (0.40)/4/ --/20/ 2.05/2/
- ------
Legacy
- ------
Institutional Class
11/01/04 through 9/30/05 11.03%/10/,/22/ $ 52,154 1.05%/2/
10/31/04 5.01 52,399 1.14
10/31/03 20.02 60,878 1.08
10/31/02 /21/ (13.63) 41,161 1.08
10/31/01 /21/ (29.32) 5,077 1.03
Service Class
1/28/05 /1/ through 9/30/05 6.56%/10/,/22/ $ --/20/ 1.58%/2/
Investor A Class
11/01/04 through 9/30/05 10.83%/3/,/10/,/22/ $ 120,371 1.31%/2/
10/31/04 4.70/3/ 99,435 1.44
10/31/03 19.58/3/ 103,247 1.38
10/31/02 /21/ (13.84)/3/ 76,798 1.38
10/31/01 /21/ (29.47)/3/ 103,774 1.33
Investor B Class
11/01/04 through 9/30/05 10.12%/4/,/10/,/23/ $ 85,465 2.05%/2/
10/31/04 3.94/4/ 97,938 2.14
10/31/03 18.73/4/ 108,125 2.08
10/31/02 /21/ (14.43)/4/ 90,564 2.08
10/31/01 /21/ (29.99)/4/ 129,464 2.03
Investor C Class
11/01/04 through 9/30/05 10.12%/4/,/10/,/23/ $ 20,570 2.05%/2/
10/31/04 3.94/4/ 23,854 2.14
10/31/03 18.73/4/ 30,516 2.08
10/31/02 /21/ (14.43)/4/ 31,274 2.08
10/31/01 /21/ (30.03)/4/ 46,809 2.03
Ratio of total ratio of net
expense to ratio of net investment income
average net investment income to average net portfolio
assets (excluding to average net assets (excluding turnover
waivers) assets waivers) rate
- ------------------------------------------------------------------------------------------------------
- ----------------------
Dividend Achievers(TM)
- ----------------------
Institutional Class
9/30/05 1.86% 2.03% 1.07% 68%
9/08/04 /1/ through 9/30/04 1.68/2/ 1.41/2/ 0.63/2/ 9
Service Class
9/30/05 1.81% 1.68% 1.07% 68%
9/08/04 /1/ through 9/30/04 1.98/2/ 1.11/2/ 0.33/2/ 9
Investor A Class
9/30/05 1.93% 1.64% 1.00% 68%
9/08/04 /1/ through 9/30/04 2.08/2/ 1.01/2/ 0.23/2/ 9
Investor B Class
9/30/05 2.53% 0.88% 0.38% 68%
9/08/04 /1/ through 9/30/04 2.58/2/ 0.51/2/ 0.27/2/ 9
Investor C Class
9/30/05 2.55% 0.91% 0.38% 68%
9/08/04 /1/ through 9/30/04 2.58/2/ 0.51/2/ 0.27/2/ 9
- ------
Legacy
- ------
Institutional Class
11/01/04 through 9/30/05 1.15%/2/ 0.43%/2/ 0.33%/2/ 70%
10/31/04 1.14 (0.31) (0.31) 91
10/31/03 1.08 (0.19) (0.19) 113
10/31/02 /21/ 1.09 0.03 0.02 31
10/31/01 /21/ 1.05 (0.09) (0.11) 22
Service Class
1/28/05 /1/ through 9/30/05 1.83%/2/ (0.55)%/2/ (0.80)%/2/ 70%
Investor A Class 1.48%/2/ 0.21%/2/ 0.04%/2/ 70%
11/01/04 through 9/30/05 1.44 (0.62) (0.62) 91
10/31/04 1.38 (0.47) (0.47) 113
10/31/03 1.39 (0.28) (0.29) 31
10/31/02 /21/ 1.35 (0.39) (0.41) 22
10/31/01 /21/
Investor B Class
11/01/04 through 9/30/05 2.15%/2/ (0.53)%/2/ (0.63)%/2/ 70%
10/31/04 2.14 (1.31) (1.31) 91
10/31/03 2.08 (1.17) (1.17) 113
10/31/02 /21/ 2.09 (0.98) (0.99) 31
10/31/01 /21/ 2.05 (1.09) (1.11) 22
Investor C Class
11/01/04 through 9/30/05 2.15%/2/ (0.51)%/2/ (0.61)%/2/ 70%
10/31/04 2.14 (1.30) (1.30) 91
10/31/03 2.08 (1.15) (1.15) 113
10/31/02 /21/ 2.09 (0.99) (1.00) 31
10/31/01 /21/ 2.05 (1.08) (1.10) 22
151
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Gain (loss)
Net on investments, Distributions
asset foreign currency from net Net
value Net and options Distributions realized Asset value
beginning investment (both realized from net investment capital end of
of period income (loss) and unrealized) income gains Period
- -------------------------------------------------------------------------------------------------------------------------------
- ---------------------
Mid-Cap Value Equity*
- ---------------------
Institutional Class
3/01/05 through 9/30/05 $ 12.73 $ 0.04/5/ $ 0.97 $ -- $ -- $ 13.74
7/01/04 through 2/28/05 12.14 0.11 1.44 (0.15) (0.81) 12.73
6/30/04 9.07 0.08 3.08 (0.09) -- 12.14
6/30/03 10.66 0.08 (1.21) -- (0.46) 9.07
6/30/02 /21/ 11.85 0.04 0.30 -- (1.53) 10.66
6/30/01 /21/ 8.74 0.10 3.59 (0.15) (0.43) 11.85
Service Class
3/01/05 through 9/30/05 $ 12.63 $ 0.02/5/ $ 0.96 $ -- $ -- $ 13.61
1/28/05 /1/ through 2/28/05 12.04 (0.01) 0.60 -- -- 12.63
Investor A Class
3/01/05 through 9/30/05 $ 12.53 $ 0.02/5/ $ 0.94 $ -- $ -- $ 13.49
7/01/04 through 2/28/05 11.92 0.07 1.45 (0.11) (0.80) 12.53
6/30/04 8.91 0.05 3.02 (0.06) -- 11.92
6/30/03 10.53 0.06 (1.22) -- (0.46) 8.91
6/30/02 /21/ 11.73 0.02 0.29 -- (1.51) 10.53
6/30/01 /21/ 8.66 0.06 3.56 (0.13) (0.42) 11.73
Investor B Class
3/01/05 through 9/30/05 $ 11.87 $ (0.04)/5/ $ 0.90 $ -- $ -- $ 12.73
7/01/04 through 2/28/05 11.28 (0.03) 1.41 (0.01) (0.78) 11.87
6/30/04 8.45 (0.02) 2.85 -- -- 11.28
6/30/03 10.05 (0.01) (1.15) -- (0.44) 8.45
6/30/02 /21/ 11.30 (0.06) 0.28 -- (1.47) 10.05
6/30/01 /21/ 8.36 (0.02) 3.45 (0.08) (0.41) 11.30
Investor C Class
3/01/05 through 9/30/05 $ 11.87 $ (0.04)/5/ $ 0.90 $ -- $ -- $ 12.73
7/01/04 through 2/28/05 11.28 (0.03) 1.40 (0.01) (0.77) 11.87
6/30/04 8.45 (0.02) 2.85 -- -- 11.28
6/30/03 10.04 (0.01) (1.14) -- (0.44) 8.45
6/30/02 /21/ 11.28 (0.05) 0.28 -- (1.47) 10.04
6/30/01 /21/ 8.35 (0.01) 3.42 (0.07) (0.41) 11.28
- ---------------------
Mid-Cap Growth Equity
- ---------------------
Institutional Class
9/30/05 $ 8.76 $ (0.07)/5/ $ 1.75 $ -- $ -- $ 10.44
9/30/04 7.57 (0.06)/5/ 1.25 -- -- 8.76
9/30/03 /21/ 6.06 (0.05) 1.56 -- -- 7.57
9/30/02 /21/ 7.49 (0.06)/5/ (1.37) -- -- 6.06
9/30/01 /21/ 26.58 0.01 (11.62) -- (7.48) 7.49
Service Class
9/30/05 $ 8.46 $ (0.07)/5/ $ 1.68 $ -- $ -- $ 10.07
9/30/04 7.33 (0.08)/5/ 1.21 -- -- 8.46
9/30/03 /21/ 5.89 (0.07) 1.51 -- -- 7.33
9/30/02 /21/ 7.31 (0.11) (1.31) -- -- 5.89
9/30/01 /21/ 26.19 (0.03) (11.37) -- (7.48) 7.31
*The performance prior to January 31, 2005 set forth in this table is the
financial data of the State Street Research Mid-Cap Value Fund, series of a
predecessor company, the State Street Research Funds. BlackRock Funds acquired
all of the assets and certain stated liabilities of the State Street Research
Mid-Cap Value Equity Fund on January 31, 2005. The net asset values and other
per share information listed have been restated to reflect the conversion ratios
of 1.56483770, 1.57950264, 1.62345461 and 1.63087248 for Institutional, Class A,
Class B and Class C shares, respectively.
See accompanying notes to financial statements.
152
BlackRock Funds
Ratio of Net
Investment
Ratio of Total Income to
Net Assets Ratio of Net Expense to Ratio of Net Average Net
End of Expenses to Average Net Investment Income Assets Portfolio
Total Period Average Net Assets (Excluding to Average (Excluding Turnover
Return (000) Assets Waivers) Net Assets Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------
Mid-Cap Value Equity*
- ---------------------
Institutional Class
3/01/05 through 9/30/05 7.94%/10/ $ 53,111 1.00%/2/ 1.30%/2/ 0.49%/2/ 0.19%/2/ 60%
7/01/04 through 2/28/05 13.07 50,383 0.99/2/ 1.09/2/ 1.18/2/ 1.08/2/ 53
6/30/04 34.83 30,181 0.98 1.03 0.76 0.71 86
6/30/03 (10.21) 26,099 0.99 1.18 0.93 0.75 66
6/30/02 /21/ 3.20 35,116 0.95 1.15 0.42 0.23 69
6/30/01 /21/ 43.89 34,577 0.95 1.25 0.90 0.62 116
Service Class
3/01/05 through 9/30/05 7.76%/10/ $ 889 1.25%/2/ 1.54%/2/ 0.20%/2/ (0.09)%/2/ 60%
1/28/05 /1/ through 2/28/05 4.89 1,374 1.25/2/ 1.49/2/ 0.39/2/ 0.14/2/ 53
Investor A Class 7.66%/3/,/10/ $ 500,479 1.25%/2/ 1.64%/2/ 0.24%/2/ (0.15)%/2/ 60%
3/01/05 through 9/30/05 12.98/3/ 448,237 1.24/2/ 1.38/2/ 0.92/2/ 0.78/2/ 53
7/01/04 through 2/28/05 34.51/3/ 363,188 1.28 1.33 0.47 0.42 86
6/30/04 (10.61)/3/ 194,034 1.29 1.48 0.65 0.47 66
6/30/03 2.96/3/ 242,113 1.25 1.41 0.16 0.01 69
6/30/02 /21/ 43.49/3/ 107,448 1.25 1.55 0.59 0.31 116
6/30/01 /21/
Investor B Class
3/01/05 through 9/30/05 7.25%/4/,/10/ $ 131,651 2.00%/2/ 2.29%/2/ (0.52)%/2/ (0.81)%/2/ 60%
7/01/04 through 2/28/05 12.39/4/ 128,568 1.99/2/ 2.09/2/ 0.20/2/ 0.10/2/ 53
6/30/04 33.53/4/ 109,815 1.98 2.03 (0.24) (0.29) 86
6/30/03 (11.13)/4/ 79,536 1.99 2.18 (0.05) (0.23) 66
6/30/02 /21/ 2.20/4/ 91,416 1.95 2.10 (0.52) (0.66) 69
6/30/01 /21/ 42.51/4/ 25,957 1.95 2.25 (0.18) (0.46) 116
Investor C Class
3/01/05 through 9/30/05 7.25%/4/,/10/ $ 103,344 2.00%/2/ 2.29%/2/ (0.50)%/2/ (0.79)%/2/ 60%
7/01/04 through 2/28/05 12.40/4/ 91,657 1.99/2/ 2.09/2/ 0.19/2/ 0.09/2/ 53
6/30/04 33.53/4/ 82,758 1.98 2.03 (0.24) (0.29) 86
6/30/03 (11.09)/4/ 58,499 1.99 2.19 (0.04) (0.23) 66
6/30/02 /21/ 2.25/4/ 62,505 1.95 2.09 (0.51) (0.64) 69
6/30/01 /21/ 42.48/4/ 14,062 1.95 2.25 (0.09) (0.37) 116
- ---------------------
Mid-Cap Growth Equity
- ---------------------
Institutional Class
9/30/05 19.18%/10/ $ 75,407 1.23% 1.41% (0.72)% (0.90)% 85%
9/30/04 15.72/10/ 40,337 1.23 1.28 (0.65) (0.69) 29
9/30/03 /21/ 24.92/10/ 46,970 1.21 1.23 (0.52) (0.54) 168
9/30/02 /21/ (19.09) 77,693 1.14 1.14 (0.76) (0.76) 279
9/30/01 /21/ (56.71) 301,779 1.13 1.13 0.06 0.06 584
Service Class
9/30/05 19.03%/10/ $ 1,136 1.53% 1.60% (0.77)% (0.84)% 85%
9/30/04 15.42/10/ 10,871 1.53 1.56 (0.97) (0.99) 29
9/30/03 /21/ 24.45/10/ 14,115 1.51 1.53 (0.80) (0.83) 168
9/30/02 /21/ (19.43) 24,082 1.45 1.45 (1.07) (1.07) 279
9/30/01 /21/ (56.78) 37,691 1.44 1.44 (0.28) (0.28) 584
153
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Gain (loss)
Net on investments, Distributions
asset foreign currency from net Net
value Net and options Distributions realized Asset value
beginning investment (both realized from net investment capital end of
of period income (loss) and unrealized) income gains period
- -------------------------------------------------------------------------------------------------------------------------------
- ---------------------
Mid-Cap Growth Equity
(Continued)
- ---------------------
Investor A Class
9/30/05 $ 8.26 $ (0.11)/5/ $ 1.67 $ -- $ -- $ 9.82
9/30/04 7.17 (0.09)/5/ 1.18 -- -- 8.26
9/30/03 /21/ 5.77 (0.07) 1.47 -- -- 7.17
9/30/02 /21/ 7.17 (0.11) (1.29) -- -- 5.77
9/30/01 /21/ 25.92 (0.04) (11.23) -- (7.48) 7.17
Investor B Class
9/30/05 $ 7.63 $ (0.15)/5/ $ 1.52 $ -- $ -- $ 9.00
9/30/04 6.67 (0.14)/5/ 1.10 -- -- 7.63
9/30/03 /21/ 5.41 (0.11) 1.37 -- -- 6.67
9/30/02 /21/ 6.77 (0.16) (1.20) -- -- 5.41
9/30/01 /21/ 25.12 (0.12) (10.75) -- (7.48) 6.77
Investor C Class
9/30/05 $ 7.63 $ (0.15)/5/ $ 1.52 $ -- $ -- $ 9.00
9/30/04 6.67 (0.14)/5/ 1.10 -- -- 7.63
9/30/03 /21/ 5.41 (0.11) 1.37 -- -- 6.67
9/30/02 /21/ 6.77 (0.18) (1.18) -- -- 5.41
9/30/01 /21/ 25.10 (0.13) (10.72) -- (7.48) 6.77
- ------
Aurora
- ------
Institutional Class
9/30/05 $ 40.71 $ (0.04)/5/ $ 6.60 $ -- $ (3.84) $ 43.43
9/30/04 23.18 (0.11) 7.66 -- (0.02) 40.71
9/30/03 25.05 (0.11) 8.39 -- (0.15) 33.18
9/30/02 /21/ 27.06 (0.14) (1.87) -- -- 25.05
9/30/01 /21/ 29.66 0.13 (0.39) (0.03) (2.31) 27.06
Service Class
1/28/05/1/ through 9/30/05 $ 38.18 $ (0.06)/5/ $ 3.76 $ -- $ -- $ 41.88
Investor A Class
9/30/05 $ 39.49 $ (0.16)/5/ $ 6.39 $ -- $ (3.84) $ 41.88
9/30/04 32.28 (0.22) 7.45 -- (0.02) 39.49
9/30/03 24.43 (0.19) 8.19 -- (0.15) 32.28
9/30/02 /21/ 26.51 (0.23) (1.85) -- -- 24.43
9/30/01 /21/ 29.17 0.02 (0.37) -- (2.31) 26.51
Investor B Class
9/30/05 $ 36.67 $ (0.40)/5/ $ 5.89 $ -- $ (3.84) $ 38.32
9/30/04 30.19 (0.45) 6.95 -- (0.02) 36.67
9/30/03 23.02 (0.36) 7.68 -- (0.15) 30.19
9/30/02 /21/ 25.16 (0.42) (1.72) -- -- 23.02
9/30/01 /21/ 27.99 (0.18) (0.34) -- (2.31) 25.16
Investor C Class
9/30/05 $ 36.67 $ (0.42)/5/ $ 5.91 $ -- $ (3.84) $ 38.32
9/30/04 30.18 (0.45) 6.96 -- (0.02) 36.67
9/30/03 23.01 (0.35) 7.67 -- (0.15) 30.18
9/30/02 /21/ 25.16 (0.42) (1.73) -- -- 23.01
9/30/01 /21/ 27.99 (0.18) (0.34) -- (2.31) 25.11
See accompanying notes to financial statements.
154
BlackRock Funds
Ratio of Net
Investment
Ratio of Total Income to
Net Assets Ratio of Net Expense to Ratio of Net Average Net
End of Expenses to Average Net Investment Income Assets Portfolio
Total Period Average Net Assets (Excluding to Average (Excluding Turnover
Return (000) Assets Waivers) Net Assets Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------
Mid-Cap Growth Equity
(Continued)
- ---------------------
Investor A Class
9/30/05 18.89%/3/,/10/ $ 290,285 1.58% 1.78% (1.14)% (1.34)% 85%
9/30/04 15.20/3/,/10/ 27,777 1.67 1.77 (1.09) (1.19) 29
9/30/03 /21/ 24.26/3/,/10/ 25,960 1.68 1.71 (0.96) (0.98) 168
9/30/02 /21/ (19.53)/3/ 26,242 1.62 1.62 (1.24) (1.24) 279
9/30/01 /21/ (56.91)/3/ 38,225 1.60 1.60 (0.38) (0.38) 584
Investor B Class
9/30/05 17.96%/4/,/10/ $ 59,100 2.33% 2.41% (1.82)% (1.90)% 85%
9/30/04 14.39/4/,/10/ 31,900 2.44 2.45 (1.86) (1.87) 29
9/30/03 /21/ 23.29/4/,/10/ 33,982 2.43 2.45 (1.69) (1.71) 168
9/30/02 /21/ (20.09)/4/ 33,822 2.37 2.37 (1.98) (1.98) 279
9/30/01 /21/ (57.24)/4/ 51,186 2.35 2.35 (1.12) (1.12) 584
Investor C Class
9/30/05 17.96%/4/,/10/ $ 20,748 2.33% 2.41% (1.83)% (1.91)% 85%
9/30/04 14.39/4/,/10/ 11,269 2.44 2.45 (1.86) (1.87) 29
9/30/03 /21/ 23.29/4/,/10/ 12,212 2.43 2.45 (1.69) (1.71) 168
9/30/02 /21/ (20.09)/4/ 12,092 2.37 2.37 (1.98) (1.98) 279
9/30/01 /21/ (57.19)/4/ 21,144 2.35 2.35 (1.10) (1.10) 584
- ------
Aurora
- ------
Institutional Class
9/30/05 16.62%/10/ $ 165,837 1.14% 1.14% (0.09)% (0.09)% 73%
9/30/04 22.75 197,475 1.10 1.10 (0.27) (0.27) 33
9/30/03 33.21 142,460 1.25 1.25 (0.38) (0.38) 48
9/30/02 /21/ (7.43) 92,789 1.17 1.18 (0.43) (0.44) 42
9/30/01 /21/ (0.64) 76,711 1.13 1.14 0.36 0.35 26
Service Class
1/28/05/1/ through 9/30/05 9.69%/10/ $ --/20/ 0.78%/2/ 0.81%/2/ 0.32%/2/ 0.29%/2/ 73%
Investor A Class
9/30/05 16.28%/3/,/10/ $1,690,497 1.40% 1.47% (0.36)% (0.43)% 73%
9/30/04 22.39/3/ 2,169,836 1.40 1.40 (0.57) (0.57) 33
9/30/03 32.90/3/ 1,682,504 1.55 1.55 (0.69) (0.69) 48
9/30/02 /21/ (7.85)/3/ 1,449,869 1.47 1.48 (0.73) (0.74) 42
9/30/01 /21/ (0.98)/3/ 1,334,548 1.43 1.44 0.08 0.07 26
Investor B Class
9/30/05 15.44%/4/,/10/ $ 436,642 2.14% 2.15% (1.10)% (1.11)% 73%
9/30/04 21.53/4/ 470,430 2.10 2.10 (1.27) (1.27) 33
9/30/03 31.96/4/ 401,016 2.25 2.25 (1.39) (1.39) 48
9/30/02 /21/ (8.51)/4/ 340,529 2.17 2.18 (1.43) (1.44) 42
9/30/01 /21/ (1.67)/4/ 299,062 2.13 2.14 (0.63) (0.64) 26
Investor C Class
9/30/05 15.45%/4/,/10/ $ 405,952 2.14% 2.15% (1.10)% (1.11)% 73%
9/30/04 21.57/4/ 493,980 2.10 2.10 (1.27) (1.27) 33
9/30/03 31.97/4/ 409,076 2.25 2.25 (1.39) (1.39) 48
9/30/02 /21/ (8.55)/4/ 402,010 2.17 2.18 (1.43) (1.44) 42
9/30/01 /21/ (1.67)/4/ 378,733 2.13 2.14 (0.62) (0.63) 26
155
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Gain (loss)
Net on investments, Distributions
asset foreign currency from net Net
value Net and options Distributions Realized Asset value
beginning investment (both realized from net investment capital end of
of period income (loss) and unrealized) income gains period
- -------------------------------------------------------------------------------------------------------------------------------
- --------------------
Small/Mid-Cap Growth
- --------------------
Institutional Class
9/30/05 $ 12.49 $ (0.17)/5/ $ 2.84 $ -- $ -- $ 15.16
9/30/04 12.11 (0.10) 0.48 -- -- 12.49
9/30/03 9.06 (0.08) 3.13 -- -- 12.11
9/30/02 /21/ 9.62 (0.06) (0.50) -- -- 9.06
9/30/01 /21/ 16.48 (0.04) 4.54 -- (2.28) 9.62
Service Class
1/28/051 through 9/30/05 $ 12.81 $ (0.06)/5/ $ 1.72 $ -- $ -- $ 14.47
Investor A Class
9/30/05 $ 11.96 $ (0.13)/5/ $ 2.65 $ -- $ -- $ 14.48
9/30/04 11.63 (0.14) 0.47 -- -- 11.96
9/30/03 8.73 (0.11) 3.01 -- -- 11.63
9/30/02 /21/ 9.27 (0.09) (0.45) -- -- 8.73
9/30/01 /21/ 16.08 (0.08) (4.45) -- (2.28) 9.27
Investor B Class
9/30/05 $ 10.84 $ (0.19)/5/ 2.38 $ -- $ -- $ 13.03
9/30/04 10.62 (0.21) 0.43 -- -- 10.84
9/30/03 8.03 (0.16) 2.75 -- -- 10.62
9/30/02 /21/ 8.60 (0.15) (0.42) -- -- 8.03
9/30/01 /21/ 15.17 (0.15) (4.14) -- (2.28) 8.60
Investor C Class
9/30/05 $ 10.87 $ (0.20)/5/ $ 2.39 $ -- $ -- $ 13.06
9/30/04 10.64 (0.21) 0.44 -- -- 10.87
9/30/03 8.05 (0.16) 2.75 -- -- 10.64
9/30/02 /21/ 8.61 (0.15) (0.41) -- -- 8.05
9/30/01 /21/ 15.17 (0.15) (4.13) -- (2.28) 8.61
- ----------------------
Small Cap Value Equity
- ----------------------
BlackRock
9/30/05 $ 15.23 $ 0.025 $ 2.89 $ -- $ (2.99) $ 15.16
4/12/041 through 9/30/04 16.02 --/5/ (0.79) -- -- 15.23
Institutional Class
9/30/05 $ 15.22 $ 0.045 $ 2.90 $ -- $ (2.99) $ 15.17
9/30/04 14.17 (0.02)/5/ 2.86 -- (1.79) 15.22
9/30/03 /21/ 12.81 0.01 3.31 -- (1.96) 14.17
9/30/02 /21/ 16.18 -- (1.02) (0.02) (2.33) 12.81
9/30/01 /21/ 17.12 0.16 (0.11) (0.15) (0.84) 16.18
Service Class
9/30/05 $ 15.07 $ --/5/ $ 2.87 $ -- $ (2.99) $ 14.95
9/30/04 14.09 (0.07)/5/ 2.84 -- (1.79) 15.07
9/30/03 /21/ 12.77 (0.03) 3.31 -- (1.96) 14.09
9/30/02 /21/ 16.18 (0.04) (1.04) -- (2.33) 12.77
9/30/01 /21/ 17.10 0.10 (0.08) (0.10) (0.84) 16.18
See accompanying notes to financial statements.
156
BlackRock Funds
Ratio of Net
Investment
Ratio of Total Income to
Net Assets Ratio of Net Expense to Ratio of Net Average Net
End of Expenses to Average Net Investment Income Assets Portfolio
Total Period Average Net Assets (Excluding to Average (Excluding Turnover
Return (000) Assets Waivers) Net Assets Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------------
Small/Mid-Cap Growth
- --------------------
Institutional Class
9/30/05 21.38%/10/ $ 20,133 1.10% 1.28% (0.72)% (0.90)% 122%
9/30/04 3.14 87,520 1.09 1.28 (0.80) (0.99) 208
9/30/03 33.66 7,809 1.10 1.55 (0.78) (1.23) 167
9/30/02 /21/ (5.82) 6,054 1.10 1.69 (0.60) (1.19) 168
9/30/01 /21/ 29.73 5,810 1.10 1.77 (0.39) (1.06) 282
Service Class
1/28/051 through 9/30/05 12.96%/10/ $ --/20/ 1.41% 1.48% (0.70)% (0.77)% 122%
Investor A Class
9/30/05 21.07%/3/,/10/ $ 215,622 1.37%* 1.64% (0.87)% (1.14)% 122%
9/30/04 2.84/3/ 268,065 1.39 1.56 (1.09) (1.26) 208
9/30/03 33.223 117,571 1.40 1.78 (1.10) (1.48) 167
9/30/02 /21/ (5.93)/3/ 41,474 1.40 1.98 (0.90) (1.48) 168
9/30/01 /21/ (30.22)/3/ 39,522 1.40 2.07 (0.69) (1.36) 282
Investor B Class
9/30/05 20.20%/4/,/10/ $ 24,925 2.10% 2.30% (1.58)% (1.78)% 122%
9/30/04 2.17/4/ 24,880 2.09 2.25 (1.79) (1.95) 208
9/30/03 32.25/4/ 19,797 2.10 2.54 (1.78) (2.22) 167
9/30/02 /21/ (6.63)/4/ 13,288 2.10 2.68 (1.60) (2.18) 168
9/30/01 /21/ (30.48)/4/ 12,749 2.10 2.77 (1.39) (2.06) 282
Investor C Class
9/30/05 20.15%/4/,/10/ $ 20,963 2.10% 2.32% (1.60)% (1.82)% 122%
9/30/04 2.16/4/ 29,627 2.09 2.26 (1.79) (1.96) 208
9/30/03 32.17/4/ 13,530 2.10 2.51 (1.79) (2.20) 167
9/30/02 /21/ (6.50)/4/ 5,794 2.10 2.68 (1.60) (2.18) 168
9/30/01 /21/ (30.40)/4/ 5,332 2.10 2.77 (1.39) (2.06) 282
- ----------------------
Small Cap Value Equity
- ----------------------
BlackRock
9/30/05 20.60%/10/ 5,162 1.07% 1.08% 0.16% 0.15% 133%
4/12/04 /1/ through 9/30/04 (4.93)/10/ 4,787 1.10/2/ 1.33/2/ (0.17)/2/ (0.40)/2/ 154
Institutional Class
9/30/05 20.77%/10/ $ 68,880 0.97% 1.00% 0.26% 0.23% 133%
9/30/04 20.87/10/ 66,083 0.95 0.98 (0.15) (0.18) 154
9/30/03 /21/ 29.96/10/ 69,641 0.91 0.94 0.09 0.06 240
9/30/02 /21/ (8.25) 122,732 0.88 0.89 -- (0.01) 260
9/30/01 /21/ 0.47 367,167 0.87 0.87 0.87 0.87 184
Service Class
9/30/05 20.46%/10/ $ 3,405 1.24% 1.25% (0.03)% (0.04)% 133%
9/30/04 20.45/10/ 3,288 1.25 1.29 (0.45) (0.48) 154
9/30/03 /21/ 29.70/10/ 4,139 1.21 1.24 (0.19) (0.22) 240
9/30/02 /21/ (8.64) 7,242 1.18 1.19 (0.24) (0.25) 260
9/30/01 /21/ 0.28 47,095 1.17 1.17 0.56 0.56 184
*For the period October 1, 2004, through January 31, 2005, the expense ratio
reflects the expenses of the State Street Research Emergin g Growth Fund prior
to its reorganization with the Small/Mid-Cap Growth Portfolio on January 31,
2005. The expense ratio for the period October 1, 2004 through January 31, 2005
was 1.41%. The expense ratio of the Portfolio for the period February 1, 2005,
through September 30, 2005, was 1.35%.
157
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Gain (loss)
Net on investments, Distributions
asset foreign currency Distributions from net Redemption Net
value Net and options from net realized Fees Added Asset value
beginning investment (both realized investment capital to Paid-In end of
of period income (loss) and unrealized) income gains Capital period
- ------------------------------------------------------------------------------------------------------------------------------------
---------------------
Small Cap Value Equity
(Continued)
- ----------------------
Investor A Class
9/30/05 $ 15.00 $ --/5/ $ 2.85 $ -- $ (2.99) $ -- $ 14.86
9/30/04 14.04 (0.09)/5/ 2.84 -- (1.79) -- 15.00
9/30/03 /21/ 12.76 (0.05) 3.29 -- (1.96) -- 14.04
9/30/02 /21/ 16.18 (0.10) (0.99) -- (2.33) -- 12.76
9/30/01 /21/ 17.10 0.06 (0.07) (0.07) (0.84) -- 16.18
Investor B Class
9/30/05 $ 13.77 $ (0.10)/5/ $ 2.60 $ -- $ (2.99) $ -- $ 13.28
9/30/04 13.11 (0.19)/5/ 2.64 -- (1.79) -- 13.77
9/30/03 /21/ 12.11 (0.13) 3.09 -- (1.96) -- 13.11
9/30/02 /21/ 15.58 (0.20) (0.94) -- (2.33) -- 12.11
9/30/01 /21/ 16.56 (0.06) (0.07) (0.01) (0.84) -- 15.58
Investor C Class
9/30/05 $ 13.78 $ (0.10)/5/ $ 2.59 $ -- $ (2.99) $ -- $ 13.28
9/30/04 13.11 (0.19)/5/ 2.65 -- (1.79) -- 13.78
9/30/03 /21/ 12.12 (0.14) 3.09 -- (1.96) -- 13.11
9/30/02 /21/ 15.59 (0.20) (0.94) -- (2.33) -- 12.12
9/30/01 /21/ 16.57 (0.05) (0.08) (0.01) (0.84) -- 15.59
- ---------------------
Small Cap Core Equity
- ---------------------
Institutional Class
9/30/05 $ 14.77 $ (0.10)/5/ $ 3.06 $ -- $ (0.11) $ -- $ 17.62
9/30/04 11.99 (0.13)/5/ 3.01 -- (0.15) 0.05 14.77
9/30/03 /21/ 8.35 (0.06) 3.70 -- -- -- 11.99
1/02/02 /1/,/21/ through
9/30/02 10.00 (0.04) (1.61) -- -- -- 8.35
Service Class
9/30/05 $ 14.73 $ (0.13)/5/ $ 3.10 $ -- $ (0.11) $ -- $ 17.59
9/30/04 11.99 (0.20)/5/ 3.04 -- (0.15) 0.05 14.73
9/30/03 /21/ 8.35 -- 3.64 -- -- -- 11.99
1/02/02 /1/,/21/ through
9/30/02 10.00 -- (1.65) -- -- -- 8.35
Investor A Class
9/30/05 $ 14.71 $ (0.17)/5/ $ 3.06 $ -- $ (0.11) $ -- $ 17.49
9/30/04 11.99 (0.24)/5/ 3.04 -- (0.15) 0.07 14.71
9/30/03 /21/ 8.35 -- 3.64 -- -- -- 11.99
1/02/02 /1/,/21/ through
9/30/02 10.00 -- (1.65) -- -- -- 8.35
Investor B Class
9/30/05 $ 14.61 $ (0.28)5 $ 3.02 $ -- $ (0.11) $ -- $ 17.24
9/30/04 11.99 (0.37)5 3.07 -- (0.15) 0.07 14.61
9/30/03 /21/ 8.35 -- 3.64 -- -- -- 11.99
1/02/02 /1/,/21/ through
9/30/02 10.00 -- (1.65) -- -- -- 8.35
Investor C Class
9/30/05 $ 14.60 $ (0.28)5 $ 3.02 $ -- $ (0.11) $ -- $ 17.23
9/30/04 11.99 (0.28)5 2.99 -- (0.15) 0.05 14.60
9/30/03 /21/ 8.35 -- 3.64 -- -- -- 11.99
1/02/02 /1/,/21/ through
9/30/02 10.00 -- (1.65) -- -- -- 8.35
See accompanying notes to financial statements.
158
BlackRock Funds
Ratio of Net
Investment
Ratio of Total Income to
Net Assets Ratio of Net Expense to Ratio of Net Average Net
End of Expenses to Average Net Investment Income Assets Portfolio
Total Period Average Net Assets (Excluding to Average (Excluding Turnover
Return (000) Assets Waivers) Net Assets Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------------
Small Cap Value Equity
(Continued)
- ----------------------
Investor A Class
9/30/05 20.43%/3/,10 $ 31,889 1.24% 1.35% (0.01)% (0.12)% 133%
9/30/04 20.38/3/,/10/ 35,240 1.35 1.47 (0.55) (0.67) 154
9/30/03 /21/ 29.37/3/,/10/ 38,052 1.38 1.41 (0.37) (0.40) 240
9/30/02 /21/ (8.71)/3/ 43,884 1.35 1.37 (0.62) (0.64) 260
9/30/01 /21/ 0.09/3/ 28,195 1.34 1.34 0.38 0.38 184
Investor B Class
9/30/05 19.58%/4/,/10/ $ 12,848 2.00% 2.00% (0.76)% (0.76)% 133%
9/30/04 19.45/4/,/10/ 15,952 2.07 2.09 (1.28) (1.30) 154
9/30/03 /21/ 28.52/4/,/10/ 15,019 2.13 2.16 (1.12) (1.15) 240
9/30/02 /21/ (9.46)/4/ 14,402 2.10 2.12 (1.32) (1.34) 260
9/30/01 /21/ (0.66)/4/ 16,599 2.09 2.09 (0.37) (0.37) 184
Investor C Class
9/30/05 19.49%/4/,/10/ $ 6,414 2.00% 2.00% (0.76)% (0.76)% 133%
9/30/04 19.53/4/,/10/ 6,715 2.09 2.11 (1.30) (1.32) 154
9/30/03 /21/ 28.42/4/,/10/ 5,839 2.13 2.16 (1.13) (1.15) 240
9/30/02 /21/ (9.45)/4/ 6,113 2.10 2.12 (1.32) (1.33) 260
9/30/01 /21/ (0.65)/4/ 7,051 2.09 2.09 (0.37) (0.37) 184
- ---------------------
Small Cap Core Equity
- ---------------------
Institutional Class
9/30/05 20.10%/10/ $ 12,641 1.30% 1.81% (0.59)% (1.10)% 118%
9/30/04 24.51/18/ 1,802 1.30 2.37 (0.89) (1.96) 78
9/30/03 /21/ 43.59 1,238 1.30 2.96 (0.62) (2.28) 218
1/02/02 /1/,/21/ through
9/30/02 (16.50) 835 1.30/2/ 2.53/2/ (0.60)/2/ (1.83)/2/ 233
Service Class
9/30/05 20.22%/10/ $ 94 1.60% 2.01% (0.80)% (1.21)% 118%
9/30/04 24.17/18/ --/20/ 1.60 2.67 (1.19) 2.26 78
9/30/03 /21/ 43.59 --/20/ 1.60 3.26 (0.92) (2.58) 218
1/02/02 /1/,/21/ through
9/30/02 (16.50) --/20/ 1.60/2/ 2.83/2/ (0.90)/2/ (2.13)/2/ 233
Investor A Class
9/30/05 19.71%/3/,/10/ $ 11,997 1.71% 2.17% (1.01)% (1.47)% 118%
9/30/04 24.01/3/,/1 3,154 1.74 2.89 (1.32) (2.48) 78
9/30/03 /21/ 43.59/3/ 7 1.77 3.43 (1.09) (2.75) 218
1/02/02 /1/,/21/ through
9/30/02 (16.50)/3/ --/20/ 1.77/2/ 3.00/2/ (1.07)/2/ (2.30)/2/ 233
Investor B Class
9/30/05 18.81%/4/,/10/ $ 6,303 2.44% 2.81% (1.74)% (2.11)% 118%
9/30/04 23.17/4/,/19/ 1,157 2.49 3.56 (2.07) (3.15) 78
9/30/03 /21/ 43.594 --/20/ 2.52 4.18 (1.84) (3.50) 218
1/02/02 /1/,/21/ through
9/30/02 (16.50)/4/ --/20/ 2.52/2/ 3.75/2/ (1.82)/2/ (3.05)/2/ 233
Investor C Class
9/30/05 18.82%/4/,/10/ $ 17,266 2.44% 2.80% (1.74)% (2.10)% 118%
9/30/04 23.08/4/,/18/ 3,352 2.47 3.56 (2.03) (3.11) 78
9/30/03 /21/ 43.59/4/ --/20/ 2.52 4.18 (1.84) (3.50) 218
1/02/02 /1/,/21/ through
9/30/02 (16.50)/4/ --/20/ 2.52/2/ 3.75/2/ (1.82)/2/ (3.05)/2/ 233
159
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Gain (loss)
Net on investments, Distributions Net
asset foreign currency Distributions from net Redemption Asset
value Net and options from net Distributions realized Fees Added value
beginning investment (both realized investment from capital to Paid-In end of
of period income (loss) and unrealized) income Capital gains Capital period
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------
Small Cap Growth Equity
- -----------------------
Institutional Class
9/30/05 $14.52 $(0.06)/5/ $ 2.82 $ -- $ -- $ -- $0.01 $17.29
9/30/04 12.26 (0.11)/5/ 2.37 -- -- -- -- 14.52
9/30/03 /21/ 9.00 (0.09) 3.35 -- -- -- -- 12.26
9/30/02 /21/ 11.74 (0.17) (2.57) -- -- -- -- 9.00
9/30/01 /21/ 35.76 0.09 (15.38) (0.12) (0.10) (8.51) -- 11.74
Service Class
9/30/05 $13.92 $(0.11)/5/ $ 2.72 $ -- $ -- $ -- $0.01 $16.54
9/30/04 11.79 (0.15)/5/ 2.28 -- -- -- -- 13.92
9/30/03 /21/ 8.67 (0.12) 3.24 -- -- -- -- 11.79
9/30/02 /21/ 11.36 (0.19) (2.50) -- -- -- -- 8.67
9/30/01 /21/ 34.91 0.03 (14.89) (0.08) (0.10) (8.51) -- 11.36
Investor A Class
9/30/05 $13.57 $(0.10)/5/ $ 2.64 $ -- $ -- $ -- $0.01 $16.12
9/30/04 11.51 (0.16)/5/ 2.22 -- -- -- -- 13.57
9/30/03 /21/ 8.48 (0.13) 3.16 -- -- -- -- 11.51
9/30/02 /21/ 11.12 (0.14) (2.50) -- -- -- -- 8.48
9/30/01 /21/ 34.47 (0.01) (14.65) (0.08) (0.10) (8.51) -- 11.12
Investor B Class
9/30/05 $12.39 $(0.20)/5/ $ 2.41 $ -- $ -- $ -- $0.01 $14.61
9/30/04 10.59 (0.24)/5/ 2.04 -- -- -- 0.01 12.39
9/30/03 /21/ 7.86 (0.19) 2.92 -- -- -- -- 10.59
9/30/02 /21/ 10.39 (0.23) (2.30) -- -- -- -- 7.86
9/30/01 /21/ 33.05 (0.12) (13.85) (0.08) (0.10) (8.51) -- 10.39
Investor C Class
9/30/05 $12.40 $(0.19)/5/ $ 2.40 $ -- $ -- $ -- $0.01 $14.62
9/30/04 10.60 (0.25)/5/ 2.05 -- -- -- 0.01 12.40
9/30/03 /21/ 7.86 (0.18) 2.92 -- -- -- -- 10.60
9/30/02 /21/ 10.39 (0.23) (2.30) -- -- -- -- 7.86
9/30/01 /21/ 33.05 (0.12) (13.85) (0.08) (0.10) (8.51) -- 10.39
- -----------------------------------------
Global Science & Technology Opportunities
- -----------------------------------------
Institutional Class
9/30/05 $ 5.42 $(0.04)/5/ $ 1.23 $ -- $ -- $ -- $ -- $ 6.61
9/30/04 5.46 (0.07)/5/ 0.03 -- -- -- -- 5.42
9/30/03 /21/ 3.59 (0.05) 1.92 -- -- -- -- 5.46
9/30/02 /21/ 4.41 (0.06)/5/ (0.76) -- -- -- -- 3.59
9/30/01 /21/ 12.49 0.01 (8.09) -- -- -- -- 4.41
Service Class
9/30/05 $ 5.35 $(0.06)/5/ $ 1.22 $ -- $ -- $ -- $ -- $ 6.51
9/30/04 5.41 (0.08)/5/ 0.02 -- -- -- -- 5.35
9/30/03 /21/ 3.57 (0.06)/5/ 1.90 -- -- -- -- 5.41
9/30/02 /21/ 4.39 (0.06)/5/ (0.76) -- -- -- -- 3.57
9/30/01 /21/ 12.47 -- (8.08) -- -- -- -- 4.39
Investor A Class
9/30/05 $ 5.31 $(0.07)/5/ $ 1.21 $ -- $ -- $ -- $ -- $ 6.45
9/30/04 5.38 (0.09)/5/ 0.02 -- -- -- -- 5.31
9/30/03 /21/ 3.55 (0.07) 1.90 -- -- -- -- 5.38
9/30/02 /21/ 4.38 (0.09) (0.74) -- -- -- -- 3.55
9/30/01 /21/ 12.47 (0.03) (8.06) -- -- -- -- 4.38
See accompanying notes to financial statements.
160
BlackRock Funds
Net Ratio of Total Ratio of Net
Assets Ratio of Net Expense to Ratio of Net Investment Income
End of Expenses to Average Net Investment Income to Average Net Portfolio
Total Period Average Net Assets (Excluding to Average Net Assets (Excluding Turnover
Return (000) Assets Waivers) Assets Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
- -----------------------
Small Cap Growth Equity
- -----------------------
Institutional Class
9/30/05 19.08%/14/ $357,857 0.94% 0.95% (0.40)% (0.41)% 91%
9/30/04 8.43/10/ 272,324 0.92 0.93 (0.73) (0.74) 81
9/30/03 /21/ 36.22/10/ 164,856 0.89 0.92 (0.75) (0.78) 167
9/30/02 /21/ (23.34) 176,858 0.85 0.87 (0.67) (0.69) 238
9/30/01 /21/ (53.73) 843,359 0.82 0.82 0.52 0.52 363
Service Class
9/30/05 18.82%/14/ $ 24,491 1.19% 1.19% (0.70)% (0.70)% 91%
9/30/04 18.07/10/ 29,569 1.20 1.20 (1.02) (1.02) 81
9/30/03 /21/ 35.99/10/ 23,466 1.19 1.22 (1.05) (1.08) 167
9/30/02 /21/ (23.68) 29,023 1.15 1.17 (0.97) (0.99) 238
9/30/01 /21/ (53.76) 141,001 1.11 1.11 0.20 0.20 363
Investor A Class
9/30/05 18.79%/3/,/14/ $160,374 1.19% 1.29% (0.66)% (0.76)% 91%
9/30/04 17.90/3/,/10/ 131,795 1.30 1.40 (1.12) (1.22) 81
9/30/03 /21/ 35.73/3/,/10/ 102,642 1.37 1.40 (1.22) (1.25) 167
9/30/02 /21/ (23.74)/3/ 95,620 1.33 1.36 (1.14) (1.17) 238
9/30/01 /21/ (53.90)/3/ 85,211 1.29 1.29 0.02 0.02 363
Investor B Class
9/30/05 17.92%/4/,/15/ $ 15,516 1.94% 1.94% (1.45)% (1.45)% 91%
9/30/04 17.00/4/,/16/ 23,983 2.07 2.07 (1.89) (1.89) 81
9/30/03 /21/ 34.73/4/,/10/ 24,167 2.11 2.14 (1.97) (2.00) 167
9/30/02 /21/ (24.35)/4/ 21,958 2.07 2.10 (1.89) (1.92) 238
9/30/01 /21/ (54.22)/4/ 37,351 2.03 2.03 (0.69) (0.69) 363
Investor C Class
9/30/05 17.90%/4/,/15/ $ 15,434 1.94% 1.94% (1.41)% (1.41)% 91%
9/30/04 16.98/4/,/15/ 13,989 2.08 2.08 (1.90) (1.90) 81
9/30/03 /21/ 34.86/4/,/10/ 11,396 2.11 2.14 (1.97) (2.00) 167
9/30/02 /21/ (24.35)/4/ 9,665 2.07 2.10 (1.89) (1.92) 238
9/30/01 /21/ (54.21)/4/ 18,170 2.03 2.03 (0.67) (0.67) 363
- -----------------------------------------
Global Science & Technology Opportunities
- -----------------------------------------
Institutional Class
9/30/05 21.96%/10/ $ 847 1.43% 1.98% (0.73)% (1.28)% 113%
9/30/04 (0.73)/10/ 1,592 1.43 1.63 (1.12) (1.32) 115
9/30/03 /21/ 52.09 2,821 1.35 1.63 (1.06) (1.34) 226
9/30/02 /21/ (18.59) 2,385 1.20 1.31 (1.00) (1.11) 587
9/30/01 /21/ (64.69) 7,189 1.20 1.45 0.14 (0.11) 748
Service Class
9/30/05 21.68%/10/ $ 116 1.73% 2.27% (1.04)% (1.58)% 113%
9/30/04 (1.11)/10/ 86 1.73 1.94 (1.41) (1.61) 115
9/30/03 /21/ 51.54 108 1.67 1.88 (1.38) (1.59) 226
9/30/02 /21/ (18.68) 30 1.50 1.63 (1.30) (1.43) 587
9/30/01 /21/ (64.80) 19 1.50 1.73 -- (0.24) 748
Investor A Class
9/30/05 21.47%/3/,/10/ $ 9,688 1.84% 2.35% (1.16)% (1.67)% 113%
9/30/04 (1.30)/3/,/10/ 9,929 1.89 2.14 (1.56) (1.81) 115
9/30/03 /21/ 51.55/3/ 11,406 1.83 2.10 (1.53) (1.81) 226
9/30/02 /21/ (18.95)/3/ 9,104 1.67 1.79 (1.47) (1.59) 587
9/30/01 /21/ (64.88)/3/ 14,551 1.67 1.91 (0.36) (0.60) 748
161
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Gain (loss)
Net on investments,
asset Foreign Currency Net
value Net and options Distributions Distributions Asset value
beginning investment (both realized from net investment from end of
of period income (loss) and unrealized) income Capital period
- ----------------------------------------------------------------------------------------------------------------------------
- ---------------------------
Global Science & Technology
Opportunities (Continued)
- ---------------------------
Investor B Class
9/30/05 $ 5.13 $ (0.11)/5/ $ 1.17 $ -- $ -- $ 6.19
9/30/04 5.24 (0.13)/5/ 0.02 -- -- 5.13
9/30/03 /21/ 3.49 (0.10) 1.85 -- -- 5.24
9/30/02 /21/ 4.33 (0.14) (0.70) -- -- 3.49
9/30/01 /21/ 12.44 (0.09) (8.02) -- -- 4.33
Investor C Class
9/30/05 $ 5.14 $ (0.11)/5/ $ 1.16 $ -- $ -- $ 6.19
9/30/04 5.24 (0.13)/5/ 0.03 -- -- 5.14
9/30/03 /21/ 3.49 (0.10) 1.85 -- -- 5.24
9/30/02 /21/ 4.33 (0.15) (0.69) -- -- 3.49
9/30/01 /21/ 12.44 (0.10) (8.01) -- -- 4.33
- ----------------
Global Resources
- ----------------
Institutional Class
3/01/05 through 9/30/05 $ 58.80 $ 0.15/5/ $ 20.67 $ -- $ -- $ 79.62
7/01/04 through 2/28/05 41.25 (0.08) 19.52 (0.34) (1.55) 58.80
6/30/04 26.85 0.27 14.78 (0.65) -- 41.25
6/30/03 23.51 (0.04) 3.38 -- -- 26.85
6/30/02 /21/ 22.13 (0.09) 1.47 -- -- 23.51
6/30/01 /21/ 17.21 (0.18) 5.10 -- -- 22.13
Investor A Class
3/01/05 through 9/30/05 $ 56.23 $ 0.03/5/ $ 19.75 $ -- $ -- $ 76.01
7/01/04 through 2/28/05 39.58 (0.15) 18.69 (0.34) (1.55) 56.23
6/30/04 25.81 0.21 14.15 (0.59) -- 39.58
6/30/03 22.74 (0.10) 3.17 -- -- 25.81
6/30/02 /21/ 21.50 (0.15) 1.39 -- -- 22.74
6/30/01 /21/ 16.79 (0.22) 4.93 -- -- 21.50
Investor B Class
3/01/05 through 9/30/05 $ 51.58 $ (0.19)/5/ $ 18.04 $ -- $ -- $ 69.43
7/01/04 through 2/28/05 36.52 (0.32) 17.18 (0.25) (1.55) 51.58
6/30/04 23.89 (0.06) 13.14 (0.45) -- 36.52
6/30/03 21.20 (0.23) 2.92 -- -- 23.89
6/30/02 /21/ 20.16 (0.27) 1.31 -- -- 21.20
6/30/01 /21/ 15.85 (0.33) 4.64 -- -- 20.16
Investor C Class
3/01/05 through 9/30/05 $ 51.53 $ (0.19)/5/ $ 18.03 $ -- $ -- $ 69.37
7/01/04 through 2/28/05 36.48 (0.30) 17.14 (0.24) (1.55) 51.53
6/30/04 23.88 (0.03) 13.10 (0.47) -- 36.48
6/30/03 21.18 (0.23) 2.93 -- -- 23.88
6/30/02 /21/ 20.14 (0.28) 1.32 -- -- 21.18
6/30/01/21/ 15.84 (0.34) 4.64 -- -- 20.14
- ------------------------
All-Cap Global Resources
- ------------------------
Institutional Class
2/16/05 /1/ through 9/30/05 $ 10.00 $ 0.02/5/ $ 3.54 $ -- $ -- $ 13.56
Service Class
2/16/05 /1/ through 9/30/05 $ 10.00 $ 0.03/5/ $ 3.49 $ -- $ -- $ 13.52
See accompanying notes to financial statements.
162
BlackRock Funds
Ratio of Total Ratio of Net
Expense to Ratio of Net Investment
Net Assets Ratio of Net Average Net Investment Income to
End of Expenses to Assets Income to Average Net Assets Portfolio
Total Period Average Net (Excluding Average Net (Excluding Turnover
Return (000) Assets Waivers) Assets Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------
Global Science & Technology
Opportunities (Continued)
- ---------------------------
Investor B Class
9/30/05 20.66%/4/,/10/ $ 10,998 2.59% 3.00% (1.91)% (2.32)% 113%
9/30/04 (2.10)/4/,/10/ 12,315 2.65 2.82 (2.33) (2.50) 115
9/30/03 /21/ 50.144 16,646 2.57 2.85 (2.28) (2.55) 226
9/30/02 /21/ (19.40)/4/ 12,944 2.38 2.50 (2.18) (2.29) 587
9/30/01 /21/ (65.19)/4/ 22,062 2.42 2.65 (1.12) (1.35) 748
Investor C Class
9/30/05 20.43%/4/,/10/ $ 2,794 2.59% 3.00% (1.91)% (2.32)% 113%
9/30/04 (1.91)/4/,/10/ 3,244 2.65 2.80 (2.33) (2.48) 115
9/30/03 /21/ 50.144 4,024 2.57 2.85 (2.28) (2.55) 226
9/30/02 /21/ (19.40)/4/ 3,010 2.59 2.72 (2.37) (2.50) 587
9/30/01 /21/ (65.19)/4/ 5,708 2.42 2.65 (1.09) (1.32) 748
- ----------------
Global Resources
- ----------------
Institutional Class
3/01/05 through 9/30/05 35.41%/10/ $ 40,906 1.04%/2/ 1.18%/2/ 0.42%/2/ 0.28%/2/ 9%
7/01/04 through 2/28/05 47.95 29,188 1.01/2/ 1.02/2/ (0.16)/2/ (0.17)/2/ 22
6/30/04 56.49 20,044 1.04 1.04 0.79 0.79 27
6/30/03 14.21 10,144 1.30 1.31 (0.20) (0.20) 33
6/30/02 /21/ 6.24 7,995 1.43 1.44 (0.42) (0.42) 38
6/30/01 /21/ 28.59 6,935 1.31 1.33 (0.89) (0.89) 38
Investor A Class
3/01/05 through 9/30/05 35.18%/3/,/10/ $ 877,120 1.34%/2/ 1.52%/2/ 0.10%/2/ (0.08)%/2/ 9%
7/01/04 through 2/28/05 47.693 676,234 1.36/2/ 1.38/2/ (0.52)/2/ (0.54)/2/ 22
6/30/04 56.063 406,209 1.34 1.34 0.64 0.64 27
6/30/03 13.503 103,987 1.60 1.61 (0.47) (0.47) 33
6/30/02 /21/ 5.773 89,883 1.73 1.74 (0.73) (0.73) 38
6/30/01 /21/ 28.053 81,880 1.61 1.63 (1.11) (1.11) 38
Investor B Class
3/01/05 through 9/30/05 34.60%/4/,/10/ $ 117,845 2.04%/2/ 2.18%/2/ (0.60)%/2/ (0.74)%/2/ 9%
7/01/04 through 2/28/05 47.094 94,506 2.01/2/ 2.02/2/ (1.17)/2/ (1.18)/2/ 22
6/30/04 55.074 66,704 2.04 2.04 (0.20) (0.20) 27
6/30/03 12.694 29,782 2.30 2.31 (1.17) (1.17) 33
6/30/02 /21/ 5.164 25,626 2.43 2.44 (1.41) (1.41) 38
6/30/01 /21/ 27.194 19,237 2.31 2.33 (1.78) (1.78) 38
Investor C Class
3/01/05 through 9/30/05 34.62%/4/,/10/ $ 201,265 2.04%/2/ 2.17%/2/ (0.61)%/2/ (0.74)%/2/ 9%
7/01/04 through 2/28/05 47.014 169,871 2.01/2/ 2.02/2/ (1.17)/2/ (1.18)/2/ 22
6/30/04 55.054 122,088 2.04 2.04 (0.10) (0.10) 27
6/30/03 12.754 37,601 2.30 2.31 (1.18) (1.18) 33
6/30/02 /21/ 5.164 31,853 2.43 2.44 (1.43) (1.43) 38
6/30/01/21/ 27.154 30,214 2.31 2.33 (1.83) (1.83) 38
- ------------------------
All-Cap Global Resources
- ------------------------
Institutional Class
2/16/05 /1/ through 9/30/05 35.60%/10/ $ 92,147 1.04%/2/ 1.54%/2/ 0.25%/2/ (0.25)%/2/ 12%
Service Class
2/16/05 /1/ through 9/30/05 35.20%/10/ $ --/20/ 1.34%/2/ 1.77%/2/ 0.01%/2/ (0.42)%/2/ 12%
163
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Gain (loss)
Net on investments,
Asset foreign currency Net
value Net and options Distributions Distributions Asset value
beginning investment (both realized from net investment from end of
of Period income (loss) and unrealized) income Capital period
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------
All-Cap Global Resources
(Continued)
- ------------------------
Investor A Class
2/16/05/1/ through 9/30/05 $ 10.00 $ --/5/ $ 3.50 $ -- $ -- $ 13.50
Investor B Class
2/16/05/1/ through 9/30/05 $ 10.00 $(0.05)/5/ $ 3.49 $ -- $ -- $ 13.44
Investor C Class
2/16/05/1/ through 9/30/05 $ 10.00 $(0.05)/5/ $ 3.51 $ -- $ -- $ 13.46
- ---------------
Health Sciences
- ---------------
Institutional Class
3/01/05 through 9/30/05 $ 20.50 $ (0.06)/5/ $ 4.02 $ -- $ (0.01) $ 24.45
2/28/05 21.15 (0.15) 0.57 -- (1.07) 20.50
2/29/04 11.64 (0.06) 10.21 -- (0.64) 21.15
2/28/03 /21/ 14.48 (0.09) (2.71) -- (0.04) 11.64
2/28/02 /21/ 14.14 (0.08) 0.47 -- (0.05) 14.48
2/28/01 /21/ 15.50 0.01 (0.68) -- (0.69) 14.14
Service Class
3/01/05 through 9/30/05 $ 20.24 $ (0.12)/5/ $ 4.04 $ -- $ (0.01) $ 24.15
1/28/05/1/ through 2/28/05 20.30 (0.01) (0.05) -- -- 20.24
Investor A Class
3/01/05 through 9/30/05 $ 20.24 $ (0.09)/5/ $ 3.97 $ -- $ (0.01) $ 24.11
2/28/05 20.96 (0.17) 0.52 -- (1.07) 20.24
2/29/04 11.57 (0.12) 10.15 -- (0.64) 20.96
2/28/03 /21/ 14.43 (0.12) (2.70) -- (0.04) 11.57
2/28/02 /21/ 14.14 (0.13) 0.47 -- (0.05) 14.43
2/28/01 /21/ 13.33 (0.06) 1.88 -- (1.01) 14.14
Investor B Class
3/01/05 through 9/30/05 $ 19.65 $ (0.17)/5/ $ 3.84 $ -- $ (0.01) $ 23.31
2/28/05 20.52 (0.28) 0.48 -- (1.07) 19.65
2/29/04 11.41 (0.24) 9.99 -- (0.64) 20.52
2/28/03 /21/ 14.34 (0.21) (2.68) -- (0.04) 11.41
2/28/02 /21/ 14.14 (0.23) 0.48 -- (0.05) 14.34
2/28/01 /21/ 15.50 (0.04) (0.63) -- (0.69) 14.14
Investor C Class
3/01/05 through 9/30/05 $ 19.61 $ (0.18)/5/ $ 3.84 $ -- $ (0.01) $ 23.26
2/28/05 20.47 (0.22) 0.43 -- (1.07) 19.61
2/29/04 11.39 (0.23) 9.95 -- (0.64) 20.47
2/28/03 /21/ 14.31 (0.21) (2.67) -- (0.04) 11.39
2/28/02 /21/ 14.11 (0.23) 0.48 -- (0.05) 14.31
2/28/01 /21/ 15.50 (0.04) (0.66) -- (0.69) 14.11
See accompanying notes to financial statements.
164
BlackRock Funds
Ratio of Total Ratio of Net
Expense to Ratio of Net Investment
Net Assets Ratio of Net Average Net Investment Income to
End of Expenses to Assets Income to Average Net Assets Portfolio
Total Period Average Net (Excluding Average Net (Excluding Turnover
Return (000) Assets Waivers) Assets Waivers) Rate
- ---------------------------------------------------------------------------------------------------------------------------------
- ------------------------
All-Cap Global Resources
(Continued)
- ------------------------
Investor A Class
2/16/05/1/ through 9/30/05 35.00%/3/,/10/ $ 87,949 1.34%/2/ 1.87%/2/ 0.01%/2/ (0.52)%/2/ 12%
Investor B Class
2/16/05/1/ through 9/30/05 34.40%/4/,/10/ $ 16,019 2.04%/2/ 2.49%/2/ (0.64)%/2/ (1.09)%/2/ 12%
Investor C Class
2/16/05/1/ through 9/30/05 34.60%/4/,/10/ $ 48,288 2.04%/2/ 2.48%/2/ (0.70)%/2/ (1.14)%/2/ 12%
- ---------------
Health Sciences
- ---------------
Institutional Class
3/01/05 through 9/30/05 19.32%/10/ $ 31,229 1.25%/2/ 1.37%/2/ (0.47)%/2/ (0.59)%/2/ 77%
2/28/05 1.84 4,262 1.25 1.37 (0.59) (0.71) 173
2/29/04 87.73 5,067 1.25 1.84 (0.38) (0.97) 106
2/28/03 /21/ (19.42) 988 1.25 2.75 (0.69) (2.18) 157
2/28/02 /21/ 2.76 1,109 1.25 3.25 (0.56) (2.53) 75
2/28/01 /21/ (4.48) 946 1.25 6.86 0.18 (5.40) 139
Service Class
3/01/05 through 9/30/05 19.37%/10/ $ 66 1.55%/2/ 1.64%/2/ (0.90)%/2/ (0.99)%/2/ 77%
1/28/05/1/ through 2/28/05 (0.30) --/20/ 0.82/2/ 0.82/2/ (0.70)/2/ (0.70)/2/ 173
Investor A Class
3/01/05 through 9/30/05 19.17%/3/,/10/ $ 186,545 1.55%/2/ 1.69%/2/ (0.68)%/2/ (0.82)%/2/ 77%
2/28/05 1.52/3/ 76,550 1.58 1.73 (0.90) (1.05) 173
2/29/04 87.13/3/ 54,638 1.55 2.11 (0.71) (1.27) 106
2/28/03 /21/ (19.63)/3/ 9,250 1.55 3.04 (0.99) (2.47) 157
2/28/02 /21/ 2.41/3/ 13,069 1.55 3.41 (0.88) (2.71) 75
2/28/01 /21/ 14.31/3/ 6,863 1.54 8.44 (0.48) (7.35) 139
Investor B Class
3/01/05 through 9/30/05 18.68%/4/,/10/ $ 45,073 2.25%/2/ 2.33%/2/ (1.35)%/2/ (1.43)%/2/ 77%
2/28/05 0.80/4/ 29,495 2.25 2.39 (1.58) (1.71) 173
2/29/04 85.89/4/ 22,825 2.25 2.91 (1.44) (2.10) 106
2/28/03 /21/ (20.24)/4/ 9,290 2.25 3.74 (1.69) (3.17) 157
2/28/02 /21/ 1.77/4/ 11,399 2.25 3.99 (1.59) (3.30) 75
2/28/01 /21/ (4.47)/4/ 4 ,645 2.25 8.54 (0.81) (7.07) 139
Investor C Class
3/01/05 through 9/30/05 18.67%/4/,/10/ $ 84,431 2.25%/2/ 2.32%/2/ (1.41)%/2/ (1.48)%/2/ 77%
2/28/05 0.86/4/ 25,248 2.25 2.41 (1.56) (1.71) 173
2/29/04 85.87/4/ 11,017 2.25 2.77 (1.38) (1.90) 106
2/28/03 /21/ (20.21)/4/ 1,291 2.25 3.74 (1.69) (3.18) 157
2/28/02 /21/ 1.77/4/ 1,314 2.25 3.99 (1.58) (3.29) 75
2/28/01 /21/ (4.67)/4/ 645 2.25 8.15 (0.83) (6.70) 139
165
BlackRock Fun ds
FINANCIAL HIGHLIGHTS ( Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Gain (loss)
Net On investments,
asset foreign currency
value Net and options
beginning investment (both realized
of period income (loss) and unrealized)
- ---------------------------------------------------------------------
U. S. Opportunities
- ---------------------------------------------------------------------
Institutional Class
9/30/05 $ 20.34 $ (0.15)/5/ $ 5.37
9/30/04 16.56 (0.17)/5/ 3.95
9/30/03 /21/ 13.06 (0.16) 3.66
9/30/02 /21/ 17.76 (0.23)/5/ (4.06)
9/30/01 /21/ 45.41 0.04 (17.61)
Service Class
9/30/05 $ 19.93 $ (0.21)/5/ $ 5.24
9/30/04 16.27 (0.22)/5/ 3.88
9/30/03 /21/ 12.88 (0.19) 3.58
9/30/02 /21/ 17.51 (0.51) (3.79)
9/30/01 /21/ 45.08 (0.05) (17.44)
Investor A Class
9/30/05 $ 19.78 $ (0.22)/5/ $ 5.20
9/30/04 16.17 (0.26)/5/ 3.87
9/30/03 /21/ 12.81 (0.21) 3.57
9/30/02 /21/ 17.41 (0.42) (3.89)
9/30/01 /21/ 44.93 (0.09) (17.35)
Investor B Class
9/30/05 $ 18.87 $ (0.37)/5/ $ 4.95
9/30/04 15.55 (0.39)/5/ 3.71
9/30/03 /21/ 12.41 (0.32) 3.46
9/30/02 /21/ 16.86 (0.54) (3.78)
9/30/01 /21/ 44.15 (0.28) (16.93)
Investor C Class
9/30/05 $ 18.85 $ (0.37)/5/ $ 4.95
9/30/04 15.53 (0.38)/5/ 3.70
9/30/03 /21/ 12.40 (0.32) 3.45
9/30/02 /21/ 16.85 (0.55) (3.77)
9/30/01 /21/ 44.14 (0.29) (16.92)
- --------------
International
Opportunities
- --------------
Institutional Class
9/30/05 $ 24.44 $ 0.53/5/ $ 9.68
9/30/04 19.96 0.08/5/ 4.41
9/30/03 /21/ 15.22 -- 4.73
9/30/02 /21/ 14.86 0.05 0.27
9/30/01 /21/ 22.54 0.30 (7.93)
Service Class
9/30/05 $ 23.93 $ 0.44/5/ $ 9.45
9/30/04 19.59 0.06/5/ 4.30
9/30/03 /21/ 14.98 0.05 4.55
9/30/02 /21/ 14.66 (0.02) 0.30
9/30/01 /21/ 22.36 0.29 (7.94)
Investor A Class
9/30/05 $ 23.78 $ 0.44/5/ $ 9.38
9/30/04 19.49 (0.02)/5/ 4.32
9/30/03 /21/ 14.94 0.01 4.53
9/30/02 /21/ 14.65 (0.03) 0.28
9/30/01 /21/ 22.34 0.13 (7.77)
Distributions
from net Redemption Net
Distributions realized Fees Added Asset value
from net investment capital to Paid-In end of
income gains Capital period
- --------------------------------------------------------------------------------
- -------------------
U. S. Opportunities
- -------------------
Institutional Class
9/30/05 $ -- $ -- $ -- $ 25.56
9/30/04 -- -- -- 20.34
9/30/03 /21/ -- -- -- 16.56
9/30/02 /21/ (0.41) -- -- 13.06
9/30/01 /21/ -- (10.08) -- 17.76
Service Class
9/30/05 $ -- $ -- $ -- $ 24.96
9/30/04 -- -- -- 19.93
9/30/03 /21/ -- -- -- 16.27
9/30/02 /21/ (0.33) -- -- 12.88
9/30/01 /21/ -- (10.08) -- 17.51
Investor A Class
9/30/05 $ -- $ -- $ -- $ 24.76
9/30/04 -- -- -- 19.78
9/30/03 /21/ -- -- -- 16.17
9/30/02 /21/ (0.29) -- -- 12.81
9/30/01 /21/ -- (10.08) -- 17.41
Investor B Class
9/30/05 $ -- $ -- $ -- $ 23.45
9/30/04 -- -- -- 18.87
9/30/03 /21/ -- -- -- 15.55
9/30/02 /21/ (0.13) -- -- 12.41
9/30/01 /21/ -- (10.08) -- 16.86
Investor C Class
9/30/05 $ -- $ -- $ -- $ 23.43
9/30/04 -- -- -- 18.85
9/30/03 /21/ -- -- -- 15.53
9/30/02 /21/ (0.13) -- -- 12.40
9/30/01 /21/ -- (10.08) -- 16.85
- --------------
International
Opportunities
- --------------
Institutional Class
9/30/05 $(0.32) $ -- $0.01 $ 34.34
9/30/04 (0.02) -- 0.01 24.44
9/30/03/21/ -- -- 0.01 19.96
9/30/02/21/ -- -- 0.04 15.22
9/30/01/21/ -- (0.05) -- 14.86
Service Class
9/30/05 $(0.28) $ -- $0.01 $ 33.55
9/30/04 (0.02) -- -- 23.93
9/30/03/21/ -- -- 0.01 19.59
9/30/02/21/ -- -- 0.04 14.98
9/30/01/21/ -- (0.05) -- 14.66
Investor A Class
9/30/05 $(0.25) $ -- $0.01 $ 33.36
9/30/04 (0.02) -- 0.01 23.78
9/30/03/21/ -- -- 0.01 19.49
9/30/02/21/ -- -- 0.04 14.94
9/30/01/21/ -- (0.05) -- 14.65
See accompanying notes to financial statements.
166
BlackRock Funds
Ratio of Total Ratio of Net
Expense to Ratio of Net Investment
Net Assets Ratio of Net Average Net Investment Income to
End of Expenses to Assets Income to Average Net Assets Portfolio
Total Period Average Net (Excluding Average Net (Excluding Turnover
Return (000) Assets Waivers) Assets Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
- -------------------
U. S. Opportunities
- -------------------
Institutional Class
9/30/05 25.66%/10/ $ 6,390 1.60% 1.73% (0.65)% (0.78)% 94%
9/30/04 22.83/10/ 6,074 1.60 1.65 (0.92) (0.97) 106
9/30/03 /21/ 26.80 7,235 1.52 1.59 (0.87) (0.94) 248
9/30/02 /21/ (25.04) 10,867 1.45 1.49 (1.23) (1.27) 361
9/30/01 /21/ (46.34) 35,869 1.45 1.47 0.15 0.14 402
Service Class
9/30/05 25.24%/10/ $ 472 1.90% 1.97% (0.96)% (1.03)% 94%
9/30/04 22.50/10/ 2,303 1.90 1.97 (1.15) (1.22) 106
9/30/03 /21/ 26.32 421 1.83 1.89 (1.17) (1.24) 248
9/30/02 /21/ (25.26) 483 1.75 1.79 (1.51) (1.56) 361
9/30/01 /21/ (46.55) 1,059 1.75 1.77 (0.19) (0.21) 402
Investor A Class
9/30/05 25.18%/3/,/10/ $ 31,277 1.97% 2.08% (1.02)% (1.13)% 94%
9/30/04 22.33/3/,/10/ 31,282 2.04 2.15 (1.36) (1.46) 106
9/30/03 /21/ 26.23/3/ 29,258 2.00 2.06 (1.34) (1.40) 248
9/30/02 /21/ (25.39)/3/ 28,733 1.92 1.97 (1.68) (1.73) 361
9/30/01 /21/ (46.61)/3/ 51,232 1.93 1.94 (0.30) (0.32) 402
Investor B Class
9/30/05 24.27%/4/,/10/ $ 37,132 2.72% 2.73% (1.77)% (1.78)% 94%
9/30/04 21.35/4/,/10/ 40,994 2.80 2.81 (2.12) (2.13) 106
9/30/03 /21/ 25.30/4/ 41,259 2.74 2.81 (2.09) (2.15) 248
9/30/02 /21/ (25.92)/4/ 43,883 2.67 2.72 (2.43) (2.47) 361
9/30/01 /21/ (47.01)/4/ 79,401 2.67 2.69 (1.06) (1.08) 402
Investor C Class
9/30/05 24.30%/4/,/10/ $ 20,774 2.72% 2.73% (1.77)% (1.78)% 94%
9/30/04 21.38/4/,/10/ 20,261 2.81 2.83 (2.13) (2.15) 106
9/30/03 /21/ 25.24/4/ 20,761 2.74 2.81 (2.09) (2.15) 248
9/30/02 /21/ (25.93)/4/ 22,020 2.67 2.72 (2.43) (2.48) 361
9/30/01 /21/ (47.02)/4/ 42,007 2.67 2.69 (1.02) (1.04) 402
- --------------
International
Opportunities
- --------------
Institutional Class
9/30/05 42.13%/11/ $ 216,070 1.45% 1.51% 1.81% 1.75% 86%
9/30/04 22.54/12/ 96,535 1.45 1.58 0.31 0.17 98
9/30/03 /21/ 31.14/13/ 57,950 1.41 1.51 0.42 0.32 72
9/30/02 /21/ 2.42 54,164 1.33 1.43 0.27 0.17 104
9/30/01 /21/ (33.93) 60,531 1.33 1.40 1.36 1.30 207
Service Class
9/30/05 41.65%/11/ $ 44,308 1.74% 1.76% 1.52% 1.50% 86%
9/30/04 22.25/10/ 19,167 1.75 1.91 0.21 0.05 98
9/30/03 /21/ 30.78/14/ 1,573 1.72 1.80 0.30 0.22 72
9/30/02 /21/ 2.18 670 1.60 1.70 (0.17) (0.27) 104
9/30/01 /21/ (34.29) 500 1.63 1.84 1.50 1.29 207
Investor A Class 41.60%/3/,/12/ $ 253,710 1.75% 1.86% 1.53% 1.42% 86%
9/30/05 22.11/3/,/13/ 99,879 1.89 2.06 (0.06) (0.24) 98
9/30/04 30.45/3/,/13/ 37,934 1.89 1.98 0.05 (0.04) 72
9/30/03 /21/ 1.98/3/,/10/ 25,969 1.80 1.91 (0.17) (0.27) 104
9/30/02 /21/ (34.27)/3/ 28,781 1.80 1.89 0.80 0.72 207
9/30/01 /21/
167
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Gain (loss)
Net on investments,
asset foreign currency
value Net and options Distributions
beginning investment (both realized from net investment
of period income (loss) and unrealized) income
- --------------------------------------------------------------------------------------------------------
- ---------------------------------------
International Opportunities (Continued)
- ---------------------------------------
Investor B Class
9/30/05 $22.80 $ 0.18/5/ $ 9.05 $(0.07)
9/30/04 18.83 (0.21)/5/ 4.19 (0.02)
9/30/03 /21/ 14.54 (0.12) 4.40 --
9/30/02 /21/ 14.37 (0.16) 0.29 --
9/30/01 /21/ 22.06 0.01 (7.65) --
Investor C Class
9/30/05 $22.80 $ 0.21/5/ $ 9.01 $(0.10)
9/30/04 18.84 (0.21)/5/ 4.18 (0.02)
9/30/03 /21/ 14.54 (0.11)/5/ 4.40 --
9/30/02 /21/ 14.36 (0.15) 0.29 --
9/30/01 /21/ 22.06 0.01 (7.66) --
- -----------------
Asset Allocation*
- -----------------
Institutional Class
3/01/05 through 9/30/05 $14.99 $ 0.17/5/ $ 0.52 $(0.17)
4/01/04 through 2/28/05 14.91 0.20 0.82 (0.40)
3/31/04 11.38 0.24 3.54 (0.25)
3/31/03 /21/ 14.17 0.28 (2.68) (0.33)
3/31/02 /21/ 14.05 0.32 0.83 (0.35)
3/31/01 /21/ 16.26 0.42 (0.41) (0.33)
Service Class
3/01/05 through 9/30/05 $14.97 $ 0.14/5/ $ 0.52 $(0.14)
1/28/05 /1/ through 2/28/05 14.63 0.01 0.33 --
Investor A Class
3/01/05 through 9/30/05 $14.95 $ 0.13/5/ $ 0.53 $(0.13)
4/01/04 through 2/28/05 14.89 0.18 0.80 (0.38)
3/31/04 11.36 0.19 3.55 (0.21)
3/31/03 /21/ 14.15 0.24 (2.68) (0.29)
3/31/02 /21/ 14.03 0.28 0.83 (0.31)
3/31/01 /21/ 16.24 0.39 (0.40) (0.31)
Investor B Class
3/01/05 through 9/30/05 $14.81 $ 0.07/5/ $ 0.51 $(0.05)
4/01/04 through 2/28/05 14.74 0.08 0.81 (0.28)
3/31/04 11.26 0.10 3.49 (0.11)
3/31/03 /21/ 14.01 0.15 (2.63) (0.21)
3/31/02 /21/ 13.90 0.17 0.83 (0.21)
3/31/01 /21/ 16.08 0.26 (0.37) (0.19)
Investor C Class
3/01/05 through 9/30/05 $14.81 $ 0.06/5/ $ 0.52 $(0.06)
4/01/04 through 2/28/05 14.74 0.08 0.81 (0.28)
3/31/04 11.25 0.10 3.50 (0.11)
3/31/03 /21/ 14.01 0.15 (2.65) (0.21)
3/31/02 /21/ 13.89 0.18 0.80 (0.19)
3/31/01 /21/ 16.05 0.27 (0.38) (0.18)
Distributions
From Net Redemption Net
Realized Fees Added Asset Value
Capital to Paid-In end of
Gains Capital period
- ------------------------------------------------------ ------------- ------------
- ---------------------------------------
International Opportunities (Continued)
- ---------------------------------------
Investor B Class
9/30/05 $ -- $0.01 $31.97
9/30/04 -- 0.01 22.80
9/30/03 /21/ -- 0.01 18.83
9/30/02 /21/ -- 0.04 14.54
9/30/01 /21/ (0.05) -- 14.37
Investor C Class
9/30/05 $ -- $0.01 $31.93
9/30/04 -- 0.01 22.80
9/30/03 /21/ -- 0.01 18.84
9/30/02 /21/ -- 0.04 14.54
9/30/01 /21/ (0.05) -- 14.36
- -----------------
Asset Allocation*
- -----------------
Institutional Class
3/01/05 through 9/30/05 $ -- $ -- $15.51
4/01/04 through 2/28/05 (0.54) -- 14.99
3/31/04 -- -- 14.91
3/31/03 /21/ (0.06) -- 11.38
3/31/02 /21/ (0.68) -- 14.17
3/31/01 /21/ (1.89) -- 14.05
Service Class
3/01/05 through 9/30/05 $ -- $ -- $15.49
1/28/051 through 2/28/05 -- -- 14.97
Investor A Class
3/01/05 through 9/30/05 $ -- $ -- $15.48
4/01/04 through 2/28/05 (0.54) -- 14.95
3/31/04 -- -- 14.89
3/31/03 /21/ (0.06) -- 11.36
3/31/02 /21/ (0.68) -- 14.15
3/31/01 /21/ (1.89) -- 14.03
Investor B Class
3/01/05 through 9/30/05 $ -- $ -- $15.34
4/01/04 through 2/28/05 (0.54) -- 14.81
3/31/04 -- -- 14.74
3/31/03 /21/ (0.06) -- 11.26
3/31/02 /21/ (0.68) -- 14.01
3/31/01 /21/ (1.88) -- 13.90
Investor C Class
3/01/05 through 9/30/05 $ -- $ -- $15.33
4/01/04 through 2/28/05 (0.54) -- 14.81
3/31/04 -- -- 14.74
3/31/03 /21/ (0.05) -- 11.25
3/31/02 /21/ (0.67) -- 14.01
3/31/01 /21/ (1.87) -- 13.89
*The performance prior to January 31, 2005 set forth in this table is the
financial data of the State Street Research Asset Allocation Fund, series of a
predecessor company, the State Street Research Funds. BlackRock Funds acquired
all of the assets and certain stated liabilities of the State Street Research
Asset Allocation Fund on January 31, 2005. The net asset values and other per
share information listed have been restated to reflect the conversion ratios of
0.71889936, 0.71991517, 0.72321182 and 0.72727901 for Institutional, Class A,
Class B and Class C shares, respectively.
See accompanying notes to financial statements.
168
BlackRock Funds
Ratio of Total Ratio of Net
Expense to Ratio of Net Investment
Net Assets Ratio of Net Average Net Investment Income to
End of Expenses to Assets Income to Average Net Assets Portfolio
Total Period Average Net (Excluding Average Net (Excluding Turnover
Return (000) Assets Waivers) Assets Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------
International Opportunities (Continued)
- ---------------------------------------
Investor B Class
9/30/05 40.58%/4/,/11/ $ 73,946 2.50% 2.51% 0.68% 0.67% 86%
9/30/04 21.18/4/,/12/ 45,167 2.65 2.72 (0.94) (1.00) 98
9/30/03 /21/ 29.51/4/,/12/ 31,454 2.63 2.72 (0.74) (0.83) 72
9/30/02 /21/ 1.18/4/,/10/ 25,917 2.54 2.64 (0.93) (1.03) 104
9/30/01 /21/ (34.71)/4/ 27,895 2.55 2.64 0.06 (0.03) 207
Investor C Class
9/30/05 40.60%/4/,/12/ $130,138 2.50% 2.51% 0.75% 0.74% 86%
9/30/04 21.12/4/,/12/ 54,894 2.65 2.72 (0.86) (0.93) 98
9/30/03 /21/ 29.57/4/,/12/ 26,912 2.63 2.72 (0.71) (0.80) 72
9/30/02 /21/ 1.25/4/,/10/ 18,599 2.55 2.66 (0.95) (1.05) 104
9/30/01 /21/ (34.71)/4/ 21,019 2.55 2.66 0.07 (0.03) 207
- -----------------
Asset Allocation*
- -----------------
Institutional Class
3/01/05 through 9/30/05 4.66%/10/ $ 29,752 0.86%/2/ 1.11%/2/ 1.90%/2/ 1.65%/2/ 90%
4/01/04 through 2/28/05 7.17 31,328 1.03/2/ 1.05/2/ 1.71/2/ 1.70/2/ 101
3/31/04 33.46 21,989 1.15 1.15 1.74 1.74 216
3/31/03 /21/ (17.12) 17,992 1.12 1.13 2.21 2.21 181
3/31/02 /21/ 8.47 26,821 1.10 1.11 2.27 2.27 186
3/31/01 /21/ 0.56 26,917 1.17 1.19 2.85 2.85 181
Service Class
3/01/05 through 9/30/05 4.44%/10/ $ 2,171 1.16%/2/ 1.36%/2/ 1.60%/2/ 1.40%/2/ 90%
1/28/051 through 2/28/05 2.32 2,171 1.16/2/ 1.26/2/ (0.17)/2/ (0.27)/2/ 101
Investor A Class
3/01/05 through 9/30/05 4.44%/3/,/10/ $491,557 1.25%/2/ 1.46%/2/ 1.51%/2/ 1.30%/2/ 90%
4/01/04 through 2/28/05 6.78/3/ 526,929 1.24/2/ 1.32/2/ 1.55/2/ 1.47/2/ 101
3/31/04 32.94/3/ 357,100 1.45 1.45 1.43 1.43 216
3/31/03 /21/ (17.37)/3/ 252,069 1.42 1.43 1.92 1.92 181
3/31/02 /21/ 8.15/3/ 320,614 1.40 1.41 1.95 1.95 186
3/31/01 /21/ 0.29/3/ 272,813 1.44 1.46 2.61 2.61 181
Investor B Class
3/01/05 through 9/30/05 3.94%/4/,/10/ $181,583 2.01%/2/ 2.11%/2/ 0.75%/2/ 0.65%/2/ 90%
4/01/04 through 2/28/05 6.20/4/ 187,689 2.04/2/ 2.04/2/ 0.73/2/ 0.73/2/ 101
3/31/04 32.03/4/ 133,083 2.15 2.15 0.72 0.72 216
3/31/03 /21/ (17.91)/4/ 75,963 2.12 2.13 1.22 1.22 181
3/31/02 /21/ 7.30/4/ 81,440 2.10 2.11 1.25 1.25 186
3/31/01 /21/ (0.35)/4/ 56,543 2.17 2.19 1.86 1.86 181
Investor C Class
3/01/05 through 9/30/05 3.90%/4/,/10/ $ 67,371 2.00%/2/ 2.11%/2/ 0.75%/2/ 0.64%/2/ 90%
4/01/04 through 2/28/05 6.20/4/ 65,357 2.04/2/ 2.04/2/ 0.76/2/ 0.76/2/ 101
3/31/04 32.14/4/ 42,262 2.15 2.15 0.72 0.72 216
3/31/03 /21/ 17.96)/4/ 19,079 2.12 2.13 1.21 1.21 181
3/31/02 /21/ 7.31/4/ 13,226 2.10 2.11 1.26 1.26 186
3/31/01 /21/ (0.35)/4/ 12,687 2.17 2.19 1.89 1.89 181
169
BlackRock Funds
FINANCIAL HIGHLIGHTS (Concluded)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Gain (loss)
Net on investments, Distributions
asset foreign currency from net Net
value Net and options Distributions realized Asset value
beginning investment (both realized from net investment capital end of
of period income (loss) and unrealized) income gains period
- ---------------------------------------------------------------------------------------------------------------------------
- ------------
Index Equity
- ------------
Institutional Class
9/30/05 $21.49 $ 0.45/5/ $ 2.15 $(0.46) $-- $23.63
9/30/04 19.19 0.34/5/ 2.29 (0.33) -- 21.49
9/30/03 /21/ 15.69 0.30 3.48 (0.28) -- 19.19
9/30/02 /21/ 20.03 0.25 (4.34) (0.25) -- 15.69
9/30/01 /21/ 27.59 0.26 (7.63) (0.19) -- 20.03
Service Class
9/30/05 $21.35 $ 0.37/5/ $ 2.13 $(0.37) $-- $23.48
9/30/04 19.08 0.25/5/ 2.27 (0.25) -- 21.35
9/30/03 /21/ 15.62 0.21 3.47 (0.22) -- 19.08
9/30/02 /21/ 19.97 0.25 (4.41) (0.19) -- 15.62
9/30/01 /21/ 27.54 0.16 (7.61) (0.12) -- 19.97
Investor A Class
9/30/05 $21.34 $ 0.36/5/ $ 3.47 $(1.71) $-- $23.46
9/30/04 19.07 0.22/5/ 2.28 (0.23) -- 21.34
9/30/03 /21/ 15.62 0.18 3.46 (0.19) -- 19.07
9/30/02 /21/ 19.95 0.13 (4.31) (0.15) -- 15.62
9/30/01 /21/ 27.51 0.12 (7.60) (0.08) -- 19.95
Investor B Class
9/30/05 $20.98 $ 0.20/5/ $ 1.88 $ -- $-- $23.06
9/30/04 18.75 0.06/5/ 2.24 (0.07) -- 20.98
9/30/03 /21/ 15.35 0.04 3.42 (0.06) -- 18.75
9/30/02 /21/ 19.61 (0.01) (4.25) -- -- 15.35
9/30/01 /21/ 27.15 (0.06) (7.48) -- -- 19.61
Investor C Class
9/30/05 $20.97 $ 0.19/5/ $ 2.09 $(0.20) $-- $23.05
9/30/04 18.74 0.06/5/ 2.24 (0.07) -- 20.97
9/30/03 /21/ 15.35 0.04 3.41 (0.06) -- 18.74
9/30/02 /21/ 19.61 (0.01) (4.25) -- -- 15.35
9/30/01 /21/ 27.15 (0.06) (7.48) -- -- 19.61
/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/ Calculated using the average shares outstanding method.
/6/ For period 12/1/00 through 9/30/01.
/7/ For period 12/1/01 through 9/30/02.
/8/ For period 12/1/02 through 9/30/03.
/9/ For period 12/1/03 through 9/30/04.
/10/ Redemption fee of 2.00% received by the Portfolios is reflected in total
return calculations. There was no impact to the return.
/11/ Redemption fee of 2.00% received by the Portfolios is reflected in total
return calculations. The impact to the return, for redemption fees received
during the period, is 4 basis points.
/12/ Redemption fee of 2.00% received by the Portfolios is reflected in total
return calculations. The impact to the return, for redemption fees received
during the period, is 5 basis points.
See accompanying notes to financial statements.
170
BlackRock Funds
Ratio of Total Ratio of Net
Ratio of Net Expense to Ratio of Net Investment Income
Net assets Expenses to Average Net Investment Income to Average Net Portfolio
Total end of period Average Net Assets (Excluding To Average Net Assets (Excluding Turnover
Return (000) Assets Waivers) Assets Waivers) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Class
9/30/05 12.17%/10/ $ 595,050 0.18%++ 0.37% 1.95% 1.76% 7%
9/30/04 13.71/10/ 546,947 0.18++ 0.36++ 1.56 1.38 2/9/
9/30/03 /21/ 24.20 618,249 0.18++ 0.37++ 1.63 1.44 10/8/
9/30/02 /21/ (20.65) 741,161 0.18++ 0.33++ 1.35 1.20 6/7/
9/30/01 /21/ (26.78) 557,845 0.18++ 0.33++ 1.11 0.96 8/6/
Service Class
9/30/05 11.78%/10/ $ 68,637 0.55%++ 0.60% 1.62% 1.57% 7%
9/30/04 13.2010 74,641 0.56++ 0.67++ 1.17 1.06 2/9/
9/30/03 /21/ 23.68 72,505 0.61++ 0.67++ 1.19 1.13 10/8/
9/30/02 /21/ (21.02) 63,468 0.61++ 0.67++ 0.87 0.81 6/7/
9/30/01 /21/ (27.10) 292,389 0.61++ 0.63++ 0.68 0.66 8/6/
Investor A Class
9/30/05 11.75%/3/,/10/ $ 296,266 0.55%++ 0.70%++ 1.59% 1.44% 7%
9/30/04 13.10/3/,/10/ 312,606 0.70++ 0.84++ 1.04 0.90 2/9/
9/30/03 /21/ 23.41/3/ 281,505 0.79++ 0.85++ 1.01 0.96 10/8/
9/30/02 /21/ (21.09)/3/ 222,736 0.79++ 0.78++ 0.72 0.72 6/7/
9/30/01 /21/ (27.23)/3/ 76,363 0.79++ 0.81++ 0.50 0.48 8/6/
Investor B Class
9/30/05 10.89%/4/,/10/ $ 136,878 1.31%++ 1.35%++ 0.86% 0.82% 7%
9/30/04 12.25/4/,/10/ 177,754 1.46++ 1.50++ 0.28 0.24 2/9/
9/30/03 /21/ 22.59/4/ 192,614 1.54++ 1.59++ 0.27 0.21 10/8/
9/30/02 /21/ (21.72)/4/ 175,100 1.53++ 1.55++ (0.04) (0.05) 6/7/
9/30/01 /21/ (27.77)/4/ 262,027 1.53++ 1.55++ (0.25) (0.26) 8/6/
Investor C Class
9/30/05 10.90%/4/,/10/ $ 228,276 1.31%++ 1.35%++ 0.86% 0.82% 7%
9/30/04 12.26/4/,/10/ 279,130 1.46++ 1.50++ 0.28 0.24 2/9/
9/30/03 /21/ 22.52/4/ 297,835 1.54++ 1.59++ 0.27 0.21 10/8/
9/30/02 /21/ (21.72)/4/ 270,958 1.53++ 1.55++ (0.04) (0.05) 6/7/
9/30/01 /21/ (27.77)/4/ 382,356 1.53++ 1.55++ (0.25) (0.26) 8/6/
/13/ Redemption fee of 2.00% received by the Portfolios is reflected in total
return calculations. The impact to the return, for redemption fees received
during the period, is 6 basis points.
/14/ Redemption fee of 2.00% received by the Portfolios is reflected in total
return calculations. The impact to the return, for redemption fees received
during the period, is 7 basis points.
/15/ Redemption fee of 2.00% received by the Portfolios is reflected in total
return calculations. The impact to the return, for redemption fees received
during the period, is 8 basis points.
/16/ Redemption fee of 2.00% received by the Portfolios is reflected in total
return calculations. The impact to the return, for redemption fees received
during the period, is 9 basis points.
/17/ Redemption fee of 2.00% received by the Portfolios is reflected in total
returns calculations. The impact to the return, for redemption fees
received during the period, is 10 basis points.
/18/ Redemption fee of 2.00% received by the Portfolios is reflected in total
return calculations. The impact to the return, for redemption fees received
during the period, is 42 basis points.
/19/ Redemption fee of 2.00% received by the Portfolios is reflected in total
return calculations. The impact to the return, for redemption fees received
during the period, is 59 basis points.
/20/ Net assets end of period are less than $1,000.
/21/ Audited by other auditors.
/22/ The total return includes an impact of 8 basis points related to payments
made by SSRM prior to January 31, 2005.
/23/ The total return includes an impact of 9 basis points related to payments
made by SSRM prior to January 31, 2005.
++ Including expenses allocated from the U.S. Large Company Series of The DFA
Investment Trust Company of 0.06% for the years ended 9/30/00 through
September 30, 2005.
171
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS
(A) Organization
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 50 portfolios, 20 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, mostly due to differences in distribution and service
fees.
The Index Equity Portfolio accrues its respective share of income net of
expenses daily on its investment in The U.S. Large Company Series of The DFA
Investment Trust Company (the "Master"), which is treated as a partnership for
federal income tax purposes. All of the net investment income and realized and
unrealized gains and losses from the security transactions of the Master are
allocated pro rata at the time of such determination. The Index Equity Portfolio
allocated $29,397,476 in gross investment income and $697,231 in expenses from
the Master during the year ended September 30, 2005. These amounts are presented
on the Statement of Operations as net investment income from the Master in the
amount of $28,700,247.
Under the Fund's organizational documents, its officers and trustees are
indemnified against certain liabilities arising out of the performance of the
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts with its vendors and others that provide for general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund.
However, based on experience, the Fund considers the risk of loss from such
claims to be remote.
(B) Fund Reorganizations
BlackRock, Inc., the parent of BlackRock Advisors, Inc. ("BlackRock"),
recently acquired SSRM Holdings, Inc., the parent of State Street Research &
Management Co. ("SSRM"), the investment adviser of the former State Street
Research mutual funds.
The Boards of Trustees (the "Board") and shareholders of the State Street
Research Funds approved a reorganization with similarly-managed BlackRock
Portfolios (the "Reorganization"), as indicated below. In connection with the
Reorganization, five State Street Research Funds reorganized with newly
established BlackRock Portfolios, as indicated below. The Reorganization was a
tax-free event and took place after the close of business on January 28, 2005.
State Street Research Funds Blackrock Portfolios
- ----------------------------- ----------------------
Investment Trust Investment Trust/1/,/2/
Large Cap Analyst Investment Trust/1/,/2/
Large Cap Value Large Cap Value/2/
Mid-Cap Growth Mid-Cap Growth/2/
Mid-Cap Value/2/ Mid-Cap Value
Asset Allocation/2/ Asset Allocation/3/
Legacy/2/ Legacy/4/
Aurora/2/ Aurora/4/
Emerging Growth/2/ Small/Mid-Cap Growth/4/
Global Resources/2/ Global Resources/4/
Health Sciences/2/ Health Sciences/4/
/1/ Effective January 31, 2005, the BlackRock Select Equity Portfolio changed
its name to the BlackRock Investment Trust Portfolio.
/2/ Denotes the surviving or continuing portfolio for purposes of maintaining
the financial statements and performance history in the post-Reorganization
funds.
/3/ Effective January 31, 2005, the BlackRock Balanced Portfolio changed its
name to the BlackRock Asset Allocation Portfolio.
/4/ New BlackRock Portfolios.
172
BlackRock Funds
Under the Agreements and Plans of Reorganizations with respect to the
Reorganization, the State Street Research Class A, Class B and Class R Shares
were exchanged for BlackRock Investor A Class Shares, State Street Research
Class B(1) Shares were exchanged for BlackRock Investor B Class Shares, State
Street Research Class C Shares were exchanged for BlackRock Investor C Class
Shares and State Street Research Class S Shares were exchanged for BlackRock
Institutional Class Shares. The conversion ratios for each Share Class mentioned
above were as follows:
State Street Research Funds Class A Class B(1) Class B Class C Class R Class S
- ----------------------------- -----------------------------------------------------------------------------------------------
Investment Trust ............ 0.77806224 0.77277277 0.75918073 0.77475000 -- 0.78011714
Large Cap Analyst ........... 0.89751180 0.89305973 0.87054964 0.89425000 -- 0.89987336
Large Cap Value ............. 1.24981582 1.21431253 1.20156181 1.21745329 -- 1.24909774
Mid-Cap Growth .............. 0.73009098 0.67146166 0.63731327 0.67353407 -- 0.73322751
Mid-Cap Value ............... 1.57950264 1.62345461 1.56116554 1.63087248 1.57489743 1.56483770
Asset Allocation ............ 0.71991517 0.72321182 0.71704180 0.72727901 -- 0.71889936
Legacy ...................... 1.00000000 1.00000000 0.98101559 1.00000000 0.99614138 1.00000000
Aurora ...................... 1.00000000 1.00000000 0.95337751 1.00000000 -- 1.00000000
Emerging Growth ............. 1.00000000 1.00000000 0.91664065 1.00000000 0.99539494 1.00000000
Global Resources ............ 1.00000000 1.00000000 0.92094612 1.00000000 0.99768147 1.00000000
Health Sciences ............. 1.00000000 1.00000000 0.96497882 1.00000000 -- 1.00000000
The net assets before and after the Reorganization and shares issued and
redeemed in the Reorganization were as follows:
State street
Existing Combined net assets Prior net assets Blackrock portfolios' research funds'
blackrock portfolios as of january 28, 2005 as of january 28, 2005 shares issued shares redeemed
- --------------------------- -------------------------------------------------------------------------------------------
Investment Trust ......... $1,498,152,592 $ 94,173,891 112,830,577 144,941,372
Large Cap Value .......... 375,958,467 220,398,231 11,510,360 9,304,166
Mid-Cap Growth ........... 469,599,671 112,602,647 40,325,986 56,565,182
Mid-Cap Value ............ 700,767,573 31,360,120 56,941,640 35,763,533
Asset Allocation ......... 808,215,456 118,597,457 47,307,662 65,619,686
State Street
New Combined Net Assets Prior Net Assets Blackrock Portfolios Research Fund's
Blackrock Portfolios as of January 28, 2005 as of January 28, 2005 Shares Issued Shares Redeemed
- ------------------------------- ------------------------------------------------------------------------------------------
Legacy ....................... $ 303,167,930 N/A 23,774,854 23,821,894
Aurora ....................... 3,307,156,075 N/A 88,632,067 88,854,760
Small/Mid-Cap Growth ......... 352,288,988 N/A 27,815,846 27,932,833
Global Resources ............. 825,347,266 N/A 17,184,504 17,250,833
Health Sciences .............. 138,374,397 N/A 6,894,017 6,898,634
173
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Included in the net assets from the State Street Research Funds were the
following components:
Net
Undistributed Accumulated Unrealized
Paid In Net Investment Realized Appreciation/ Net
State Street Research Fund Capital Income (Loss) Gain (Loss) (Depreciation) Assets
- ---------------------------- ---------------------------------------------------------------------------------------
Investment Trust ........... $1,347,362,021 $ 884,681 $ (310,301,295) $325,455,127 $1,363,400,534
Large Cap Analyst .......... 40,605,783 (20,664) (3,696,837) 3,689,885 40,578,167
Large Cap Value ............ 140,661,636 (51,872) (11,642,475) 26,592,947 155,560,236
Mid-Cap Growth ............. 578,507,467 (1,354,506) (280,110,666) 59,954,730 356,997,025
Legacy ..................... 385,380,697 1,305,278 (123,774,086) 40,256,041 303,167,930
Mid-Cap Value .............. 578,833,036 289,106 (794,901) 91,080,212 669,407,453
Aurora ..................... 2,419,708,570 (9,149,900) 259,837,698 636,759,707 3,307,156,075
Emerging Growth ............ 341,584,995 (1,676,121) (34,054,396) 46,434,510 352,288,988
Global Resources ........... 501,649,873 (4,726,637) 46,159,901 282,264,129 825,347,266
Health Sciences ............ 124,221,974 (1,286,711) 118,458 15,320,676 138,374,397
Asset Allocation ........... 628,277,636 (4,066,275) 2,317,491 63,089,147 689,617,999
In April of 2005, BlackRock determined that the BlackRock Asset Allocation
Portfolio held high yield bonds as a result of the Reorganization. The Portfolio
sold the bonds and BlackRock reimbursed the Portfolio for the realized losses
incurred from the date of the Reorganization through April 18, 2005. The amount
of the reimbursement for the realized losses was $90,574 (See Note (D)).
(C) 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.
Investment Valuation -- Valuation of investments held by each Portfolio is
as follows: investments traded on a national securities exchange or on the
NASDAQ National Market System are valued at the last reported sale price that
day or the NASDAQ official closing price, if applicable; investments traded on a
national securities exchange for which there were no sales on that day and
investments traded on other over-the-counter markets for which market quotations
are readily available are valued at the mean of the bid and asked prices; and an
option or futures contract is valued at the last sales price prior to 4:00 p.m.
(Eastern time), as quoted on the principal exchange or board of trade on which
such option or contract is traded, or in the absence of a sale, the mean between
the last bid and asked prices prior to 4:00 p.m. (Eastern time). The amortized
cost method of valuation will be used with respect to debt obligations with
sixty days or less remaining to maturity unless the investment adviser and/or
sub-adviser under the supervision of the Board determines such method does not
represent fair value. Any assets which are denominated in a non-U.S. currency
are translated into U.S. dollars at the prevailing market rates. In the event
that application of these methods of valuation results in a price for an
investment which is deemed not to be representative of the market value of such
investment, the investment will be valued by, under the direction of or in
accordance with a method approved by the Board as reflecting fair value ("Fair
Value Assets"). The investment adviser and/or sub-adviser will submit its
recommendations regarding the valuation and/or valuation methodologies for Fair
Value Assets to a valuation committee. Such valuation committee may accept,
modify or reject any recommendations. The pricing of all Fair Value Assets shall
be subsequently reported to and ratified by the Board.
When determining the price for a Fair Value Asset, the investment adviser
and/or sub-adviser shall seek to determine the price that the Portfolio might
reasonably expect to receive from the current sale of that asset in an
arms-length transaction. Fair value determinations shall be based upon all
available factors that the adviser and/or sub-adviser deems relevant.
The Index Equity Portfolio's investment reflects its proportionate interest
in the net assets of the Master.
Dividends to Shareholders -- Dividends from net investment income, which
are recorded on the ex-dividend date, are declared and paid quarterly for the
Portfolios. Net realized capital gains, if any, are distributed at least
annually.
174
BlackRock Funds
Foreign Currency Translation -- The books and records of the 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 do not 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 the market prices of such securities. The
Portfolios report forward foreign currency related transactions as components of
realized gains for financial reporting purposes, whereas such components are
treated as ordinary income for federal income tax purposes.
Forward Foreign Currency Contracts -- Certain Portfolios may enter into
forward foreign currency contracts as a hedge against either specific
transactions or portfolio positions. These contracts are adjusted by the daily
forward exchange rate of the underlying currency and any gains or losses are
recorded as unrealized until the contract settle-ment 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 counterparts to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
The aggregate principal amounts of the contracts are not recorded as the
Portfolios intend to settle the contracts prior to delivery. Under the terms of
foreign currency contracts open at September 30, 2005, the Portfolios are
obligated to deliver or receive currency in exchange for U.S. dollars as
indicated below:
Unrealized
Value At Foreign
Settlement Currency Currency Contract September 30, Exchange
Date Amount Sold Amount 2005 Gain(Loss)
- ------------ ----------------- ---------------------------------- ----------------- ----------------- ----------------
International Opportunities
12/15/05 20,000,000 Canadian Dollar ................. $ 16,970,150 $ 17,268,664 $ (298,514)
12/15/05 32,000,000 Australian Dollar ............... 24,627,200 24,362,391 264,809
12/15/05 47,000,000 European Currency Unit .......... 58,785,249 56,910,868 1,874,381
12/15/05 22,000,000 Swiss Franc ..................... 17,898,257 17,186,426 711,831
12/15/05 10,500,000 Great British Pound ............. 19,327,769 18,559,343 768,426
------------ ------------ ----------
$ 137,608,625 $134,287,692 $3,320,933
============ ============ ==========
Unrealized
Value At Foreign
Settlement Currency Currency Contract September 30, Exchange
Date Amount Bought Amount 2005 Loss
- --------- ----------- ----------------------------------- ----------------- ----------------- ----------------
International Opportunities
12/15/05 210,000,000 Norwegian Krone ................. $ 33,588,177 $ 32,245,844 $(1,342,333)
12/15/05 7,500,000,000 Japanese Yen .................... 68,629,784 66,757,655 (1,872,129)
------------- ------------- ------------
$ 102,217,961 $ 99,003,499 (3,214,462)
============= ============= ============
Unrealized
Value At Foreign
Settlement Currency Currency Contract September 30, Exchange
Date Amount Sold Amount 2005 Gain
- --------- -------------- ----------------------------------- ----------------- ----------------- ----------------
Asset Allocation
10/20/05 1,942,000 European Currency Unit .......... $ 2,352,902 $ 2,344,463 $ 8,439
============= ============= ============
175
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Unrealized
Value At Foreign
Settlement Currency Currency Contract September 30, Exchange
Date Amount Bought Amount 2005 Loss
- -------- -------- ---------------------------------- -------------- ----------------- ----------
Asset Allocation
10/20/05 201,957 European Currency Unit .......... $ 248,461 $ 243,811 $ (4,650)
========== ============= ===========
Swap Agreements -- The Portfolios may invest in swap agreements for the
purpose of hedging against changes in interest rates or foreign currencies. Swap
agreements involve the exchange by the Portfolio with another party of their
respective commitments to pay or receive interest or a specified amount of a
currency (e.g., an exchange of floating rate payments for fixed rate payments)
with respect to a notional amount of principal. Swaps are marked to market daily
based upon quotations from market makers and the change, if any, is recorded as
an unrealized gain or loss in the Statements of Operations. Net payments of
interest are recorded as realized gain or loss. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess of
the amounts recognized on the Statements of Assets and Liabilities. Such risks
involve the possibility that there will be no liquid market for these
agreements, that the counterparty to the agreement may default on its obligation
to perform and that there may be unfavorable changes in the fluctuation of
interest and/or exchange rates.
At September 30, 2005, the Asset Allocation Portfolio had the following
swap agreements outstanding:
Unrealized
Termination Interest Interest Notional amount Appreciation
Portfolio Counter-party Date Receivable Rate Payable Rate (U.S. Dollars) (Depreciation)
- --------------------------------------------------------------------------------------------------------------------------------
Asset Allocation Morgan Stanley 06/14/2006 3.21% 3.85%/1/ $ 2,145,000 $ (261)
Deutsche Bank 08/02/2007 4.39% 3.70%/1/ 10,500,000 (22,050)
Deutsche Bank 09/02/2007 4.73% 3.87%/1/ 12,000,000 (75,120)
JP Morgan Chase 09/20/2007 3.89%/1/ 4.35% 18,000,000 66,240
Morgan Stanley 06/17/2010 4.31% 3.89%/1/ 600,000 (1,797)
Morgan Stanley 07/01/2015 4.17% 3.50%/1/ 11,300,000 (213,902)
Morgan Stanley 07/01/2010 3.50%/1/ 4.39% 6,300,000 176,240
Union Bank of Switzerland 09/27/2010 3.22% 3.97%/1/ 100,000 (603)
Morgan Stanley 06/14/2014 3.85%/1/ 5.31% 600,000 (32,198)
Merrill Lynch 07/22/2014 3.63%/1/ 4.93% 600,000 (9,030)
Goldman Sachs 10/01/2014 3.50%/1/ 4.51% 600,000 2,836
Union Bank of Switzerland 03/23/2015 3.96%/1/ 4.96% 5,000,000 (73,000)
JP Morgan Chase 05/26/2015 3.84%/1/ 4.50% 1,700,000 15,299
Morgan Stanley 08/02/2015 4.73%/1/ 3.70% 600,000 (1,589)
JP Morgan Chase 09/20/2015 4.70% 3.89%/1/ 3,900,000 (24,414)
Merrill Lynch 07/29/2019 3.68%/1/ 5.37% 100,000 (5,055)
Merrill Lynch 08/13/2019 5.16% 3.79%/1/ 125,000 3,523
Merrill Lynch 10/27/2019 4.78% 3.66%/1/ 100,000 206
/1/ Rate shown is based on the 3 month LIBOR as of the most recent payment
date.
176
Blackrock Funds
Investment Transactions and Investment Income -- Investment transactions
are accounted for on the trade date. The cost of investments sold and the
related gain or loss thereon is determined by use of the high cost method for
both financial reporting and federal income tax purposes. Interest income is
recorded on the accrual basis. Discounts and premiums on debt securities are
accreted or amortized, respectively, for book and tax purposes using the
effective yield-to-maturity method over the term of the instrument. Dividends
are recorded on the ex-dividend date. Paydown gains and losses on mortgage and
asset-backed securities are presented as an adjustment to interest income.
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
Portfolio's custodian or an authorized securities depository.
Reverse Repurchase Agreements -- The Portfolios may enter into reverse
repurchase agreements with qualified third party broker-dealers as determined
by and under the direction of the Board. Interest on the value of the reverse
repurchase agreements issued and outstanding is based upon competitive market
rates at the time of issuance and is included within the related liability on
the Statements of Assets and Liabilities. At the time the Portfolio 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.
Futures Transactions -- The Portfolios may invest in financial futures
contracts for the purposes of hedging their existing portfolio securities, or
securities that the Portfolios intend to purchase, against fluctuations in
value caused by changes in prevailing market interest rates. The Portfolios may
also invest in futures contracts and options on futures contracts to commit
funds awaiting investments in stocks or to maintain cash liquidity or, except
with respect to the Index Equity Portfolio, for other hedging purposes. Certain
Portfolios may also invest in these instruments to increase returns. These
Portfolios' futures contracts obligate a Portfolio, at maturity, to take or
make delivery of securities, the cash value of a securities index or a stated
quantity of a foreign currency. Upon entering into a futures contract, the
Portfolio is required to deposit cash or pledge securities as 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 cumulative 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 market, resulting in
an inability to liquidate 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.
Stripped Mortgage Backed Securities -- The Asset Allocation Portfolio may
invest in stripped mortgage-backed securities issued by the U.S. Government,
its agencies and instrumentalities. Stripped mortgage-backed securities are
usually structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. In certain
cases, one class will receive all of the interest (the interest-only or "IO"
class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on IO's is sensitive to
the rate of principal repayments (including prepayments) on the related
underlying mortgage assets, and principal payments may have a material effect
on yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Portfolio may not fully recoup its
initial investment in IO's. Such securities will be considered liquid only if
so determined in accordance with guidelines approved by the Board. The
Portfolio also may invest in stripped mortgage-backed securities that are
privately issued. These securities will be considered illiquid for purposes of
the Portfolio's limit on illiquid securities.
Investing in Government Sponsored Enterprises -- The Asset Allocation
Portfolio invests in securities issued by the Federal Home Loan Mortgage
Corporation ("Freddie Mac") and similar United States Government sponsored
entities such as Federal National Mortgage Association ("Fannie Mae") and the
Federal Home Loan Banks ("FHLB's"). Freddie Mac, Fannie Mae, and FHLB's,
although chartered and sponsored by Congress, are not funded by Congressional
appropriations and the debt and mortgage-backed securities issued by Freddie
Mac, Fannie Mae and FHLB's are neither guaranteed nor insured by the U.S.
Government.
177
Blackrock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Option Writing/Purchasing-- The Portfolios may write or purchase financial
options contracts for the purpose of hedging or earning additional income,
which may be deemed speculative. When a Portfolio writes or purchases an
option, an amount equal to the premium received or paid by the Portfolio 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
Portfolio 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 Portfolio has realized a gain or loss on investment
transactions. The Portfolio, 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.
Swaptions Writing -- The Portfolios may write swaption contracts to manage
exposure to fluctuations in interest rates and to enhance portfolio yield.
Swaption contracts written by the Portfolios represent an option that gives the
purchaser the right, but not the obligation, to enter into a previously agreed
upon swap contract on a future date. If a written call swaption is exercised,
the writer will enter a swap and is obligated to pay the fixed rate and receive
a floating rate in exchange. If a written put swaption is exercised, the writer
will enter a swap and is obligated to pay the floating rate and receive a fixed
rated in exchange. Swaptions are marked to market daily based upon quotations
from market makers.
When a portfolio writes a swaption, the premium received is recorded as a
liability and is subsequently adjusted to the current market values of the
swaption. Changes in the values of the swaption are reported as unrealized
gains or losses in the Statements of Assets and Liabilities or Statements of
Net Assets. Gain or loss is recognized when the swaption contract expires or is
closed. Premiums received from writing swaptions that expire or are exercised
are treated by the Portfolio as realized gains from investments. The difference
between the premium and the amount paid on effecting a closing purchase
transaction is also treated as a realized gain, or if the premium is less than
the amount paid for the closing purchase, as a realized loss.
Entering into a swaption contract involves, to varying degrees, the
elements of credit, market and interest rate risk, associated with both option
contracts and swap contracts. To reduce credit risk from potential counterparty
default, the Portfolios enter into swaption contracts with counterparties whose
creditworthiness has been evaluated by BlackRock. The Portfolios bear the
market risk arising from any change in index values or interest rates.
Written Option and Swaption transactions entered into during the period
ended September 30, 2005, are summarized as follows:
Health Sciences Asset Allocation
--------------------------------------------------------
Number of Number of
Contracts Premium Contracts Premium
--------------------------------------------------------
Balance at 02/28/05 ................ -- $ -- (243) $ (79,281)
Written ............................ (16,353) (1,415,404) (3,064) (1,293,196)
Purchased .......................... 95 523 1,922 88,288
Expired ............................ 9,954 715,364 (1,042) (7,291)
Closed ............................. 1,414 67,458 (703) (46,100)
Exercised .......................... -- -- -- --
-------- ------------ ------- -------------
Balance at 9/30/05 ................. (4,890) $ (632,059) (3,130) $ (1,337,580)
======== ============ ======= =============
TBA Purchase Commitments -- The Portfolios except Index Equity may enter
into to be announced ("TBA") purchase commitments to purchase or sell
securities for a fixed price at a future date. TBA commitments are considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased/sold declines/increases prior to settlement date,
which is in addition to the risk of decline in the value of the Portfolio's
other assets. Unsettled TBA commitments are valued at the current market value
of the underlying securities, according to the procedures described under
"Security Valuation".
Mortgage Dollar Rolls -- The Asset Allocation 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, in either "fee" or "drop", as
consideration for entering
178
Blackrock Funds
into the commitment to repurchase. The 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 that the
Portfolio is required to purchase may decline below the agreed upon repurchase
price of those securities.
In a "fee" roll, the compensation received 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.
Financing Transactions -- The Portfolios may enter into financial
transactions consisting of the sale by the Portfolio of securities, together
with a commitment to repurchase similar securities at a future date. The
difference between the selling price and the future purchase price is an
adjustment to interest income. If the counterparty to whom the Portfolio sells
the security becomes insolvent, the Portfolio's right to repurchase the
security may be restricted. The value of the security may change over the term
of the financing transaction.
Inflation-indexed Bonds -- Inflation-indexed bonds are fixed income
securities whose principal value is periodically adjusted according to the rate
of inflation. If the index measuring inflation falls, the principal value of
inflation-indexed bonds will be adjusted downward, and consequently the
interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced. Repayment of the original bond principal
upon maturity (as adjusted for inflation) is guaranteed in the case of U.S.
Treasury inflation-indexed bonds. For bonds that do not provide a similar
guarantee, the adjusted principal value of the bond repaid at maturity may be
less than the original principal.
Securities Lending -- Through an agreement with PFPC Trust Co., (the
"lending agent") the Portfolios may lend portfolio securities to certain
brokers, dealers or other financial institutions that pay the Portfolios a
negotiated fee. Prior to the close of each business day, loans of U.S.
securities are secured by collateral at least equal to 102% of the market value
of the securities on loan. Loans of foreign securities are secured by
collateral at least equal to 105% of the market value of securities on loan.
However, due to market fluctuations, the value of the securities lent may
exceed the value of the collateral. On the next business day, the collateral is
adjusted based on the prior day's market fluctuations and the current day's
lending activity. Cash collateral received in connection with the securities
lending is invested in short-term investments by the lending agent. The lending
agent has hired BlackRock Capital Management, Inc. ("BCM"), a wholly-owned
subsidiary of BlackRock, Inc., and pays BCM to provide advisory services with
respect to the collateral of all of the clients of its securities lending
program. The lending agent may invest such collateral in short-term
investments, including the Institutional Money Market Trust (the "Trust"), a
portfolio of money market securities, or high-quality, short-term instruments
with a maturity date not to exceed 397 days. BCM serves as investment adviser
to the Trust, but receives no fees from the Trust for these services.
Administrative and accounting services are provided by PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of The PNC Financial Services Group, Inc. PFPC
is paid a fee from the Trust at an annual rate not to exceed 0.10% of the
Trust's average daily net assets. At September 30, 2005, the market value of
securities on loan, cash collateral invested in the Trust and total value of
collateral held in connection with securities lending is summarized as follows:
Market Value Market Value of Total Market
of Securities Cash Collateral Value of
On Loan Invested in the Trust Collateral Received
-------------------------------------------------------------
Investment Trust ................ $ 157,537,052 $ 97,006,460 $ 162,554,304
Large Cap Value Equity .......... 75,173,805 44,756,386 77,496,894
Large Cap Growth Equity ......... 4,803,423 3,029,234 4,944,484
Dividend Achievers .............. 10,238,279 7,614,238 10,552,865
Legacy .......................... 46,119,207 30,309,454 47,134,914
Mid-Cap Value Equity ............ 75,626,246 54,169,221 77,409,862
Mid-Cap Growth Equity ........... 41,047,084 31,436,669 42,162,841
Aurora .......................... 170,485,111 168,827,843 176,574,523
Small/Mid-Cap Growth ............ 26,025,659 21,268,527 26,689,488
Small Cap Value Equity .......... 4,843,121 5,001,530 5,001,530
Small Cap Core Equity ........... 5,270,841 4,799,682 5,373,790
179
Blackrock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Market Value Market Value of Total Market
of Securities Cash Collateral Value of
on Loan Invested in the Trust Collateral Received
-------------------------------------------------------------
Small Cap Growth Equity ......... $ 23,058,062 $ 17,448,244 $ 23,698,754
Global Sciences & Technology
Opportunities .................. 3,391,814 3,104,457 3,500,012
Global Resources ................ 120,570,015 109,250,270 126,432,172
All-Cap Global Resources ........ 33,393,425 23,895,901 35,018,383
Health Sciences ................. 25,211,741 17,439,518 25,993,314
U.S. Opportunities .............. 13,225,815 9,254,249 13,630,231
Asset Allocation ................ 108,354,352 77,247,763 111,688,786
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.
Prior to January 31, 2005, State Street Bank and Trust Company served as
the securities lending agent for State Street Research Legacy Fund, State
Street Research Mid-Cap Value Fund, State Street Research Aurora Fund, State
Street Research Emerging Growth Fund, State Street Research Global Resources
Fund, State Street Research Health Sciences Fund and State Street Research
Asset Allocation Fund. These Funds received cash or securities as collateral in
an amount equal to at least 100% of the market value of any loaned securities
plus accrued interest. Cash collateral was invested in State Street Navigator
Securities Lending Prime Portfolio.
Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("generally accepted accounting principles") requires the use of management
estimates. Actual results could differ from these estimates.
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. In addition, a significant proportion of the
aggregate market value of equity securities listed on the major securities
exchanges in emerging markets are held by a smaller number of investors. This
may limit the number of shares available for acquisition or disposition by the
Portfolio.
Expenses that are directly related to one of the Portfolios are charged
directly to that Portfolio. Other operating expenses are prorated to the
Portfolios on the basis of relative net assets. Class-specific expenses are
borne by that class. Differences in net expense ratios between classes of a
Portfolio are due to class-specific expenses, waivers and accrual adjustments.
Income, other expenses and realized and unrealized gains and losses of a
Portfolio are allocated to the respective class on the basis of the relative
net assets each day.
180
Blackrock Funds
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.
Class Specific Fee Arrangement
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Share Classes
- ------------------------------------------------------------------------------------------------------------------------
BlackRock Institutional Service
---------------------- ---------------------- ----------------------
Contractual Actual Contractual Actual Contractual Actual
Period Fees (1) Fees (5) Fees Fees (5) Fees (1) Fees (5)
-------------- ----------- -------- ----------- -------- ----------- --------
Investment Trust 9/1/04-9/30/05 N/A N/A None None 0.25% 0.25%
Large Cap Value Equity 9/1/04-9/30/05 N/A N/A None None 0.25% 0.25%
Large Cap Growth Equity 9/1/04-9/30/05 N/A N/A None None 0.25% 0.25%
Dividend AchieversTM 9/1/04-9/30/05 N/A N/A None None 0.25% 0.25%
Legacy Pre-1/31/05 N/A N/A None None N/A N/A
Post-1/31/05 N/A N/A None None 0.25% 0.25%
Mid-Cap Value Equity Pre-1/31/05 N/A N/A None None N/A N/A
Post-1/31/05 N/A N/A None None 0.25% 0.25%
Mid-Cap Growth Equity 9/1/04-9/30/05 N/A N/A None None 0.25% 0.25%
Aurora Pre-1/31/05 N/A N/A None None N/A N/A
Post-1/31/05 N/A N/A None None 0.25% 0.25%
Small/Mid-Cap Growth Pre-1/31/05 N/A N/A None None N/A N/A
Post-1/31/05 N/A N/A None None 0.25% 0.25%
Small Cap Value Equity 9/1/04-9/30/05 0.25% 0.25% None None 0.25% 0.25%
Small Cap Core Equity 9/1/04-9/30/05 N/A N/A None None 0.25% 0.25%
Small Cap Growth Equity 9/1/04-9/30/05 N/A N/A None None 0.25% 0.25%
Global Science & Technology 9/1/04-9/30/05 N/A N/A None None 0.25% 0.25%
Opportunities
Global Resources Pre-1/31/05 N/A N/A None None N/A N/A
Post-1/31/05 N/A N/A None None N/A N/A
All-Cap Global Resources 9/1/04-9/30/05 N/A N/A None None 0.25% 0.25%
Health Sciences Pre-1/31/05 N/A N/A None None N/A N/A
Post-1/31/05 N/A N/A None None 0.25% 0.25%
U.S. Opportunities 9/1/04-9/30/05 N/A N/A None None 0.25% 0.25%
International Opportunities 9/1/04-9/30/05 N/A N/A None None 0.25% 0.25%
Asset Allocation Pre-1/31/05 N/A N/A None None N/A N/A
Post-1/31/05 N/A N/A None None 0.25% 0.25%
Index Equity 9/1/04-9/30/05 N/A N/A None None 0.15% 0.15%
Portfolio Share Classes
- ---------------------------------------------------------------------------------------------------------------
Investor A Investor B Investor C
---------------------------- ----------------------- -----------------------
Contractual Actual Contractual Actual Contractual Actual
Fees Fees (5) Fees (4) Fees (5) Fees (4) Fees (5)
----------- --------- ----------- -------- ----------- --------
Investment Trust 0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Large Cap Value Equity 0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Large Cap Growth Equity 0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Dividend AchieversTM 0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Legacy 0.30%/2/ 0.30% 1.00% 1.00% 1.00% 1.00%
0.35%/3/ 0.35% 1.00% 1.00% 1.00% 1.00%
Mid-Cap Value Equity 0.30%/2/ 0.30% 1.00% 1.00% 1.00% 1.00%
0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Mid-Cap Growth Equity 0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Aurora 0.30%/2/ 0.30% 1.00% 1.00% 1.00% 1.00%
0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Small/Mid-Cap Growth 0.30%/2/ 0.30% 1.00% 1.00% 1.00% 1.00%
0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Small Cap Value Equity 0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Small Cap Core Equity 0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Small Cap Growth Equity 0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Global Science & Technology 0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Opportunities
Global Resources 0.30%/2/ 0.30% 1.00% 1.00% 1.00% 1.00%
0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
All-Cap Global Resources 0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Health Sciences 0.30%/2/ 0.30% 1.00% 1.00% 1.00% 1.00%
0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
U.S. Opportunities 0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
International Opportunities 0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Asset Allocation 0.30%/2/ 0.30% 1.00% 1.00% 1.00% 1.00%
0.35%/3/ 0.25% 1.00% 1.00% 1.00% 1.00%
Index Equity 0.25%/3/ 0.15% 0.90% 0.90% 0.90% 0.90%
(1)-- themaximum annual contractual fees are comprised of a 0.25% service fee,
with exception of Index Equity which has a service fee of 0.15%.
(2)-- the maximum annual contractual fees are comprised of a 0.05% distribution
fee and a 0.25% service fee.
(3)-- the maximum annual contractual fees are comprised of a 0.10% distribution
fee and a 0.25% service fee, with exception of Index Equity which
contractual fees are comprised of a 0.10% distribution fee and a 0.15%
service fee.
(4)-- the maximum annual contractual fees are comprised of a 0.75% distribution
fee and a 0.25% service fee, with the exception of Index Equity which
contractual fees are comprised of a 0.75% distribution fee and a 0.15%
service fee.
(5)-- the actual fees are as of September 30, 2005 for Post-January 31, 2005 and
are as of January 31, 2005 for Pre-January 31, 2005.
181
Blackrock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
The BlackRock share class bears a transfer agent fee at an annual rate not
to exceed 0.005% of the average daily net assets plus per account fees and
disbursements. Institutional, Service, Investor A, Investor B and Investor C
share classes bear a transfer agent fee at an annual rate not to exceed 0.018%
of the average daily net assets of such respective classes plus per account fees
and disbursements.
The Index Equity Portfolio invests solely in The U.S. Large Company Series
(the "Series") of The DFA Investment Trust Company (the "DFA Trust"),
collectively, the Master. Advisory fees are accrued daily and paid monthly to
Dimensional Fund Advisors, Inc. at the Series level as described within the DFA
Trust financial statements which are included elsewhere in the report and should
be read in conjunction with the financial statements of the Index Equity
Portfolio.
For the period ended September 30, 2005, the following shows the various
types of class-specific expenses borne directly by each class of each fund and
any associated waivers of those expenses.
Share Classes
Administration Fees ---------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C Total
--------------------------------------------------------------------------- -----------
Investment Trust ............ $ -- $ 544,597 $ 2,498 $ 575,557 $ 261,603 $ 26,255 $ 1,410,510
Large Cap Value Equity ...... -- 178,140 43,284 176,180 53,043 15,322 465,969
Large Cap Growth Equity ..... -- 36,032 18,051 25,606 16,670 3,449 99,808
Dividend Achievers(TM) ...... -- 6,722 328 13,704 2,458 8,537 31,749/1/
Legacy ...................... -- 50,958 -- 120,472 87,103 20,430 278,963
Mid-Cap Value Equity ........ -- 42,152 890 397,519 109,120 79,775 629,456
Mid-Cap Growth Equity ....... -- 91,397 5,120 303,960 75,065 26,343 501,885
Aurora ...................... -- 143,499 -- 1,688,136 436,561 419,904 2,688,100
Small/Mid-Cap Growth ........ -- 25,821 -- 220,551 24,018 23,950 294,340
Small Cap Value Equity ...... 2,152 98,202 4,382 48,714 22,039 9,753 185,242
Small Cap Core Equity ....... -- 8,711 37 9,556 4,960 13,275 36,539
Small Cap Growth Equity ..... -- 460,401 40,633 213,734 29,140 21,406 765,314
Global Science & Technology
Opportunities ............... -- 1,650 136 13,998 16,652 4,278 36,714
Global Resources ............ -- 26,091 -- 581,438 81,277 141,601 830,407
All-Cap Global Resources .... -- 30,659 -- 23,950 5,179 11,569 71,357
Health Sciences ............. -- 8,324 12 89,148 29,971 34,432 161,887
U.S. Opportunities .......... -- 8,830 1,070 44,792 56,576 28,807 140,075
International Opportunities . -- 219,719 44,922 244,501 85,556 126,617 721,315
Asset Allocation ............ -- 25,099 1,840 423,083 154,241 54,685 658,948
Index Equity ................ -- 820,119 102,140 450,673 234,481 375,475 1,982,888/2/
/1/ Fund also had a Fund level administration fee waiver of $12,785.
/2/ Fund also had a Fund level administration fee waiver of $602,393 and a
class level administration fee waiver of $820,119.
182
Blackrock Funds
Share Classes
Administration Fees Waived ---------------------------------------------------------------------------
Blackrock Institutional Service Investor A Investor B Investor C Total
--------------------------------------------------------------------------- -----------
Investment Trust ............ $ -- $ (544,598) $ (1,334) $ (160,629) $ (68,291) $ (5,772) $ ( 780,624)
Large Cap Value Equity ...... -- (178,140) (27,369) -- -- -- (205,509)
Large Cap Growth Equity ..... -- (36,032) (12,058) -- -- -- (48,090)
Dividend Achievers(TM) ...... -- (6,722) (210) -- -- -- (6,932)
Legacy ...................... -- (44,131) -- (103,745) (75,660) (17,849) (241,385)
Mid-Cap Value Equity ........ -- (42,152) (883) (386,807) (102,541) (74,823) (607,206)
Mid-Cap Growth Equity ....... -- (82,800) (1,899) (78,911) (16,111) (5,552) (185,273)
Small/Mid-Cap Growth ........ -- (25,522) -- (196,373) (22,085) (23,950) (267,930)
Small Cap Value Equity ...... -- (15,760) -- -- -- -- (15,760)
Small Cap Core Equity ....... -- (8,711) (10) -- -- -- (8,721)
Global Science & Technology
Opportunities .............. -- (1,649) (116) -- -- -- (1,765)
Global Resources ............ -- (23,172) -- (304,010) (71,338) (122,753) (521,273)
All-Cap Global Resources .... -- (30,659) -- (11,927) (3,259) (7,111) (52,956)
Health Sciences ............. -- (5,664) (6) (14,626) (13,882) (13,472) (47,650)
U.S. Opportunities .......... -- (7,168) (438) -- -- -- (7,606)
International Opportunities . -- (82,065) -- -- -- -- (82,065)
Asset Allocation ............ -- (25,098) (1,208) -- -- -- (26,306)
Index Equity ................ -- (820,119) -- -- -- -- (820,119)
Share Classes
Transfer agent fees ---------------------------------------------------------------------------
Blackrock Institutional Service Investor A Investor B Investor C Total
--------------------------------------------------------------------------- -----------
Investment Trust ............ $ -- $ 67,907 $ 310 $ 72,187 $ 32,475 $ 3,263 $ 176,142
Large Cap Value Equity ...... -- 22,113 5,373 21,871 6,585 1,902 57,844
Large Cap Growth Equity ..... -- 4,473 2,241 3,179 2,069 428 12,390
Dividend Achievers(TM) ...... -- 834 41 1,685 305 1,060 3,925
Legacy ...................... -- 6,326 -- 14,955 10,813 2,536 34,630
Mid-Cap Value Equity ........ -- 5,233 110 49,358 13,546 9,903 78,150
Mid-Cap Growth Equity ....... -- 11,346 636 37,733 9,318 3,270 62,303
Aurora ...................... -- 17,814 -- 229,036 54,194 52,126 353,170
Small/Mid-Cap Growth ........ -- 3,205 -- 27,379 2,982 2,973 36,539
Small Cap Value Equity ...... 307 12,191 544 6,047 2,736 1,211 23,036
Small Cap Core Equity ....... -- 1,081 4 1,187 616 1,648 4,536
Small Cap Growth Equity ..... -- 57,153 5,044 26,533 3,617 2,657 95,004
Global Science & Technology
Opportunities .............. -- 205 17 1,738 2,066 531 4,557
Global Resources ............ -- 3,239 -- 73,616 10,090 17,578 104,523
All-Cap Global Resources .... -- 3,806 -- 2,973 643 1,436 8,858
Health & Sciences ........... -- 1,033 1 11,067 3,721 4,274 20,096
U.S. Opportunities .......... -- 1,096 133 5,560 7,023 3,576 17,388
International Opportunities . -- 27,276 5,576 30,352 10,621 15,718 89,543
Asset Allocation ............ -- 3,116 228 52,548 19,147 6,788 81,827
Index Equity ................ -- 102,681 12,680 55,946 29,108 46,611 247,026
183
Blackrock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Share Classes
Shareholder Service Fees ---------------------------------------------------------------------------
Blackrock Institutional Service Investor A Investor B Investor C Total
--------------------------------------------------------------------------- -----------
Investment Trust ............ $ -- $ -- $ 4,309 $ 991,059 $ 447,103 $ 43,732 $ 1,486,203
Large Cap Value Equity ...... -- -- 74,628 305,768 90,804 26,308 497,508
Large Cap Growth Equity ..... -- -- 31,193 44,120 28,733 5,945 109,991
Dividend Achievers(TM) ...... -- -- 567 23,490 4,252 14,841 43,150
Legacy ...................... -- -- -- 292,633 212,355 50,021 555,009
Mid-Cap Value Equity ........ -- -- 1,532 674,373 186,453 136,320 998,678
Mid-Cap Growth Equity ....... -- -- 8,933 519,398 128,974 45,054 702,359
Aurora ...................... -- -- -- 5,100,211 1,149,068 1,139,160 7,388,439
Small/Mid-Cap Growth ........ -- -- -- 598,663 62,541 66,527 727,731
Small Cap Value Equity ...... 12,411 -- 7,565 83,952 37,990 16,818 158,736
Small Cap Core Equity ....... -- -- 63 16,506 8,570 22,931 48,070
Small Cap Growth Equity ..... -- -- 70,103 368,614 50,224 36,914 525,855
Global Science & Technology
Opportunities .............. -- -- 235 24,135 28,710 7,375 60,455
Global Resources ............ -- -- -- 1,021,496 140,105 242,784 1,404,385
All-Cap Global Resources .... -- -- -- 41,293 8,929 19,946 70,168
Health Sciences ............. -- -- 21 153,625 51,624 59,071 264,341
U.S. Opportunities .......... -- -- 1,833 77,207 97,529 49,482 226,051
International Opportunities . -- -- 74,601 422,109 147,638 218,485 862,833
Asset Allocation ............ -- -- 3,172 728,767 265,881 93,636 1,091,456
Index Equity ................ -- -- 158,820 699,902 367,845 586,018 1,812,585
Share Classes
Distribution Fees -----------------------------------
Investor A Investor B Investor C Total
------------------------------------ -----------
Investment Trust ............ $ 400,526 $1,342,261 $ 134,768 $ 1,877,555
Large Cap Value Equity ...... 117,684 283,466 79,056 480,206
Large Cap Growth Equity ..... 17,612 86,198 17,835 121,645
Dividend Achievers(TM) ...... 9,364 12,757 44,308 66,429
Legacy ...................... 95,969 637,118 150,258 883,345
Mid-Cap Value Equity ........ 274,186 559,616 408,971 1,242,773
Mid-Cap Growth Equity ....... 209,447 387,030 135,792 732,269
Aurora ...................... 1,629,349 3,448,242 3,418,776 8,496,367
Small/Mid-Cap Growth ........ 199,450 187,634 199,582 586,666
Small Cap Value Equity ...... 33,539 113,968 50,453 197,960
Small Cap Core Equity ....... 6,630 25,711 68,792 101,133
Small Cap Growth Equity ..... 147,507 150,670 110,741 408,918
Global Science & Technology
Opportunities .............. 9,630 86,131 22,125 117,886
Global Resources ............ 408,069 420,400 732,417 1,560,886
All-Cap Global Resources .... 17,253 26,787 59,839 103,879
Health Sciences ............. 62,415 155,022 178,098 395,535
U.S. Opportunities .......... 30,821 292,599 149,105 472,525
International Opportunities . 169,351 442,922 655,765 1,268,038
Asset Allocation ............ 291,627 797,800 282,853 1,372,280
Index Equity ................ 310,324 1,212,833 1,942,114 3,465,271
184
Blackrock Funds
The distribution fees for the Investor A share class include accruals for
the State Street Research Class B shares for the period prior to the
Reorganization on January 31, 2005 for the Investment Trust, Large Cap Value
Equity, Mid-Cap Growth Equity, Aurora, Health Sciences and Asset Allocation
Portfolios; and for State Street Research Class B and R share classes for the
Legacy, Mid-Cap Value Equity, Small/Mid-Cap Growth and Global Resources
Portfolios.
Share Classes
Distribution Fees Waived -------------
Investor A
-------------
Investment Trust .................................. $ (400,526)
Large Cap Value Equity ............................ (121,392)/(1)/
Large Cap Growth Equity ........................... (17,612)
Dividend Achievers(TM) ............................ (9,364)
Legacy ............................................ (82,972)
Mid-Cap Value Equity .............................. (274,186)
Mid-Cap Growth Equity ............................. (209,447)
Aurora ............................................ (1,267,403)
Small/Mid-Cap Growth .............................. (151,655)
Small Cap Value Equity ............................ (33,539)
Small Cap Core Equity ............................. (6,630)
Small Cap Growth Equity ........................... (147,507)
Global Science & Technology Opportunities ......... (9,630)
Global Resources .................................. (408,069)
All-Cap Global Resources .......................... (17,253)
Health Sciences ................................... (62,415)
U.S. Opportunities ................................ (30,821)
International Opportunities ....................... (169,351)
Asset Allocation .................................. (291,627)
Index Equity ...................................... (310,324)
/(1)/ Includes a prior period write-off of $3,708.
(D) 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 for each of the Fund's Equity Portfolios, except for the
Index Equity Portfolio. BlackRock Financial Management, Inc. ("BFM"), a
wholly-owned subsidiary of BlackRock, serves as the sub-adviser for the Asset
Allocation Portfolio. BlackRock International, Ltd. ("BIL"), an indirect
wholly-owned subsidiary of BlackRock, serves as the subadvisor for the
International Opportunities Portfolio. BlackRock, Inc. is an indirect
majority-owned subsidiary of The PNC Financial Services Group, Inc.
For its advisory services, BlackRock is entitled to receive fees at the
following annual rates, computed daily and payable monthly, based on each
Portfolio's average daily net assets:
Large Cap Value Equity, Large Cap Growth Equity, Dividend Achievers(TM),
Small Cap Value Equity, Small Cap Growth Equity, Asset Allocation and Investment
Trust -- 0.55% of the first $1 billion, 0.50% of the next $1 billion, 0.475% of
the next $1 billion and 0.45% of net assets in excess of $3 billion.
Mid-Cap Value Equity and Mid-Cap Growth Equity -- 0.80% of the first $1
billion, 0.70% of the next $1 billion, 0.675% of the next $1 billion and 0.625%
of net assets in excess of $3 billion.
U.S Opportunities -- 1.10% of the first $1 billion, 1.05% of the next $1
billion, 1.025% of the next $1 billion and 1.00% of the net assets in excess of
$3 billion.
Global Science & Technology Opportunities -- 0.90% of the first $1 billion,
0.85% of the next $1 billion, 0.80% of the next $1 billion and 0.75% of net
assets in excess of $3 billion.
Global Resources, Health Sciences, Small/Mid-Cap Growth and All-Cap Global
Resources -- 0.75% of the first $1 billion, 0.70% of the next $1 billion, 0.675%
of the next $1 billion and 0.65% of net assets in excess of $3 billion.
International Opportunities -- 1.00% of the first $1 billion, 0.95% of the
next $1 billion, 0.90% of the next $1 billion and 0.85% of net assets in excess
of $3 billion.
185
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Small Cap Core Equity -- 1.00% of net assets.
Legacy -- 0.65% of the first $1billion, 0.60% of the next $1 billion,
0.575% of the next $1 billion and 0.55% of net assets in excess of $3 billion.
Aurora -- 0.85% of the first $1 billion, 0.80% of the next $1 billion,
0.75% of the next $1 billion and 0.70% of net assets in excess of $3 billion.
The Index Equity Portfolio pays no advisory fee but bears its proportionate
cost of the fee paid by the Master. For the period ended September 30, 2005, the
fund proportionate cost of the fee paid was $343,330.
Prior to January 31, 2005, the following Funds had entered into an
agreement with State Street Research & Management Co. to provide advisory,
statistical and research facilities and services. Fees were earned monthly at
the following annual rates:
State Street Research Legacy -- 0.65% of net assets
State Street Research Mid-Cap Value Equity -- 0.65% of net assets
State Street Research Aurora -- 0.85% of net assets
State Street Research Emerging Growth -- 0.75% of net assets
State Street Research Global Resources -- 0.75% of net assets State
Street Research Health Sciences -- 0.75% of net assets
State Street Research Asset Allocation -- 0.75% of the first $500 million
in net assets annually, 0.70% of the next $500 million, and 0.65% of any
amount over $1 billion.
In the interest of limiting the expenses of the Portfolios, BlackRock and
the Fund have entered into a series of annual expense limitation agreements. The
agreements set a limit on certain operating expenses of each Portfolio for the
next year and require BlackRock and the Fund to waive or reimburse fees or
expenses if these operating expenses exceed that limit. These expense limits
apply to the aggregate expenses incurred on a share class (excluding: interest,
taxes, brokerage commissions and other extraordinary expenses). For the year
ended September 30, 2005, the amount reimbursed by BlackRock and the Fund was
$8,157 and $355,506 in the Dividend Achievers(TM) and Small/Mid-Cap Growth
Portfolios, respectively.
BlackRock and the Fund contractually agreed to waive or reimburse fees or
expenses until February 1, 2006, in order to limit expenses as follows. This
agreement is reviewed annually by the Fund's Board.
Share Classes
Portfolio ---------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C
---------------------------------------------------------------------------
Investment Trust ............ NA 0.81% 1.11% 1.16% 1.91% 1.91%
Large Cap Value Equity ...... NA 0.79% 1.09% 1.25% 2.00% 2.00%
Large Cap Growth Equity ..... NA 0.82% 1.12% 1.29% 2.04% 2.04%
Dividend Achievers .......... NA 0.90% 1.20% 1.30% 2.05% 2.05%
Legacy Portfolio ............ NA 1.10% 1.35% 1.35% 2.10% 2.10%
Mid-Cap Value Equity ........ NA 1.00% 1.25% 1.25% 2.00% 2.00%
Mid-Cap Growth Equity ....... NA 1.23% 1.53% 1.58% 2.33% 2.33%
Aurora ...................... NA 1.19% 1.44% 1.44% 2.19% 2.19%
Small/Mid-Cap Growth ........ NA 1.10% 1.35% 1.35% 2.10% 2.10%
Small Cap Value Equity ...... 1.10% 0.97% 1.27% 1.44% 2.19% 2.19%
Small Cap Core Equity ....... NA 1.30% 1.60% 1.77% 2.52% 2.52%
Small Cap Growth Equity ..... NA 0.99% 1.29% 1.46% 2.21% 2.21%
Global Sciences & Technology
Opportunities .............. NA 1.43% 1.73% 1.90% 2.65% 2.65%
Global Resources ............ NA 1.04% 1.34% 1.34% 2.04% 2.04%
All-Cap Global Resources .... NA 1.04% 1.34% 1.34% 2.04% 2.04%
Health Sciences ............. NA 1.25% 1.55% 1.55% 2.25% 2.25%
U.S. Opportunities .......... NA 1.60% 1.90% 2.07% 2.82% 2.82%
International Opportunities . NA 1.45% 1.75% 1.92% 2.67% 2.67%
Asset Allocation ............ NA 0.86% 1.16% 1.33% 2.08% 2.08%
Index Equity ................ NA 0.18% 0.62% 0.79% 1.54% 1.54%
186
BlackRock Funds
Prior to January 31, 2005, the State Street Research Mid-Cap Value Equity,
Emerging Growth and Health Sciences Funds limited expenses to 1.25% (plus 12b-1
fees), 1.10% (plus 12b-1 fees) and 1.00% (plus 12b-1 fees), respectively.
If in the following two years the operating expenses of a share class that
previously received a waiver or reimbursement from BlackRock and the Fund are
less than the expense limit for that share class, the share class is required to
repay BlackRock and the Fund up to the amount of fees waived or expenses
reimbursed under the agreement if: (1) the Portfolio of which the share class is
a part 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 at the previous quarterly meeting.
At September 30, 2005, the amounts subject to possible future reimbursement
under the expense limitation agreement are as follows:
Total Waivers
Expiring Expiring Expiring Subject To
January 31, 2006 January 31, 2007 January 31, 2008 Reimbursement
---------------- ---------------- ---------------- -------------
Investment Trust .................................. $ 169,360 $ 141,352 $ 1,846,278 $ 2,156,990
Large Cap Value Equity ............................ 357,981 255,627 208,483 822,091
Large Cap Growth Equity ........................... 154,813 166,424 101,950 423,187
Dividend AchieversTM .............................. -- 99,646 94,992 194,638
Legacy ............................................ -- 1,199 240,186 241,385
Mid-Cap Value ..................................... -- 14,086 1,342,468 1,356,554
Mid-Cap Growth Equity ............................. 5,005 43,430 300,190 348,625
Aurora ............................................ -- -- -- --
Small/Mid-Cap Growth Equity ....................... -- 5,030 292,557 297,587
Small Cap Value Equity ............................ -- 25,127 11,503 36,630
Small Cap Core Equity ............................. 12,634 52,283 57,075 121,992
Small Cap Growth Equity ........................... -- 6,742 -- 6,742
U.S. Opportunities ................................ -- 15,890 5,718 21,608
Global Science & Technology Opportunities ......... 23,534 71,419 65,013 159,966
Global Resources .................................. -- 2,647 541,485 544,132
All Cap Global Resources .......................... -- -- 223,736 223,736
Health Sciences ................................... -- 62 47,959 48,021
International Opportunities ....................... 41,722 185,626 81,759 309,107
Asset Allocation .................................. -- 346 159,044 159,390
Index Equity ...................................... -- 1,333,005 723,112 2,056,117
The following waivers previously incurred on the portfolios which were
subject to recoupment by BlackRock expired on January 31, 2005, in the amounts
of $310,818 for Investment Trust, $610,816 for Large Cap Value Equity, $274,930
for Large Cap Growth Equity, $23,495 for Mid-Cap Value Equity, $30,063 for
Mid-Cap Growth Equity, $86,158 for Small Cap Value Equity, $13,541 for Small Cap
Core Equity, $227,030 for Small Cap Growth Equity, $107,597 for U.S.
Opportunities, $101,278 for Global Science & Technology Opportunities, $178,760
for International Opportunities, and $146,109 for Asset Allocation. As of
September 30, 2005, there is $6,742 in prior period waivers on Small Cap Growth
Equity subject to recoupment by BlackRock upon approval from the Board of
Directors of the Fund.
BlackRock pays BIL and BFM fees for their 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:
0.085% of the first $500 million, 0.075% of the next $500 million and 0.065% of
assets in excess of $1 billion. In addition, each of the share classes, except
for the BlackRock class, is charged an administration fee based on the following
percentage of average daily net assets of each respective class: 0.145% of the
first $500 million, 0.135% of the next $500 million and 0.125% of assets in
excess of $1 billion. The BlackRock class is charged an admistration fee of
0.035% of the first $500 million, 0.025% of the next $500 million and 0.015% of
assets in excess of $1 billion based upon average daily net assets of its class.
In addition, PFPC and BlackRock may have, at their discretion, voluntarily
waived all or any portion of their administration fees for any portfolio or
share class.
187
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Prior to January 31, 2005, State Street Research Legacy Fund, State Street
Research Mid-Cap Value Equity Fund, State Street Research Aurora Fund, State
Street Research Emerging Growth Fund, State Street Research Global Resources
Fund, State Street Research Health Sciences Fund and State Street Research Asset
Allocation Fund paid SSRM for certain administrative costs incurred in providing
other assistance and services to each Fund. The fee was based on actual costs
allocated equally among the State Street Research Funds.
PFPC Trust Co., an indirect subsidiary of The PNC Financial Services Group,
Inc., serves as custodian for each of the Fund's Portfolios. Prior to January
31, 2005, State Street Bank and Trust Co. served as the State Street Research
Funds' custodian and record keeper for the State Street Research Legacy Fund,
State Street Research Mid-Cap Value Equity Fund, State Street Research Aurora
Fund, State Street Research Emerging Growth Fund, State Street Research Global
Resources Fund, State Street Research Health Sciences Fund and State Street
Research Asset Allocation Fund.
Since January 31, 2005, BlackRock has maintained a call center which is
responsible for providing certain shareholder services to the BlackRock Funds,
such as responding to shareholder inquiries and processing transactions based
upon instructions from shareholders with respect to the subscription and
redemption of fund shares. During the period February 1, 2005 through September
30, 2005, the following amounts have been accrued by each portfolio to reimburse
BlackRock for costs incurred running the call center, which are a component of
the Transfer Agent fees in the accompanying Statement of Operations.
BlackRock Institutional Service Investor A Investor B Investor C Total
--------------------------------------------------------------------------- -----------
Investment Trust ............ $ -- $ 40,995 $ 131 $ 44,827 $ 19,745 $ 1,950 $ 107,648
Large Cap Value Equity ...... -- 9,661 2,112 11,910 3,501 943 28,127
Large Cap Growth Equity ..... -- 1,680 778 1,211 769 166 4,604
Dividend Achievers(TM) ...... -- 398 29 1,069 229 748 2,473
Legacy ...................... -- 4,052 -- 9,588 6,908 1,623 22,171
Mid-Cap Value Equity ........ -- 3,968 81 37,687 10,302 7,541 59,579
Mid-Cap Growth Equity ....... -- 5,794 110 23,159 4,732 1,661 35,456
Aurora ...................... -- 10,424 -- 141,318 33,428 31,884 217,054
Small/Mid-Cap Growth ........ -- 1,912 -- 16,675 1,834 1,824 22,245
Small Cap Value Equity ...... 524 5,382 271 2,554 1,178 523 10,432
Small Cap Core Equity ....... -- 645 4 695 382 1,021 2,747
Small Cap Growth ............ -- 26,563 2,167 11,912 1,468 1,196 43,306
Global Science & Technology
Opportunities ............. -- 73 7 717 844 212 1,853
Global Resources ............ -- 2,332 -- 54,262 7,456 13,030 77,080
All-Cap Global Resources .... -- 3,607 -- 2,770 619 1,383 8,379
Health & Sciences ........... -- 641 1 8,445 3,009 3,177 15,273
U.S. Opportunities .......... -- 465 34 2,368 2,942 1,479 7,288
International Opportunities . -- 13,758 2,780 15,706 5,050 7,942 45,236
Asset Allocation ............ -- 2,234 168 38,427 14,027 4,875 59,731
Index Equity ................ -- 44,205 5,412 23,522 11,677 18,897 103,713
Pursuant to the Fund's Amended and Restated Distribution and Service Plan
(the "Plan"), the Fund may pay BlackRock Distributors, Inc. (the "Distributor")
and/or BlackRock or any other affiliate of PNC Financial Services Group, Inc.
fees for distribution and sales support services. Currently, only Investor A
Shares, Investor B Shares and Investor C Shares bear the expense of distribution
fees under the Plan. In addition, the Fund may pay brokers, dealers, financial
institutions and industry professionals (including PNC Financial Services Group,
Inc. and its affiliates) ("service organizations") fees for the provision of
personal services to shareholders. BlackRock may receive some of the service
fees paid by the Fund in return for providing services to shareholders. Prior to
January 31, 2005, State Street Research Service Center, a division of State
Street Research Investment Services, Inc., provided certain shareholder services
to the State Street Research Funds, such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Funds. For the period October 1, 2004 through January 31, 2005,
the State Street Research Funds paid $115,357, $324,764, $1,712,817, $543,616,
$290,168, $51,797 and $226,546, for State Street Research Legacy, Mid-Cap Value
Equity, Aurora, Emerging Growth, Global Resources, Health Sciences and Asset
Allocation Funds, respectively.
188
BlackRock Funds
As of the fiscal year ended September 30, 2005, affiliated payables were as
follows:
PNC Bank
PFPC(1) BlackRock(2) Affiliates(3)
--------- ----------- ------------
Investment Trust ............ $ 254,914 $ 338,464 $ 335,683
Large Cap Value Equity ...... 49,401 188,906 81,146
Large Cap Growth Equity ..... 8,987 26,140 14,799
Dividend Achievers .......... 4,426 13,278 14,897
Legacy ...................... 51,245 143,434 111,641
Mid Cap Value Equity ........ 105,758 385,359 295,383
Mid Cap Growth Equity ....... 108,071 313,907 125,962
Aurora ...................... 280,425 2,288,931 1,051,253
Small/Mid Cap Growth ........ 42,889 224,714 81,435
Small Cap Value Equity ...... 13,438 77,170 24,635
Small Cap Core Equity ....... 7,481 35,236 20,641
Small Cap Growth Equity ..... 51,977 358,375 63,557
Global Science and Technology
Opportunities .............. 8,194 19,048 13,305
Global Resources ............ 118,109 738,128 420,420
All Cap Global Resources .... 37,999 61,548 55,615
Health Sciences ............. 45,802 215,750 129,365
U.S. Opportunities .......... 17,054 103,648 53,900
International Opportunities . 114,887 693,242 217,655
Asset Allocation ............ 143,540 341,356 305,393
(1)-- payables to PFPC are for Accounting, Administration, Custody and Transfer
Agent services provided.
(2)-- payables to BlackRock are for Advisory, Administration and Call Center
services provided, and for amounts due BlackRock for costs incurred
related to the BlackRock Funds Call Center.
(3)-- payables to PNC Bank affiliates are for distribution and sales support
services as described under the Plan. The total payable on behalf of the
Fund, was $5,313,103, a portion of which is paid to service organizations,
including other PNC Bank affiliates.
State Street Research Investment Service, Inc., from time to time and in
varying amounts, voluntarily assumed some portion of fees or expenses relating
to the State Street Research Funds. During the period ended January 31, 2005,
the amount of such expenses assumed by State Street Research Investment Service,
Inc. were $271,500, $355,506 and $162,313 for the Mid-Cap Value Equity, Emerging
Growth and Health Sciences Funds, respectively.
Prior to January 31, 2005, State Street Research Investment Service, Inc.
reimbursed a total of $91,069 and $294,508 to Mid-Cap Value Equity and Asset
Allocation Portfolios, respectively, reflecting the estimated excess of payments
received over costs incurred under the plans of distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940. This amount is shown as
"Reimbursement of distribution fees" in the Statement of Operations.
Prior to January 31, 2005, SSRM conducted an internal review regarding the
use of fund brokerage commissions in consideration of the distribution of
shares. In connection with this review, SSRM determined to reimburse the funds
the entire amount of any such identified brokerage commissions, and reviewed
this matter with the Board of the funds. The amount of reimbursement in the
State Street Research Legacy, Mid-Cap Value, Aurora, Global Resources and Asset
Allocation Portfolios amounted to $294,363, $144,758, $203,165, $12,780 and
$41,520, respectively, and are shown as "Net increase from payment by affiliate"
on the Statements of Operations.
Prior to January 31, 2005, SSRM reimbursed the State Street Research
Mid-Cap Value Equity and Asset Allocation Portfolios $409,472 and $49,054,
respectively, as a result of a corporate action processing error. This amount is
included in the total amount of "Net increase from payment by affiliate" on the
Statements of Operations.
189
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
(E) Purchases and Sales of Securities
For the period ended September 30, 2005, purchases and sales of securities,
other than short-term investments, dollar rolls and U.S. government securities,
were as follows:
Purchases Sales
-------------- --------------
Investment Trust ....................... $1,055,886,237 $1,263,589,772
Large Cap Value Equity ................. 299,299,492 382,685,229
Large Cap Growth Equity ................ 43,205,991 87,603,732
Dividend Achievers(TM) ................. 43,831,471 14,095,538
Legacy ................................. 205,542,875 263,907,159
Mid-Cap Value Equity ................... 438,342,893 432,358,841
Mid-Cap Growth Equity .................. 296,122,110 377,948,968
Aurora ................................. 2,223,055,572 3,422,831,860
Small/Mid-Cap Growth ................... 411,881,843 631,631,754
Small Cap Value Equity ................. 171,030,280 200,151,241
Small Cap Core Equity .................. 63,630,454 29,034,163
Small Cap Growth Equity ................ 474,814,639 467,584,915
Global Science & Technology
Opportunities ......................... 27,987,245 35,491,149
Global Resources ....................... 90,235,233 103,506,107
All-Cap Global Resources ............... 200,561,079 9,984,853
Health Sciences ........................ 295,485,078 137,680,538
U.S. Opportunities ..................... 88,793,727 117,797,843
International Opportunities ............ 655,278,001 419,859,535
Asset Allocation ....................... 508,363,560 543,773,808
For the period ended September 30, 2005, purchases and sales of U.S.
government securities were as follows:
Purchases Sales
-------------- --------------
Mid Cap Value Equity ................... $ 18,892,198 $ --
Aurora ................................. 25,989,111 --
Small Cap Core Equity .................. 1,799,862 --
Small Cap Growth Equity ................ 38,973,184 1,897,841
Global Resources ....................... 54,530,172 --
All-Cap Global Resources ............... 68,796,590 52,286,304
Health Sciences ........................ 128,132,434 12,387,196
U.S Opportunities ...................... 997,997 --
International Opportunities ............ 65,462,167 13,295,140
Asset Allocation ....................... 452,936,068 248,539,304
190
BlackRock Funds
(F) Capital Shares
Transactions in capital shares for each period were as follows:
Investment Trust
--------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
------------------------------ -----------------------------
Shares Value Shares Value
------------- -------------- ------------ --------------
Shares issued from the
reorganization:/1/
Institutional Class ............ 40,828,647 $ 46,463,113 -- $ --
Investor A Class ............... 48,798,086 639,980,511 -- --
Investor B Class ............... 21,137,337 357,050,314 -- --
Investor C Class ............... 2,066,507 31,339,748 -- --
Shares sold:
Institutional Class ............ 2,716,252 34,941,259 216,622 2,456,412
Service Class .................. 5,636 72,739 8,197 93,107
Investor A Class ............... 936,331 11,972,355 183,221 2,109,353
Investor B Class ............... 554,461 6,784,563 139,593 1,538,514
Investor C Class ............... 78,252 948,732 85,616 944,576
Shares issued in reinvestment of dividends:
Institutional Class ............ 7,404 94,993 13,608 152,539
Service Class .................. 587 7,556 1,287 14,481
Investor A Class ............... 3,914 49,674 11,067 122,834
Investor B Class ............... -- -- 2,456 26,280
Investor C Class ............... -- -- 18 197
Shares redeemed:
Institutional Class ............ (8,708,215) (112,424,984) (1,814,412) (21,040,940)
Service Class .................. (32,367) (422,901) (58,824) (678,027)
Investor A Class ............... (9,396,717) (120,682,165) (604,302) (6,941,701)
Investor B Class ............... (4,188,219) (51,463,775) (499,549) (5,498,048)
Investor C Class ............... (462,731) (5,682,609) (59,437) (655,542)
------------- -------------- ------------ --------------
Net increase (decrease) ......... 94,345,165 $ 839,029,123 (2,374,839) $ (27,355,965)
============= ============== ============ ==============
/1/ See Note (B).
191
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Large Cap Value Equity
--------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
------------------------------ -----------------------------
Shares Value Shares Value
------------- -------------- ------------ --------------
Share issued from the
reorganization:/1/
Institutional Class ............ 1,149,957 $ 6,180,742 -- $ --
Investor A Class ............... 7,681,441 91,431,755 -- --
Investor B Class ............... 2,233,885 26,120,761 -- --
Investor C Class ............... 445,078 5,234,452 -- --
Shares sold:
Institutional Class ............ 1,340,339 19,027,258 316,937 3,903,308
Service Class .................. 65,078 900,102 493,431 6,007,440
Investor A Class ............... 1,331,671 18,650,102 636,019 7,793,537
Investor B Class ............... 206,511 2,822,575 156,179 1,857,657
Investor C Class ............... 147,844 1,984,287 218,843 2,628,823
Shares issued in reinvestment of dividends:
Institutional Class ............ 38,244 536,503 31,312 385,701
Service Class .................. 23,723 331,668 49,696 613,098
Investor A Class ............... 94,311 1,322,164 45,966 567,650
Investor B Class ............... 10,352 141,418 3,582 43,292
Investor C Class ............... 1,992 27,134 659 8,032
Shares redeemed:
Institutional Class ............ (2,726,129) (37,957,095) (5,418,443) (65,488,958)
Service Class .................. (2,054,144) (27,545,118) (2,654,757) (32,310,859)
Investor A Class ............... (2,804,802) (39,168,278) (2,322,080) (28,657,371)
Investor B Class ............... (891,730) (12,222,080) (366,792) (4,399,303)
Investor C Class ............... (404,422) (5,567,580) (159,711) (1,931,382)
------------- -------------- ------------ --------------
Net increase (decrease) ......... 5,889,199 $ 52,250,770 (8,969,159) $ (108,979,335)
============= ============== ============ ==============
/1/ See Note (B).
Large Cap Growth Equity
--------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
------------------------------ -----------------------------
Shares Value Shares Value
------------- -------------- ------------ --------------
Shares sold:
Institutional Class ......... 128,319 $ 1,231,659 414,248 $ 3,748,569
Service Class ............... 90,689 810,121 1,491,678 12,963,992
Investor A Class ............ 342,912 3,177,738 408,084 3,544,786
Investor B Class ............ 124,782 1,071,723 141,746 1,142,700
Investor C Class ............ 64,250 547,106 65,005 522,781
Shares redeemed:
Institutional Class ......... (1,071,602) (10,289,833) (1,789,964) (16,165,845)
Service Class ............... (3,287,254) (30,028,357) (3,123,574) (27,376,334)
Investor A Class ............ (898,658) (8,356,933) (1,701,982) (14,854,493)
Investor B Class ............ (597,102) (5,081,808) (491,755) (3,942,213)
Investor C Class ............ (134,801) (1,143,010) (92,909) (744,035)
------------- -------------- ------------ --------------
Net decrease ................. (5,238,465) $ (48,061,594) (4,679,423) $ (41,160,092)
============= ============== ============ ==============
192
BlackRock Funds
Dividend Achievers(TM)
--------------------------------------------------------------
For the Year Ended For the Period 9/8/04 /1/
9/30/05 Through 9/30/04
------------------------------ -----------------------------
Shares Value Shares Value
------------- -------------- ------------ --------------
Shares sold:
Institutional Class ........... 520,745 $ 5,509,967 200,010 $ 2,000,100
Service Class ................. 36,472 383,000 10 100
Investor A Class .............. 1,566,635 16,480,346 10 100
Investor B Class .............. 346,872 3,664,700 10 100
Investor C Class .............. 1,077,229 11,334,145 10 100
Shares issued in reinvestment of dividends:
Institutional Class ........... 6,612 69,595 -- --
Service Class ................. 243 2,564 -- --
Investor A Class .............. 10,075 106,355 -- --
Investor B Class .............. 1,299 13,721 -- --
Investor C Class .............. 3,121 32,928 -- --
Shares redeemed:
Institutional Class ........... (412,894) (4,405,581) -- --
Service Class ................. (1,612) (17,339) -- --
Investor A Class .............. (215,526) (2,280,818) -- --
Investor B Class .............. (20,215) (215,881) -- --
Investor C Class .............. (38,516) (400,224) -- --
------------- -------------- ------------ --------------
Net increase ................... 2,880,540 $ 30,277,478 200,050 $ 2,000,500
============= ============== ============ ==============
/1/ Commencement of operations.
193
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Legacy
--------------------------------------------------------------
For the Period For the Year Ended
11/1/04 Through 9/30/05 10/31/04
------------------------------ -----------------------------
Shares Value Shares Value
------------- -------------- ------------ --------------
Net change in shares from
reorganization:/1/
State Street Research Fund:
Investor A Class (Formerly Class
A, Class B and Class R) ........ (47,039) $ -- -- $ --
Shares sold:
Institutional Class
(Formerly Class S) ............. 173,928 2,330,227 28,583 361,227
Service Class ................... 8 100 -- --
Investor A Class (Formerly Class
A, Class B and Class R) ........ 898,902 11,847,252 3,342,153 41,469,311
Investor B Class (Formerly Class
B/1/) .......................... 270,843 3,387,849 475,624 5,595,734
Investor C Class (Formerly Class
C) ............................. 137,658 1,730,474 277,077 3,269,502
Shares issued in reinvestment of
dividends:
Institutional Class (Formerly
Class S) ....................... -- -- -- --
Service Class ................... -- -- -- --
Investor A Class (Formerly Class
A, Class B and Class R) ........ -- -- -- --
Investor B Class (Formerly Class
B/1/) .......................... -- -- -- --
Investor C Class (Formerly Class
C) ............................. -- -- -- --
Shares redeemed:
Institutional Class (Formerly
Class S) ....................... (601,280) (8,146,542) (928,675) (11,749,962)
Service Class ................... -- -- -- --
Investor A Class (Formerly Class
A, Class B and Class R) ........ (2,980,221) (39,260,058) (5,218,348) (63,485,226)
Investor B Class (Formerly Class
B/1/) .......................... (1,984,310) (24,844,468) (1,692,058) (19,854,531)
Investor C Class (Formerly Class
C) ............................. (573,661) (7,197,155) (939,768) (11,076,996)
------------- -------------- ------------ --------------
Net decrease ....................... (4,705,172) $ (60,152,321) (4,655,412) $ (55,470,941)
============= ============== ============ ==============
/1/ See Note (B).
194
BlackRock Funds
Mid-Cap Value Equity
----------------------------------------------------------------------------------------------
For the For the For the
Period Period Year Ended
3/1/05 Through 9/30/05 7/1/04 Through 2/28/05 6/30/2004
------------------------------ ----------------------------- -----------------------------
Shares Value Shares Value Shares Value
------------- -------------- ------------ -------------- -----------------------------
Net change in shares from
reorganization:/1/
State Street Research Fund:
Institutional Class (Formerly
Class S) ........................ -- $ -- 923,822 $ -- -- $ --
Investor A Class (Formerly
Class A, Class B and Class R) ... -- -- 13,319,536 -- -- --
Investor B Class (Formerly
Class B/1/) ..................... -- -- 3,942,678 -- -- --
Investor C Class (Formerly
Class C) ........................ -- -- 2,992,071 -- -- --
BlackRock Fund:
Institutional Class (Formerly
Class S) ........................ -- -- 1,247,151 15,137,406 -- --
Service Class .................... -- -- 109,386 1,317,419 -- --
Investor A Class (Formerly
Class A, Class B and Class R) ... -- -- 385,111 4,599,212 -- --
Investor B Class (Formerly
Class B/1/) ..................... -- -- 665,825 7,539,866 -- --
Investor C Class (Formerly
Class C) ........................ -- -- 244,284 2,766,217 -- --
Shares sold:
Institutional Class (Formerly
Class S) ........................ 732,026 9,690,025 1,344,505 18,173,943 468,759 7,741,584
Service Class .................... 13,705 178,478 1,813 22,497 -- --
Investor A Class (Formerly
Class A, Class B and Class R) ... 7,206,377 93,027,146 7,009,420 126,713,520 10,977,111 187,930,330
Investor B Class (Formerly
Class B/1/) ..................... 601,835 7,368,349 732,609 12,944,207 956,816 15,709,737
Investor C Class (Formerly
Class C) ........................ 1,460,280 17,909,975 1,411,687 25,304,297 1,323,060 22,013,072
Shares issued in reinvestment of
dividends:
Institutional Class (Formerly
Class S) ........................ 16,311 199,976 112,046 2,202,945 13,906 234,742
Investor A Class (Formerly
Class A, Class B and Class R) ... 208,098 2,507,385 1,419,250 27,659,321 89,918 1,507,074
Investor B Class (Formerly
Class B/1/) ..................... 58,105 662,980 313,255 5,942,189 -- --
Investor C Class (Formerly
Class C) ........................ 29,827 340,332 190,603 3,632,426 -- --
Shares redeemed:
Institutional Class (Formerly
Class S) ........................ (839,167) (10,927,942) (1,260,543) (17,700,748) (732,645) (12,486,339)
Service Class .................... (57,141) (720,163) (2,405) (30,059) -- --
Investor A Class (Formerly
Class A, Class B and Class R) ... (6,109,543) (78,603,990) (8,538,739) (149,448,063) (6,610,528) (108,711,069)
Investor B Class (Formerly
Class B/1/) ..................... (1,151,006) (13,982,367) (816,608) (13,838,156) (761,699) (12,440,660)
Investor C Class (Formerly
Class C) ........................ (1,094,870) (13,212,388) (1,614,114) (27,306,220) (1,071,849) (17,471,644)
------------- -------------- ------------ -------------- ------------ --------------
Net increase ....................... 1,074,837 $ 14,437,796 24,132,643 $ 45,632,219 4,652,849 $ 84,026,827
============= ============== ============ ============== ============ ==============
/1/ See Note (B).
195
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Mid-Cap Growth Equity
--------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
------------------------------ -----------------------------
Shares Value Shares Value
------------- -------------- ------------ --------------
Shares issued from the
reorganization:/1/
Institutional Class ............ 3,275,088 $ 13,802,408 -- $ --
Investor A Class ............... 31,578,913 253,476,463 -- --
Investor B Class ............... 3,522,140 37,124,253 -- --
Investor C Class ............... 1,428,274 (7,360,832) -- --
Shares sold:
Institutional Class ............ 2,345,154 22,965,023 1,138,699 10,071,810
Service Class .................. 17,450 155,138 290,419 2,373,896
Investor A Class ............... 1,021,818 9,334,452 728,127 5,999,086
Investor B Class ............... 830,004 2,614,913 346,652 2,637,708
Investor C Class ............... 72,047 602,344 120,482 898,547
Shares redeemed:
Institutional Class ............ (3,006,643) (29,368,498) (2,741,486) (23,538,563)
Service Class .................. (1,189,627) (10,999,181) (931,008) (7,817,212)
Investor A Class ............... (6,394,733) (59,275,292) (987,595) (8,047,211)
Investor B Class ............... (1,966,081) (16,599,730) (1,259,848) (9,597,814)
Investor C Class ............... (671,908) (5,648,126) (474,226) (3,615,906)
------------- -------------- ------------ --------------
Net increase (decrease) ......... 30,861,896 $ 210,823,335 (3,769,784) $ (30,635,659)
============= ============== ============ ==============
/1/ See Note (B).
196
BlackRock Funds
Aurora
--------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
------------------------------ -----------------------------
Shares Value Shares Value
------------- -------------- ------------ --------------
Net change in shares from
reorganization:/1/
State Street Research Fund:
Investor A Class (Formerly Class
A and Class B) ................. (222,692) $ -- -- $ --
Shares sold:
Institutional Class (Formerly
Class S) ....................... 2,229,078 94,092,286 2,488,213 98,297,733
Service Class ................... 9 350 -- --
Investor A Class (Formerly Class
A and Class B) ................. 12,247,171 490,698,212 21,949,292 845,611,604
Investor B Class (Formerly Class
B/1/) .......................... 777,325 28,668,813 1,603,178 57,403,099
Investor C Class (Formerly Class
C) ............................. 1,472,276 54,374,605 2,676,532 96,224,763
Shares issued in reinvestment of
dividends:
Institutional Class (Formerly
Class S) ....................... 387,865 15,999,438 2,027 78,602
Service Class ................... -- -- -- --
Investor A Class (Formerly Class
A and Class B) ................. 3,880,515 154,053,052 21,034 788,605
Investor B Class (Formerly Class
B/1/) .......................... 975,164 35,778,753 5,030 177,068
Investor C Class (Formerly Class
C) ............................. 771,557 28,301,088 4,009 141,078
Shares redeemed:
Institutional Class (Formerly
Class S) ....................... (3,648,419) (150,381,329) (1,933,475) (75,747,346)
Service Class ................... (5) (205) -- --
Investor A Class (Formerly Class
A and Class B) ................. (35,468,838) (1,413,550,841) (20,427,745) (782,354,303)
Investor B Class (Formerly Class
B/1/) .......................... (3,185,878) (117,157,977) (2,065,212) (73,852,145)
Investor C Class (Formerly Class
C) ............................. (5,120,173) (187,653,151) (2,762,239) (99,357,980)
------------- -------------- ------------ --------------
Net increase (decrease) ............ (24,905,045) $ (966,776,906) 1,560,644 $ 67,410,778
============= ============== ============ ==============
/1/ See Note (B).
197
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Small/Mid-Cap Growth
--------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
------------------------------ -----------------------------
Shares Value Shares Value
------------- -------------- ------------ --------------
Net change in shares from
reorganization:/1/
State Street Research Fund:
Investor A Class (Formerly Class
A, Class B and Class R) ........ (116,987) $ -- -- $ --
Shares sold:
Institutional Class (Formerly
Class S) ....................... 2,652,708 36,366,909 6,902,293 97,401,258
Service Class ................... 8 100 -- --
Investor A Class (Formerly Class
A, Class B and Class R) ........ 8,248,677 107,248,880 19,953,301 267,106,896
Investor B Class (Formerly Class
B/1/) .......................... 199,160 2,380,035 841,240 10,286,273
Investor C Class (Formerly Class
C) ............................. 293,979 3,483,481 1,796,388 21,845,563
Shares issued in reinvestment of
dividends:
Institutional Class (Formerly
Class S) ....................... -- -- -- --
Service Class ................... -- -- -- --
Investor A Class (Formerly Class
A, Class B and Class R) ........ -- -- -- --
Investor B Class (Formerly Class
B/1/) .......................... -- -- -- --
Investor C Class (Formerly Class
C) ............................. -- -- -- --
Shares redeemed:
Institutional Class (Formerly
Class S) ....................... (8,333,821) (113,230,665) (538,478) (7,285,710)
Service Class ................... -- -- -- --
Investor A Class (Formerly Class
A, Class B and Class R) ........ (17,739,321) (230,036,170) (7,610,612) (97,424,044)
Investor B Class (Formerly Class
B/1/) .......................... (581,269) (6,919,663) (411,875) (4,915,125)
Investor C Class (Formerly Class
C) ............................. (1,415,023) (16,957,216) (342,131) (4,015,411)
------------- -------------- ------------ --------------
Net increase (decrease) ............ (16,791,889) $ (217,664,309) 20,590,126 $ 282,999,700
============= ============== ============ ==============
/1/ See Note (B).
198
BlackRock Funds
Small Cap Value Equity
--------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
------------------------------ -----------------------------
Shares Value Shares Value
------------- -------------- ------------ --------------
Shares sold:
BlackRock Class ............... 79,167 $ 1,205,944 315,702 $ 4,770,100
Institutional Class ........... 428,835 6,107,825 521,530 7,823,358
Service Class ................. 103,969 1,476,011 65,337 975,578
Investor A Class .............. 444,645 6,474,828 547,652 8,197,136
Investor B Class .............. 234,368 2,988,553 231,497 3,164,522
Investor C Class .............. 123,921 1,581,212 135,519 1,856,956
Shares issued in reinvestment of dividends:
BlackRock Class ............... 80,062 1,130,480 -- --
Institutional Class ........... 704,737 9,943,832 478,137 6,837,365
Service Class ................. 30,692 427,853 33,951 482,112
Investor A Class .............. 426,767 5,910,720 309,675 4,375,692
Investor B Class .............. 172,345 2,145,694 103,156 1,346,196
Investor C Class .............. 52,129 649,004 29,701 387,903
Shares redeemed:
BlackRock Class ............... (133,119) (2,051,600) (1,351) (20,000)
Institutional Class ........... (935,092) (13,949,995) (1,571,511) (23,832,897)
Service Class ................. (125,052) (1,907,104) (174,903) (2,606,851)
Investor A Class .............. (1,075,029) (15,452,737) (1,218,073) (18,004,283)
Investor B Class .............. (597,314) (7,804,238) (322,299) (4,438,190)
Investor C Class .............. (180,539) (2,376,758) (123,055) (1,708,064)
------------- -------------- ------------ --------------
Net decrease ................... (164,508) $ (3,500,476) (639,335) $ (10,393,367)
============= ============== ============ ==============
199
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Small Cap Core Equity
-------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------- -----------------------------
Shares Value Shares Value
------------- ------------- ------------- -------------
Shares sold:
Institutional Class ........... 662,746 $ 11,041,559 124,804 $ 1,824,326
Service Class ................. 5,339 89,712 -- --
Investor A Class .............. 570,418 9,435,861 320,205 4,683,838
Investor B Class .............. 299,990 4,881,715 81,510 1,178,698
Investor C Class .............. 810,068 13,179,089 233,839 3,405,315
Shares issued in reinvestment of
dividends:
Institutional Class ........... 679 11,014 103 1,401
Service Class ................. -- 1 -- 1
Investor A Class .............. 1,508 24,368 648 8,857
Investor B Class .............. 680 10,886 188 2,550
Investor C Class .............. 835 13,381 82 1,114
Shares redeemed:
Institutional Class ........... (68,139) (1,141,664) (106,127) (1,545,748)
Service Class ................. -- -- -- --
Investor A Class .............. (100,221) (1,615,518) (107,069) (1,552,486)
Investor B Class .............. (14,220) (228,327) (2,497) (34,973)
Investor C Class .............. (38,423) (630,675) (4,404) (64,005)
------------- ------------- ------------ -------------
Net increase ................... 2,131,260 $ 35,071,402 541,282 $ 7,908,888
============= ============= ============ =============
Small Cap Core Equity
-------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------- -----------------------------
Shares Value Shares Value
------------- ------------- ------------- -------------
Shares sold:
Institutional Class ........... 6,461,991 $ 102,625,766 9,110,273 $ 136,169,237
Service Class ................. 397,592 6,027,945 931,862 13,440,785
Investor A Class .............. 3,017,395 44,828,546 4,817,353 65,691,548
Investor B Class .............. 68,983 930,996 287,742 3,759,718
Investor C Class .............. 243,155 3,303,443 398,471 5,122,745
Shares redeemed:
Institutional Class ........... (4,517,880) (72,480,383) (3,801,835) (55,800,303)
Service Class ................. (1,040,419) (15,772,098) (797,925) (11,305,544)
Investor A Class .............. (2,780,729) (41,526,849) (4,023,966) (55,474,563)
Investor B Class .............. (941,889) (12,749,638) (634,790) (8,164,011)
Investor C Class .............. (315,541) (4,291,449) (345,714) (4,324,174)
------------- ------------- ------------ -------------
Net increase .................... 592,658 $ 10,896,279 5,941,471 $ 89,115,438
============= ============= ============ =============
200
BlackRock Funds
Small Cap Core Equity
-------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------- -----------------------------
Shares Value Shares Value
------------- ------------- ------------- -------------
Shares sold:
Institutional Class ........... 13,205 $ 76,233 67,134 $ 397,026
Service Class ................. 3,407 20,000 4,538 29,200
Investor A Class .............. 199,850 1,176,923 361,677 2,123,218
Investor B Class .............. 76,275 430,583 177,136 1,045,059
Investor C Class .............. 51,620 296,457 83,807 487,728
Shares redeemed:
Institutional Class ........... (179,040) (1,056,338) (289,383) (1,640,289)
Service Class ................. (1,581) (9,264) (8,508) (47,856)
Investor A Class .............. (568,551) (3,296,666) (611,686) (3,519,972)
Investor B Class .............. (698,308) (3,892,430) (953,314) (5,358,747)
Investor C Class .............. (232,187) (1,289,474) (219,524) (1,247,839)
------------- ------------- ------------ -------------
Net decrease .................... (1,335,310) $ (7,543,976) (1,388,123) $ (7,732,472)
============= ============= ============ =============
201
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Global Resources
---------------------------------------------------------------------------------------------
For the For the For the
Period Period Year Ended
3/1/05 through 9/30/05 7/1/04 through 2/28/05 6/30/04
----------------------------- ----------------------------- -----------------------------
Shares Value Shares Value Shares Value
------------- ------------- ------------- ------------- ------------- -------------
Net change in shares from
reorganization:/1/
State Street Research Fund:
Investor A Class (Formerly
Class A, Class B and Class
R) ............................. -- $ -- (66,329) $ -- -- $ --
Shares sold: -- --
Institutional Class (Formerly
Class S) ....................... 136,773 8,270,801 148,500 6,997,371 271,772 9,113,747
Investor A Class (Formerly
Class A, Class B and Class
R) ............................. 2,342,330 141,107,678 3,470,009 159,385,219 10,307,500 339,803,562
Investor B Class (Formerly
Class B/1/) .................... 98,635 5,511,235 274,083 11,326,726 896,835 26,709,892
Investor C Class (Formerly
Class C) ....................... 155,994 8,467,932 551,493 23,517,245 2,236,902 68,602,549
Shares issued in reinvestment of
dividends:
Institutional Class (Formerly
Class S) ....................... -- -- 17,826 888,813 6,925 237,341
Investor A Class (Formerly
Class A, Class B and Class
R) ............................. -- -- 367,069 17,395,794 107,280 3,500,772
Investor B Class (Formerly
Class B/1/) .................... -- -- 51,725 2,266,714 19,360 590,047
Investor C Class (Formerly
Class C) ....................... -- -- 78,414 3,432,162 29,496 898,161
Shares redeemed:
Institutional Class (Formerly
Class S) ....................... (119,441) (7,316,366) (155,837) (7,836,183) (170,538) (5,251,269)
Investor A Class (Formerly
Class A, Class B and Class
R) ............................. (2,829,239) (164,820,925) (3,112,124) (133,160,606) (4,367,520) (134,940,591)
Investor B Class (Formerly
Class B/1/) .................... (233,615) (12,682,219) (320,242) (13,400,554) (336,078) (10,133,803)
Investor C Class (Formerly
Class C) ....................... (551,406) (28,678,911) (679,776) (28,334,096) (493,976) (14,602,129)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) ............ (999,969) $ (50,140,775) 624,811 $ 42,478,605 8,507,958 $ 284,528,279
============= ============= ============= ============= ============= =============
/1/ See Note (B).
202
BlackRock Funds
All-Cap Global Resources
-----------------------------
For the Period
2/16/051 through 9/30/2005
-----------------------------
Shares Value
------------- -------------
Shares sold:
BlackRock Class .......................... -- $ --
Institutional Class ...................... 8,151,696 90,216,705
Service Class ............................ 10 100
Investor A Class ......................... 6,907,625 79,348,642
Investor B Class ......................... 1,292,692 14,456,440
Investor C Class ......................... 3,651,295 42,360,158
Shares issued in reinvestment of dividends:
BlackRock Class .......................... -- --
Institutional Class ...................... -- --
Service Class ............................ -- --
Investor A Class ......................... -- --
Investor B Class ......................... -- --
Investor C Class ......................... -- --
Shares redeemed:
BlackRock Class .......................... -- --
Institutional Class ...................... (1,353,834) (15,756,025)
Service Class ............................ -- --
Investor A Class ......................... (393,121) (4,570,710)
Investor B Class ......................... (100,601) (1,238,157)
Investor C Class ......................... (62,701) (688,946)
------------- -------------
Net increase .............................. 18,093,061 $ 204,128,207
============= =============
/1/ Commencement of operations.
203
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Health Sciences
---------------------------------------------------------------------------------------------
For the For the For the
Period Year Ended Year Ended
3/1/05 through 9/30/05 2/28/05 2/29/04
----------------------------- ----------------------------- -----------------------------
Shares Value Shares Value Shares Value
------------- ------------- ------------- ------------- ------------- -------------
Net change in shares from
reorgani-zation:/1/
State Street Research Fund:
Investor A Class (Formerly Class
A, Class B and Class R) ....... -- $ -- (4,617) $ -- -- $ --
Shares sold:
Institutional Class (Formerly
Class S) ...................... 1,145,468 27,119,489 128,213 2,671,247 183,218 3,639,921
Service Class .................. 2,715 63,300 5 100 -- --
Investor A Class (Formerly Class
A, Class B and Class R) ....... 4,956,440 113,905,634 2,836,559 57,282,345 2,738,554 50,111,142
Investor B Class (Formerly Class
B/1/) ......................... 544,629 11,879,605 558,845 10,973,167 397,168 7,191,329
Investor C Class (Formerly Class
C) ............................ 2,533,859 56,543,316 961,093 18,966,442 494,043 9,163,916
Shares issued in reinvestment of
dividends:
Institutional Class (Formerly
Class S) ...................... 78 1,746 12,094 257,622 3,043 58,784
Investor A Class (Formerly Class
A, Class B and Class R) ....... 1,563 34,234 148,553 3,118,081 57,770 1,103,393
Investor B Class (Formerly Class
B/1/) ......................... 642 13,639 64,065 1,311,510 31,705 594,591
Investor C Class (Formerly Class
C) ............................ 407 8,632 25,134 512,969 8,373 156,831
Shares redeemed:
Institutional Class (Formerly
Class S) ...................... (76,215) (1,692,023) (171,969) (3,493,427) (31,546) (578,844)
Investor A Class (Formerly Class
A, Class B and Class R) ....... (1,001,580) (21,722,738) (1,971,584) (39,527,347) (967,899) (17,048,788)
Investor B Class (Formerly Class
B/1/) ......................... (112,555) (2,376,890) (234,528) (4,562,237) (130,198) (2,141,232)
Investor C Class (Formerly Class
C) ............................ (192,002) (4,135,535) (236,874) (4,615,846) (77,584) (1,331,219)
------------- ------------- ------------- ------------- ------------- -------------
Net increase ....................... 7,803,449 $ 179,642,409 2,114,989 $ 42,894,626 2,706,647 $ 50,919,824
============= ============= ============= ============= ============= =============
/1/ See Note (B).
204
BlackRock Funds
U.S. Opportunities
-------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------- -----------------------------
Shares Value Shares Value
------------- ------------- ------------- -------------
Shares sold:
Institutional Class ............ 41,040 $ 921,837 117,054 $ 2,283,248
Service Class .................. 3,497 70,610 101,311 1,970,021
Investor A Class ............... 112,410 2,505,614 223,876 4,273,087
Investor B Class ............... 36,960 800,145 77,348 1,397,751
Investor C Class ............... 107,652 2,400,105 86,540 1,571,088
Shares redeemed:
Institutional Class ............ (89,659) (2,021,552) (255,355) (4,914,411)
Service Class .................. (100,170) (2,152,175) (11,639) (221,344)
Investor A Class ............... (430,990) (9,474,413) (451,932) (8,551,449)
Investor B Class ............... (625,873) (13,112,443) (559,049) (10,148,159)
Investor C Class ............... (295,588) (6,178,408) (348,429) (6,263,316)
------------- ------------- ------------- -------------
Net decrease ..................... (1,240,721) $ (26,240,680) (1,020,275) $ (18,603,484)
============= ============= ============= =============
International Opportunities
-------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------- -----------------------------
Shares Value Shares Value
------------- ------------- ------------- -------------
Shares sold:
Institutional Class ............ 3,124,637 $ 90,893,095 1,675,872 $ 39,545,723
Service Class .................. 832,415 23,659,396 926,448 21,482,231
Investor A Class ............... 4,521,618 128,498,832 3,199,383 73,871,653
Investor B Class ............... 695,853 18,889,974 686,235 14,936,708
Investor C Class ............... 2,137,054 58,642,481 1,411,947 31,064,713
Shares issued in reinvestment of
dividends:
Institutional Class ............ 29,812 827,590 1,323 29,679
Service Class .................. 8,721 237,123 114 2,497
Investor A Class ............... 34,965 945,460 1,346 29,462
Investor B Class ............... 3,472 90,492 975 20,582
Investor C Class ............... 5,986 155,815 738 15,558
Shares redeemed:
Institutional Class ............ (811,565) (23,267,346) (631,675) (14,723,802)
Service Class .................. (321,418) (9,020,020) (205,804) (4,765,889)
Investor A Class ............... (1,152,328) (32,651,828) (946,356) (21,631,960)
Investor B Class ............... (367,450) (10,037,117) (375,821) (8,266,369)
Investor C Class ............... (474,830) (12,988,280) (433,956) (9,552,592)
------------- ------------- ------------- -------------
Net increase ..................... 8,266,942 $ 234,875,667 5,310,769 $ 122,058,194
============= ============= ============= =============
205
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Asset Allocation
---------------------------------------------------------------------------------------------
For the For the For the
Period Period Year Ended
3/1/05 through 9/30/05 4/1/04 through 2/28/05 3/31/04
---------------------------------------------------------------------------------------------
Shares Value Shares Value Shares Value
------------- ------------- ------------- ------------- ------------- -------------
Net change in shares from
reorganization:/1/
State Street Research Fund:
Institutional Class
(Formerly Class S) .......... -- $ -- (431,759) $ -- -- $ --
Investor A Class (Formerly Class A,
Class B and Class R) ........ -- -- (12,435,419) -- -- --
Investor B Class
(Formerly Class B/1/) ....... -- -- (3,883,624) -- -- --
Investor C Class
(Formerly Class C) .......... -- -- (1,561,222) -- -- --
BlackRock Fund:
Institutional Class
(Formerly Class S) .......... -- -- 756,058 11,073,022 -- --
Service Class ................ -- -- 159,024 2,325,985 -- --
Investor A Class (Formerly Class A,
Class B and Class R) ........ -- -- 4,260,378 62,273,644 -- --
Investor B Class
(Formerly Class B/1/) ....... -- -- 2,633,550 38,144,193 -- --
Investor C Class
(Formerly Class C) .......... -- -- 330,149 4,780,614 -- --
Shares sold:
Institutional Class
(Formerly Class S) .......... 286,450 4,309,548 843,355 11,040,921 290,764 2,764,953
Service Class ................ 14,692 219,083 6,047 90,163 -- --
Investor A Class (Formerly Class A,
Class B and Class R) ........ 1,686,903 25,359,821 9,147,740 97,457,497 9,714,452 94,326,907
Investor B Class
(Formerly Class B/1/) ....... 804,846 11,974,666 2,760,767 29,631,133 4,525,455 43,919,902
Investor C Class
(Formerly Class C) .......... 641,305 9,566,052 2,286,784 24,055,515 1,980,006 19,760,160
Shares issued in reinvestment of
dividends:
Institutional Class
(Formerly Class S) .......... 16,029 240,227 115,141 1,215,396 38,395 376,594
Service Class ................ 1,144 17,133 -- -- -- --
Investor A Class (Formerly Class A,
Class B and Class R) ........ 263,316 3,938,180 2,609,782 27,513,302 665,521 6,521,284
Investor B Class
(Formerly Class B/1/) ....... 36,219 536,310 666,138 6,990,057 84,483 817,086
Investor C Class
(Formerly Class C) .......... 8,022 118,805 149,839 1,581,290 23,301 225,953
Shares redeemed:
Institutional Class
(Formerly Class S) .......... (474,289) (7,052,006) (1,243,828) (14,502,160) (476,957) (4,549,408)
Service Class ................ (20,740) (312,598) (19,987) (296,380) -- --
Investor A Class (Formerly Class A,
Class B and Class R) ........ (5,426,561) (80,927,628) (11,410,029) (125,727,173) 12,055,243) (115,596,398)
Investor B Class
(Formerly Class B/1/ ........ (1,675,868) (24,814,424) (1,985,558) (22,062,236) (1,463,343) (14,138,963)
Investor C Class
(Formerly Class C) .......... (669,175) (9,907,608) (733,924) (8,157,124) (392,657) (3,818,212)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) .......... (4,507,707) $ (66,734,439) (6,980,598) $ 147,427,659 2,934,177 $ 30,609,858
============= ============= ============= ============= ============= =============
/1/ See Note (B).
206
BlackRock Funds
Index Equity
-------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------- -----------------------------
Shares Value Shares Value
------------- ------------- ------------- -------------
Shares sold:
Institutional Class ............. 2,794,314 $ 63,688,843 3,269,684 $ 69,335,844
Service Class ................... 1,019,854 23,215,326 1,299,490 27,524,523
Investor A Class ................ 2,301,502 52,312,632 3,945,583 83,560,549
Investor B Class ................ 78,863 1,755,296 411,956 8,501,106
Investor C Class ................ 61,824 1,383,869 1,143,687 23,613,472
Shares issued in reinvestment of
dividends:
Institutional Class ............. 229,903 5,278,647 209,619 4,493,609
Service Class ................... 48,096 1,096,662 44,696 951,634
Investor A Class ................ 210,258 4,791,418 155,141 3,301,221
Investor B Class ................ 38,721 867,668 17,517 364,388
Investor C Class ................ 41,397 927,186 18,164 377,866
Shares redeemed:
Institutional Class ............. (3,295,354) (74,676,043) (10,233,505) (220,082,336)
Service Class ................... (1,640,323) (37,319,806) (1,649,576) (35,098,252)
Investor A Class ................ (4,534,077) (103,153,784) (4,210,051) (89,446,482)
Investor B Class ................ (2,657,216) (59,452,086) (2,229,229) (46,418,387)
Investor C Class ................ (3,512,901) (78,470,422) (3,739,728) (78,142,043)
------------- ------------- ------------- -------------
Net decrease ...................... (8,815,139) $(197,754,594) (11,546,552) $(247,163,288)
============= ============= ============= =============
There is a 2% redemption fee on shares of the Portfolios redeemed or
exchanged which have been held 90 days or less. The redemption fees are
collected and retained by the Fund for the benefit of the remaining
shareholders. The redemption fees are recorded as a credit to paid in capital.
On September 30, 2005, three shareholders held approximately 35% of the
outstanding shares of the Large Cap Value Equity Portfolio, four shareholders
held approximately 62% of Large Cap Growth Equity Portfolio, three shareholders
held approximately 26% of the Dividend AchieversTM Portfolio, two shareholders
held approximately 13% of the Mid-Cap Value Equity Portfolio, one shareholder
held approximately 8% of the Mid-Cap Growth Equity Portfolio, two shareholders
held approximately 19% of the Aurora Portfolio, two shareholders held
approximately 20% of the Small/ Mid-Cap Growth Portfolio, three shareholders
held approximately 57% of the Small Cap Value Equity Portfolio, two shareholders
held 34% of the Small Cap Core Equity Portfolio, five shareholders held
approximately 51% of the Small Cap Growth Equity Portfolio, five shareholders
held approximately 37% of the U.S. Opportunities Portfolio, three shareholders
held approximately 44% of the Global Science & Technology Opportunities
Portfolio, three shareholders held approximately 32% of the Global Resources
Portfolio, two shareholders held approximately 20% of the All-Cap Global
Resources Portfolio, three shareholders held approximately 32% of the Health
Sciences Portfolio, three shareholders held approximately 20% of the
International Opportunities Portfolio, four shareholders held approximately 61%
of the Index Equity Portfolio and one shareholder held approximately 7% of the
Asset Allocation Portfolio. Some of the shareholders are comprised of omnibus
accounts, which are held on behalf of several individual shareholders.
207
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
(G) At September 30, 2005, net assets consisted of:
Investment Large Cap Large Cap Dividend
Trust Value Equity Growth Equity Achievers(TM)
---------------- ---------------- ---------------- ----------------
Capital paid in ......................................... $ 1,274,245,341 $ 311,230,293 $ 422,935,804 $ 32,293,258
End of period undistributed net investment income ....... 6,946,198 88,982 274,749 1,961
Accumulated net realized gain (loss) on investment
transactions and futures ............................... (205,616,722) (29,614,750) (382,460,226) (354,555)
Net unrealized appreciation (depreciation) on investment
transactions and futures ............................... 268,840,993 79,438,147 15,309,075 1,157,792
---------------- ---------------- ---------------- ----------------
$ 1,344,415,810 $ 361,142,672 $ 56,059,402 $ 33,098,456
================ ================ ================ ================
Mid-Cap Large Cap
Legacy Value Equity Growth Equity Aurora
---------------- ----------------- ---------------- ----------------
Capital paid in ......................................... $ 343,003,850 $ 607,104,571 $ 624,763,175 $ 1,530,880,231
End of period undistributed net investment income ....... -- 201,780 -- --
Accumulated net realized gain (loss) on investment
transactions ........................................... (116,181,065) 72,798,366 (274,986,168) 464,149,574
Net unrealized appreciation on investment transactions .. 51,737,111 109,369,486 96,898,250 703,899,447
---------------- ---------------- ---------------- ----------------
$ 278,559,896 $ 789,474,203 $ 446,675,257 $ 2,698,929,252
================ ================ ================ ================
Small/Mid-Cap Small Cap Small Cap Small Cap
Growth Value Equity Core Equity Growth Equity
---------------- ---------------- ---------------- ----------------
Capital paid in ......................................... $ 231,799,948 $ 90,819,318 $ 44,002,933 $ 1,119,312,095
End of period undistributed net investment income ....... -- 11,801 -- --
Accumulated net realized gain (loss) on investment
transactions ........................................... 8,652,211 21,580,566 401,820 (646,996,535)
Net unrealized appreciation on investment transactions .. 41,190,738 16,186,981 3,896,163 101,355,608
---------------- ---------------- ---------------- ----------------
$ 281,642,897 $ 128,598,666 $ 48,300,916 $ 573,671,168
================ ================ ================ ================
Global Science
& Technology Global All-Cap Health
Opportunities Resources Global Resources Sciences
---------------- ---------------- ---------------- ----------------
Capital paid in ......................................... $ 98,240,800 $ 476,112,010 $ 204,075,862 $ 300,020,040
End of period undistributed net investment income
(distributions in excess of net investment income or
accumulated net investment loss) ....................... -- (3,567,059) -- --
Accumulated net realized gain (loss) on investment
transactions and foreign currency related transactions . (78,784,112) 101,253,428 (77,770) 10,432,318
Net unrealized appreciation (depreciation) on investment
transactions and foreign currency related transactions . 4,986,810 663,337,523 40,403,132 36,891,937
---------------- ---------------- ---------------- ----------------
$ 24,443,498 $ 1,237,135,902 $ 244,401,224 $ 347,344,295
================ ================ ================ ================
208
BlackRock Funds
U.S. International Asset
Opportunities Opportunities Allocation Index Equity
---------------- ---------------- ---------------- ----------------
Capital paid in ......................................... $ 175,388,710 $ 548,989,520 $ 683,758,396 $ 1,147,295,258
End of period undistributed net investment income
(distributions in excess of net investment income or
accumulated net investment loss) ....................... -- 5,137,726 1,210,069 324,224
Accumulated net realized gain (loss) on investment
transactions, futures, options, swaptions, swap contracts
and foreign currency related transactions .............. (101,559,002) 15,285,709 (3,400,661) (304,342,233)
Net unrealized appreciation (depreciation) on investment
transactions, futures, options, swaptions, swap contracts
and foreign currency related transactions .............. 22,215,534 148,759,423 90,866,810 481,829,195
---------------- ---------------- ---------------- ----------------
$ 96,045,242 $ 718,172,378 $ 772,434,614 $ 1,325,106,444
================ ================ ================ ================
(H) Federal Tax Information
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. Short-term capital gain and foreign currency distributions that
are reported in the Statement of Changes in Net Assets are reported as ordinary
income for federal tax purposes.
Dividends from net investment income and distributions from net realized
capital gains are determined in accordance with U.S. Federal income tax
regulations, which may differ from those amounts determined under accounting
principles generally accepted in the United States. These book/tax differences
are either temporary or permanent in nature. To the extent these differences are
permanent, they are charged or credited to paid-in-capital or accumulated net
realized gain, as appropriate, in the period that the differences arise. The
following permanent differences as of September 30, 2005, attributable to
realized foreign currency gains/(losses), foreign futures realized
gains/(losses), paydown adjustments and certain net operating losses which for
tax purposes, are not available to offset future income, were reclassified to
the following accounts:
Increase Increase
(Decrease) (Decrease)
Increase Accumulated Undistributed
(Decrease) Net Realized Net Investment
Paid In-Capital Gain (Loss) Income
---------------- ---------------- ----------------
Investment Trust .................................... $ 271,612,346 $ (271,612,346) $ --
Large Cap Value Equity .............................. 11,635,325 (11,635,325) --
Legacy .............................................. (98,020) -- 98,020
Mid-Cap Value Equity ................................ 426,675 (650,198) 223,523
Mid-Cap Growth Equity ............................... (84,986,990) 80,844,917 4,142,073
Aurora .............................................. (17,362,757) (234,719) 17,597,476
Small/Mid-Cap Growth Equity ......................... (3,240,011) -- 3,240,011
Small Cap Core Equity ............................... -- (323,999) 323,999
Small Cap Growth Equity ............................. (2,948,503) -- 2,948,503
Global Science & Technology Opportunities ........... (386,594) (9,961) 396,555
Global Resources .................................... -- (2,054,858) 2,054,858
All-Cap Global Resources ............................ (91,310) 63,267 28,043
Health Sciences ..................................... (7) (1,078,191) 1,078,198
U.S. Opportunities .................................. (1,397,619) -- 1,397,619
International Opportunities ......................... -- (53,405) 53,405
Asset Allocation .................................... 40,828,825 (45,882,005) 5,053,180
209
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
The tax character of distributions paid during the years ended September
30, 2005, and September 30, 2004 were as follows:
Ordinary Long-Term Total
Income Capital Gain Distributions
------------- ------------- -------------
Investment Trust
9/30/05 ........................ $ 464,247 $ -- $ 464,247
9/30/04 ........................ 893,694 -- 893,694
Large Cap Value
9/30/05 ........................ 4,138,309 -- 4,138,309
9/30/04 ........................ 3,331,111 -- 3,331,111
Dividend Acheivers
9/30/05 ........................ 327,123 9,435 336,558
Mid-Cap Value
9/30/05 ........................ 5,355,456 1,906,200 7,261,656
9/30/04 ........................ 194,370 -- 194,370
Aurora
9/30/05 ........................ 51,296,874 285,959,800 337,256,674
9/30/04 ........................ -- 1,642,569 1,642,569
Small Cap Value
9/30/05 ........................ 17,073,528 8,151,685 25,225,213
9/30/04 ........................ 6,523,912 9,724,645 16,248,557
Small Cap Core
9/30/05 ........................ -- 103,852 103,852
9/30/04 ........................ -- 29,531 29,531
Health Sciences
3/1/04 through 2/28/05 ......... -- 75,346 75,346
International Opportunities
9/30/05 ........................ 3,350,147 -- 3,350,147
9/30/04 ........................ 153,612 -- 153,612
Asset Allocation --
9/30/05 ........................ 6,400,932 7,557 6,408,489
9/30/04 ........................ 1,647,304 -- 1,647,304
Index Equity/*/
11/30/04 ....................... 15,470,115 -- 15,470,115
11/30/03 ....................... 15,555,745 -- 15,555,745
/*/ BlackRock Index Equity Portfolio has a tax year end of 11/30.
210
BlackRock Funds
As of September 30, 2005, the tax components of distributable
earnings/(accumulated losses) were as follows:
Undistributed Undistributed Accumulated Post-
Ordinary Long-Term Capital October
Income Capital Gain Losses Losses
------------- ------------- ------------- -------------
Investment Trust .............................. $ 6,946,198 $ 33,496,464 $ 236,461,626 $ --
Large Cap Value Equity ........................ 88,980 -- 27,359,811 --
Large Cap Growth Equity ....................... 274,749 -- 382,236,942 --
Dividend Achievers(TM) ........................ 1,881 -- -- 312,559
Legacy ........................................ -- -- 115,958,263 --
Mid-Cap Value Equity .......................... 37,738,676 38,957,427 -- --
Mid-Cap Growth Equity ......................... -- 5,857,028 280,021,307 --
Aurora ........................................ -- 469,823,998 -- --
Small/Mid-Cap Growth .......................... -- 9,593,293 -- --
Small Cap Value Equity ........................ 11,952,816 9,761,467 -- --
Small Cap Core Equity ......................... 184,044 337,458 -- --
Small Cap Growth Equity ....................... -- -- 644,592,574 --
Global Science & Technology Opportunities ..... -- -- 78,692,568 --
Global Resources .............................. 20,030,276 81,433,314 -- --
All-Cap Global Resources ...................... -- -- 36,351 --
Health Sciences ............................... 4,999,268 6,431,055 -- --
U.S. Opportunities ............................ -- -- 101,558,173 --
International Opportunities ................... 8,670,681 15,445,686 -- 1,765,259
Asset Allocation .............................. 1,776,579 32,265,162 33,239,576 368,822
The estimated Post-October losses represent lo sses realized on
investment transactions from November 1, 2004 through September 30, 2005 that,
in accordance with Federal income tax regulations, the Portfolios may defer and
treat as having arisen in the following fiscal year. For Federal income tax
purposes, capital loss carryforwards may be carried forward and applied against
future capital gains.
At September 30, 2005, the Portfolios had capital loss carryforwards
available to offset future realized capital gains through the indicated
expiration dates:
Expiring September 30
-----------------------------------------------------------------------------
2009 2010 2011 2013 Total
------------- ------------- ------------- ------------- -------------
Investment Trust .............. $ 199,128,674 $ 21,399,511 $ 15,933,441 $ -- $ 236,461,626
Large Cap Value Equity ........ -- 23,567,552 3,792,259 -- 27,359,811
Large Cap Growth Equity ....... -- 376,597,358 5,639,584 -- 382,236,942
Legacy ........................ 21,280,418 76,300,059 18,377,786 -- 115,958,263
Mid-Cap Growth Equity ......... 157,179,901 106,543,783 16,297,623 -- 280,021,307
Small Cap Growth Equity ....... -- 539,605,482 104,987,092 -- 644,592,574
Global Science & Technology
Opportunities ................ 6,619,658 72,072,910 -- -- 78,692,568
All-Cap Global Resources ...... -- -- -- 36,351 36,351
U.S. Opportunities ............ -- 85,044,662 16,513,511 -- 101,558,173
Asset Allocation .............. 8,409,633 24,829,943 -- -- 33,239,576
Expiring November 30
-------------------------------------------------------------
2009 2010 2011 Total
------------- ------------- ------------- -------------
Index Equity ................. $ 5,288,740 $ 79,252,195 $ 117,169,455 $ 201,710,390
211
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Concluded)
As of September 30, 2005 the following capital loss carryforwards were
used to offset net taxable gains for the following Portfolios:
Investment Trust ......................... $ 127,421,771
Large Cap Value Equity ................... 45,527,415
Large Cap Growth Equity .................. 15,030,777
Dividend Achievers ....................... 2,818
Legacy ................................... 10,995,750
Mid-Cap Growth Equity .................... 43,505,099
Small/Mid-Cap Growth Equity .............. 8,855,140
Small-Cap Growth Equity .................. 45,173,640
Global Science & Technology Opportunities. 1,372,383
U.S. Opportunities ....................... 15,143,106
International Opportunities .............. 34,119,135
Asset Allocation ......................... 9,558,121
As of September 30, 2005 the following capital loss carryforwards were
written off due to merger limitations with State Street Research Funds for the
following Portfolios:
Investment Trust ......................... $ 41,035,435
Mid-Cap Growth Equity .................... 360,817,885
212
BlackRock Funds
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
BlackRock Funds:
We have audited the accompanying statements of net assets of the Investment
Trust, Large Cap Value Equity, Large Cap Growth Equity, Dividend Achievers(TM),
Legacy, Mid-Cap Value Equity, Mid-Cap Growth Equity, Aurora, Small/Mid-Cap
Growth, Small Cap Value Equity, Small Cap Core Equity, Small Cap Growth Equity,
Global Science & Technology Opportunities, Global Resources, All-Cap Global
Resources, Health Sciences, U.S. Opportunities, International Opportunities,
Asset Allocation, and Index Equity Portfolios [twenty of the fifty portfolios
constituting BlackRock Funds (the "Fund")], and the statements of assets and
liabilities of the Investment Trust, Large Cap Value Equity, Large Cap Growth
Equity, Dividend AchieversTM, Legacy, Mid-Cap Value Equity, Mid-Cap Growth
Equity, Aurora, Small/Mid-Cap Growth, Small Cap Value Equity, Small Cap Core
Equity, Global Science & Technology Opportunities, Global Resources, All-Cap
Global Resources, Health Sciences, U.S. Opportunities, and Asset Allocation
Portfolios as of September 30, 2005, the related statements of operations for
the periods then ended, the related statements of operations for the periods
ended February 28, 2005 for the Mid-Cap Value Equity, Global Resources, Health
Sciences and Asset Allocation Portfolios, the related statement of operations
for the period ended October 31, 2004 for the Legacy Portfolio, the statements
of changes in net assets and financial highlights for the periods ended
September 30, 2005 and September 30, 2004 for the Investment Trust (formerly
"BlackRock Select Equity Portfolio"), Large Cap Value Equity, Large Cap Growth
Equity, Dividend AchieversTM, Mid-Cap Growth Equity, Small Cap Value Equity,
Small Cap Core Equity, Small Cap Growth Equity, Global Science & Technology
Opportunities, U.S. Opportunities, International Opportunities, and Index Equity
Portfolios, the statements of changes in net assets for the periods ended
September 30, 2005 and September 30, 2004 and the financial highlights for the
periods ended September 30, 2005, September 30, 2004 and September 30, 2003 for
the Aurora (formerly "State Street Research Aurora Fund") and Small/Mid-Cap
Growth (formerly "State Street Research Emerging Growth Fund") Portfolios, the
statements of changes in net assets and financial highlights for the periods
ended September 30, 2005, October 31, 2004, and October 31, 2003 for the Legacy
Portfolio (formerly "State Street Research Legacy Fund"), the statements of
changes in net assets for the periods ended September 30, 2005, February 28,
2005 and June 30, 2004 and the financial highlights for the periods ended
September 30, 2005, February 28, 2005, June 30, 2004 and June 30, 2003 for the
Mid-Cap Value Equity (formerly "State Street Research Mid-Cap Value Fund") and
Global Resources (formerly "State Street Research Global Resources Fund")
Portfolios, the statements of changes in net assets and financial highlights for
the period ended September 30, 2005 for the All-Cap Global Resources Portfolio,
the statements of changes in net assets and financial highlights for the periods
ended September 30, 2005, February 28, 2005, and February 29, 2004 for the
Health Sciences (formerly "State Street Research Health Sciences Fund")
Portfolio and the statements of changes in net assets and financial highlights
for the periods ended September 30, 2005, February 28, 2005, and March 31, 2004
for the Asset Allocation (formerly "BlackRock Balanced Portfolio") Portfolio.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights of the Portfolios for the periods ended February 28, 2003, February
28, 2002, and February 28, 2001, March 31, 2003, March 31, 2002, March 31, 2001,
June 30, 2002, June 30, 2001, September 30, 2003 (except the Aurora and
Small/Mid-Cap Growth Portfolios), September 30, 2002, September 30, 2001,
October 31, 2002 and October 31, 2001 were audited by other auditors whose
reports, dated August 9, 2002, November 8, 2002, December 13, 2002, April 7,
2003 and May 9, 2003, expressed unqualified opinions on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Portfolios are not required to have, nor were we engaged to perform, an
audit of their internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Portfolios'
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of September 30, 2005, by
correspondence with the custodians and brokers; where replies were not received
from brokers, we performed other auditing procedures. We believe that our audits
provide a reasonable basis for our opinion.
213
BlackRock Funds
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of the
Portfolios as of September 30, 2005, the results of their operations, changes in
their net assets, and their financial highlights for each of the periods
indicated in the first paragraph above, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
November 25, 2005
214
BlackRock Funds
FUND MANAGEMENT (Unaudited)
Information pertaining to the Trustees and officers of the Fund is set forth
below. The statement of additional information (SAI) includes additional
information about the Trustees and is available without charge, upon request, by
calling (888) 825-2257. Institutional and service share class investors should
call (800) 441-7450.
Number of
Term of Portfolios Other Total Fund
Office/(1)/ in Fund Directorships Compensation
Position(s) and Length Complex/(2)/ Held by for the
Name, Address and Held with of Time Principal Occupation(s) Overseen Trustee Year Ending
Age Fund Served During Past Five Years by Trustee 9/30/05
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
Richard S. Davis/(3)/ Trustee Since 2005 Managing Director, BlackRock, Inc. 55 None N/A
BlackRock, Inc. (since 2005); Chief Executive Officer, (includes
40 E. 52nd Street State Street Research & 50
New York, NY 10022 Management Company (2000-2005); Portfolios
Age: 59 Chairman of the Board of Trustees, of the Fund
State Street Research mutual funds and 5
("SSR Funds") (2000-2005); Senior Portfolios
Vice President, Metropolitan Life of
Insurance Company (1999-2000); BlackRock
Chairman, SSR Realty (2000-2004). Bond
Allocation
Target
Shares)
- -----------------------------------------------------------------------------------------------------------------------------------
Laurence D. Fink/(4)/ Trustee Since 2000 Director, Chairman and Chief 55 Director, N/A
BlackRock, Inc. Executive Officer of BlackRock, Inc. (includes BlackRock,
40 E. 52nd Street since its formation in 1998 and of 50 Inc.
New York, NY 10022 BlackRock, Inc.'s predecessor Portfolios
Age: 51 entities since 1988; Chairman of the of the Fund
Management Committee; formerly, and 5
Managing Director of the First Portfolios
Boston Corporation, Member of its of
Management Committee, Co-head of BlackRock
its Taxable Fixed Income Division Bond
and Head of its Mortgage and Real Allocation
Estate Products Group; Chairman of Target
the Board of Nomura BlackRock Shares)
Asset Management and several of
BlackRock's alternative investment
vehicles; Director of several of
BlackRock's offshore funds;
Co-Chairman of the Board of
Trustees of Mount Sinai-NYU;
Co-Chairman of the Board of
Trustees of NYU Hospitals Center;
member of the Board of Trustees of
NYU; member of the Board of
Executives of the New York Stock
Exchange, and Trustee of the
American Folk Art Museum.
- -----------------------------------------------------------------------------------------------------------------------------------
215
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Continued)
Number of
Term of Portfolios Other Total Fund
Office/(1)/ in Fund Directorships Compensation
Position(s) and Length Complex/(2)/ Held by for the
Name, Address and Held with of Time Principal Occupation(s) Overseen Trustee Year Ending
Age Fund Served During Past Five Years by Trustee 9/30/05
- -----------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
Bruce R. Bond Trustee Since 2005 Retired; Trustee and 55 Director, $ 84,600
c/o BlackRock Funds member of the (includes Avaya, Inc.
100 Bellevue Parkway Governance Committee, 50 (information
Wilmington, DE 19809 SSR Funds Portfolios technology).
Age: 59 (1997-2005). of the Fund
and 5
Portfolios
of
BlackRock
Bond
Allocation
Target
Shares)
- -----------------------------------------------------------------------------------------------------------------------------------
Peter S. Drotch Trustee Since 2005 Retired; Trustee and member 55 Director, $ 84,600
c/o BlackRock Funds of the (includes First
100 Bellevue Parkway Audit Committee, SSR Funds 50 Marblehead
Wilmington, DE 19809 (2003-2005); Partner, Portfolios Corp.
Age: 64 Pricewater- of the Fund (student loan
houseCoopers LLP and 5 processing and
(accounting firm) Portfolios securitization);
(1964-2000). of Trustee,
BlackRock University of
Bond Connecticut;
Allocation Trustee,
Target Huntington
Shares) Theatre.
- -----------------------------------------------------------------------------------------------------------------------------------
Honorable Stuart E. Trustee and Since 2001 Partner, Covington & Burling 55 Director, $ 130,100
Eizenstat Chairman of firm) (2001-Present); Deputy (includes Mirant
Covington & Burling the Secretary of the Treasury 50 Corporation;
1201 Pennsylvania Nominating (1999-2001); Under Secretary of Portfolios Advisory
Avenue, NW Committee State for Economic, Business and of the Fund Board member,
Washington, DC 20004 Agricultural Affairs (1997-1999); and 5 The Coca-Cola
Age: 62 Under Secretary of Commerce for Portfolios Company;
International Trade (1996-1997); of Advisory Board
U.S. Ambassador to the European BlackRock member, Group
Union (1993-1996); Chairman, Bond Menatep;
International Board of Governors, Allocation Advisory
Weizmann Institute of Science. Target Board member,
Shares) BT
Americas.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert M. Hernandez Trustee, Vice Since 1996 Retired; Director (1991-2001), Vice 55 Lead Director, $ 140,100
c/o BlackRock Funds Chairman of Chairman and Chief Financial Officer (includes ACE
100 Bellevue Parkway the Board and (1994-2001), Executive Vice 50 Limited
Wilmington, DE 19809 Chairman of President-Accounting and Finance Portfolios (insurance
Age: 61 the Audit and Chief Financial Officer of the Fund company);
Committee (1991-1994), USX Corporation (a and 5 Director
diversified company principally Portfolios and Chairman
engaged in energy and steel of of the
businesses). BlackRock Board, RTI
Bond International
Allocation Metals,
Target Inc.: Director,
Shares) Eastman
Chemical
Company.
- -----------------------------------------------------------------------------------------------------------------------------------
216
BlackRock Funds
FUND MANAGEMENT (Unautied) (Continued)
Number of
Term of Portfolios Other Total Fund
Office/(1)/ in Fund Directorships Compensation
Position(s) and Length Complex/(2)/ Held by for the
Name, Address and Held with of Time Principal Occupation(s) Overseen Trustee Year Ending
Age Fund Served During Past Five Years by Trustee 9/30/05
- -----------------------------------------------------------------------------------------------------------------------------------
Dr. Matina Horner Trustee and Since 2004 Retired; Executive Vice President of 55 Chair of the $ 104,550
c/o BlackRock Funds Chairperson Teachers Insurance and Annuity (includes Board of the
100 Bellevue Parkway of the Association and College Retirement 50 Massachusetts
Wilmington, DE 19809 Governance Equities Fund (TIAA-CREF) Portfolios General
Age: 66 Committee ( 1989-2003). of the Fund Hospital
and 5 Institute of
Portfolios Health
of Professions;
BlackRock Chair of
Bond the Board of
Allocation the Greenwall
Target Foundation;
Shares) Trustee,
Century
Foundation
(formerly
The Twentieth
Century Fund);
Director, N
STAR (formerly
called Boston
Edison);
Director, The
Neiman Marcus
Group;
Honorary
Trustee,
Massachusetts
General
Hospital
Corporation.
- -----------------------------------------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Since 2005 President, Founders Investment Ltd. 55 Director, A.P. $ 84,600
c/o BlackRock Funds (private investments) (since 1999); (includes Pharma, Inc.
100 Bellevue Parkway Trustee, SSR Funds (1993-2003). 50
Wilmington, DE 19809 Portfolios
Age: 67 of the Fund
and 5
Portfolios
of
BlackRock
Bond
Allocation
Target
Shares)
- -----------------------------------------------------------------------------------------------------------------------------------
David R. Wilmerding, Trustee and Since 1996 Chairman, Wilmerding & Associates, 56 None $ 135,100
Jr. Chairperson Inc. (investment advisers) (since (includes
c/o BlackRock Funds of 1989); Chairman, Coho Partners, 50
100 Bellevue Parkway the Board Ltd. (investment advisers) (since Portfolios
Wilmington, DE 19809 2003); Director, Beaver Management of the Fund,
Age: 70 Corporation (land management 5 Portfolios
corporation); Managing General of
Partner, Chestnut Street Exchange BlackRock
Fund. Bond
Allocation
Target
Shares and
1 Portfolio
of Chestnut
Street
Exchange
Fund, which
is managed
by
BlackRock
Financial
Management
Inc. and
BlackRock
Institutional
Management
Corporation.)
- -----------------------------------------------------------------------------------------------------------------------------------
217
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Continued)
Term of Total Fund
Office/(5)/ Compensation
Position(s) and Length for the
Name, Address and Held with of Time Principal Occupation(s) Year Ending
Age Fund Served During Past Five Years 9/30/05
- --------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES
- --------------------------------------------------------------------------------------------------------------------
Anne Ackerley Vice Since 2003 Managing Director, BlackRock, Inc. (since May N/A
BlackRock, Inc. President (previously 2000); First Vice President and Operating
40 E. 52nd Street served as Officer, Mergers and Acquisitions Group
New York, NY 10022 Assistant (1997-2000), First Vice President and Operating
Age: 43 Secretary Officer, Public Finance Group (1995-1997), and
since First Vice President, Emerging Markets Fixed
2000) Income Research (1994-1995), Merrill Lynch &
Co.
- --------------------------------------------------------------------------------------------------------------------
Edward Baer Assistant Since 2005 Director and Senior Counsel of BlackRock, Inc. N/A
BlackRock, Inc. Secretary (since 2004); Associate, Willkie Farr &
40 E. 52nd Street Gallagher LLP (2000-2004); Associate, Morgan
New York, NY 10022 Lewis & Bockius LLP (1995-2000).
Age: 37
- --------------------------------------------------------------------------------------------------------------------
Bart Battista Chief Since 2004 Chief Compliance Officer and Anti-Money $ 368,547
BlackRock, Inc. Compliance Laundering Compliance Officer of BlackRock,
40 E. 52nd Street Officer and Inc. (since 2004); Managing Director (since
New York, NY 10022 Anti-Money 2003), and Director (1998-2002) of BlackRock,
Age: 46 Laundering Inc.; Compliance Officer at Moore Capital
Compliance Management (1995-1998).
Officer
- --------------------------------------------------------------------------------------------------------------------
Ellen L. Corson Assistant Since 1998 Senior Director and Vice President of Fund N/A
PFPC Inc. Treasurer Accounting and Administration, PFPC Inc.
103 Bellevue Parkway (since 2003); Vice President and Director of
Wilmington, DE 19809 Mutual Fund Accounting and Administration,
Age: 41 PFPC Inc. (since November 1997); Assistant
Vice President, PFPC Inc. (March
1997-November 1997); Senior Accounting
Officer, PFPC Inc. (March 1993-March 1997).
- --------------------------------------------------------------------------------------------------------------------
Henry Gabbay President Since 2005 Managing Director, BlackRock, Inc. (since N/A
BlackRock, Inc. 1989).
40 E. 52nd Street
New York, NY 10022
Age: 57
- --------------------------------------------------------------------------------------------------------------------
Brian P. Kindelan Secretary Since 1997 Managing Director and Senior Counsel (since N/A
BlackRock Advisors, Inc. January 2005), Director and Senior Counsel
100 Bellevue Parkway (2001-2004) and Vice President and Senior
Wilmington, DE 19809 Counsel (1998-2000), BlackRock Advisors,
Age: 46 Inc.; Senior Counsel, PNC Bank Corp. May
1995-April 1998).
- --------------------------------------------------------------------------------------------------------------------
William McGinley Treasurer Since 2005 Managing Director of BlackRock, Inc. (since N/A
BlackRock, Inc. 2004); Partner, PricewaterhouseCoopers LLP
100 Bellevue Parkway (1990-2004).
Wilmington, DE 19809
Age: 38
- --------------------------------------------------------------------------------------------------------------------
Vincent Tritto Assistant Since 2003 Managing Director and Assistant Secretary N/A
BlackRock, Inc. Secretary (since January 2005) and Director and Senior
40 E. 52nd Street Counsel (2002-2004) of BlackRock, Inc.
New York, NY 10022 Executive Director (2000-2002) and Vice
Age: 44 President (1998-2000), Morgan Stanley & Co.
Incorporated and Morgan Stanley Asset
Management Inc. and officer of various Morgan
Stanley-sponsored investment vehicles:
Counsel (1998); Associate (1988-1997),
Rogers & Wells LLP, New York, NY.
- --------------------------------------------------------------------------------------------------------------------
218
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Concluded)
(1) Each Trustee holds office for an indefinite term until the earlier of (1)
the next meeting of shareholders at which Trustees are elected and until
his or her successor is elected and qualified and (2) such time as such
Trustee resigns or his or her term as a Trustee is terminated in accordance
with the Fund's code of regulations and Declaration of Trust.
(2) A Fund Complex means two or more registered investment companies that hold
themselves out to investors as related companies for purposes of investment
and investor services, that have a common investment adviser or that have
an investment adviser that is an affiliated person of the investment
adviser of any of the other registered investment companies.
(3) Mr. Fink is an interested person of the Fund due to his position at
BlackRock, Inc.
(4) Mr. Davis is an interested person of the Fund due to his position at
BlackRock, Inc.
(5) Each officer holds office for an indefinite term until the earlier of (1)
the next meeting of trustees at which his or her successor is appointed and
(2) such time as such officer resigns or his or her term as an officer is
terminated in accordance with the Fund's code of regulations and
Declaration of Trust.
219
[THIS PAGE INTENTIONALLY LEFT BLANK.]
BlackRock Funds
ADDITIONAL INFORMATION (Unaudited)
(A) A proxy statement was sent to shareholders of all portfolios of the Fund
asking them to consider and vote upon the election of nine trustees to the
Board of Trustees of the Fund (the "Board"). Five of the nine nominees were
already serving as trustees of the Fund and the additional nominees had
previously served as trustees of the State Street Research Funds. Due to
the increased size and complexity of the Fund resulting from the
reorganization with the State Street Research Funds, and an increase in the
responsibilities of boards of trustees of funds generally, the Board
believed it was in the best interest of the Fund to increase the size of
the Board. On April 29, 2005, the special meeting of shareholders was held,
at which all of the nominees included in the proxy were duly elected to the
Board.
The votes for the election of trustees were as follows:
Affirmative Negative
------------- ---------
Bruce R. Bond .................... 3,006,153,475 9,427,152
Richard S. Davis ................. 3,006,504,966 9,075,661
Peter S. Drotch .................. 3,006,391,368 9,189,259
Stuart E. Eizenstat .............. 3,005,972,578 9,608,049
Laurence D. Fink ................. 3,006,652,923 8,927,704
Robert M. Hernandez .............. 3,006,095,141 9,485,487
Dr Matina Horner ................. 3,005,916,103 9,664,525
Toby Rosenblatt .................. 3,006,157,679 9,422,948
David R. Wilmerding, Jr. ......... 3,006,022,868 9,557,759
(B) PricewaterhouseCoopers LLP ("PwC"), the Fund's former independent auditor,
has been hired as an internal audit supporting service provider by The PNC
Financial Services Group, Inc. ("PNC"), the parent company of the Fund's
investment adviser and certain other service providers. In order to provide
certain services to PNC and its affiliates which would have caused PwC to
no longer be independent with respect to the Fund, PwC declined to stand
for re-election as independent auditor of the Fund after the completion of
the fiscal 2003 audit.
The Fund's Audit Committee approved engaging Deloitte & Touche LLP as the
independent auditor to audit the Fund's financial statements for fiscal
year 2006. A majority of the Fund's Board of Trustees, including a majority
of the independent Trustees, approved the appointment of Deloitte & Touche
LLP as the Fund's independent auditor for the Fund's fiscal 2006 audit on
November 29, 2005, subject to the right of the Fund, by a majority vote of
the shareholders at any meeting called for that purpose, to terminate the
appointment without penalty.
(C) As previously disclosed, BlackRock has received subpoenas from various
federal and state governmental and regulatory authorities and various
information requests from the Securities and Exchange Commission in
connection with ongoing industry-wide investigations of mutual fund
matters.
221
[THIS PAGE INTENTIONALLY LEFT BLANK.]
THE DFA INVESTMENT TRUST COMPANY
THE U.S. LARGE COMPANY SERIES
TABLE OF CONTENTS THE DFA INVESTMENT TRUST COMPANY
THE U.S. LARGE COMPANY SERIES
Page
Schedule of Investments as of September 30, 2005 (Unaudited)..... 225
Statement of Assets & Liabilities as of September 30, 2005
(Unaudited).................................................. 230
Financial Statements as of and for the year ended November 30,
2004 (Audited):
Performance Chart............................................ 231
Disclosure of Fund Expenses.................................. 232
Disclosure of Portfolio Holdings (Unaudited)................. 233
Schedule of Investments...................................... 234
Statement of Assets and Liabilities.......................... 239
Statement of Operations...................................... 240
Statements of Changes in Net Assets.......................... 241
Financial Highlights......................................... 242
Notes to Financial Statements................................ 243
Report of Independent Registered Certified Public Accounting
Firm..................................................... 246
Fund Management.............................................. 247
Voting Proxies on Fund Portfolio Securities...................... 254
This report is submitted for the information of the Fund's shareholders. It is
not authorized for distribution to prospective investors unless preceded or
accompanied by an effective prospectus.
SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series
September 30, 2005
-------------------------
(Unaudited)
Shares Value+
--------- ---------------
COMMON STOCKS -- (99.4%)
Financials -- (19.2%)
Ace, Ltd................................ 106,100 $ 4,994,127
AFLAC, Inc.............................. 184,600 8,362,380
Allstate Corp........................... 241,700 13,363,593
AMBAC Financial Group, Inc.............. 39,400 2,839,164
American Express Co..................... 456,700 26,232,848
American International Group, Inc....... 955,100 59,177,996
AmSouth Bancorporation.................. 129,000 3,258,540
AON Corp................................ 117,200 3,759,776
Bank of America Corp.................... 1,478,800 62,257,480
Bank of New York Co., Inc............... 286,500 8,425,965
BB&T Corp............................... 201,500 7,868,575
Bear Stearns Companies, Inc............. 41,400 4,543,650
Capital One Financial Corp.............. 106,300 8,452,976
Chubb Corp.............................. 73,000 6,537,150
Cincinnati Financial Corp............... 64,300 2,693,527
CIT Group, Inc.......................... 74,200 3,352,356
Citigroup, Inc.......................... 1,902,800 86,615,456
Comerica, Inc........................... 61,600 3,628,240
Compass Bancshares, Inc................. 45,800 2,099,014
Countrywide Financial Corp.............. 218,800 7,216,024
E*TRADE Financial Corp.................. 136,400 2,400,640*
Federal Home Loan Mortgage
Corporation............................ 254,300 14,357,778
Federal National Mortgage Association... 356,200 15,964,884
Federated Investors, Inc................ 31,200 1,036,776
Fifth Third Bancorp..................... 204,700 7,518,631
First Horizon National Corp............. 46,000 1,672,100
Franklin Resources, Inc................. 54,600 4,584,216
Golden West Financial Corp.............. 94,000 5,582,660
Hartford Financial Services Group, Inc.. 110,200 8,504,134
Huntington Bancshares, Inc.............. 85,000 1,909,950
Janus Capital Group, Inc................ 82,000 1,184,900
Jefferson-Pilot Corp.................... 49,600 2,538,032
JPMorgan Chase & Co..................... 1,292,900 43,868,097
KeyCorp................................. 150,600 4,856,850
Lehman Brothers Holdings, Inc........... 100,200 11,671,296#
Lincoln National Corp................... 63,500 3,303,270
Loews Corp.............................. 49,900 4,611,259
M&T Bank Corp........................... 29,700 3,139,587
Marsh & McLennan Companies, Inc......... 197,000 5,986,830
Marshall & Ilsley Corp.................. 76,300 3,319,813
MBIA, Inc............................... 49,300 2,988,566
MBNA Corp............................... 462,900 11,405,856
Mellon Financial Corp................... 153,900 4,920,183
Merrill Lynch & Co., Inc................ 340,900 20,914,215
MetLife, Inc............................ 278,400 13,872,672
MGIC Investment Corp.................... 34,200 2,195,640#
Moody's Corp............................ 93,000 4,750,440
Morgan Stanley.......................... 399,700 21,559,818
National City Corp...................... 209,300 6,998,992
North Fork Bancorporation, Inc.......... 176,100 4,490,550
Northern Trust Corp..................... 68,300 3,452,565
PNC Financial Services Group............ 107,000 6,208,140
Principal Financial Group, Inc.......... 102,900 4,874,373
Progressive Corp........................ 72,600 7,606,302
Providian Financial Corp................ 108,500 1,918,280*
Prudential Financial, Inc............... 188,800 12,755,328
Regions Financial Corp.................. 169,500 5,274,840
Safeco Corp............................. 46,000 2,455,480
Schwab (Charles) Corp................... 382,500 5,519,475
SLM Corp................................ 153,700 8,244,468
September 30, 2005
-------------------------
(Unaudited)
Shares Value+
--------- ---------------
Sovereign Bancorp, Inc.................. 133,100 $ 2,933,524
State Street Corp....................... 121,800 5,958,456
SunTrust Banks, Inc..................... 133,400 9,264,630
Synovus Financial Corp.................. 114,700 3,179,484
T. Rowe Price Group, Inc................ 47,800 3,121,340
The Goldman Sachs Group, Inc............ 171,100 20,802,338
The St. Paul Travelers Companies, Inc... 248,600 11,154,682
Torchmark Corp.......................... 38,400 2,028,672
U.S. Bancorp............................ 672,700 18,889,416
UnumProvident Corp...................... 109,600 2,246,800
Wachovia Corp........................... 580,500 27,625,995
Washington Mutual, Inc.................. 323,700 12,695,514
Wells Fargo & Co........................ 621,300 36,389,541
XL Capital, Ltd......................... 51,700 3,517,151#
Zions Bancorporation.................... 33,200 2,364,172
---------------
Total Financials
(Cost $557,425,997)..................... 788,268,438
---------------
Information Technology -- (15.2%)
ADC Telecommunications, Inc............. 42,900 980,694*
Adobe Systems, Inc...................... 180,900 5,399,865
Advanced Micro Devices, Inc............. 146,600 3,694,320*
Affiliated Computer Services, Inc.
Class A................................ 46,200 2,522,520*
Agilent Technologies, Inc............... 181,900 5,957,225*
Altera Corp............................. 137,100 2,619,981*
Analog Devices, Inc..................... 137,100 5,091,894
Andrew Corp............................. 59,800 666,770*
Apple Computer, Inc..................... 305,400 16,372,494*
Applied Materials, Inc.................. 597,200 10,128,512
Applied Micro Circuits Corp............. 112,400 337,200*
Autodesk, Inc........................... 84,100 3,905,604
Automatic Data Processing, Inc.......... 213,500 9,189,040
Avaya, Inc.............................. 156,100 1,607,830*
BMC Software, Inc....................... 80,200 1,692,220*
Broadcom Corp........................... 104,000 4,878,640*
Ciena Corp.............................. 212,700 561,528*
Cisco Sytems, Inc....................... 2,352,100 42,173,153*
Citrix Systems, Inc..................... 62,700 1,576,278*
Computer Associates International, Inc.. 170,500 4,741,605
Computer Sciences Corp.................. 68,000 3,217,080*
Compuware Corp.......................... 142,800 1,356,600*
Comverse Technology, Inc................ 74,100 1,946,607*
Convergys Corp.......................... 51,500 740,055*
Corning, Inc............................ 541,800 10,472,994*
Dell, Inc............................... 882,400 30,178,080*
Electronic Arts, Inc.................... 111,700 6,354,613*
Electronic Data Systems Corp............ 191,000 4,286,040
EMC Corp................................ 887,200 11,480,368*
First Data Corp......................... 284,000 11,360,000
Fiserv, Inc............................. 69,200 3,174,204*
Freescale Semiconductor, Inc. Class B... 149,100 3,515,778*
Gateway, Inc............................ 97,000 261,900*
Hewlett-Packard Co...................... 1,054,400 30,788,480
Intel Corp.............................. 2,242,500 55,277,625
International Business Machines Corp.... 587,300 47,113,206
Intuit, Inc............................. 66,700 2,988,827*
Jabil Circuit, Inc...................... 63,300 1,957,236*
JDS Uniphase Corp....................... 606,600 1,346,652*
KLA-Tencor Corp......................... 72,700 3,544,852
Lexmark International, Inc.............. 43,700 2,667,885*
Linear Technology Corp.................. 112,900 4,243,911
LSI Logic Corp.......................... 143,800 1,416,430*
Lucent Technologies, Inc................ 1,635,900 5,316,675*
225
SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series (Continued)
September 30, 2005
-------------------------
(Unaudited)
Shares Value+
--------- ---------------
Maxim Integrated Products, Inc........ 120,700 $ 5,147,855
Mercury Interactive Corp.............. 31,900 1,263,240*
Micron Technology, Inc................ 226,800 3,016,440*
Microsoft Corp........................ 3,390,800 87,245,284
Molex, Inc............................ 53,300 1,422,044
Motorola, Inc......................... 908,700 20,073,183
National Semiconductor Corp........... 126,300 3,321,690
NCR Corp.............................. 68,400 2,182,644*
Network Appliance, Inc................ 135,400 3,214,396*
Novell, Inc........................... 140,600 1,047,470*
Novellus Systems, Inc................. 51,000 1,279,080*
Nvidia Corp........................... 62,100 2,128,788*
Oracle Corp........................... 1,388,000 17,197,320*
Parametric Technology Corp............ 100,200 698,394*
Paychex, Inc.......................... 122,600 4,546,008
PMC-Sierra, Inc....................... 67,100 591,151*
QLogic Corp........................... 33,400 1,142,280*
Qualcomm, Inc......................... 600,100 26,854,475
Sabre Holdings Corp................... 48,300 979,524
Sanmina-SCI Corp...................... 193,500 830,115*
Scientific-Atlanta, Inc............... 56,400 2,115,564
Siebel Systems, Inc................... 192,200 1,985,426
Solectron Corp........................ 357,800 1,398,998*
Sun Microsystems, Inc................. 1,255,100 4,919,992*
Symantec Corp......................... 440,900 9,990,794*
Symbol Technologies, Inc.............. 93,620 906,242
Tektronix, Inc........................ 31,100 784,653
Tellabs, Inc.......................... 164,700 1,732,644*
Teradyne, Inc......................... 72,400 1,194,600*
Texas Instruments, Inc................ 597,400 20,251,860
Unisys Corp........................... 125,300 831,992*
Xerox Corp............................ 353,100 4,819,815*
Xilinx, Inc........................... 128,600 3,581,510
Yahoo!, Inc........................... 461,500 15,617,160*
---------------
Total Information Technology
(Cost $567,780,541)................... 623,416,102
---------------
Health Care -- (13.2%)
Abbott Laboratories................... 572,100 24,257,040
Aetna, Inc............................ 106,700 9,191,138
Allergan, Inc......................... 48,100 4,406,922
AmerisourceBergen Corp................ 38,200 2,952,860
Amgen, Inc............................ 454,100 36,178,147*
Applera Corp. -- Applied Biosystems
Group................................ 71,900 1,670,956
Bard (C.R.), Inc...................... 38,800 2,561,964
Bausch & Lomb, Inc.................... 19,800 1,597,464
Baxter International, Inc............. 229,100 9,134,217
Becton Dickinson & Co................. 92,000 4,823,560
Biogen Idec, Inc...................... 124,500 4,915,260*
Biomet, Inc........................... 91,900 3,189,849
Boston Scientific Corp................ 217,300 5,078,301*
Bristol-Myers Squibb Co............... 719,800 17,318,388
Cardinal Health, Inc.................. 157,100 9,966,424
Caremark Rx, Inc...................... 165,600 8,268,408*
Chiron Corp........................... 40,100 1,749,162*
Cigna Corp............................ 47,300 5,574,778
Coventry Health Care, Inc............. 39,500 3,397,790*
Eli Lilly & Co........................ 417,300 22,333,896
Express Scripts, Inc.................. 54,700 3,402,340*
Fisher Scientific International, Inc.. 44,900 2,786,045*
Forest Laboratories, Inc.............. 125,100 4,875,147*
Genzyme Corp.......................... 94,500 6,769,980*
Gilead Sciences, Inc.................. 167,800 8,181,928*
September 30, 2005
-------------------------
(Unaudited)
Shares Value+
--------- ---------------
Guidant Corp......................... 121,500 $ 8,370,135
HCA, Inc............................. 166,300 7,969,096
Health Management Associates, Inc.... 91,000 2,135,770
Hospira, Inc......................... 58,800 2,409,036*
Humana, Inc.......................... 59,800 2,863,224*
IMS Health, Inc...................... 83,100 2,091,627
Johnson & Johnson.................... 1,094,800 69,278,944
King Pharmaceuticals, Inc............ 89,000 1,368,820*
Laboratory Corp. of America Holdings. 49,700 2,420,887*
Manor Care, Inc...................... 29,100 1,117,731
McKesson Corp........................ 113,500 5,385,575
Medco Health Solutions, Inc.......... 112,000 6,140,960*
Medimmune, Inc....................... 90,700 3,052,055*
Medtronic, Inc....................... 445,700 23,898,434
Merck & Co., Inc..................... 808,100 21,988,401
Millipore Corp....................... 19,000 1,194,910*
Mylan Laboratories, Inc.............. 80,500 1,550,430
PerkinElmer, Inc..................... 47,900 975,723
Pfizer, Inc.......................... 2,712,700 67,736,119
Quest Diagnostics, Inc............... 61,300 3,098,102
Schering-Plough Corp................. 543,400 11,438,570
St. Jude Medical, Inc................ 134,200 6,280,560*
Stryker Corp......................... 106,900 5,284,067
Tenet Healthcare Corp................ 172,500 1,937,175*
Thermo Electron Corp................. 59,500 1,838,550*
UnitedHealth Group, Inc.............. 464,900 26,127,380
Waters Corp.......................... 42,300 1,759,680*
Watson Pharmaceuticals, Inc.......... 38,400 1,405,824*
WellPoint, Inc....................... 225,800 17,120,156*
Wyeth................................ 493,600 22,838,872
Zimmer Holdings, Inc................. 91,000 6,268,990*
---------------
Total Health Care
(Cost $406,560,227).................. 541,927,767
---------------
Industrials -- (11.0%)
3M Co................................ 281,600 20,658,176
Allied Waste Industries, Inc......... 80,300 678,535*
American Power Conversion Corp....... 62,900 1,629,110
American Standard Companies, Inc..... 67,500 3,142,125
Avery Dennison Corp.................. 40,700 2,132,273
Boeing Co............................ 302,000 20,520,900
Burlington Northern Santa Fe Corp.... 137,400 8,216,520
Caterpillar, Inc..................... 249,100 14,634,625
Cendant Corp......................... 385,100 7,948,464
Cintas Corp.......................... 50,800 2,085,340
Cooper Industries, Ltd............... 34,100 2,357,674
CSX Corp............................. 79,900 3,713,752
Cummins, Inc......................... 17,100 1,504,629
Danaher Corp......................... 87,500 4,710,125
Deere & Co........................... 88,800 5,434,560
Donnelley (R.R.) & Sons Co........... 79,000 2,928,530
Dover Corp........................... 74,500 3,038,855
Eaton Corp........................... 54,300 3,450,765
Emerson Electric Co.................. 152,000 10,913,600
Equifax, Inc......................... 47,900 1,673,626
FedEx Corp........................... 111,500 9,714,995
Fluor Corp........................... 31,900 2,053,722
General Dynamics Corp................ 74,000 8,846,700
General Electric Co.................. 3,901,600 131,366,872
Goodrich (B.F.) Co................... 44,700 1,981,998
Honeywell International, Inc......... 314,700 11,801,250
Illinois Tool Works, Inc............. 76,800 6,322,944
Ingersoll-Rand Co., Ltd. Class A..... 124,100 4,744,343
ITT Industries, Inc.................. 34,100 3,873,760
226
SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series (Continued)
September 30, 2005
-----------------------
(Unaudited)
Shares Value+
------- ---------------
L-3 Communications Holdings, Inc... 43,700 $ 3,455,359
Lockheed Martin Corp............... 133,900 8,173,256
Masco Corp......................... 158,400 4,859,712
Monster Worldwide, Inc............. 44,800 1,375,808*
Navistar International Corp........ 22,700 736,161*
Norfolk Southern Corp.............. 148,900 6,039,384
Northrop Grumman Corp.............. 131,400 7,141,590
Paccar, Inc........................ 63,100 4,283,859
Pall Corp.......................... 45,800 1,259,500
Parker Hannifin Corp............... 44,100 2,836,071
Pitney Bowes, Inc.................. 84,200 3,514,508
Raytheon Co........................ 166,100 6,315,122
Robert Half International, Inc..... 62,300 2,217,257
Rockwell Automation, Inc........... 66,800 3,533,720
Rockwell Collins, Inc.............. 65,000 3,140,800
Ryder System, Inc.................. 23,600 807,592
Southwest Airlines Co.............. 255,000 3,786,750
Textron, Inc....................... 49,200 3,528,624
Tyco International, Ltd............ 744,900 20,745,465
Union Pacific Corp................. 97,100 6,962,070
United Parcel Service, Inc......... 407,500 28,170,475
United Technologies Corp........... 377,200 19,554,048
W.W. Grainger, Inc................. 27,900 1,755,468
Waste Management, Inc.............. 206,900 5,919,409
---------------
Total Industrials
(Cost $329,473,506)................ 452,190,776
---------------
Consumer Discretionary -- (10.7%)
Apollo Group, Inc. Class A......... 53,800 3,571,782*
AutoNation, Inc.................... 66,400 1,326,008*
Autozone, Inc...................... 20,500 1,706,625*
Bed Bath and Beyond, Inc........... 108,800 4,371,584*
Best Buy Co., Inc.................. 149,000 6,485,970
Big Lots, Inc...................... 41,900 460,481*
Black & Decker Corp................ 29,600 2,429,864
Brunswick Corp..................... 35,800 1,350,734
Carnival Corp...................... 158,800 7,936,824#
Centex Corp........................ 47,200 3,048,176
Circuit City Stores, Inc........... 60,500 1,038,180
Clear Channel Communications, Inc.. 199,700 6,568,133
Coach, Inc......................... 139,900 4,387,264*
Comcast Corp. Class A.............. 808,200 23,744,916*
Cooper Tire & Rubber Co............ 22,500 343,575
Dana Corp.......................... 55,300 520,373
Darden Restaurants, Inc............ 49,400 1,500,278
Delphi Corp........................ 206,600 570,216
Dillards, Inc. Class A............. 23,700 494,856
Disney (Walt) Co................... 739,800 17,851,374
Dollar General Corp................ 118,100 2,165,954
Dow Jones & Co., Inc............... 21,700 828,723
Eastman Kodak Co................... 105,700 2,571,681
eBay, Inc.......................... 408,600 16,834,320*
Family Dollar Stores, Inc.......... 60,700 1,206,109
Federated Department Stores, Inc... 97,600 6,526,512
Ford Motor Co...................... 682,000 6,724,520
Fortune Brands, Inc................ 53,700 4,367,421
Gannett Co., Inc................... 89,800 6,180,934
Gap, Inc........................... 213,300 3,717,819
General Motors Corp................ 208,100 6,369,941
Genuine Parts Co................... 64,100 2,749,890
Goodyear Tire & Rubber Co.......... 64,800 1,010,232*
H&R Block, Inc..................... 119,500 2,865,610
Harley-Davidson, Inc............... 101,000 4,892,440
Harrahs Entertainment, Inc......... 67,600 4,406,844
September 30, 2005
-------------------------
(Unaudited)
Shares Value+
--------- ---------------
Hasbro, Inc.......................... 65,900 $ 1,294,935
Hilton Hotels Corp................... 120,600 2,691,792
Home Depot, Inc...................... 787,700 30,042,878
Horton (D.R.), Inc................... 100,200 3,629,244
International Game Technology........ 125,500 3,388,500
Interpublic Group of Companies, Inc.. 155,600 1,811,184*
Johnson Controls, Inc................ 70,900 4,399,345
Jones Apparel Group, Inc............. 43,600 1,242,600
KB Home.............................. 28,500 2,086,200
Knight-Ridder, Inc................... 25,500 1,496,340
Kohl's Corp.......................... 126,900 6,367,842*
Leggett & Platt, Inc................. 69,400 1,401,880
Limited Brands, Inc.................. 128,500 2,625,255
Liz Claiborne, Inc................... 39,500 1,553,140
Lowe's Companies, Inc................ 287,000 18,482,800
Marriott International, Inc. Class A. 63,000 3,969,000
Mattel, Inc.......................... 148,600 2,478,648
Maytag Corp.......................... 29,400 536,844
McDonald's Corp...................... 460,100 15,408,749
McGraw-Hill Companies, Inc........... 137,600 6,610,304
Meredith Corp........................ 15,400 768,306
Newell Rubbermaid, Inc............... 101,300 2,294,445
News Corp. Class A................... 901,600 14,055,944
NIKE, Inc. Class B................... 70,300 5,742,104
Nordstrom, Inc....................... 81,500 2,797,080
Office Depot, Inc.................... 116,400 3,457,080*
OfficeMax, Inc....................... 26,000 823,420
Omnicom Group, Inc................... 67,000 5,603,210
Penney (J.C.) Co., Inc............... 92,200 4,372,124
Pulte Homes, Inc..................... 79,000 3,390,680
RadioShack Corp...................... 49,400 1,225,120
Reebok International, Ltd............ 19,300 1,091,801
Sears Holdings Corp.................. 37,600 4,678,192*#
Sherwin-Williams Co.................. 41,900 1,846,533
Snap-On, Inc......................... 21,300 769,356
Staples, Inc......................... 270,500 5,767,060
Starbucks Corp....................... 141,400 7,084,140*
Starwood Hotels & Resorts Worldwide,
Inc................................. 80,100 4,579,317
Target Corp.......................... 325,600 16,908,408
The New York Times Co. Class A....... 53,500 1,591,625
The Stanley Works.................... 26,700 1,246,356
The TJX Companies, Inc............... 171,500 3,512,320
Tiffany & Co......................... 52,400 2,083,948
Time Warner, Inc..................... 1,727,700 31,288,647
Tribune Co........................... 97,600 3,307,664
Univision Communications, Inc.
Class A............................. 84,700 2,247,091*
V.F. Corp............................ 32,900 1,907,213
Viacom, Inc. Class B................. 583,500 19,261,335
Visteon Corp......................... 47,400 463,572
Wendy's International, Inc........... 42,500 1,918,875
Whirlpool Corp....................... 24,600 1,863,942
Yum! Brands, Inc..................... 105,000 5,083,050
---------------
Total Consumer Discretionary
(Cost $366,604,175).................. 437,673,601
---------------
Energy -- (10.2%)
Amerada Hess Corp.................... 29,400 4,042,500
Anadarko Petroleum Corp.............. 87,000 8,330,250
Apache Corp.......................... 121,000 9,101,620
Baker Hughes, Inc.................... 125,400 7,483,872
BJ Services Co....................... 118,600 4,268,414
Burlington Resources, Inc............ 140,200 11,401,064
ChevronTexaco Corp................... 828,800 53,648,224
227
SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series (Continued)
September 30, 2005
-------------------------
(Unaudited)
Shares Value+
--------- ---------------
ConocoPhillips.................. 512,300 $ 35,814,893
Devon Energy Corp............... 166,800 11,449,152
El Paso Corp.................... 242,700 3,373,530
EOG Resources, Inc.............. 88,400 6,621,160
Exxon Mobil Corp................ 2,320,600 147,450,924
Halliburton Co.................. 187,100 12,820,092
Kerr-McGee Corp................. 42,500 4,127,175
Kinder Morgan, Inc.............. 35,200 3,384,832
Marathon Oil Corp............... 134,700 9,284,871
Murphy Oil Corp................. 60,400 3,012,148
Nabors Industries, Ltd.......... 58,000 4,166,140*
National-Oilwell, Inc........... 63,800 4,198,040*
Noble Corp...................... 50,300 3,443,538
Occidental Petroleum Corp....... 147,100 12,566,753
Rowan Companies, Inc............ 40,100 1,423,149
Schlumberger, Ltd............... 216,500 18,268,270
Sunoco, Inc..................... 50,300 3,933,460
The Williams Companies, Inc..... 210,600 5,275,530
Transocean, Inc................. 121,000 7,418,510*
Valero Energy Corp.............. 112,500 12,719,250
Weatherford International, Ltd.. 50,900 3,494,794*
XTO Energy, Inc................. 133,000 6,027,560
---------------
Total Energy
(Cost $216,659,025)............. 418,549,715
---------------
Consumer Staples -- (9.6%)
Alberto-Culver Co. Class B...... 27,800 1,244,050
Albertson's, Inc................ 135,600 3,478,140
Altria Group, Inc............... 763,800 56,299,698
Anheuser-Busch Companies, Inc... 285,900 12,305,136
Archer-Daniels-Midland Co....... 239,400 5,903,604
Avon Products, Inc.............. 173,300 4,679,100
Brown-Forman Corp. Class B...... 30,500 1,815,970
Campbell Soup Co................ 68,100 2,025,975
Clorox Co....................... 55,800 3,099,132
Coca-Cola Co.................... 764,200 33,005,798
Coca-Cola Enterprises, Inc...... 110,900 2,162,550
Colgate-Palmolive Co............ 191,200 10,093,448
ConAgra, Inc.................... 190,600 4,717,350
Constellation Brands, Inc....... 72,100 1,874,600*
Costco Wholesale Corp........... 176,400 7,601,076
CVS Corp........................ 299,200 8,679,792
General Mills, Inc.............. 134,700 6,492,540
Gillette Co..................... 330,900 19,258,380
Heinz (H.J.) Co................. 125,500 4,585,770
Hershey Foods Corp.............. 67,600 3,806,556
Kellogg Co...................... 94,300 4,350,059
Kimberly-Clark Corp............. 175,300 10,435,609
McCormick & Co., Inc............ 49,300 1,608,659
Molson Coors Brewing Co......... 21,100 1,350,611
Pepsi Bottling Group, Inc....... 51,100 1,458,905
PepsiCo, Inc.................... 614,600 34,853,966
Procter & Gamble Co............. 905,900 53,864,814
Reynolds American, Inc.......... 31,500 2,615,130
Safeway, Inc.................... 165,100 4,226,560
Sara Lee Corp................... 288,800 5,472,760
Supervalu, Inc.................. 50,000 1,556,000
Sysco Corp...................... 233,000 7,309,210
The Kroger Co................... 266,500 5,487,235*
Tyson Foods, Inc. Class A....... 92,500 1,669,625
UST, Inc........................ 60,500 2,532,530
Walgreen Co..................... 376,300 16,350,235
Wal-Mart Stores, Inc............ 919,200 40,279,344
Wrigley (Wm.) Jr. Co............ 66,200 4,758,456
---------------
Total Consumer Staples
(Cost $260,049,662)............. 393,308,373
---------------
September 30, 2005
-------------------------
(Unaudited)
Shares Value+
--------- ---------------
Utilities -- (3.6%)
AES Corp.............................. 240,400 $ 3,949,772*
Allegheny Energy, Inc................. 59,900 1,840,128*
Ameren Corp........................... 75,000 4,011,750
American Electric Power Co., Inc...... 144,700 5,744,590
Calpine Corp.......................... 209,000 541,310*#
CenterPoint Energy, Inc............... 113,900 1,693,693
Cinergy Corp.......................... 73,200 3,250,812
CMS Energy Corp....................... 80,700 1,327,515*
Consolidated Edison, Inc.............. 89,900 4,364,645
Constellation Energy Group............ 65,500 4,034,800
Dominion Resources, Inc............... 125,400 10,801,956
DTE Energy Co......................... 65,500 3,003,830
Duke Energy Corp...................... 341,000 9,946,970
Dynegy, Inc........................... 105,400 496,434*
Edison International.................. 119,900 5,668,872
Entergy Corp.......................... 76,400 5,678,048
Exelon Corp........................... 246,800 13,188,992
FirstEnergy Corp...................... 121,400 6,327,368
FPL Group, Inc........................ 145,000 6,902,000
KeySpan Corp.......................... 64,100 2,357,598
Nicor, Inc............................ 16,200 680,886
NiSource, Inc......................... 100,300 2,432,275
Peoples Energy Corp................... 14,000 551,320
PG&E Corp............................. 137,300 5,389,025
Pinnacle West Capital Corp............ 36,300 1,600,104
PPL Corp.............................. 139,700 4,516,501
Progress Energy, Inc.................. 92,500 4,139,375
Public Service Enterprise Group, Inc.. 88,000 5,663,680
Sempra Energy......................... 94,300 4,437,758
Southern Co........................... 274,900 9,830,424
TECO Energy, Inc...................... 76,500 1,378,530
TXU Corp.............................. 88,400 9,978,592
Xcel Energy, Inc...................... 148,200 2,906,202
---------------
Total Utilities
(Cost $103,072,914)................... 148,635,755
---------------
Telecommunication Services -- (3.1%)
Alltel Corp........................... 140,500 9,147,955
AT&T Corp............................. 295,200 5,844,960
BellSouth Corp........................ 674,400 17,736,720
CenturyTel, Inc....................... 47,800 1,672,044
Citizens Communications Co............ 126,300 1,711,365
Qwest Communications International,
Inc.................................. 561,300 2,301,330*
SBC Communications, Inc............... 1,216,000 29,147,520
Sprint Corp........................... 1,079,500 25,670,510
Verizon Communications, Inc........... 1,017,700 33,268,613
---------------
Total Telecommunication Services
(Cost $143,890,139)................... 126,501,017
---------------
Materials -- (2.9%)
Air Products & Chemicals, Inc......... 81,600 4,499,424
Alcoa, Inc............................ 321,100 7,841,262
Allegheny Technologies, Inc........... 31,000 960,380
Ashland, Inc.......................... 27,300 1,508,052
Ball Corp............................. 40,200 1,476,948
Bemis Co., Inc........................ 39,300 970,710
Dow Chemical Co....................... 355,000 14,792,850
DuPont (E.I.) de Nemours & Co., Inc... 366,100 14,340,137
Eastman Chemical Co................... 30,000 1,409,100
Ecolab, Inc........................... 67,800 2,164,854
Engelhard Corp........................ 44,200 1,233,622
Freeport-McMoRan Copper & Gold, Inc.
Class B.............................. 65,300 3,172,927
228
SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series (Continued)
September 30, 2005
-----------------------
(Unaudited)
Shares Value+
------- ---------------
Georgia-Pacific Corp..................... 95,800 $ 3,262,948
Hercules, Inc............................ 41,500 507,130*
International Flavors & Fragrances, Inc.. 30,100 1,072,764
International Paper Co................... 180,500 5,378,900
Louisiana-Pacific Corp................... 40,800 1,129,752
MeadWestavco Corp........................ 67,700 1,869,874
Monsanto Co.............................. 98,900 6,205,975
Newmont Mining Corp...................... 164,200 7,745,314
Nucor Corp............................... 57,500 3,391,925
Pactiv Corp.............................. 55,100 965,352*
Phelps Dodge Corp........................ 35,700 4,638,501
PPG Industries, Inc...................... 62,500 3,699,375
Praxair, Inc............................. 119,000 5,703,670
Rohm & Haas Co........................... 53,500 2,200,455
Sealed Air Corp.......................... 30,500 1,447,530*
Sigma-Aldrich Corp....................... 24,800 1,588,688
Temple-Inland, Inc....................... 41,600 1,699,360
United States Steel Corp................. 42,000 1,778,700
Vulcan Materials Co...................... 37,600 2,790,296
Weyerhaeuser Co.......................... 90,200 6,201,250
---------------
Total Materials
(Cost $89,910,252)....................... 117,648,025
---------------
Real Estate Investment Trusts -- (0.7%)
Apartment Investment & Management Co.
Class A................................. 35,200 1,365,056
Archstone-Smith Trust.................... 77,900 3,105,873
Equity Office Properties Trust........... 151,100 4,942,481
Equity Residential....................... 105,700 4,000,745
Plum Creek Timber Co., Inc............... 67,700 2,566,507
ProLogis................................. 90,800 4,023,348
Public Storage, Inc...................... 30,400 2,036,800
September 30, 2005
---------------------------
(Unaudited)
Shares Value+
----------- ---------------
Simon Property Group, Inc............. 67,400 $ 4,995,688
Vornado Realty Trust.................. 43,400 3,759,308
---------------
Total Real Estate Investment Trusts
(Cost $25,713,256).................... 30,795,806
---------------
TOTAL COMMON STOCKS
(Cost $3,067,139,694)................. $ 4,078,915,375
---------------
Face Amount
(000)
-----------
TEMPORARY CASH INVESTMENTS --
(0.6%)
Repurchase Agreement, Merrill Lynch
Triparty Repo 3.33%, 10/03/05
(Collateralized by $11,540,000 U.S.
Treasury Note 3.625%, 05/15/13,
valued at $11,259,160) to be
repurchased at $11,039,969
(Cost $11,036,906)(triangle up)....... $11,037 11,036,906
Repurchase Agreement, PNC Capital
Markets, Inc. 3.61%, 10/03/05
(Collateralized by $13,247,000 FHLMC
Note 4.00%, 09/22/09, valued at
$12,982,060) to be repurchased at
$12,793,848 (Cost $12,790,000)........ 12,790 12,790,000
---------------
TOTAL TEMPORARY CASH
INVESTMENTS
(Cost $23,826,906).................... 23,826,906
---------------
TOTAL INVESTMENTS -- (100.0%)
(Cost $3,090,966,600)++............... $ 4,102,742,281
===============
- -------------
+ See Note B to Financial Statements.
* Non-Income Producing Securities.
# Total or Partial Securities on Loan.
(triangle up)Security purchased with cash proceeds from securities on loan.
++The cost for federal income tax purposes is $3,267,355,903.
229
STATEMENT OF ASSETS AND LIABILITIES THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series
(Amounts in thousands)
September 30, 2005
------------------
(Unaudited)
Assets:
Investments at Value (including $10,733 of securities on loan) $4,102,742
Cash.......................................................... 496
Receivables:
Dividends and Interest...................................... 4,557
Securities Lending Income................................... 37
Futures Margin Variation.................................... 19
Prepaid Expenses and Other Assets............................. 10
----------
Total Assets.............................................. 4,107,861
----------
Liabilities:
Payables:
Upon Return of Securities Loaned............................ 11,037
Due to Advisor.............................................. 86
Accrued Expenses and Other Liabilities........................ 271
----------
Total Liabilities......................................... 11,394
----------
Net Assets..................................................... $4,096,467
==========
Investments at Cost........................................... $3,079,930
==========
230
PERFORMANCE CHART THE DFA INVESTMENT TRUST COMPANY
THE DFA INVESTMENT TRUST COMPANY
PERFORMANCE CHART
The U.S. Large Company Series vs.
S&P 500 Index
November 30, 1994-November 30, 2004
[CHART]
Average Annual One Five From
Total Return Year Years 9/23/1999
- ------------------------------------------------------------
12.77% -1.89% 11.77%
Past performance is not predictive of future performance.
The returns shown do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
S&P 500 Index is courtesy of (C) Stocks, Bonds, Bills and Inflation Yearbook
(TM), Ibbotson Associates, Chicago (annually updated works by Roger C. Ibbotson
and Rex A. Sinquefield).
231
DISCLOSURE OF FUND EXPENSES THE DFA INVESTMENT TRUST COMPANY
The following Expense Table is shown so that you can understand the impact
of fees on your investment. All mutual funds have operating expenses. As a
shareholder of the fund, you incur ongoing costs, which include costs for
portfolio management, administrative services, and shareholder reports, among
others. Operating expenses, legal and audit services, which are deducted from a
fund's gross income, directly reduce the investment return of the fund. A
fund's expenses are expressed as a percentage of its average net assets. This
figure is known as the expense ratio. The following examples are intended to
help you understand the ongoing fees (in dollars) of investing in the fund and
to compare these costs with those of other mutual funds. The examples are based
on an investment of $1,000 made at the beginning of the period shown and held
for the entire period.
The Expense Table below illustrates your fund's costs in two ways.
. Actual fund return. This section helps you to estimate the actual
expenses after fee waivers that you paid over the period. The "Ending
Account Value" shown is derived from the fund's actual return, and
"Expenses Paid During Period" shows the dollar amount that would have
been paid by an investor who started with $1,000 in the fund. You may use
the information here, together with the amount you invested, to estimate
the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, a
$7,500 account value divided by $1,000=7.5), then multiply the result by
the number given for your fund under the heading "Expenses Paid During
Period."
. Hypothetical 5% annual return. This section is intended to help you
compare your fund's costs with those of other mutual funds. It assumes
that the fund had an annual return of 5% before expenses, but the expense
ratio is unchanged. In this case, because the return used is not the
fund's actual return, the results do not apply to your investment. The
example is useful in making comparisons because the Securities and
Exchange Commission ("SEC") requires all mutual funds to calculate
expenses based on a 5% annual return. You can assess your fund's cost by
comparing this hypothetical example with the hypothetical examples that
appear in shareholders reports of other funds.
Please note that the expenses shown in the table are meant to highlight and
help you compare ongoing costs only and do not reflect any transactional costs
(if any). The "Annualized Expense Ratio" represents the actual expenses for the
six month period indicated.
For the Period June 1, 2004 to November 30, 2004
Expense Table
Beginning Ending Expenses
Account Account Annualized Paid
Value Value Expense During
The U.S. Large Company Series 6/01/04 11/30/04 Ratio Period*
----------------------------- --------- --------- ---------- --------
Actual Fund Return........... $1,000.00 $1,056.20 0.05% $0.26
Hypothetical 5% Annual Return $1,000.00 $1,024.75 0.05% $0.25
- -------------
* Expenses are equal to the fund's annualized expense ratio multiplied by the
average account value over the period, multiplied by the number of days in
the most recent fiscal half-year, then divided by 366.
232
DISCLOSURE OF PORTFOLIO HOLDINGS (Unaudited) THE DFA INVESTMENT TRUST COMPANY
The SEC has adopted the requirement that all Funds file a complete Schedule
of Investments with the SEC for their first and third fiscal quarters on Form
N-Q for fiscal quarters starting after July 9, 2004. For The DFA Investment
Trust Company, this would be for the fiscal quarters ending August 31 and
February 28 (February 29 during leap year). The Form N-Q filing must be made
within 60 days of the end of the quarter. The DFA Investment Trust Company
filed its first Form N-Q with the SEC on October 27, 2004. It is available upon
request, without charge, by calling collect: (310) 395-8005 or by mailing a
request to Dimensional Fund Advisors Inc., 1299 Ocean Avenue, 11th floor, Santa
Monica, California 90401, or by visiting the SEC's website at
http://www.sec.gov, or they may be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (call 1-800-732-0330 for information on the
operation of the Public Reference Room).
PORTFOLIO HOLDINGS AS OF NOVEMBER 30, 2004
The SEC adopted a requirement that all Funds present their categories of
portfolio holdings in a table, chart or graph format in their annual and
semi-annual shareholder reports, whether or not a Schedule of Investments is
utilized. The following table, which presents portfolio holdings as a percent
of total investments before short-term investments and collateral for loaned
securities, is provided in compliance with such requirement. The categories
shown below represent broad industry sectors. Each industry sector consists of
one or more specific industry classifications.
The U.S. Large Company Series
-----------------------------
Financials.................. 20.0%
Information Technology...... 16.3
Health Care................. 12.4
Industrials................. 11.9
Consumer Discretionary...... 11.4
Consumer Staples............ 10.5
Energy...................... 7.5
Telecommunication Services.. 3.3
Materials................... 3.2
Utilities................... 3.0
REITS....................... 0.5
-----
100.0%
=====
233
SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series
November 30, 2004
-------------------------
Shares Value+
--------- ---------------
COMMON STOCKS -- (88.1%)
3M Co............................... 244,500 $ 19,459,755
Abbott Laboratories................. 487,600 20,459,696
Ace, Ltd............................ 88,700 3,585,254
ADC Telecommunications, Inc......... 252,600 593,610*
Adobe Systems, Inc.................. 74,900 4,535,944#
Advanced Micro Devices, Inc......... 110,900 2,359,952*
AES Corp............................ 201,900 2,471,256*
Aetna, Inc.......................... 48,000 5,688,480
Affiliated Computer Services, Inc.
Class A............................ 40,000 2,367,200*
AFLAC, Inc.......................... 158,400 5,959,008
Agilent Technologies, Inc........... 151,700 3,472,413*
Air Products & Chemicals, Inc....... 71,000 4,064,750
Alberto-Culver Co. Class B.......... 28,300 1,310,290
Albertson's, Inc.................... 114,900 2,906,970#
Alcoa, Inc.......................... 271,700 9,232,366#
Allegheny Energy, Inc............... 42,800 819,192*
Allegheny Technologies, Inc......... 29,800 655,600
Allergan, Inc....................... 41,100 3,020,850
Allied Waste Industries, Inc........ 99,400 903,546*#
Allstate Corp....................... 216,400 10,928,200
Alltel Corp......................... 96,300 5,459,247
Altera Corp......................... 116,100 2,633,148*
Altria Group, Inc................... 640,800 36,839,592
AMBAC Financial Group, Inc.......... 33,900 2,757,087
Amerada Hess Corp................... 28,500 2,532,225
Ameren Corp......................... 60,700 2,939,094#
American Electric Power Co., Inc.... 123,600 4,223,412
American Express Co................. 396,000 22,061,160
American International Group, Inc... 813,800 51,554,230
American Power Conversion Corp...... 62,600 1,323,364
American Standard Companies, Inc.... 66,800 2,601,192*
AmerisourceBergen Corp.............. 35,100 2,068,794#
Amgen, Inc.......................... 395,400 23,739,816*#
AmSouth Bancorporation.............. 110,500 2,865,265
Anadarko Petroleum Corp............. 78,200 5,442,720
Analog Devices, Inc................. 118,200 4,367,490#
Andrew Corp......................... 50,200 712,840*
Anheuser-Busch Companies, Inc....... 250,200 12,532,518
Anthem, Inc......................... 43,600 4,417,988*#
AON Corp............................ 98,600 2,082,432#
Apache Corp......................... 101,800 5,503,308
Apartment Investment & Management
Co. Class A........................ 29,600 1,076,552#
Apollo Group, Inc. Class A.......... 60,200 4,797,940*#
Apple Computer, Inc................. 121,200 8,126,460*
Applera Corp. -- Applied Biosystems
Group.............................. 63,000 1,291,500
Applied Materials, Inc.............. 530,400 8,825,856*
Applied Micro Circuits Corp......... 97,800 359,904*
Archer-Daniels-Midland Co........... 203,300 4,309,960
Ashland, Inc........................ 22,200 1,313,130
#AT&T Corp.......................... 248,200 4,542,060
Autodesk, Inc....................... 35,500 2,322,055
Automatic Data Processing, Inc...... 182,500 8,309,225
AutoNation, Inc..................... 83,300 1,542,716*
Autozone, Inc....................... 26,000 2,225,600*#
Avaya, Inc.......................... 141,400 2,321,788*#
Avery Dennison Corp................. 34,500 2,023,770
Avon Products, Inc.................. 147,700 5,544,658#
Baker Hughes, Inc................... 104,200 4,619,186#
Ball Corp........................... 35,100 1,570,023
Bank of America Corp................ 1,270,500 58,786,035
November 30, 2004
-------------------------
Shares Value+
--------- ---------------
Bank of New York Co., Inc............... 243,000 $ 7,997,130
Bard (C.R.), Inc........................ 32,700 1,959,057#
Bausch & Lomb, Inc...................... 16,600 977,408#
Baxter International, Inc............... 192,000 6,076,800
BB&T Corp............................... 173,200 7,352,340
Bear Stearns Companies, Inc............. 32,200 3,142,076
Becton Dickinson & Co................... 78,300 4,289,274
Bed Bath and Beyond, Inc................ 93,900 3,749,239*#
BellSouth Corp.......................... 571,800 15,335,676
Bemis Co., Inc.......................... 33,400 929,856
Best Buy Co., Inc....................... 101,500 5,722,570
Big Lots, Inc........................... 36,000 417,600*#
Biogen Idec, Inc........................ 105,700 6,202,476*
Biomet, Inc............................. 79,300 3,796,091#
BJ Services, Co......................... 50,400 2,553,768#
Black & Decker Corp..................... 25,000 2,102,250
BMC Software, Inc....................... 69,700 1,295,026*
Boeing Co............................... 262,200 14,046,054
Boston Scientific Corp.................. 263,000 9,155,030*#
Bristol-Myers Squibb Co................. 607,600 14,278,600
Broadcom Corp........................... 100,600 3,271,512*#
Brown-Forman Corp. Class B.............. 37,900 1,819,958
Brunswick Corp.......................... 29,900 1,459,718
Burlington Northern Santa Fe Corp....... 116,300 5,238,152
Burlington Resources, Inc............... 123,300 5,722,353#
Calpine Corp............................ 166,300 645,244*#
Campbell Soup Co........................ 128,200 3,657,546
Capital One Financial Corp.............. 75,400 5,924,932
Cardinal Health, Inc.................... 134,400 7,026,432
Caremark Rx, Inc........................ 145,500 5,203,080*
Carnival Corp........................... 197,700 10,480,077
Caterpillar, Inc........................ 107,000 9,795,850#
Cendant Corp............................ 329,700 7,474,299
CenterPoint Energy, Inc................. 96,100 1,072,476
Centex Corp............................. 38,600 2,025,342#
CenturyTel, Inc......................... 42,200 1,389,224
ChevronTexaco Corp...................... 665,300 36,325,380
Chiron Corp............................. 58,600 1,908,602*
Chubb Corp.............................. 59,700 4,549,737
CIENA Corp.............................. 177,800 453,390*
CIGNA Corp.............................. 43,000 3,010,860
Cincinnati Financial Corp............... 52,600 2,356,480
Cinergy Corp............................ 56,400 2,334,396
Cintas Corp............................. 53,500 2,392,520
Circuit City Stores, Inc................ 62,100 968,139
Cisco Systems, Inc...................... 2,111,900 39,513,649*
CIT Group, Inc.......................... 65,800 2,812,950
Citigroup, Inc.......................... 1,618,000 72,405,500
Citizens Communications Co.............. 103,600 1,481,480#
Citrix Systems, Inc..................... 52,800 1,246,608*
Clear Channel Communications, Inc....... 184,300 6,207,224
Clorox Co............................... 66,500 3,665,480
CMS Energy Corp......................... 59,300 604,860*
Coach, Inc.............................. 58,800 2,930,592*
Coca-Cola Co............................ 757,800 29,789,118
Coca-Cola Enterprises, Inc.............. 146,500 3,047,200
Colgate-Palmolive Co.................... 165,900 7,629,741
Comcast Corp. Class A................... 698,000 20,967,920*
Comerica, Inc........................... 53,500 3,290,250
Computer Associates International, Inc.. 182,800 5,580,884#
Computer Sciences Corp.................. 58,900 3,186,490*#
Compuware Corp.......................... 120,600 695,862*
Comverse Technology, Inc................ 61,100 1,299,597*
ConAgra, Inc............................ 165,000 4,463,250
234
SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series (Continued)
November 30, 2004
-------------------------
Shares Value+
--------- ---------------
ConocoPhillips ....................... 215,100 $ 19,571,949
Consolidated Edison, Inc.............. 75,400 3,306,290
Constellation Energy Group............ 54,800 2,394,760
Convergys Corp........................ 44,500 661,715*
Cooper Industries, Ltd................ 29,600 1,962,776
Cooper Tire & Rubber Co............... 23,400 477,828#
Coors (Adolph) Co. Class B............ 11,700 876,330
Corning, Inc.......................... 435,300 5,476,074*
Costco Wholesale Corp................. 144,000 6,998,400
Countrywide Financial Corp............ 175,900 5,841,639
Crane Co.............................. 18,400 556,784
CSX Corp.............................. 67,100 2,558,523
Cummins, Inc.......................... 13,800 1,098,756
CVS Corp.............................. 124,700 5,657,639
Dana Corp............................. 46,600 761,910
Danaher Corp.......................... 96,300 5,477,544
Darden Restaurants, Inc............... 49,300 1,343,918
Deere & Co............................ 77,500 5,559,075
Dell, Inc............................. 779,800 31,597,496*#
Delphi Corp........................... 175,300 1,577,700#
Delta Air Lines, Inc.................. 39,200 273,224*#
Deluxe Corp........................... 15,600 616,824
Devon Energy Corp..................... 151,000 6,254,420
Dillards, Inc. Class A................ 26,100 657,198
Disney (Walt) Co...................... 641,700 17,248,896#
Dollar General Corp................... 102,600 2,026,350
Dominion Resources, Inc............... 103,100 6,749,957
Donnelley (R.R.) & Sons Co............ 68,400 2,373,480
Dover Corp............................ 63,500 2,568,575
Dow Chemical Co....................... 293,400 14,807,898#
Dow Jones & Co., Inc.................. 25,600 1,094,400
DTE Energy Co......................... 54,300 2,382,684
Duke Energy Corp...................... 292,900 7,404,512#
DuPont (E.I.) de Nemours & Co., Inc... 311,700 14,126,244#
Dynegy, Inc........................... 118,500 669,525*#
E*TRADE Financial Corp................ 116,600 1,616,076*
Eastman Chemical Co................... 24,300 1,321,434#
Eastman Kodak Co...................... 89,500 2,927,545
Eaton Corp............................ 47,300 3,188,020
eBay, Inc............................. 206,500 23,220,925*#
Ecolab, Inc........................... 80,400 2,812,392
Edison International.................. 101,800 3,247,420#
El Paso Corp.......................... 200,200 2,090,088#
Electronic Arts, Inc.................. 94,800 4,635,720*#
Electronic Data Systems Corp.......... 160,000 3,592,000
EMC Corp.............................. 751,100 10,079,762*
Emerson Electric Co................... 131,200 8,766,784
Engelhard Corp........................ 38,800 1,159,732
Entergy Corp.......................... 70,900 4,595,738
EOG Resources, Inc.................... 36,800 2,762,576#
Equifax, Inc.......................... 42,500 1,173,850#
Equity Office Properties Trust........ 125,800 3,453,210
Equity Residential.................... 87,700 2,956,367
Exelon Corp........................... 206,200 8,600,602
Express Scripts, Inc.................. 24,200 1,741,432*#
Exxon Mobil Corp...................... 2,031,900 104,134,875
Family Dollar Stores, Inc............. 52,600 1,541,180
Federal Home Loan Mortgage
Corporation.......................... 214,600 14,648,596
Federal National Mortgage Association. 302,300 20,768,010
Federated Department Stores, Inc...... 56,200 3,079,760
Federated Investors, Inc.............. 33,900 997,338
FedEx Corp............................ 93,800 8,913,814
Fifth Third Bancorp .................. 178,000 8,964,080
November 30, 2004
-------------------------
Shares Value+
--------- ---------------
First Data Corp.......................... 267,800 $ 11,003,902
First Horizon National Corp.............. 38,600 1,686,820
FirstEnergy Corp......................... 103,000 4,349,690
Fiserv, Inc.............................. 61,000 2,349,110*
Fisher Scientific International, Inc..... 35,900 2,029,786*
Fluor Corp............................... 26,100 1,354,590
Ford Motor Co............................ 571,500 8,103,870#
Forest Laboratories, Inc................. 115,700 4,508,829*
Fortune Brands, Inc...................... 45,000 3,531,600
FPL Group, Inc........................... 57,900 4,072,107#
Franklin Resources, Inc.................. 77,900 5,112,577
Freeport-McMoRan Copper & Gold, Inc.
Class B................................. 55,300 2,163,889
Gannett Co., Inc......................... 83,100 6,854,919
Gap, Inc................................. 282,300 6,168,255
Gateway, Inc............................. 116,400 792,684*
General Dynamics Corp.................... 62,400 6,761,664
General Electric Co...................... 3,297,700 116,606,672
General Mills, Inc....................... 118,700 5,399,663
General Motors Corp...................... 176,400 6,807,276#
Genuine Parts Co......................... 54,700 2,374,527#
Genzyme Corp............................. 71,200 3,987,912*#
Georgia-Pacific Corp..................... 80,600 2,950,766
Gilead Sciences, Inc..................... 134,500 4,634,870*
Gillette Co.............................. 312,900 13,608,021
Golden West Financial Corp............... 47,700 5,687,748#
Goodrich (B.F.) Co....................... 37,100 1,177,925
Goodyear Tire & Rubber Co................ 54,800 691,576*#
Grainger (W.W.), Inc..................... 28,400 1,756,824
Great Lakes Chemical Corp................ 15,900 465,870#
Guidant Corp............................. 98,300 6,372,789
H&R Block, Inc........................... 51,500 2,456,550
Halliburton Co........................... 137,900 5,702,165
Harley-Davidson, Inc..................... 92,200 5,331,004
Harrahs Entertainment, Inc............... 35,000 2,149,000#
Hartford Financial Services Group, Inc... 91,600 5,862,400
Hasbro, Inc.............................. 55,200 1,050,456
HCA, Inc................................. 150,800 5,944,536
Health Management Associates, Inc........ 76,000 1,678,840
Heinz (H.J.) Co.......................... 109,100 4,054,156
Hercules, Inc............................ 34,900 520,010*#
Hershey Foods Corp....................... 76,900 3,983,420#
Hewlett-Packard Co....................... 943,200 18,864,000
Hilton Hotels Corp....................... 120,200 2,483,332
Home Depot, Inc.......................... 685,700 28,627,975
Honeywell International, Inc............. 268,500 9,486,105
Hospira, Inc............................. 48,700 1,569,601*
Humana, Inc.............................. 49,800 1,236,036*
Huntington Bancshares, Inc............... 71,700 1,739,442#
Illinois Tool Works, Inc................. 94,400 8,895,312
IMS Health, Inc.......................... 73,000 1,647,610
Ingersoll-Rand Co., Ltd. Class A......... 54,100 4,026,122
Intel Corp............................... 2,003,600 44,780,460#
International Business Machines Corp..... 523,200 49,306,368
International Flavors & Fragrances, Inc.. 29,400 1,190,700
International Game Technology............ 107,600 3,803,660
International Paper Co................... 151,900 6,306,888
Interpublic Group of Companies, Inc...... 131,800 1,635,638*#
Intuit, Inc.............................. 59,800 2,502,032*
ITT Industries, Inc...................... 28,800 2,451,456
Jabil Circuit, Inc....................... 62,800 1,573,768*
Janus Capital Group, Inc................. 74,800 1,237,940
JDS Uniphase Corp........................ 449,800 1,425,866*
Jefferson-Pilot Corp..................... 42,600 2,095,494
235
SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series (Continued)
November 30, 2004
-------------------------
Shares Value+
--------- ---------------
Johnson & Johnson.................... 927,000 $ 55,916,640
Johnson Controls, Inc................ 59,400 3,647,160
Jones Apparel Group, Inc............. 39,000 1,385,670
JPMorgan Chase & Co.................. 1,112,500 41,885,625
KB Home.............................. 14,500 1,274,405#
Kellogg Co........................... 129,100 5,641,670
Kerr-McGee Corp...................... 47,200 2,937,256#
KeyCorp.............................. 127,100 4,231,159#
KeySpan Corp......................... 50,000 1,976,000
Kimberly-Clark Corp.................. 154,500 9,827,745
Kinder Morgan, Inc................... 38,600 2,674,980#
King Pharmaceuticals, Inc............ 75,400 938,730*#
KLA-Tencor Corp...................... 61,300 2,762,178*#
Knight-Ridder, Inc................... 24,200 1,647,778
Kohl's Corp.......................... 106,700 4,925,272*
Laboratory Corp. of America Holdings. 43,600 2,090,620*
Leggett & Platt, Inc................. 59,900 1,788,015
Lehman Brothers Holdings, Inc........ 84,700 7,096,166
Lexmark International, Inc........... 40,500 3,438,450*#
Lilly (Eli) & Co..................... 353,100 18,830,823
Limited Brands, Inc.................. 147,600 3,607,344#
Lincoln National Corp................ 55,000 2,531,100
Linear Technology Corp............... 96,000 3,663,360
Liz Claiborne, Inc................... 33,600 1,379,952
Lockheed Martin Corp................. 139,000 8,456,760#
Loews Corp........................... 57,900 4,047,789
Louisiana-Pacific Corp............... 34,100 834,427
Lowe's Companies, Inc................ 243,500 13,472,855
LSI Logic Corp....................... 120,200 635,858*
Lucent Technologies, Inc............. 1,346,000 5,289,780*#
M&T Bank Corp........................ 36,600 3,858,006
Manor Care, Inc...................... 27,300 940,485
Marathon Oil Corp.................... 108,100 4,263,464
Marriott International, Inc. Class A. 71,500 4,064,775
Marsh & McLennan Companies, Inc...... 162,600 4,648,734
Marshall & Ilsley Corp............... 69,600 2,901,624
Masco Corp........................... 135,300 4,772,031#
Mattel, Inc.......................... 129,300 2,450,235#
Maxim Integrated Products, Inc....... 101,400 4,153,344#
May Department Stores Co............. 91,000 2,558,920#
#Maytag Corp......................... 24,700 496,470
MBIA, Inc............................ 44,700 2,680,212
MBNA Corp............................ 399,100 10,600,096
McCormick & Co., Inc................. 42,800 1,560,060
McDonald's Corp...................... 392,400 12,062,376
McGraw-Hill Companies, Inc........... 59,300 5,202,389
McKesson Corp........................ 91,700 2,709,735
MeadWestavco Corp.................... 63,000 2,119,950
Medco Health Solutions, Inc.......... 85,000 3,206,200*
Medimmune, Inc....................... 77,800 2,069,480*
Medtronic, Inc....................... 377,700 18,148,485
Mellon Financial Corp................ 132,400 3,868,728
Merck & Co., Inc..................... 693,000 19,417,860
Mercury Interactive Corp............. 29,100 1,327,251*
Meredith Corp........................ 15,700 827,704
Merrill Lynch & Co., Inc............. 293,400 16,345,314
MetLife, Inc......................... 234,300 9,137,700
MGIC Investment Corp................. 30,800 2,094,400
Micron Technology, Inc............... 191,000 2,116,280*#
Microsoft Corp....................... 3,395,900 91,044,079
Millipore Corp....................... 15,500 755,160*
Molex, Inc........................... 59,200 1,632,144
Monsanto Co.......................... 83,400 3,838,068
Monster Worldwide, Inc............... 37,000 1,043,030*
November 30, 2004
-------------------------
Shares Value+
--------- ---------------
Moody's Corp.......................... 46,200 $ 3,730,650
Morgan Stanley........................ 343,100 17,412,325
Motorola, Inc......................... 737,900 14,211,954
Mylan Laboratories, Inc............... 83,900 1,523,624#
Nabors Industries, Ltd................ 46,500 2,418,000*
National City Corp.................... 207,000 7,675,560
National Semiconductor Corp........... 111,800 1,728,428*
Navistar International Corp........... 21,800 897,070*
NCR Corp.............................. 29,400 1,756,062*
Network Appliance, Inc................ 111,700 3,368,872*
Newell Rubbermaid, Inc................ 85,900 1,982,572
Newmont Mining Corp................... 138,500 6,557,975
Nextel Communications, Inc............ 347,800 9,898,388*
Nicor, Inc............................ 13,800 509,220#
NIKE, Inc. Class B.................... 82,300 6,967,518
NiSource, Inc......................... 82,300 1,793,317
Noble Corp............................ 41,800 2,025,210*
Nordstrom, Inc........................ 43,900 1,920,625
Norfolk Southern Corp................. 123,000 4,222,590
North Fork Bancorporation, Inc........ 145,950 4,203,360
Northern Trust Corp................... 68,700 3,231,648
Northrop Grumman Corp................. 112,000 6,308,960
Novell, Inc........................... 120,800 736,880*#
Novellus Systems, Inc................. 44,600 1,201,524*
Nucor Corp............................ 49,600 2,623,840#
Nvidia Corp........................... 52,000 994,760*
Occidental Petroleum Corp............. 122,300 7,363,683
Office Depot, Inc..................... 97,800 1,603,920*
OfficeMax, Inc........................ 27,500 832,425
Omnicom Group, Inc.................... 58,500 4,738,500
Oracle Corp........................... 1,615,000 20,445,900*
Paccar, Inc........................... 54,200 4,233,020#
Pactiv Corp........................... 46,900 1,165,465*
Pall Corp............................. 39,100 1,059,219
Parametric Technology Corp............ 84,100 491,985*
Parker Hannifin Corp.................. 37,300 2,790,040
Paychex, Inc.......................... 118,100 3,916,196
Penney (J.C.) Co., Inc................ 90,000 3,474,000
Peoples Energy Corp................... 11,800 526,516
Peoplesoft, Inc....................... 114,600 2,705,706*#
Pepsi Bottling Group, Inc............. 79,400 2,224,788
PepsiCo, Inc.......................... 529,100 26,407,381
PerkinElmer, Inc...................... 40,000 853,200
Pfizer, Inc........................... 2,358,400 65,492,768
PG&E Corp............................. 125,200 4,164,152*
Phelps Dodge Corp..................... 29,400 2,855,622#
Pinnacle West Capital Corp............ 28,500 1,259,700#
Pitney Bowes, Inc..................... 72,200 3,160,194
Plum Creek Timber Co., Inc............ 57,300 2,120,100
PMC-Sierra, Inc....................... 55,300 610,512*
PNC Financial Services Group.......... 88,200 4,798,080
Power-One, Inc........................ 26,200 240,778*
PPG Industries, Inc................... 53,600 3,616,392
PPL Corp.............................. 59,000 3,065,050
Praxair, Inc.......................... 101,500 4,557,350
Principal Financial Group, Inc........ 97,900 3,688,872
Procter & Gamble Co................... 794,000 42,463,120
Progress Energy, Inc.................. 77,100 3,385,461
Progressive Corp...................... 62,500 5,686,875
ProLogis.............................. 56,800 2,285,064
Providian Financial Corp.............. 91,400 1,466,970*
Prudential Financial, Inc............. 162,100 7,934,795
Public Service Enterprise Group, Inc.. 74,100 3,259,659#
Pulte Homes, Inc...................... 39,600 2,188,296#
236
SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series (Continued)
November 30, 2004
-------------------------
Shares Value+
--------- ---------------
QLogic Corp.......................... 28,800 $ 990,432*
Qualcomm, Inc........................ 508,400 21,159,608
Quest Diagnostics, Inc............... 31,800 2,981,250#
Qwest Communications International,
Inc................................. 566,900 2,267,600*
RadioShack Corp...................... 49,900 1,575,343
Raytheon Co.......................... 140,900 5,683,906
Reebok International, Ltd............ 18,500 719,280#
Regions Financial Corp............... 144,300 5,049,057
Reynolds American, Inc............... 46,200 3,494,106#
Robert Half International, Inc....... 53,800 1,454,214
Rockwell Automation, Inc............. 57,600 2,724,480#
Rockwell Collins, Inc................ 55,300 2,204,258
Rohm & Haas Co....................... 70,100 3,090,709
Rowan Companies, Inc................. 33,400 865,060*
Ryder System, Inc.................... 20,100 1,078,164#
Sabre Holdings Corp.................. 42,900 990,132
Safeco Corp.......................... 39,400 1,909,718#
Safeway, Inc......................... 139,600 2,691,488*
Sanmina-SCI Corp..................... 162,800 1,437,524*
Sara Lee Corp........................ 247,800 5,818,344
SBC Communications, Inc.............. 1,035,000 26,050,950
Schering-Plough Corp................. 459,900 8,209,215
Schlumberger, Ltd.................... 184,400 12,102,172
Schwab (Charles) Corp................ 426,800 4,600,904
Scientific-Atlanta, Inc.............. 47,800 1,415,836#
Sealed Air Corp...................... 26,200 1,346,942*
Sears, Roebuck & Co.................. 66,200 3,444,386#
Sempra Energy........................ 72,400 2,677,352
Sherwin-Williams Co.................. 44,500 1,984,700
Siebel Systems, Inc.................. 157,900 1,591,632*
Sigma-Aldrich Corp................... 21,600 1,290,168
Simon Property Group, Inc............ 69,000 4,283,520
SLM Corp............................. 136,200 6,969,354
Snap-On, Inc......................... 18,100 572,141
Solectron Corp....................... 300,400 1,877,500*
Southern Co.......................... 230,600 7,561,374
Southwest Airlines Co................ 246,800 3,882,164
Sovereign Bancorp, Inc............... 107,200 2,342,320
Sprint Corp.......................... 453,700 10,348,897
St. Jude Medical, Inc................ 110,600 4,218,284*#
Staples, Inc......................... 155,400 4,958,814#
Starbucks Corp....................... 124,100 6,981,866*
Starwood Hotels & Resorts Worldwide,
Inc................................. 65,000 3,398,850
State Street Corp.................... 105,000 4,678,800
Stryker Corp......................... 125,300 5,511,947
Sun Microsystems, Inc................ 1,038,900 5,765,895*#
Sungard Data Systems, Inc............ 90,100 2,388,551*
Sunoco, Inc.......................... 23,500 1,940,160#
SunTrust Banks, Inc.................. 111,800 7,971,340#
Supervalu, Inc....................... 42,500 1,342,575
Symantec Corp........................ 98,400 6,278,904*
Symbol Technologies, Inc............. 74,800 1,133,968
Synovus Financial Corp............... 96,600 2,608,200
Sysco Corp........................... 199,700 6,939,575#
T. Rowe Price Group, Inc............. 39,700 2,348,652
Target Corp.......................... 282,100 14,449,162#
TECO Energy, Inc..................... 62,100 929,016#
Tektronix, Inc....................... 28,700 900,319
Tellabs, Inc......................... 130,000 1,111,500*
Temple-Inland, Inc................... 17,400 1,036,866
Tenet Healthcare Corp................ 145,600 1,579,760*
Teradyne, Inc........................ 60,600 1,033,836*
November 30, 2004
-------------------------
Shares Value+
--------- ---------------
Texas Instruments, Inc................. 540,700 $ 13,074,126#
Textron, Inc........................... 43,300 3,144,446
The Goldman Sachs Group, Inc........... 151,800 15,902,568
The Kroger Co.......................... 230,800 3,734,344*#
The New York Times Co. Class A......... 45,900 1,881,900
The St. Paul Travelers Companies, Inc.. 208,900 7,620,672
The Stanley Works...................... 25,600 1,197,056#
The TJX Companies, Inc................. 152,700 3,594,558#
Thermo Electron Corp................... 51,000 1,542,750*
Tiffany & Co........................... 45,600 1,395,360#
Time Warner, Inc....................... 1,428,100 25,291,651*
Torchmark Corp......................... 34,300 1,883,413
Toys R Us, Inc......................... 66,800 1,291,912*#
Transocean, Inc........................ 100,200 4,035,054*
Tribune Co............................. 99,400 4,310,978
TXU Corp............................... 92,700 5,823,414
Tyco International, Ltd................ 627,400 21,312,778
U.S. Bancorp........................... 587,000 17,392,810
Union Pacific Corp..................... 81,000 5,138,640
Unisys Corp............................ 104,600 1,201,854*
United Parcel Service, Inc............. 351,200 29,553,480
United States Steel Corp............... 35,400 1,853,544
United Technologies Corp............... 159,800 15,593,284
UnitedHealth Group, Inc................ 207,600 17,199,660
Univision Communications, Inc. Class A. 100,700 3,031,070*
Unocal Corp............................ 82,700 3,807,508
UnumProvident Corp..................... 92,600 1,441,782
UST, Inc............................... 51,600 2,271,948
Valero Energy Corp..................... 79,800 3,733,842
VERITAS Software Corp.................. 135,200 2,960,880*
Verizon Communications, Inc............ 864,700 35,651,581
VF Corp................................ 34,400 1,857,256
Viacom, Inc. Class B................... 541,900 18,803,930#
Visteon Corp........................... 40,500 342,630
Vulcan Materials Co.................... 31,900 1,654,015
Wachovia Corp.......................... 501,560 25,955,730
Walgreen Co............................ 320,000 12,217,600#
Wal-Mart Stores, Inc................... 1,325,100 68,984,706
Washington Mutual, Inc................. 272,500 11,093,475
Waste Management, Inc.................. 181,100 5,398,591#
Waters Corp............................ 36,900 1,721,754*#
Watson Pharmaceuticals, Inc............ 34,200 993,510*#
Wellpoint Health Networks, Inc......... 49,100 6,142,410*
Wells Fargo & Co....................... 527,400 32,577,498#
Wendy's International, Inc............. 35,500 1,266,285
Weyerhaeuser Co........................ 74,800 4,936,800
Whirlpool Corp......................... 20,700 1,336,185
Williams Companies, Inc................ 173,500 2,892,245
Winn-Dixie Stores, Inc................. 44,400 177,600#
Worthington Industries, Inc............ 27,300 587,223#
Wrigley (Wm.) Jr. Co................... 70,200 4,829,760
Wyeth.................................. 416,600 16,609,842
Xcel Energy, Inc....................... 124,900 2,255,694#
Xerox Corp............................. 262,100 4,015,372*#
Xilinx, Inc............................ 108,400 3,384,248
XL Capital, Ltd........................ 43,200 3,255,552#
Yahoo!, Inc............................ 425,000 15,988,500*#
Yum! Brands, Inc....................... 90,800 4,122,320
Zimmer Holdings, Inc................... 76,500 6,242,400*
Zions Bancorporation................... 28,000 1,862,000
---------------
TOTAL COMMON STOCKS
(Cost $2,594,671,624).................. $ 3,405,448,115
---------------
237
SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series (Continued)
Face Amount
(000) Value+
----------- ---------------
TEMPORARY CASH INVESTMENTS -- (11.9%)
Repurchase Agreement, Merrill Lynch Triparty Repo 1.94%, 12/01/04 (Collateralized by
$389,672,000 U.S. Treasury Bills, maturities ranging from 12/02/04 to 05/26/05, valued
at $388,193,618) to be repurchased at $380,599,191 (Cost $380,578,682)(triangle up)...... $ 380,579 $ 380,578,682
Repurchase Agreement, PNC Capital Markets, Inc. 1.88%, 12/01/04 (Collateralized by
$77,939,000 FHLMC Notes 4.20%, 10/20/09, valued at $78,273,358) to be repurchased at
$77,463,045 (Cost $77,459,000)........................................................... 77,459 77,459,000
---------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $458,037,682)...................................................................... 458,037,682
---------------
TOTAL INVESTMENTS -- (100.0%)
(Cost $3,052,709,306).................................................................... $ 3,863,485,797
===============
- -------------
+ See Note B to Financial Statements.
* Non-Income Producing Securities.
# Total or Partial Securities on Loan.
(triangle up)Security purchased with cash proceeds from securities on loan.
See accompanying Notes to Financial Statements.
238
STATEMENT OF ASSETS AND LIABILITIES THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series
(Amounts in thousands)
November 30, 2004
-----------------
Assets:
Investments at Value (including $365,201 of
securities on loan)............................ $3,863,486
Cash............................................ 4,320
Receivables:
Dividends and Interest......................... 16,343
Fund Shares Sold............................... 3,420
Securities Lending............................. 23
Prepaid Expenses and Other Assets............... 2
----------
Total Assets................................. 3,887,594
----------
Liabilities:
Payables:
Upon Return of Securities Loaned............... 380,579
Fund Shares Redeemed........................... 12,686
Due to Advisor................................. 73
Payable for Futures Margin Variation............ 128
Accrued Expenses and Other Liabilities.......... 209
----------
Total Liabilities............................ 393,675
----------
Net Assets........................................ $3,493,919
==========
Investments at Cost............................. $3,052,709
==========
See accompanying Notes to Financial Statements.
239
STATEMENT OF OPERATIONS THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series
(Amounts in thousands)
For the
Year Ended
Nov. 30,
2004
----------
Investment Income
Dividends...................................................... $ 66,149
Interest....................................................... 661
Income from Securities Lending................................. 356
--------
Total Investment Income...................................... 67,166
--------
Expenses
Investment Advisory Services................................... 823
Accounting & Transfer Agent Fees............................... 494
Custodian Fees................................................. 108
Legal Fees..................................................... 29
Audit Fees..................................................... 43
S&P 500 Fees................................................... 80
Shareholders' Reports.......................................... 36
Trustees' Fees and Expenses.................................... 33
Other.......................................................... 58
--------
Total Expenses............................................... 1,704
--------
Net Investment Income (Loss)................................. 65,462
--------
Net Realized and Unrealized Gain (Loss) on Investment Securities
Net Realized Gain (Loss) on Investment Securities Sold......... (2,763)
Net Realized Gain (Loss) on Futures............................ 9,374
Change in Unrealized Appreciation (Depreciation) of:
Investment Securities........................................ 317,965
Futures...................................................... 714
--------
Net Gain (Loss) on Investment Securities....................... 325,290
--------
Net Increase (Decrease) in Net Assets Resulting from Operations. $390,752
========
See accompanying Notes to Financial Statements.
240
STATEMENT OF CHANGES IN NET ASSETS THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series
(Amounts in thousands)
Year Year
Ended Ended
Nov. 30, Nov. 30,
2004 2003
---------- ----------
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss)...................................... $ 65,462 $ 45,762
Net Realized Gain (Loss) on Investment Securities Sold............ (2,763) (137,474)
Net Realized Gain (Loss) on Futures............................... 9,374 9,903
Change in Unrealized Appreciation (Depreciation) of:
Investment Securities........................................... 317,965 447,952
Futures......................................................... 714 (3,012)
---------- ----------
Net Increase (Decrease) in Net Assets Resulting from Operations. 390,752 363,131
---------- ----------
Transactions in Interest:
Contributions..................................................... 571,038 547,508
Withdrawals....................................................... (468,868) (533,199)
---------- ----------
Net Increase (Decrease) from Transactions in Interest........... 102,170 14,309
---------- ----------
Total Increase (Decrease)....................................... 492,922 377,440
---------- ----------
Net Assets
Beginning of Period............................................... 3,000,997 2,623,557
---------- ----------
End of Period..................................................... $3,493,919 $3,000,997
========== ==========
See accompanying Notes to Financial Statements.
241
FINANCIAL HIGHLIGHTS THE DFA INVESTMENT TRUST COMPANY
The U.S. Large Company Series
(Amounts in thousands)
Year Year Year Year Year
Ended Ended Ended Ended Ended
Nov. 30, Nov. 30, Nov. 30, Nov. 30, Nov. 30,
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of
Period................................. N/A N/A N/A N/A N/A
---------- ---------- ---------- ---------- ----------
Income from Investment Operations
Net Investment Income (Loss)............ -- -- -- -- --
Net Gains (Losses) on Securities
(Realized and Unrealized)............. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total from Investment Operations........ -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Less Distributions
Net Investment Income................... -- -- -- -- --
Net Realized Gains...................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Distributions................. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period........... N/A N/A N/A N/A N/A
========== ========== ========== ========== ==========
Total Return............................. 12.77% 15.05% (16.59)% (12.30)% (4.25)%
========== ========== ========== ========== ==========
Net Assets, End of Period (thousands).... $3,493,919 $3,000,997 $2,623,557 $2,831,650 $3,138,812
Ratio of Expenses to Average Net Assets.. 0.05% 0.05% 0.05% 0.05% 0.06%
Ratio of Net Investment Income to Average
Net Assets............................. 1.99% 1.75% 1.53% 1.26% 1.12%
Portfolio Turnover Rate.................. 2% 8% 11% 8% 8%
- -------------
N/A Not applicable as The U.S. Large Company Series is organized as a
partnership and does not have a unitized value.
See accompanying Notes to Financial Statements.
242
NOTES TO FINANCIAL STATEMENTS THE DFA INVESTMENT TRUST COMPANY
A. Organization:
The DFA Investment Trust Company (the "Trust") is an open-end management
investment company registered under the Investment Company Act of 1940. The
Trust consists of twenty-one series, of which The U.S. Large Company Series
(the "Series") is presented in this report.
B. Significant Accounting Policies:
The following significant accounting policies are in conformity with
accounting principles generally accepted in the United States of America. Such
policies are consistently followed by the Series in preparation of its
financial statements. The preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operation during the reporting
period. Actual results could differ from those estimates and those differences
could be material.
1. Security Valuation: Securities held by the Series which are listed on a
securities exchange and for which market quotations are readily available are
valued at the last quoted sale price of the day. Securities held by the Series
that are listed on Nasdaq are valued at the NASDAQ Official Closing Price
("NOCP"). If there is no such reported sale price or NOCP for the day, the
Series values securities at the mean between the quoted bid and asked prices.
Price information on listed securities is taken from the exchange where the
security is primarily traded. Unlisted securities for which market quotations
are readily available are valued at the mean between the most recent bid and
asked prices. Securities for which quotations are not readily available, or for
which market quotations have become unreliable, are valued in good faith at
fair value using methods determined by the Board of Trustees.
2. Deferred Compensation Plan: Each eligible Trustee of the Trust may elect
participation in the Deferred Compensation Plan (the "Plan"). Under the Plan,
effective January 1, 2002, such Trustees may defer payment of a percentage of
their total fees earned as a Trustee. These deferred amounts may be treated as
though such amounts had been invested in shares of the following Dimensional
Fund Advisors Inc. funds: U.S. Large Cap Value Portfolio, U.S. Micro Cap
Portfolio, DFA International Value Portfolio, Emerging Markets Portfolio and/or
DFA Two-Year Global Fixed Income Portfolio. Contributions made under the Plan
and the change in unrealized appreciation (depreciation) and income, are
included in Trustees' Fees and Expenses. At November 30, 2004, the total
liability for deferred compensation to Trustees is included in Accrued Expenses
and Other Liabilities in the amount of $55,348.
3. Other: Security transactions are accounted for on the trade date. Costs
used in determining realized gains and losses on the sale of investment
securities are on the basis of identified cost. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. Discount and premium on securities
purchased are amortized over the lives of the respective securities utilizing
the effective interest method. Expenses directly attributable to a Series are
directly charged. Common expenses of the Trust are allocated using methods
approved by the Board of Trustees, generally based on average net assets.
C. Investment Advisor:
Dimensional Fund Advisors Inc. ("Dimensional" or the "Advisor") provides
investment advisory services to the Series. For the year ended November 30,
2004, the Series' advisory fees were accrued daily and paid monthly to the
Advisor based on an effective annual rate of 0.025 of 1% of average daily net
assets.
Certain officers of the Trust are also officers, directors and shareholders
of the Advisor.
D. Purchases and Sales of Securities:
For the year ended November 30, 2004, the Series made the following
purchases and sales of investment securities other than short-term securities
(amounts in thousands):
Purchases $226,523
Sales.... 62,048
There were no purchases or sales of U.S. Government Securities during the
year ended November 30, 2004.
E. Federal Income Taxes:
No provision for federal income taxes is required since the Series is
treated as a partnership for federal income tax purposes. Any interest,
dividends and gains or losses have been deemed to have been "passed down" to
its Feeder Funds.
243
NOTES TO FINANCIAL STATEMENTS (Continued) THE DFA INVESTMENT TRUST COMPANY
At November 30, 2004, the total cost of securities and net realized gains or
losses on securities sold for federal income tax purposes were different from
amounts reported for financial reporting purposes. The federal tax cost,
aggregate gross unrealized appreciation and depreciation of securities held by
the Series, at November 30, 2004 were as follows (amounts in thousands):
Net
Unrealized
Federal Unrealized Unrealized Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
-------- ------------ ------------ --------------
$3,213,488 $1,038,480 $(388,482) $649,998
F. Financial Instruments:
In accordance with the Series' investment objectives and policies, the
Series may invest in certain financial instruments that have off-balance sheet
risk in excess of the amounts recognized in the financial statements and
concentrations of credit and market risk. These instruments and their
significant corresponding risks are described below:
1. Repurchase Agreements: The Series may purchase money market instruments
subject to the counterparty's agreement to repurchase them at an agreed upon
date and price. The counterparty will be required on a daily basis to maintain
the value of the collateral subject to the agreement at not less than the
repurchase price (including accrued interest). The agreements are conditioned
upon the collateral being deposited under the Federal Reserve book-entry system
with the Trust's custodian or a third party sub-custodian. In the event of
default or bankruptcy by the other party to the agreement, retention of the
collateral may be subject to legal proceedings. All open repurchase agreements
were entered into on November 30, 2004.
2. Futures Contracts: During the year ended November 30, 2004, the Series
entered into futures contracts in accordance with its investment objectives.
Upon entering into a futures contract, the Series deposits cash with a broker,
equal to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Subsequent payments are received from or paid to the broker
each day, based on the fluctuation in the market value of the contract. These
receipts or payments are known as "variation margin" and are recorded daily by
the Series as unrealized gains or losses until the contracts are closed. When
the contracts are closed, the Series records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
At November 30, 2004, the Series had outstanding 270 long futures contracts
on the S&P 500 Index, all of which expired on December 17, 2004. The value of
such contracts on November 30, 2004 was $79,251,750, which resulted in an
unrealized gain of $2,955,600. Approximately $4,320,000 of cash has been
segregated as collateral for the open futures contracts and has been accounted
for as cash on the Statement of Assets and Liabilities.
Risks arise upon entering into futures contracts from potential imperfect
price correlations between the futures contracts and the underlying securities,
from the possibility of an illiquid secondary market for these instruments and
from the possibility that the Series could lose more than the initial margin
requirements.
G. Line of Credit:
The Trust, together with other Dimensional-advised portfolios, has entered
into a $50 million unsecured discretionary line of credit effective June 2004
with its domestic custodian bank. Each portfolio is permitted to borrow,
subject to its investment limitations, up to a maximum of $50 million, as long
as total borrowings under the line of credit do not exceed $50 million in the
aggregate. Borrowings under the line of credit are charged interest at the then
current federal funds rate plus 1%. Each portfolio is individually, and not
jointly, liable for its particular advances under the line of credit. There is
no commitment fee on the unused portion of the line of credit, since this is
not a committed facility. The agreement for the discretionary line of credit
may be terminated by either party at any time. The agreement for the line of
credit expires on June 28, 2005. There were no borrowings under the
discretionary line of credit by the Series during the year ended November 30,
2004.
The Trust, together with other Dimensional-advised portfolios, has also
entered into an additional $150 million unsecured line of credit effective
April 2004 with its international custodian bank. Each portfolio is permitted
to borrow, subject to investment limitations, up to a maximum of $150 million,
as long as total borrowings under the line of credit do not exceed $150 million
in the aggregate. Each portfolio is individually, and not jointly liable for
its particular advances under the line of credit. Borrowings under the line of
credit are charged interest at rates agreed to by the parties at the time of
borrowing. There is no commitment fee on the unused line of credit. The
agreement of the line of credit expires in April 2005. There were no borrowings
by the Series under the line of credit during the year ended November 30, 2004.
244
NOTES TO FINANCIAL STATEMENTS (Continued) THE DFA INVESTMENT TRUST COMPANY
H. Securities Lending:
As of November 30, 2004, the Series had securities on loan to
broker/dealers, for which the Series held cash collateral. The Series invests
the cash collateral, as described below, and records a liability for the return
of the collateral, during the period the securities are on loan. Loans of
securities are required at all times to be secured by collateral at least equal
to 100% of the market value of the securities on loan. However, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings. In the event
that the borrower fails to return loaned securities, and cash collateral being
maintained by the borrower is insufficient to cover the value of loaned
securities and provided such collateral insufficiency is not the result of
investment losses, PNCBank, National Association, the lending agent, has agreed
to pay the amount of the shortfall to the portfolio or, at the option of the
lending agent, to replace the securities.
The cash collateral received by each portfolio from securities on loan is
invested in repurchase agreements collateralized by U.S. government securities.
Securities pledged as collateral for the repurchase agreements are held by a
custodian bank until the agreements are repurchased.
I. Contractual Obligations:
In the normal course of business, the Trust enters into contracts that
contain a variety of representations and warranties and which provide general
indemnification. The Trust's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Trust
and/or its affiliates that have not yet occurred. However, based on experience,
the Trust expects the risk of loss to be remote.
245
Report of Independent Registered Certified Public Accounting Firm
THE DFA INVESTMENT TRUST COMPANY
To the Shareholders of The U.S. Large Company Series and Board of Trustees of
The DFA Investment Trust Company
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The U.S. Large Company Series (one
of the portfolios constituting The DFA Investment Trust Company, hereafter
referred to as the "Series") at November 30, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Series' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the Standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at November 30, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
January 14, 2005
246
FUND MANAGEMENT
THE DFA INVESTMENT TRUST COMPANY
Trustees/Directors
Each Board of Trustees/Directors of The DFA Investment Trust Company Inc.
("DFAITC"), DFA Investment Dimensions Group Inc. ("DFAIDG"), Dimensional
Investment Group Inc. ("DIG") and Dimensional Emerging Markets Value Fund Inc.
("DEM") (each, the "Fund" and collectively, the "Funds") is responsible for
establishing the Fund's policies and for overseeing the management of the Fund.
The Trustees/Directors of the Funds, including all of the disinterested
Directors, have adopted written procedures to monitor potential conflicts of
interest that might develop between portfolios of the Funds (the "Feeder
Portfolios") that invest in certain series of DFAITC or DEM (the "Master
Funds").
Each Board has two standing committees, an Audit Committee and a Portfolio
Performance and Service Review Committee (the "Performance Committee"). The
Audit Committee is comprised of George M. Constantinides, Roger G. Ibbotson and
Abbie J. Smith. Each member of the Audit Committee is a disinterested Director.
The Audit Committee oversees the Fund's accounting and financial reporting
policies and practices, the Fund's internal controls, the Fund's financial
statements and the independent audits thereof and performs other oversight
functions as requested by the Board of Trustee's/Directors. The Audit Committee
recommends the appointment of each Fund's independent registered certified
public accounting firm and also acts as a liaison between the Fund's
independent registered certified public accounting firm and the full Board.
There were four Audit Committee meetings held during the fiscal year ended
November 30, 2004.
The Performance Committee is comprised of Messrs. Constantinides and
Ibbotson, Ms. Smith, John R. Gould, Myron S. Scholes and Robert C. Merton. Each
member of the Fund's Performance Committee is a disinterested Director. The
Performance Committee regularly reviews and monitors the investment performance
of the Fund's series and reviews the performance of the Fund's service
providers. There were three Performance Committee meetings held during the
fiscal year ended November 30, 2004.
Certain biographical information for each disinterested Trustee/Director and
each interested Trustee/Director of the Funds is set forth in the tables below,
including a description of each Trustee/Director's experience as a
Trustee/Director of the Funds and as a director or trustee of other funds, as
well as other recent professional experience.
The statements of additional information (together, "SAI") of the Funds
include additional information about each Trustee/Director. You may obtain
copies of the SAI and prospectus of each Fund advised by Dimensional Fund
Advisors Inc. by calling collect (310) 395-8005 or by mailing a request to
Dimensional Fund Advisors, Inc. 1299 Ocean Avenue, 11th Floor, Santa Monica,
California 90401. Prospectuses are also available at www.dfafunds.com.
- -----------------------------------------------------------------------------------------------------------------------
Name, Age, Position Portfolios within the
with the Fund Term of Office/1/ and DFA Fund Complex/2/ Principal Occupation(s) During Past 5 Years and
and Address Length of Service Overseen Other Directorships of Public Companies Held
- -----------------------------------------------------------------------------------------------------------------------
Disinterested Trustees/Directors
- -----------------------------------------------------------------------------------------------------------------------
George M. Constantinides DFAITC -- since 1993 75 portfolios in 4 Leo Melamed Professor of Finance, Graduate
Director of DFAIDG, DFAIDG -- since 1983 investment companies School of Business, University of Chicago.
DIG and DEM. DIG -- since 1993
Trustee of DFAITC. DEM -- since 1993
1101 E. 58th Street
Chicago, IL 60637
Date of Birth: 9/22/47
- -----------------------------------------------------------------------------------------------------------------------
John P. Gould Director of DFAITC -- since 1993 75 portfolios in 4 Steven G. Rothmeier Distinguished Service
DFAIDG, DIG and DFAIDG -- since 1986 investment companies Professor of Economics, Graduate School of
DEM. Trustee of DFAITC. DIG -- since 1993 Business, University of Chicago. Senior Vice-
1101 E. 58th Street DEM -- since 1993 President, Lexecon Inc. (economics, law,
Chicago, IL 60637 strategy and finance consulting). Formerly,
Date of Birth: 1/19/39 President, Cardean University (division of
UNext.com). Member of the Boards of
Milwaukee Mutual Insurance Company and
UNext.com. Formerly, Trustee, First Prairie
Funds (registered investment company).
Trustee, Harbor Fund (registered investment
company) (13 Portfolios).
- -----------------------------------------------------------------------------------------------------------------------
247
FUND MANAGEMENT (Continued)
THE DFA INVESTMENT TRUST COMPANY
- --------------------------------------------------------------------------------------------------------------------------
Name, Age, Position Portfolios within the
with the Fund Term of Office/1/ and DFA Fund Complex/2/ Principal Occupation(s) During Past 5 Years and
and Address Length of Service Overseen Other Directorships of Public Companies Held
- --------------------------------------------------------------------------------------------------------------------------
Roger G. Ibbotson DFAITC -- since 1993 75 portfolios in 4 Professor in Practice of Finance, Yale School of
Director of DFAIDG, DIG DFAIDG -- since 1981 investment companies Management. Director, BIRR Portfolio Analysis,
and DEM. Trustee of DIG -- since 1993 Inc. (software products). Chairman, Ibbotson
DFAITC. Yale School of DEM -- since 1993 Associates, Inc., Chicago, IL (software, data,
Management publishing and consulting). Partner, Zebra
P.O. Box 208200 Capital Management, LLC (hedge fund
New Haven, manager). Formerly, Director, Hospital Fund,
CT 06520-8200 Inc. (investment management services).
Date of Birth: 5/27/43
- --------------------------------------------------------------------------------------------------------------------------
Robert C. Merton DFA ITC -- since 2003 75 portfolios in 4 John and Natty McArthur University Professor,
Director of DFAIDG, DIG DFA IDG -- since 2003 investment companies Graduate School of Business Administration,
and DEM. Trustee of DFA DIG -- since 2003 Harvard University (since 1998). George Fisher
DFAITC. Harvard DEM -- since 2003 Baker Professor of Business Administration,
Business School Graduate School of Business Administration,
397 Morgan Hall Harvard University (1988-1998), Cofounder,
Soldiers Field Boston, Chief Science Officer, Integrated Finance Limited
MA 02163 (since 2002). Director, MF Risk, Inc. (risk
Date of Birth: 7/31/44 management software) (since 2001). Director,
Peninsula Banking Group (bank) (since 2003).
Director, Community First Financial Group (bank
holding company) (since 2003). Formerly,
Co-Founder and Principal, Long-Term Capital
Management. Director, Vical Incorporated
(biopharmaceutical product development).
- --------------------------------------------------------------------------------------------------------------------------
Myron S. Scholes DFAITC -- since 1993 75 portfolios in 4 Frank E. Buck Professor Emeritus of Finance,
Director of DFAIDG, DFAIDG -- since 1981 investment companies Stanford University. Managing Partner, Oak Hill
DIG and DEM. DIG -- since 1993 Capital Management (private equity firm).
Trustee of DFAITC. DEM -- since 1993 Chairman, Oak Hill Platinum Partners (hedge
Oak Hill Capital fund). Director, Chicago Mercantile Exchange.
Management, Inc. Consultant, Arbor Investors. Formerly, Director,
2775 Sand Hill Rd. Smith Breeden Family of Funds. Director,
Suite 220 Menlo Park, American Century Fund Complex (registered
CA 94025 investment companies) (38 Portfolios); and
Date of Birth: 7/01/41 Director, Chicago Mercantile Exchange
Holdings Inc
- --------------------------------------------------------------------------------------------------------------------------
Abbie J. Smith Director of DFAITC -- since 2000 75 portfolios in 4 Boris and Irene Stern Professor of Accounting,
DFAIDG, DIG and DEM. DFAIDG -- since 2000 investment companies Graduate School of Business, University of
Trustee of DFAITC. DIG -- since 2000 Chicago, Formerly, Marvin Bower Fellow,
Graduate School of DEM -- since 2000 Harvard Business School (9/01 to 8/02).
Business University of Director, HON Industries Inc. (office furniture)
Chicago 1101 East and Director, Ryder System Inc. (transportation).
58th Street, Chicago,
IL 60637
Date of Birth: 4/30/53
- --------------------------------------------------------------------------------------------------------------------------
248
FUND MANAGEMENT (Continued)
THE DFA INVESTMENT TRUST COMPANY
- -------------------------------------------------------------------------------------------------------------------------
Name, Age, Position Portfolios within the
with the Fund Term of Office/1/ and DFA Fund Complex/2/ Principal Occupation(s) During Past 5 Years and
and Address Length of Service Overseen Other Directorships of Public Companies Held
- -------------------------------------------------------------------------------------------------------------------------
Interested Trustees/Directors**
- -------------------------------------------------------------------------------------------------------------------------
David G. Booth Chairman, DFAITC -- since 1993 75 portfolios in 4 Chairman, Director, Chief Executive Officer,
Director, Chief Executive DFAIDG -- since 1981 investment companies Chief Investment Officer and President of
Officer, Chief Investment DIG -- since 1992 Dimensional Fund Advisors Inc., DFA Securities
Officer and President of DEM -- since 1993 Inc., DFAIDG, DIG and DEM. Chairman, Trustee,
DFAIDG, DIG and DEM. Chief Executive Officer, Chief Investment Officer
Chairman, Trustee, Chief and President of DFAITC. Director of
Executive Officer, Chief Dimensional Fund Advisors Ltd. and formerly
Investment Officer Chief Investment Officer. Director, Chief
and President of DFAITC. Investment Officer and President of DFA
1299 Ocean Avenue Australia Ltd. Formerly, Director of Dimensional
Santa Monica, Funds PLC. Chairman, Director, Chief Executive
CA 90401 Officer and Chief Investment Officer of
Date of Birth: 12/02/46 Dimensional Fund Advisors Canada Inc. (All
Chief Investment Officer positions held starting
1/1/2003 except for Dimensional Fund Advisors
Canada Inc., which was from 6/17/2003.)
Limited Partner, Oak Hill Partners. Director,
University of Chicago Business School.
Formerly, Director, SA Funds (registered
investment company). Formerly Director,
Assante Corporation (investment management)
(until 2002).
- -------------------------------------------------------------------------------------------------------------------------
Rex A. Sinquefield* DFAITC -- since 1993 75 portfolios in 4 Chairman and Director (and prior to 1/1/2003,
Chairman and Director of DFAIDG -- since 1981 investment companies Chief Investment Officer) of Dimensional Fund
DFAIDG, DIG and DEM. DIG -- since 1992 Advisors Inc., DFA Securities Inc., DFAIDG, DIG
Trustee and Chairman of DEM -- since 1993 and DEM. Chairman, Trustee (and prior to
DFAITC. 1299 Ocean 1/1/2003, Chief Investment Officer) of DFAITC.
Avenue Santa Monica, Director and formerly President of Dimensional
CA 90401 Fund Advisors Ltd. Director (and prior to
Date of Birth: 9/07/44 1/1/2003, Chief Investment Officer) of DFA
Australia Ltd. Director of Dimensional Funds
PLC and Dimensional Fund Advisors Canada Inc.
Trustee, St. Louis University. Life Trustee and
Member of Investment Committee, DePaul
University. Director, The German St. Vincent
Orphan Home. Member of Investment
Committee, Archdiocese of St. Louis.
- -------------------------------------------------------------------------------------------------------------------------
/1 /Each Trustee/Director holds office for an indefinite term until his or her
successor is elected and qualified.
/2 /Each Trustee/Director is a director or trustee of each of the four
registered investment companies within the DFA Fund Complex, which includes
the Funds.
* Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
**Interested Directors are described as such because they are deemed to be
"interested persons," as that term is defined under the Investment Company
Act of 1940, as amended, due to their positions with Dimensional Fund
Advisors Inc.
249
FUND MANAGEMENT (Continued)
THE DFA INVESTMENT TRUST COMPANY
Officers
The name, age, information regarding positions with the Funds and the
principal occupation for each officer of the Funds are set forth below. Each
officer listed below holds the same office (except as otherwise noted) in the
following entities: Dimensional Fund Advisors Inc. ("Dimensional"), DFA
Securities Inc., DFAIDG, DIG, DFAITC and DEM (collectively, the "DFA
Entities"). The address of each officer is: Dimensional Fund Advisors Inc. 1299
Ocean Avenue, 11th Floor, Santa Monica, California 90401, unless
otherwise indicated.
Name, Age, Position
with the Fund Term of Office/1/ and
and Address Length of Service Principal Occupation(s) During Past 5 Years
- --------------------------------------------------------------------------------------------------------------
Officers
- --------------------------------------------------------------------------------------------------------------
Arthur H. Barlow Since 1993 Vice President of all the DFA Entities. Formerly, Vice
Vice President President of DFA Australia Limited and Dimensional Fund
Date of Birth: 11/7/55 Advisors Ltd.
- --------------------------------------------------------------------------------------------------------------
Valerie A. Brown Since 2001 Vice President and Assistant Secretary of all the DFA
Vice President and Entities, DFA Australia Limited, Dimensional Fund Advisors
Assistant Secretary Ltd., and since June 2003, Dimensional Fund Advisors Canada
Date of Birth: 1/24/67 Inc. Prior to April 2001, legal counsel for Dimensional
(since March 2000). Associate, Jones, Day, Reavis & Pogue
from October 1991 to February 2000.
- --------------------------------------------------------------------------------------------------------------
Stephen A. Clark Since 2004 Vice President of all the DFA Entities. April 2001 to April
Vice President 2004, Portfolio Manager of Dimensional. Formerly, Graduate
Date of Birth: 8/20/72 Student at the University of Chicago (September 2000 to
March 2001); and Associate of US Bancorp Piper Jaffrey
(September 1999 to September 2000).
- --------------------------------------------------------------------------------------------------------------
Truman A. Clark Since 1996 Vice President of all the DFA Entities. Formerly, Vice
Vice President President of DFA Australia Limited and Dimensional Fund
Date of Birth: 4/8/41 Advisors Ltd.
- --------------------------------------------------------------------------------------------------------------
Christopher S. Crossan Since 2004 Vice President of all the DFA Entities. Formerly, Senior
Vice President Compliance Officer, INVESCO Institutional, Inc. and its
Date of Birth: 12/21/65 affiliates (August 2000 to January 2004); Branch Chief,
Investment Company and Investment Advisor Inspections,
Securities and Exchange Commission (April 1994 to August
2000).
- --------------------------------------------------------------------------------------------------------------
James L. Davis Since 1999 Vice President of all the DFA Entities. Formerly, Vice
Vice President President of DFA Australia Limited and Dimensional Fund
Date of Birth: 11/29/56 Advisors Ltd. Formerly at Kansas State University, Arthur
Andersen & Co., and Phillips Petroleum Co.
- --------------------------------------------------------------------------------------------------------------
Robert T. Deere Since 1994 Vice President of all the DFA Entities and DFA Australia
Vice President Limited. Formerly, Vice President of Dimensional Fund
Date of Birth: 10/8/57 Advisors Ltd.
- --------------------------------------------------------------------------------------------------------------
Robert W. Dintzner Since 2001 Vice President of all the DFA Entities. Formerly, Vice
Vice President President of DFA Australia Limited. Prior to April 2001,
Date of Birth: 3/18/70 marketing supervisor and marketing coordinator for
Dimensional.
- --------------------------------------------------------------------------------------------------------------
Richard A. Eustice Since 1998 Vice President and Assistant Secretary of all the DFA
Vice President and Entities and DFA Australia Limited. Formerly, Vice
Assistant Secretary President of Dimensional Fund Advisors Ltd.
Date of Birth: 8/5/65
- --------------------------------------------------------------------------------------------------------------
Eugene F. Fama, Jr. Since 1993 Vice President of all the DFA Entities. Formerly, Vice
Vice President President of DFA Australia Limited and Dimensional Fund
Date of Birth: 1/21/61 Advisors Ltd.
250
FUND MANAGEMENT (Continued)
THE DFA INVESTMENT TRUST COMPANY
Name, Age, Position
with the Fund Term of Office/1/ and
and Address Length of Service Principal Occupation(s) During Past 5 Years
- -----------------------------------------------------------------------------------------------------------
Gretchen A. Flicker Since 2004 Vice President of all DFA Entities. Prior to
Vice President April 2004, institutional client service
Date of Birth: 6/9/71 representative of Dimensional.
- -----------------------------------------------------------------------------------------------------------
Glenn S. Freed Since 2001 Vice President of all the DFA Entities. Formerly,
Vice President Professor and Associate Dean of the Leventhal
Date of Birth: 11/24/61 School of Accounting (September 1998 to August
2001) and Academic Director Master of Business
Taxation Program (June 1996 to August 2001) at
the University of Southern California Marshall
School of Business.
- -----------------------------------------------------------------------------------------------------------
Henry F. Gray Since 2000 Vice President of all the DFA Entities. Formerly,
Vice President Vice President of DFA Australia Limited. Prior to
Date of Birth: 9/22/67 July 2000, Portfolio Manager.
- -----------------------------------------------------------------------------------------------------------
Kamyab Hashemi-Nejad Since 1997 Vice President, Controller and Assistant
Vice President, Controller and Treasurer of all the DFA Entities, DFA Australia
Assistant Treasurer Limited, and Dimensional Fund Advisors Ltd.
Date of Birth: 1/22/61 Formerly, Assistant Secretary of Dimensional Fund
Advisors Ltd.
- -----------------------------------------------------------------------------------------------------------
Christine W. Ho Since 2004 Vice President of all DFA Entities. Prior to
Vice President April 2004, Assistant Controller of Dimensional.
Date of Birth: 11/29/1967
- -----------------------------------------------------------------------------------------------------------
Jeff J. Jeon Since 2004 Vice President of all DFA Entities. Prior to
Vice President April 2004, counsel of Dimensional. Formerly, an
Date of Birth: 11/8/73 Associate at Gibson, Dunn & Crutcher LLP
(September 1997 to August 2001).
- -----------------------------------------------------------------------------------------------------------
Patrick Keating Since 2003 Vice President of all the DFA Entities and
Vice President Dimensional Fund Advisors Canada Inc. Formerly,
Date of Birth: 12/21/54 Director, President and Chief Executive Officer,
Assante Asset Management, Inc. (October 2000 to
December 2002); Director, Assante Capital
Management (October 2000 to December 2002);
President and Chief Executive Officer, Assante
Capital Management (October 2000 to April 2001);
Executive Vice President, Assante Corporation
(May 2001 to December 2002); Director, Assante
Asset Management Ltd. (September 1997 to December
2002); President and Chief Executive Officer,
Assante Asset Management Ltd. (September 1998 to
May 2001); Executive Vice President, Loring Ward
(financial services company) (January 1996 to
September 1998).
- -----------------------------------------------------------------------------------------------------------
Joseph F. Kolerich Since 2004 Vice President of all the DFA Entities. From
Vice President April 2001 to April 2004, Portfolio Manager for
Date of Birth: 11/7/71 Dimensional. Formerly, a trader at Lincoln
Capital Fixed Income Management (formerly Lincoln
Capital Management Company).
- -----------------------------------------------------------------------------------------------------------
Heather H. Mathews Since 2004 Vice President of all the DFA Entities. Prior to
Vice President April 2004, Portfolio Manager for Dimensional
Date of Birth: 12/12/69 Fund Advisors Inc. Formerly, Graduate Student at
Harvard University (August 1998 to June 2000).
- -----------------------------------------------------------------------------------------------------------
David M. New Since 2003 Vice President of all the DFA Entities. Formerly,
Vice President Client Service Manager of Dimensional. Formerly,
Date of Birth: 2/9/60 Director of Research, Wurts and Associates
(investment consulting firm) (December 2000 to
June 2002); and President, Kobe Investment
Research (August 1999 to November 2000).
- -----------------------------------------------------------------------------------------------------------
251
FUND MANAGEMENT (Continued)
THE DFA INVESTMENT TRUST COMPANY
Name, Age, Position
with the Fund Term of Office/1/ and
and Address Length of Service Principal Occupation(s) During Past 5 Years
- ------------------------------------------------------------------------------------------------------------
Catherine L. Newell Vice President Vice President and Secretary of all the DFA
Vice President and Secretary since 1997 Entities. Vice President and Assistant Secretary
Date of Birth: 5/7/64 and Secretary of DFA Australia Limited (since February 2002,
since 2000 April 1997 and May 2002, respectively). Vice
President and Secretary of Dimensional Fund
Advisors Canada Inc. (since June 2003). Director,
Dimensional Funds plc (since January 2002).
Formerly, Assistant Secretary of all DFA Entities
and Dimensional Fund Advisors Ltd.
- ------------------------------------------------------------------------------------------------------------
David A. Plecha Since 1993 Vice President of all the DFA Entities, DFA
Vice President Australia Limited and Dimensional Fund Advisors
Date of Birth: 10/26/61 Ltd.
- ------------------------------------------------------------------------------------------------------------
Eduardo A. Repetto Since 2002 Vice President of all the DFA Entities. Formerly,
Vice President Research Associate for Dimensional (June 2000 to
Date of Birth: 1/28/67 April 2002). Formerly, Research Scientist (August
1998 to June 2000), California Institute of
Technology.
- ------------------------------------------------------------------------------------------------------------
Michael T. Scardina Since 1993 Vice President, Chief Financial Officer and
Vice President, Chief Financial Treasurer of all the DFA Entities, DFA Australia
Officer and Treasurer Limited and Dimensional Fund Advisors Ltd., and
Date of Birth: 10/12/55 since June 2003, Dimensional Fund Advisors Canada
Inc. Director, Dimensional Fund Advisors Ltd.
(since February 2002) and Dimensional Funds, plc
(January 2002).
- ------------------------------------------------------------------------------------------------------------
David E. Schneider Since 2001 Vice President of all the DFA Entities. Prior to
Vice President Santa Monica, 2001, Regional Director of Dimensional.
CA Date of Birth: 1/26/46
- ------------------------------------------------------------------------------------------------------------
John C. Siciliano Since 2001 Vice President of all the DFA Entities. Director
Vice President Santa Monica, of Dimensional Fund Advisors, Ltd. Formerly, Vice
CA Date of Birth: 8/24/54 President of DFA Australia Limited. Formerly,
Director of Dimensional Funds plc. Formerly,
Managing Principal, Payden & Rygel Investment
Counsel (April 1998 to December 2000).
- ------------------------------------------------------------------------------------------------------------
Jeanne C. Sinquefield, Ph.D.* Since 1988 Executive Vice President of all the DFA Entities
Executive Vice President Santa and DFA Australia Limited. Vice President
Monica, CA (formerly, Executive Vice President) of
Date of Birth: 12/2/46 Dimensional Fund Advisors Ltd. (since January
2003) and Dimensional Fund Advisor Canada Inc.
(since June 2003).
- ------------------------------------------------------------------------------------------------------------
Grady M. Smith Since 2004 Vice President of all the DFA Entities. Prior to
Vice President April 2004, Portfolio Manager of Dimensional.
Date of Birth: 5/26/56 Formerly, Principal of William M. Mercer,
Incorporated (July 1995 to June 2001).
- ------------------------------------------------------------------------------------------------------------
Carl G. Snyder Since 2000 Vice President of all the DFA Entities. Prior to
Vice President Santa Monica, July 2000, Portfolio Manager of Dimensional.
CA Date of Birth: 6/8/63 Formerly, Vice President of DFA Australia Limited.
- ------------------------------------------------------------------------------------------------------------
Lawrence R. Spieth Since 2004 Vice President of all the DFA Entities. Prior to
Vice President April 2004, institutional client service
Date of Birth: 11/10/47 representative of Dimensional.
- ------------------------------------------------------------------------------------------------------------
Bradley G. Steiman Since 2004 Vice President of all the DFA Entities and
Vice President Dimensional Fund Advisors Canada Inc. (since June
Date of Birth: 3/25/73 2003). Prior to April 2002, Regional Director of
Dimensional. Formerly, Vice President and General
Manager of Assante Global Advisors (July 2000 to
April 2002); Vice President of Assante Asset
Management Inc. (March 2000 to July 2000); and
Private Client Manager at Loring Ward Investment
Counsel Ltd. (June 1997 to February 2002).
- ------------------------------------------------------------------------------------------------------------
252
FUND MANAGEMENT (Continued)
THE DFA INVESTMENT TRUST COMPANY
Name, Age, Position
with the Fund Term of Office/1/ and
and Address Length of Service Principal Occupation(s) During Past 5 Years
- ---------------------------------------------------------------------------------------------------------
Karen E. Umland Since 1997 Vice President of all the DFA Entities, DFA
Vice President Santa Monica, Australia Limited, Dimensional Fund Advisors
CA Date of Birth: 3/10/66 Ltd., and since June 2003, Dimensional Fund
Advisors Canada Inc.
- ---------------------------------------------------------------------------------------------------------
Carol W. Wardlaw Since 2004 Vice President of all the DFA Entities. Prior to
Vice President April 2004, institutional client service
Date of Birth: 8/7/58 representative of Dimensional.
- ---------------------------------------------------------------------------------------------------------
Weston J. Wellington Since 1997 Vice President of all the DFA Entities. Formerly,
Vice President Santa Monica, Vice President of Dimensional Fund Advisors Ltd.
CA Date of Birth: 3/1/51
- ---------------------------------------------------------------------------------------------------------
Daniel M. Wheeler Since 2001 Vice President of all the DFA Entities. Prior to
Vice President Santa Monica, 2001, Director of Financial Advisors Services of
CA Date of Birth: 3/3/45 Dimensional. Director of Dimensional Fund
Advisors Ltd. (since October 2003) and President
of Dimensional Fund Advisors Canada Inc. (since
June 2003).
/1/ Each officer holds office for an indefinite term at the pleasure of the
Boards of Trustee/Directors and until his or her successor is elected and
qualified.
* Rex A. Sinquefield and Jeanne C. Sinquefield are husband and wife.
253
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
THE DFA INVESTMENT TRUST COMPANY
A description of the policies and procedures that the Fund uses in voting
proxies relating to securities held in the portfolio is available without
charge, upon request, by calling collect: (310) 395-8005. Information regarding
how the Advisor votes these proxies is available from the EDGAR database on the
SEC's website at http://www.sec.gov and from the Advisor's website at
http://www.dfaus.com and reflects the twelve-month period beginning July 1 and
ending June 30.
254
[THIS PAGE INTENTIONALLY LEFT BLANK.]
BlackRock Funds
Investment Adviser Custodian
BlackRock Advisors, Inc. PFPC Trust Co.
Wilmington, Delaware 19809 Philadelphia, Pennsylvania 19153
Sub-Adviser -- International Co-Administrator and Transfer Agent
Opportunities Portfolio PFPC Inc.
BlackRock International, Ltd. Wilmington, Delaware 19809
Edinburgh, Scotland EH3 8JB
Sub-Adviser -- Asset Allocation Distributor
Portfolio BlackRock Distributors, Inc.
BlackRock Financial Management, Inc. King of Prussia, Pennsylvania 19406
New York, NY 10022 Co-Administrator
BlackRock Advisors, Inc.
Wilmington, Delaware 19809
Counsel
Simpson Thacher & Bartlett LLP
New York, New York 10017
Independent Registered Public Accountant
Deloitte & Touche LLP
Philadelphia, Pennsylvania 19103
The Fund will mail only one copy of shareholder documents, including
prospectuses, annual and semi-annual reports and proxy statements, to
shareholders with multiple accounts at the same address. This practice is
commonly called "householding" and it is intended to reduce expenses and
eliminate duplicate mailings of shareholder documents. Mailings of your
shareholder documents may be householded indefinitely unless you instruct us
otherwise. If you do not want the mailing of these documents to be combined with
those for other members of your household, please contact the Fund at
(800) 441-7762.
The Fund has delegated proxy voting responsibilities to BlackRock and its
affiliates, subject to the general oversight of the Fund's Board of Trustees. A
description of the policies and procedures that BlackRock and its affiliates use
to determine how to vote proxies relating to portfolio securities is available
without charge, upon request, by calling (800)-441-7762, or on the website of
the Securities and Exchange Commission (the "Commission") at http://www.sec.gov.
Information on how proxies relating to the Fund's voting securities were voted
(if any) by BlackRock during the most recent 12-month period ended June 30th is
available, upon request and without charge, by calling (800) 441-7762 or on the
website of the Commission at http://www.sec.gov.
The Fund files its complete schedule of portfolio holdings for the first and
third quarters of its fiscal year with the Commission on Form N-Q. The Fund's
Form N-Q is available on the Commission's website at http://www.sec.gov and may
be reviewed and copied at the Commission's Public Reference Room in Washington,
D.C. Information regarding the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The Fund's Form N-Q may also be obtained
upon request, without charge, by calling (800) 441-7762.
BlackRock Funds
FUND SPECTRUM
BlackRock Funds is a leading mutual fund company currently managing
approximately $26 billion in the following 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.
STOCK PORTFOLIOS
Investment Trust Small Cap Core Equity
Large Cap Value Equity Small Cap Growth Equity
Large Cap Growth Equity Global Science & Technology Opportunities
Dividend Achievers(TM) Global Resources
Legacy All-Cap Global Resources
Mid-Cap Value Equity Health Sciences
Mid-Cap Growth Equity U.S. Opportunities
Aurora International Opportunities
Small/Mid-Cap Growth Index Equity
Small Cap Value Equity
STOCK & BOND PORTFOLIOS
Asset Allocation
BOND PORTFOLIOS
Enhanced Income Government Income
Low Duration Bond Inflation Protected Bond
Intermediate Government Bond GNMA
Intermediate Bond Managed Income
Intermediate PLUS Bond International Bond
Core Bond Total Return High Yield Bond
Core PLUS Total Return
TAX-FREE BOND PORTFOLIOS
UltraShort Municipal Ohio Tax-Free Income
Tax-Free Income Delaware Tax-Free Income
Pennsylvania Tax-Free Income Kentucky Tax-Free Income
New Jersey 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
Account Information
Call us at 1-800-441-7762 to get information about your account balances, recent
transactions and share prices. You can also reach us on the web at
www.blackrock.com.
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 $50 or more from their BlackRock portfolios, as
long as their account is at least $10,000.
Retirement Plans
Shareholders may make investments in conjunction with Traditional, Rollover,
Roth, Coverdell and Simple IRA's.
Additional Information About The BlackRock Funds
For additional reports or additional information, as well as more current
information about portfolio holdings and characteristics, BlackRock Fund
shareholders and prospective investors may call 1-800-441-7762.
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.
EQ-ANN 11/05 BlackRock
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock Funds
Money Market Portfolios
Annual Report
September 30, 2005
[GRAPHIC APPEARS HERE]
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE BlackRock
BlackRock Funds
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
TABLE OF CONTENTS
Shareholder Letter .........................................................1
Fund Profile/Expense Example
Money Market ..........................................................2
U.S. Treasury Money Market ............................................3
Municipal Money Market ................................................4
New Jersey Municipal Money Market .....................................5
North Carolina Municipal Money Market .................................6
Ohio Municipal Money Market ...........................................7
Pennsylvania Municipal Money Market ...................................8
Virginia Municipal Money Market .......................................9
Statements of Net Assets ...............................................10-40
Key to Investment Abbreviations.......................................41
Portfolio Financial Statements
Statements of Operations ..........................................42-43
Statements of Changes in Net Assets ...............................44-45
Financial Highlights ..............................................46-53
Notes to Financial Statements ..........................................54-67
Report of Independent Registered Public Accounting Firm ...................68
Fund Management ........................................................69-73
Additional Information .................................................74-75
PRIVACY PRINCIPLES OF BLACKROCK FUNDS
BlackRock Funds is committed to maintaining the privacy of its shareholders and
to safeguarding their nonpublic personal information. The following information
is provided to help you understand what personal information BlackRock Funds
collects, how we protect that information, and why in certain cases we may share
such information with select other parties.
BlackRock Funds does not receive any nonpublic personal information relating to
its shareholders who purchase shares through their broker-dealers. In the case
of shareholders who are record owners of BlackRock Funds, BlackRock Funds
receives nonpublic personal information on account applications or other forms.
With respect to these shareholders, BlackRock Funds also has access to specific
information regarding their transactions in BlackRock Funds.
BlackRock Funds does not disclose any nonpublic personal information about its
shareholders or former shareholders to anyone, except as permitted by law or as
is necessary in order to service our shareholders' accounts (for example, to a
transfer agent). BlackRock Funds restricts access to nonpublic personal
information about its shareholders to BlackRock employees with a legitimate
business need for the information. BlackRock Funds maintains physical,
electronic and procedural safeguards designed to protect the nonpublic personal
information of our shareholders.
BlackRock Funds
September 30, 2005
Dear Shareholder:
We are pleased to present the Annual Report of the BlackRock Funds' Money
Market Portfolios for the year ended September 30, 2005. On January 31, 2005,
the State Street Research Funds reorganized into BlackRock Funds and we at
BlackRock would like to welcome the former State Street Research Funds
shareholders and our new shareholders to the BlackRock Funds Family.
The Annual Report includes important information on each Portfolio:
.. Fund Profile - displays characteristics of each Portfolio's holdings as of
September 30, 2005.
.. Expense Example - discusses costs in a shareholder account and provides
information for a shareholder to estimate his or her expenses by share class
and to compare expenses of each share class to other funds.
.. Statements of Net Assets - lists portfolio holdings and includes each
holding's market value and par amount as of September 30, 2005. The
Statement of Net Assets also contains the net asset value for each share
class of a Portfolio.
.. Statements of Operations - displays the components of each Portfolio's
investment income and provides a detailed look at each Portfolio's expenses.
The Statement of Operations also lists the aggregate change in value of a
Portfolio's securities due to market fluctuations and security sales.
.. Statements of Changes in Net Assets - compares Portfolio information from
the prior period to the current period. Specifically, it details shareholder
distributions by share class, aggregate realized gains and losses, and the
change in net assets from the beginning of the period to the end of the
period.
.. Financial Highlights - include each Portfolio's expense ratios, net asset
values, total returns, and distributions per share for the last five years
or since inception.
.. Notes to Financial Statements - provide additional information on fees, a
summary of significant accounting policies, a list of affiliated
transactions, and a summary of purchases and sales of securities.
.. Fund Management Table - lists information regarding BlackRock Funds'
Trustees and Officers.
In addition to these items, a summary of shareholder privileges is listed
on the inside back cover of the report. Shareholders can find information on
this page describing how to access account balances, recent transactions, and
share prices. It also includes a summary of the Fund's various investment plans.
At BlackRock, we maintain an unwavering commitment to placing our clients
first and we value the trust you have placed in us. We hope you find the report
informative, and we thank you for making BlackRock part of your investment
strategy. Should you have questions concerning this report, please contact your
financial advisor or contact us at 1-800-441-7762 or visit us at
www.blackrock.com/funds.
Sincerely,
[GRAPHIC APPEARS HERE]
Anne Ackerley
Managing Director
BlackRock Advisors, Inc.
1
Money Market Portfolio
FUND PROFILE
Portfolio Diversification (% of portfolio)
Commercial Paper 52.4%
Variable Rate Obligations 23.7
Master Notes 9.4
Repurchase Agreements 7.9
Certificates of Deposit 6.3
Corporate Bonds 0.3
-----
Total 100.0%
=====
Maturity Information
- ----------------------------------------------
Maturity Par Percentage
- ------------- ----------- -----------
1-7 Days 259,713,000 16.6%
8-14 Days 103,000,000 6.6
15-30 Days 410,068,000 26.2
31-60 Days 362,412,000 23.2
61-90 Days 380,039,000 24.3
over 150 Days 49,250,000 3.1
-----
100.0%
=====
Average Weighted Maturity - 46 days
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including advisory
fees, distribution (12b-1) and service fees, where applicable; and other
Portfolio expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Portfolio and to compare these costs with
the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds.
Actual Expenses
-----------------------------------------------------------------------------------------------
Hilliard
Institutional Service Lyons Investor Investor Investor
Class Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,014.50 1,013.00 1,012.80 1,012.80 1,010.40 1,010.40
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 2.12 3.63 3.89 3.89 6.25 6.25
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------------------------
Hilliard
Institutional Service Lyons Investor Investor Investor
Class Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,022.87 1,021.35 1,021.09 1,021.09 1,018.71 1,018.71
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 2.13 3.65 3.91 3.91 6.29 6.29
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.42%, 0.72%, 0.77%, 0.77%, 1.24%, and 1.24% for the Institutional,
Service, Hilliard Lyons, Investor A, B, and C share classes, respectively,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period).
2
U.S. Treasury Money Market Portfolio
FUND PROFILE
Portfolio Diversification (% of portfolio)
Repurchase Agreements 100.0%
-----
Total 100.0%
=====
Maturity Information
- -----------------------------------------
Maturity Par Percentage
- ----------- ------------- -----------
1-7 Days 455,343,000 100.0%
-----
100.0%
=====
Average Weighted Maturity - 3 days
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including advisory
fees, distribution (12b-1) and service fees, where applicable; and other
Portfolio expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Portfolio and to compare these costs with
the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds.
Actual Expenses
--------------------------------------------------------
Institutional Class Service Class Investor A Class
--------------------- --------------- ------------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,013.80 1,012.30 1,012.10
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 2.07 3.58 3.78
Hypothetical Expenses
(5% return before expenses)
--------------------------------------------------------
Institutional Class Service Class Investor A Class
--------------------- --------------- ------------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,022.92 1,021.40 1,021.19
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 2.08 3.60 3.81
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.41%, 0.71%, and 0.75% for the Institutional, Service, and Investor A
share classes, respectively, multiplied by the average account value over the
period, multiplied by 183/365 (to reflect the one-half year period).
3
Municipal Money Market Portfolio
FUND PROFILE
Largest State Concentration (% of portfolio)
North Carolina 16.5%
Maryland 6.6
Virginia 6.5
Texas 5.5
Illinois 4.3
Massachusetts 4.3
Pennsylvania 3.6
Ohio 3.2
Florida 3.2
Michigan 3.1
----
Total 56.8%
====
Maturity Information
- ---------------------------------------------
Maturity Par Percentage
- --------------- ------------- -----------
1-7 Days 236,806,000 80.1%
15-30 Days 2,892,000 1.0
31-60 Days 2,000,000 0.7
61-90 Days 9,995,000 3.4
91-120 Days 17,254,455 5.8
121-150 Days 3,700,000 1.2
over 150 Days 23,030,000 7.8
-----
100.0%
=====
Average Weighted Maturity - 37 days
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including advisory
fees, distribution (12b-1) and service fees, where applicable; and other
Portfolio expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Portfolio and to compare these costs with
the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds.
Actual Expenses
----------------------------------------------------------------------------
Investor
Institutional Class Service Class Hilliard Lyons Class A Class
--------------------- --------------- ---------------------- ---------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,010.50 1,009.00 1,010.00 1,008.70
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 2.12 3.63 2.62 3.82
Hypothetical Expenses
(5% return before expenses)
----------------------------------------------------------------------------
Investor
Institutional Class Service Class Hilliard Lyons Class A Class
--------------------- --------------- ---------------------- ---------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,022.87 1,021.35 1,022.36 1,021.15
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 2.13 3.65 2.64 3.85
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.42%, 0.72%, 0.52%, and 0.76% for the Institutional, Service, Hilliard
Lyons, and Investor A share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
4
New Jersey Municipal Money Market Portfolio
FUND PROFILE
Portfolio Diversification (% of portfolio)
Variable Rate Demand Notes 76.2%
Municipal Bonds 20.4
Commercial Paper 3.4
-----
Total 100.0%
=====
Maturity Information
- ---------------------------------------------
Maturity Par Percentage
- --------------- ------------- -----------
1-7 Days 111,680,000 76.3%
31-60 Days 6,425,000 4.4
61-90 Days 6,033,450 4.1
91-120 Days 10,574,000 7.2
over 150 Days 11,710,050 8.0
-----
100.0%
=====
Average Weighted Maturity - 42 days
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including advisory
fees, distribution (12b-1) and service fees, where applicable; and other
Portfolio expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Portfolio and to compare these costs with
the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds.
Actual Expenses
--------------------------------------------------------
Institutional Class Service Class Investor A Class
--------------------- --------------- ------------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,010.60 1,009.10 1,008.90
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 1.97 3.48 3.68
Hypothetical Expenses
(5% return before expenses)
--------------------------------------------------------
Institutional Class Service Class Investor A Class
--------------------- --------------- ------------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,023.02 1,021.50 1,021.29
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 1.98 3.50 3.71
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.39%, 0.69%, and 0.73% for the Institutional, Service, and Investor A
share classes, respectively, multiplied by the average account value over the
period, multiplied by 183/365 (to reflect the one-half year period).
5
North Carolina Municipal Money Market Portfolio
FUND PROFILE
Portfolio Diversification (% of portfolio)
Variable Rate Demand Notes 83.1%
Municipal Bonds 7.9
Municipal Put Bonds 6.8
Commercial Paper 2.2
-----
Total 100.0%
=====
Maturity Information
- --------------------------------------------
Maturity Par Percentage
- --------------- ------------ -----------
1-7 Days 52,348,000 85.8%
91-120 Days 4,020,000 6.6
121-150 Days 380,000 0.6
over 150 Days 4,240,000 7.0
-----
100.0%
=====
Average Weighted Maturity - 32 days
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including advisory
fees, distribution (12b-1) and service fees, where applicable; and other
Portfolio expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Portfolio and to compare these costs with
the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds.
Actual Expenses
--------------------------------------------------------
Institutional Class Service Class Investor A Class
--------------------- --------------- ------------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,011.30 1,009.80 1,009.60
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 1.51 3.02 3.27
Hypothetical Expenses
(5% return before expenses)
-------------------------------------------------------
Institutional Class Service Class Investor A Class
--------------------- --------------- -----------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,023.48 1,021.95 1,021.70
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 1.52 3.05 3.30
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.30%, 0.60%, and 0.65% for the Institutional, Service, and Investor A
share classes, respectively, multiplied by the average account value over the
period, multiplied by 183/365 (to reflect the one-half year period).
6
Ohio Municipal Money Market Portfolio
FUND PROFILE
Portfolio Diversification (% of portfolio)
Variable Rate Demand Notes 74.9%
Municipal Bonds 23.4
Municipal Put Bonds 1.7
-----
Total 100.0%
=====
Maturity Information
- --------------------------------------------
Maturity Par Percentage
- --------------- ------------ -----------
1-7 Days 93,350,000 77.9%
31-60 Days 4,820,000 4.0
61-90 Days 3,480,000 2.9
91-120 Days 1,922,675 1.6
121-150 Days 2,450,000 2.0
over 150 Days 13,849,000 11.6
-----
100.0%
=====
Average Weighted Maturity - 44 days
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including advisory
fees, distribution (12b-1) and service fees, where applicable; and other
Portfolio expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Portfolio and to compare these costs with
the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds.
Actual Expenses
--------------------------------------------------------
Institutional Class Service Class Investor A Class
--------------------- --------------- ------------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,011.00 1,009.50 1,009.30
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 1.97 3.48 3.73
Hypothetical Expenses
(5% return before expenses)
--------------------------------------------------------
Institutional Class Service Class Investor A Class
--------------------- --------------- ------------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,023.02 1,021.50 1,021.24
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 1.98 3.50 3.76
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.39%, 0.69%, and 0.74% for the Institutional, Service, and Investor A
share classes, respectively, multiplied by the average account value over the
period, multiplied by 183/365 (to reflect the one-half year period).
7
Pennsylvania Municipal Money Market Portfolio
FUND PROFILE
Portfolio Diversification (% of portfolio)
Variable Rate Demand Notes 84.1%
Commercial Paper 7.9
Municipal Put Bonds 6.4
Municipal Bonds 1.6
-----
Total 100.0%
=====
Maturity Information
- ---------------------------------------------
Maturity Par Percentage
- --------------- ------------- -----------
1-7 Days 506,779,000 93.0%
31-60 Days 20,450,000 3.8
61-90 Days 7,000,000 1.3
91-120 Days 2,400,000 0.4
121-150 Days 7,875,000 1.4
over 150 Days 370,000 0.1
-----
100.0%
=====
Average Weighted Maturity - 11 days
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including advisory
fees, distribution (12b-1) and service fees, where applicable; and other
Portfolio expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Portfolio and to compare these costs with
the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds.
Actual Expenses
--------------------------------------------------------
Institutional Class Service Class Investor A Class
--------------------- --------------- ------------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,010.90 1,009.30 1,009.60
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 2.12 3.63 3.38
Hypothetical Expenses
(5% return before expenses)
--------------------------------------------------------
Institutional Class Service Class Investor A Class
--------------------- --------------- ------------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,022.87 1,021.35 1,021.60
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 2.13 3.65 3.40
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.42%, 0.72%, and 0.67% for the Institutional, Service, and Investor A
share classes, respectively, multiplied by the average account value over the
period, multiplied by 183/365 (to reflect the one-half year period).
8
Virginia Municipal Money Market Portfolio
FUND PROFILE
Portfolio Diversification (% of portfolio)
Variable Rate Demand Notes 88.6%
Municipal Bonds 10.6
Commerical Paper 0.8
-----
Total 100.0%
=====
Maturity Information
- --------------------------------------------
Maturity Par Percentage
- --------------- ------------ -----------
1-7 Days 21,490,000 89.5%
61-90 Days 775,000 3.2
91-120 Days 1,000,000 4.2
over 150 Days 750,000 3.1
-----
100.0%
=====
Average Weighted Maturity - 19 days
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including advisory
fees, distribution (12b-1) and service fees, where applicable; and other
Portfolio expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Portfolio and to compare these costs with
the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds.
Hypothetical Expenses
Actual Expenses (5% return before expenses)
--------------------------------------- --------------------------------------
Institutional Class Service Class Institutional Class Service Class
--------------------- --------------- --------------------- --------------
Beginning Account
Value (04/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,010.90 1,009.40 1,023.48 1,021.95
Expenses Incurred
During Period
(04/01/05 -
9/30/05) 1.51 3.02 1.52 3.05
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.30% and 0.60% for the Institutional and Service classes,
respectively, multiplied by the average account value over the period,
multiplied by 183/365 (to reflect the one-half year period).
9
BlackRock Funds
STATEMENT OF NET ASSETS
MONEY MARKET PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
CERTIFICATES OF DEPOSIT -- 6.3%
Yankee -- 6.3%
Credit Suisse First Boston, New
York (A-1, P-1)
3.93%(b) 12/21/05 $ 5,000 $ 5,000,336
Depfa Bank PLC, New York (A-1+,
P-1)
2.49%(b) 11/01/05 15,000 15,000,000
Eurohypo AG, New York (A-1, P-1)
3.70%(b) 11/09/05 70,000 69,719,417
Societe Generale, New York (A-1+,
P-1)
3.34%(b) 11/04/05 8,000 7,999,995
--------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $97,719,748) 97,719,748
--------------
COMMERCIAL PAPER -- 52.4%
Asset-Backed Securities -- 37.6%
Brahms Funding Corp. (A-1, P-1)
3.83% 10/28/05 40,000 39,885,100
Citigroup Funding (A-1, P-1)
3.75% 11/01/05 25,000 24,919,271
CRC Funding LLC (A-1, P-1)
3.73% 11/03/05 60,427 60,220,390
Emerald Certificates (A-1+, P-1)
3.56% 10/18/05 32,483 32,428,393
Giro Funding U.S. Funding Corp.
(A-1, P-1)
3.82% 12/15/05 43,839 43,490,115
3.87% 12/19/05 28,700 28,456,265
K2 (USA) LLC (A-1+, P-1)
3.73% 11/21/05 52,785 52,506,075
Lake Constance Funding LLC (A-1+,
P-1)
3.77% 12/01/05 17,000 16,891,403
Liberty Street Funding (A-1, P-1)
3.72% 11/14/05 6,600 6,569,992
Lockhart Funding LLC (A-1, P-1)
3.79% 10/25/05 72,000 71,818,080
Nova Notes Program (A-1+, P-1)
3.78% 12/01/05 26,000 25,833,470
Park Granada LLC (A-1+, P-1)
3.71% 10/31/05 25,000 24,922,708
3.89% 11/28/05 49,000 48,692,906
Silver Tower U.S. Funding (A-1,
P-1)
3.88% 12/07/05 24,500 24,323,083
Tulip Funding Corp. (A-1+, P-1)
3.68% 10/07/05 23,815 23,800,393
Victory Receivables Corp. (A-1,
P-1)
3.75% 10/17/05 62,900 62,795,167
--------------
587,552,811
--------------
Banks -- 12.4%
Banco Santander Puerto Rico (A-1,
P-1)
3.74% 10/14/05 53,000 53,000,000
3.69% 10/17/05 18,500 18,500,000
Bank of America Corp. (A-1+, P-1)
3.67% 10/24/05 11,650 11,622,684
Barclays U.S. Funding Corp.
(A-1+, P-1)
3.66% 10/25/05 70,000 69,828,967
Lloyds Bank (A-1, P-1)
3.78% 11/01/05 40,000 40,000,171
--------------
192,951,822
--------------
Security Brokers & Dealers -- 1.7%
Goldman Sachs Group (A-1, P-1)
3.76% 10/24/05 26,675 26,610,920
--------------
Telephone Communications -- 0.7%
SBC Communications, Inc. (A-1,
P-1)
3.73% 11/07/05 10,600 10,559,364
--------------
TOTAL COMMERCIAL PAPER
(Cost $817,674,917) 817,674,917
--------------
MASTER NOTES -- 9.4%
Domestic Certificates of Deposit
-- 3.8%
Washington Mutual Bank F.A.
(A-1, P-1)
3.95% 12/13/05 60,000 60,000,000
--------------
Security Brokers & Dealers -- 5.6%
Bank of America Securities LLC
(A-1+, P-1)
4.02%(c) 10/03/05 15,250 15,250,000
Merrill Lynch Mortgage Capital,
Inc. (A-1, P-1)(d)
3.95%(c) 10/04/05 22,000 22,000,000
Morgan Stanley Mortgage Capital,
Inc. (A-1, P-1)(d)
4.11%(c) 10/03/05 50,000 50,000,000
--------------
87,250,000
--------------
TOTAL MASTER NOTES
(Cost $147,250,000) 147,250,000
--------------
CORPORATE BONDS -- 0.3%
Manufacturing -- 0.3%
General Electric Co. (A-1+, P-1)
3.70%(c)
(Cost $4,500,151) 10/24/05 4,500 4,500,151
--------------
VARIABLE RATE OBLIGATIONS -- 23.8%
Asset-Backed Securities -- 2.4%
Racers XL (A-1, P-1)
3.82%(c)(e) 10/24/05 11,360 11,360,000
3.86%(c)(e) 08/21/06 25,000 25,000,000
--------------
36,360,000
--------------
Banks -- 5.7%
HBOS Treasury Services PLC (A-1+,
P-1)
4.01%(c)(e) 12/27/05 65,000 65,000,000
Westpac Banking Corp.
(AA-, Aa3)(d)
3.84%(c) 10/11/06 24,250 24,250,000
--------------
89,250,000
--------------
Finance Services -- 3.2%
Cullinan Finance Corp. (AAA, Aaa)
3.84%(c) 12/15/05 50,000 49,992,898
--------------
Life Insurance -- 4.8%
MetLife Global Funding I (AA, Aa2)
3.91%(c)(e) 10/28/05 15,000 15,000,000
Transamerica Occidental Life
Insurance Co. (A-1+, P-1)
4.01%(c)(f) 12/01/05 60,000 60,000,000
--------------
75,000,000
--------------
See accompanying notes to financial statements
10
BlackRock Funds
STATEMENT OF NET ASSETS
MONEY MARKET PORTFOLIO (Concluded)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
VARIABLE RATE OBLIGATIONS (Continued)
Municipal Bonds -- 1.6%
De Kalb County Development
Authority University RB Series
1995B DN (A-1+, VMIG-1)
3.84%(c) 10/07/05 $ 3,875 $ 3,875,000
North Myrtle Beach Corp. RB Series
2005 DN (National Bank of South
Carolina LOC) (A-1, F-1)
3.90%(c) 10/07/05 6,100 6,100,000
South Central Texas IDRB Series
1990 DN (Bank One N.A. LOC)
(A-1, P-1)
3.86%(c) 10/07/05 14,800 14,800,000
--------------
24,775,000
--------------
Security Brokers & Dealers -- 3.2%
Merrill Lynch & Co., Inc. (A+, Aa3)
3.93%(c) 10/11/05 50,000 50,000,000
--------------
Short-Term Business Credit
Institutions -- 2.9%
General Electric Capital Corp.
(AAA, Aaa)
3.89%(c) 10/17/05 45,000 45,000,000
--------------
TOTAL VARIABLE RATE OBLIGATIONS
(Cost $370,377,898) 370,377,898
--------------
REPURCHASE AGREEMENTS -- 7.9%
Morgan Stanley & Co., Inc.
3.85% 10/03/05 123,873 123,873,000
(Agreement dated 09/30/05 to
be repurchased at $123,912,743,
collateralized by $126,184,291
Federal Home Loan Mortgage Corp.
Bonds and Adjustable Rate
Mortgage Notes, Federal
National Mortgage Assoc. Bonds
and Variable Rate Notes 4.50%
to 7.00% due from 07/01/08 to
09/01/35. The value of the
collateral is $128,227,091.)
--------------
TOTAL REPURCHASE AGREEMENTS
(Cost $123,873,000) 123,873,000
--------------
TOTAL INVESTMENTS IN SECURITIES
-- 100.1%
(Cost $1,561,395,714(a)) 1,561,395,714
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.1)% (1,658,122)
--------------
NET ASSETS -- 100.0%
(Applicable to
574,569,026 Institutional shares,
411,875,118 Service shares,
116,070,313 Hilliard Lyons shares,
433,649,650 Investor A shares,
18,715,914 Investor B shares and
5,043,471 Investor C shares) $1,559,737,592
==============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER INSTITUTIONAL
SHARE
($574,472,981/574,569,026) $ 1.00
=======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SERVICE
SHARE
($411,831,266/411,875,118) $ 1.00
=======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
HILLIARD LYONS SHARE
($116,065,887/116,070,313) $ 1.00
=======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($433,608,897/433,649,650) $ 1.00
=======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INVESTOR B SHARE
($18,715,701/18,715,914) $ 1.00
=======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INVESTOR C SHARE
($5,042,860/5,043,471) $ 1.00
=======
- ----------
(a) Aggregate cost for Federal income tax purposes.
(b) Security is a foreign domiciled issuer which is registered with the
Securities and Exchange Commission.
(c) Rates shown are the rates as of September 30, 2005 and maturities shown are
the next interest readjustment date.
(d) Ratings reflect those of guarantor.
(e) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional investors. As of September
30, 2005, the portfolio held 7.5% of its net assets, with a current market
value of $116,360,000, in securities restricted as to resale.
(f) Illiquid security. As of September 30, 2005, the Portfolio held 3.9% of its
net assets, with a current market value of $60,000,000 in these securities.
See accompanying notes to financial statements
11
BlackRock Funds
STATEMENT OF NET ASSETS
U.S. TREASURY MONEY MARKET PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
REPURCHASE AGREEMENTS -- 100.3%
Deutsche Bank Securities, Inc.
3.25% 10/03/05 $100,000 $100,000,000
(Agreement dated 09/30/05 to
be repurchased at
$100,027,083, collateralized
by $233,269,000 U.S.
Treasury Strip Principals
6.25% to 7.25% due from
08/15/22 to 05/15/30. The
value of the collateral is
$102,000,317.)
J.P. Morgan Securities, Inc.
3.25% 10/03/05 100,000 100,000,000
(Agreement dated 09/30/05 to
be repurchased at $100,027,083,
collateralized by $180,953,000
U.S. Treasury Strips and Strip
Principals 0.00% to 8.88% due
from 02/15/13 to 02/15/24. The
value of the collateral is
$102,001,759.)
Lehman Brothers, Inc.
3.35% 10/03/05 100,000 100,000,000
(Agreement dated 09/30/05 to
be repurchased at
$100,027,917, collateralized
by $101,510,000 U.S.
Treasury Bonds and Notes
2.75% to 9.38% due from
02/15/06 to 11/15/14. The
value of the collateral is
$101,979,701.)
Morgan Stanley & Co., Inc.
3.25% 10/03/05 55,343 55,343,000
(Agreement dated 09/30/05 to
be repurchased at
$55,357,989, collateralized by
$38,411,000 U.S. Treasury
Bonds 8.88% to 9.00% due
from 11/15/18 to 02/15/19.
The value of the collateral is
$56,451,294.)
UBS Securities LLC
3.33% 10/03/05 100,000 100,000,000
(Agreement dated 09/30/05 to be
repurchased at $100,027,750,
collateralized by $183,777,000
U.S. Treasury Strips and Strip
Principals 0.00% to 7.13% due
from 02/15/18 to 02/15/23. The
value of the collateral is
$102,000,006.)
--------------
TOTAL REPURCHASE AGREEMENTS
(Cost $455,343,000) 455,343,000
--------------
Value
--------------
TOTAL INVESTMENTS IN SECURITIES -- 100.3%
(Cost $455,343,000(a)) $455,343,000
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (0.3)% (1,260,697)
--------------
NET ASSETS -- 100.0%
(Applicable to 164,931,807
Institutional shares, 257,241,669
Service shares and 31,978,478
Investor A shares) $454,082,303
==============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($164,904,680/164,931,807) $ 1.00
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($257,187,342/257,241,669) $ 1.00
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INVESTOR A SHARE
($31,990,281/31,978,478) $ 1.00
=======
- ----------
(a) Aggregate cost for Federal income tax purposes.
See accompanying notes to financial statements
12
BlackRock Funds
STATEMENT OF NET ASSETS
MUNICIPAL MONEY MARKET PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS -- 98.5%
Alabama -- 2.1%
Alexander City Industrial Board
IDRB Series 2000 DN
(Southtrust Bank LOC)
(A-1, P-1)
2.85%(b) 10/07/05 $ 975 $ 975,000
Columbia IDRB (Alabama Power
Co. Project) Series 1995B DN
(The Southern Co. Guaranty)
(A-1, VMIG-1)
2.82%(b) 10/03/05 700 700,000
Columbia IDRB (Alabama Power
Co. Project) Series 1999A DN
(The Southern Co. Guaranty)
(A-1, VMIG-1)
2.82%(b) 10/03/05 1,000 1,000,000
Geneva County Health Care
Authority RB Series 2001 DN
(Southtrust Bank LOC)
2.80%(b) 10/07/05 2,833 2,833,000
Jefferson County GO Warrants
Series 2001B DN (Morgan
Guaranty Trust LOC,
Bayerische Landesbank
Girozentrale SBPA)
(A-1+, VMIG-1)
2.80%(b) 10/03/05 800 800,000
---------
6,308,000
---------
Alaska -- 2.3%
Alaska Housing Finance Corp.
RB (Merrill Lynch P-Float Trust
Receipts) Series 1998 PA-332
DN (MBIA Insurance, Merrill
Lynch Capital Services
Liquidity Facility) (A-1)
2.79%(b)(c) 10/07/05 6,000 6,000,000
Anchorage Water RB (Wachovia
Merlots Trust Receipts) Series
2004C-32 MB (MBIA
Insurance, Wachovia Bank
N.A. SBPA) (MIG-1)
2.85%(c) 04/20/06 1,000 1,000,000
---------
7,000,000
---------
Arizona -- 1.0%
Pima County IDA Single Family
Mortgage RB (Draw Down
Project) Series 2003 AMT MB
(Trinity Funding Guaranty)
3.80%(b) 10/25/05 2,892 2,892,000
---------
Arkansas -- 0.9%
Little Rock Residential Housing
& Public Facilities Board
Capital Improvement RB (Park
Systems Project) Series 2001 DN
(Bank of America N.A. LOC)
(A-1+) 2.85%(b) 10/07/05 2,570 2,570,000
---------
California -- 3.0%
California Economic Recovery
RB Series 2004C-21 DN (XLCA
Guaranty, Dexia Credit Local
SBPA) (A-1+, VMIG-1)
2.72%(b) 10/07/05 500 500,000
California Infrastructure &
Economic Development Bank
RB (Asian Art Museum
Foundation Project) Series
2003 DN (MBIA Insurance,
J.P. Morgan Chase Bank
SBPA) (A-1+)
2.76%(b) 10/07/05 3,500 3,500,000
Golden State Tobacco
Securitization Corp. RB
(Merrill Lynch P-Float Trust
Receipts) Series 2004
PA-1236 DN (Merrill Lynch &
Co. Guaranty, Merrill Lynch
Capital Services SBPA) (F-1+)
2.83%(b)(c) 10/07/05 1,330 1,330,000
Pleasant Valley School District
of Ventura County GO (Merrill
Lynch P-Float Trust Receipts)
Series 2005 PT-2783 DN (MBIA
Insurance, Dexia Credit Local
SBPA) (A-1+, AAA)
2.77%(b)(c) 10/07/05 150 150,000
Puttable Floating Option
Tax-Exempt Receipts RB
Series 2005-PZP-2 DN (Merrill
Lynch Capital Services SBPA)
(F-1+)
2.90%(b) 10/07/05 1,490 1,490,000
Sacramento Municipal Utility
District RB Series 2000A DN
(AMBAC Insurance, Wachovia
Bank N.A. LOC) (VMIG-1)
2.76%(b)(c) 10/03/05 1,400 1,400,000
Southern California Public Power
Authority RB (San Juan Power
Project) Series 2002 DN (FSA
Insurance, Wachovia Bank
N.A. LOC) (VMIG-1)
2.76%(b)(c) 10/07/05 685 685,000
---------
9,055,000
---------
Colorado -- 2.0%
Colorado Education Loan
Program RB Series 2005
TRAN (SP-1+, MIG-1)
4.00% 08/07/06 2,500 2,527,155
Colorado Housing & Finance
Authority RB (Single Family
Mortgage Project) Series 2005
MB (Trinity Funding Insurance)
(SP-1+, MIG-1)
2.80% 07/05/06 2,000 2,000,000
See accompanying notes to financial statements
13
BlackRock Funds
STATEMENT OF NET ASSETS
MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
Colorado (Continued)
Denver Urban Renewal Authority
Tax Increment RB (Merrill
Lynch P-Float Trust Receipts)
Series 2004 PT-999 DN
(Lloyds Bank SBPA)
(A-1, AA-)
2.84%(b)(c) 10/07/05 $1,500 $ 1,500,000
----------
6,027,155
----------
Delaware -- 1.8%
Delaware Economic
Development Authority RB
(Catholic Diocese of
Wilmington Project) Series
2002 DN (Allied Irish Bank
PLC LOC) (VMIG-1)
2.85%(b) 10/07/05 3,400 3,400,000
Delaware Economic
Development Authority RB (St.
Anne's Episcopal School
Project) Series 2001 DN
(Wilmington Trust Co. LOC)
(A-1)
2.85%(b) 10/07/05 2,000 2,000,000
----------
5,400,000
----------
Florida -- 3.1%
Florida Housing Finance Corp.
Multi-Family RB (Merrill Lynch
P-Float Trust Receipts) Series
2000 PT-1234 DN (Merrill
Lynch Capital Services SBPA)
(A-1)
2.84%(b)(c) 10/07/05 1,470 1,470,000
Greater Orlando Aviation
Authority RB (Special Purpose
Cessna Aircraft Project) Series
2001 AMT DN (Textron, Inc.
Guaranty) (A-2, P-1)
3.85%(b) 10/07/05 4,000 4,000,000
Lee County IDRB Series 1997
AMT DN (SunTrust Bank LOC)
2.89%(b) 10/07/05 1,865 1,865,000
Putnam County Development
Authority PCRB (Seminole
Electric Co-op Project) Series
1984H-3 MB (A-1, MIG-1)
2.80% 03/15/06 2,000 2,000,000
----------
9,335,000
----------
Illinois -- 4.2%
Chicago GO Tender Notes
Series 2004 MB (State Street
Bank & Trust Co. LOC)
(SP-1+, MIG-1)
2.20% 12/08/05 1,000 1,000,000
Illinois Development Finance
Authority IDRB (Royal
Continental Box Co. Project)
Series 1995A AMT DN
(ABN-AMRO Bank N.V. LOC)
(A-1)
2.84%(b) 10/07/05 100 100,000
Metropolitan Pier & Exposition
Authority RB (Bear Stearns
Trust Certificates) Series
2005A-224 DN (MBIA
Insurance, Bear Stearns
Capital Markets Liquidity
Facility) (VMIG-1)
2.90%(b)(c) 10/07/05 600 600,000
Metropolitan Pier & Exposition
Authority RB (Dedicated State
Tax Receipts) Series 2005Z-5
DN (MBIA Insurance,
Goldman Sachs Liquidity
Facility) (F-1+)
2.83%(b)(c) 10/07/05 1,400 1,400,000
Metropolitan Pier & Exposition
Authority RB (Dedicated State
Tax Receipts) Series
2005PZ-44 DN (MBIA
Insurance, Merrill Lynch
Capital Services SBPA) (F-1+)
2.83%(b)(c) 10/07/05 500 500,000
Metropolitan Pier & Exposition
Authority RB (TOC Trust
Receipts) Series 2005Z-1 DN
(MBIA Insurance, Goldman
Sachs Liquidity Facility)
(A-1, AAA)
2.83%(b)(c) 10/07/05 600 600,000
Quad Cities Regional Economic
Development Authority RB
(Whitey's Ice Cream
Manufacturing Project) Series
1995 AMT DN (Bank One N.A. LOC)
2.93%(b) 10/07/05 805 805,000
Regional Transportation
Authority GO (Wachovia
Merlots Trust Receipts) Series
2001A-86 DN (FGIC
Insurance, Wachovia Bank
N.A. LOC) (VMIG-1)
2.77%(b)(c) 10/07/05 2,375 2,375,000
Rockford RB (Fairhaven
Christian Center Project)
Series 2000 DN (Bank One
N.A. LOC)
2.88%(b) 10/07/05 1,700 1,700,000
Roselle Village IDRB
(Abrasive-Form, Inc. Project)
Series 1995 AMT DN
(ABN-AMRO Bank N.V. LOC)
2.89%(b) 10/07/05 1,000 1,000,000
Schaumburg IDRB (Termax
Corp. Project) Series 2000
AMT DN (Bank One N.A. LOC)
2.93%(b) 10/07/05 1,600 1,600,000
See accompanying notes to financial statements
14
BlackRock Funds
STATEMENT OF NET ASSETS
MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
Illinois (Continued)
Will County Community Unit
School District 365 GO Series
2005 DN (FSA Insurance,
Merrill Lynch Capital Services
SBPA) (F-1+)
2.83%(b)(c) 10/07/05 $1,000 $ 1,000,000
-----------
12,680,000
-----------
Indiana -- 1.8%
Dekko Foundation Educational
Facilities RB Series 2001 DN
(Bank One N.A. LOC)
2.98%(b) 10/07/05 2,700 2,700,000
Hendricks County Industrial
Redevelopment Commission
Tax Increment RB (Heartland
Crossing Project) Series
2000A DN (Huntington
National Bank LOC)
2.95%(b) 10/07/05 1,100 1,100,000
Indiana Transportation Finance
Authority Highway RB Series
2004B-21 DN (FGIC
Insurance, Wachovia Bank
SBPA) (A-1)
2.77%(b)(c) 10/07/05 100 100,000
Monroe County IDRB (Griner
Engineering, Inc. Project)
Series 1997 AMT DN (Fifth
Third Bank N.A. LOC)
2.96%(b) 10/07/05 615 615,000
Vigo County Independent School
Corp. Temporary Loan Notes
RB Series 2005 MB
3.25% 12/29/05 1,000 1,001,218
-----------
5,516,218
-----------
Iowa -- 0.2%
Cedar Rapids Community
School District TAN Series
2005 MB
3.75% 06/30/06 500 503,441
-----------
Kentucky -- 2.4%
Kentucky Association of
Counties Advance Revenue
COP Series 2005 TRAN
(SP-1+)
4.00% 06/30/06 3,000 3,027,193
Newport Industrial Building RB
(Newport Holdings Project)
Series 2001A AMT DN
(Huntington National Bank LOC)
3.06%(b) 10/07/05 1,670 1,670,000
Pulaski County Solid Waste
Disposal RB (National Rural
Utilities for East Kentucky
Power Project) Series 1993B
AMT MB (National Rural
Utilities Guaranty) (MIG-1)
2.85% 02/15/06 2,500 2,500,000
-----------
7,197,193
-----------
Louisiana -- 2.2%
Iberville Parish PCRB (Air
Products & Chemicals Project)
Series 1992 DN (A-1)
2.77%(b) 10/07/05 4,000 4,000,000
West Baton Rouge Parish
Industrial District No. 3 RB
(Dow Chemical Co. Project)
Series 1994B DN (P-2)
2.93%(b) 10/03/05 2,500 2,500,000
----------
6,500,000
----------
Maryland -- 6.5%
Baltimore County RB (Odyssey
School Facility Project) Series
2001 DN (M&T Bank Corp.
LOC) (A-1)
2.83%(b) 10/07/05 2,815 2,815,000
Baltimore County RB (St. Paul's
School for Girls Facility
Project) Series 2000 DN (M&T
Bank Corp. LOC) (A-1)
2.80%(b) 10/07/05 1,825 1,825,000
Maryland Economic Development
Authority RB (Association of
Catholic Charities Project)
Series 1999A DN (M&T Bank Corp.
LOC) (A-1)
2.78%(b) 10/07/05 2,395 2,395,000
Maryland Economic Development
Authority RB (Association of
Catholic Charities Project)
Series 1999B DN (M&T Bank Corp.
LOC) (A-1)
2.78%(b) 10/07/05 1,425 1,425,000
Maryland Economic
Development Corp. RB
(American Health Assistance
Foundation Facility Project)
Series 2001 DN (M&T Bank
Corp. LOC) (A-1)
2.83%(b) 10/07/05 3,435 3,435,000
Maryland Economic
Development Corp. RB
(Mirage-Tucker LLC Facility
Project) Series 2002 DN (M&T
Bank Corp. LOC) (VMIG-1)
2.90%(b) 10/07/05 1,325 1,325,000
Maryland Health & Higher
Education Facilities Authority
RB (Adventist Healthcare
Project) Series 2003B DN
(M&T Bank Corp. LOC)
(VMIG-1)
2.80%(b) 10/07/05 6,200 6,200,000
----------
19,420,000
----------
See accompanying notes to financial statements
15
BlackRock Funds
STATEMENT OF NET ASSETS
MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
Massachusetts -- 4.2%
Commonwealth of
Massachusetts GO (Wachovia
Merlots Trust Receipts) Series
2002A-9 DN (FSA Insurance,
Wachovia Bank N.A. SBPA)
(A-1)
2.76%(b)(c) 10/07/05 $1,495 $1,495,000
Gill-Montague Regional School
District GO Series 2005 BAN
(SP-1+)
3.63% 07/28/06 2,090 2,103,952
Massachusetts State RB Series
2005A DN (Citibank LOC)
(A-1+, VMIG-1)
2.76%(b) 10/07/05 3,000 3,000,000
Medford GO Series 2005 BAN
(SP-1, MIG-1)
3.00% 01/26/06 2,000 2,001,579
Milton GO Series 2005 BAN
(MIG-1)
3.25% 01/20/06 2,049 2,053,802
Whitman Hanson Regional
School District BAN (SP-1+)
3.25% 01/13/06 2,000 2,005,737
----------
12,660,070
----------
Michigan -- 3.1%
Detroit Economic Development
Corp. RB (E.H. Association
Ltd. Project) Series 2002 DN
(Charter One Bank LOC)
2.82%(b) 10/07/05 3,190 3,190,000
Detroit Sewer & Disposal
Authority RB (Second Lien
Project) Series 2001E DN
(FGIC Insurance)
(A-1+, MIG-1)
2.55%(b) 10/05/05 2,100 2,100,000
Hartland School District GO
Series 2005 BAN
3.50% 08/24/06 1,460 1,465,062
Michigan Municipal Bond
Authority RB Series 2005C
MB (J.P. Morgan Chase Bank
LOC) (SP-1+)
4.25% 08/18/06 1,000 1,010,406
Michigan Strategic Fund Limited
Obligation RB (Horizons of
Michigan Project) Series 2001
DN (Huntington National Bank
LOC)
2.95%(b) 10/07/05 1,475 1,475,000
----------
9,240,468
----------
Minnesota -- 0.3%
Minnesota Housing Finance
Agency RB (Residential
Housing Project) Series
2005D MB (SP-1+, MIG-1)
2.90% 05/18/06 1,000 1,000,000
----------
Mississippi -- 2.6%
Mississippi Development Bank
Special Obligation RB
(Correctional Facilities Project)
Series 2002 DN (AMBAC
Insurance, Amsouth Bank of
Alabama SBPA) (A-1)
2.85%(b) 10/07/05 3,720 3,720,000
Mississippi Development Bank
Special Obligation RB
(Wachovia Merlots Trust
Receipts) Series 2000HH MB
(AMBAC Insurance) (Aaa)
2.83%(b)(c) 07/19/06 3,000 3,000,000
Mississippi GO Series 2005-800
MB (Aa3)
4.00% 04/01/06 1,000 1,005,152
----------
7,725,152
----------
Multi-State -- 7.3%
Clipper Tax-Exempt Certficates
Trust RB (Certified Partner
Multi-State Project) Series
2004-9 AMT DN (State Street
Bank & Trust Liquidity Facility)
(VMIG-1)
2.95%(b)(c) 10/06/05 7,188 7,188,000
Clipper Tax-Exempt Certificates
Trust RB (Certified Partner
Multi-State Project) Series
2005-7 DN (FGIC & MBIA
Insurance, State Street Bank
& Trust SBPA) (A-1+, VMIG-1)
2.87%(b)(c) 10/07/05 1,700 1,700,000
Municipal Securities Pool Trust
Receipts RB Series 2004-18
DN (Societe Generale SBPA)
(A-1+)
2.90%(b)(c) 10/07/05 9,065 9,065,000
Puttable Floating Option
Tax-Exempt Receipts RB
Series 2005A DN (Merrill
Lynch Capital Services SBPA)
(F-1+)
2.90%(b)(c) 10/07/05 2,100 2,100,000
Puttable Floating Option Tax-Exempt
Receipts RB Series 2005PZP-007 DN
(Multiple LOCs) (F-1+)
2.85%(b)(c) 10/07/05 2,000 2,000,000
----------
22,053,000
----------
Nevada -- 1.0%
Clark County Economic
Development RB (Lutheran
Secondary School Association
Project) Series 2000 DN (M&T
Bank Corp. LOC) (VMIG-1)
2.95%(b) 10/07/05 1,500 1,500,000
See accompanying notes to financial statements
16
BlackRock Funds
STATEMENT OF NET ASSETS
MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
Nevada (Continued)
Reno Capital Improvement RB
(Bear Stearns Trust
Certificates) Series 2002A DN
(FGIC Insurance, Bear
Stearns LOC) (A-1)
2.81%(b)(c) 10/07/05 $1,390 $1,390,000
----------
2,890,000
----------
New Hampshire -- 0.8%
New Hampshire Health &
Education Facilities Authority
RB (Tilton School Project)
Series 1999 DN (KeyBank
N.A. LOC)
2.82%(b) 10/07/05 2,260 2,260,000
----------
New Jersey -- 0.7%
East Rutherford GO Series 2005
BAN (A3)
3.50% 01/18/06 2,205 2,209,945
----------
New Mexico -- 2.3%
New Mexico Housing Authority
Region III Multi-Family RB
(Ladera Senior Apartments
Project) Series 2005 AMT DN
(AEGON GIC) (A-1+, AA)
2.75%(b) 12/30/05 7,000 7,000,000
----------
North Carolina -- 16.3%
Buncombe County Metropolitan
Sewer District Sewer System
RB Series 2004 DN (XLCA
Insurance, Bank of America
N.A. SBPA) (A-1+, VMIG-1)
2.75%(b) 10/07/05 3,500 3,500,000
Charlotte Airport RB Series
2004D DN (MBIA Insurance,
Bank of America N.A. SBPA)
(A-1+, VMIG-1)
2.73%(b) 10/07/05 1,185 1,185,000
Charlotte COP (Governmental
Facilities Project) Series
2003F DN (Bank of America
N.A. SBPA) (A-1+, VMIG-1)
2.75%(b) 10/07/05 1,500 1,500,000
Guilford County Industrial
Facilities & Pollution Control
Financing Authority RB
(Quantum Group, Inc. Project)
Series 2000 AMT DN (Bank of
America N.A. LOC) (F-1+, AA)
2.80%(b) 10/07/05 615 615,000
Guilford County Industrial
Facilities PCRB (Recreational
Facilities-YMCA Project)
Series 2002 DN (Branch
Banking & Trust Co. LOC)
(VMIG-1)
2.77%(b) 10/07/05 1,700 1,700,000
North Carolina GO Series 2002F
DN (Wachovia Bank N.A.
LOC) (A-1, VMIG-1)
2.62%(b) 10/07/05 1,100 1,100,000
North Carolina GO Series
2003A-23 DN (Wachovia Bank
N.A. SBPA) (A-1)
2.77%(b)(c) 10/07/05 300 300,000
North Carolina Medical Care
Commission Health Care
Facilities RB (Carolina
Meadows, Inc. Project) Series
2004 DN (Allied Irish Bank
PLC LOC) (VMIG-1)
2.77%(b) 10/07/05 2,000 2,000,000
North Carolina Medical Care
Commission Health Care
Facilities RB (Novant Health
Group Project) Series 2004A
DN (J.P. Morgan Chase Bank
SBPA) (A-1+, VMIG-1)
2.75%(b) 10/07/05 2,100 2,100,000
North Carolina Medical Care
Commission Health Care
Facilities RB (Novant Health
Group Project) Series 2004B
DN (Morgan Guaranty Trust
LOC) (A-1+, VMIG-1)
2.67%(b) 10/07/05 3,000 3,000,000
North Carolina Medical Care
Commission Hospital RB
(Baptist Hospitals Project)
Series 2000 DN (Wachovia
Bank N.A. LOC)
(A-1, VMIG-1)
2.74%(b) 10/07/05 6,400 6,400,000
North Carolina Medical Care
Commission Hospital RB
(Lutheran Retirement Project)
Series 1999 DN (Bank of
America N.A. LOC) (F-1+)
2.75%(b) 10/07/05 1,965 1,965,000
North Carolina Medical Care
Commission Hospital RB
(McDowell Hospital, Inc.
Project) Series 1999 DN
(Wachovia Bank N.A. SBPA)
(A-1)
2.75%(b) 10/03/05 150 150,000
North Carolina Medical Care
Commission Hospital RB
(Moses H. Cone Memorial
Hospital Project) Series 1993
DN (Wachovia Bank N.A.
LOC) (A-1+)
2.78%(b) 10/07/05 300 300,000
North Carolina Medical Care
Commission Hospital RB
(Park Ridge Hospital Project)
Series 1988 DN (NationsBank
LOC) (A-1+)
2.74%(b) 10/07/05 3,125 3,125,000
North Carolina Medical Care
Commission Retirement
Facilities RB (United Methodist
Project) Series 2005B DN (Branch
Banking & Trust Co. LOC) (VMIG-1)
2.77%(b) 10/07/05 1,300 1,300,000
North Carolina Medical Care
Community Hospital RB
(Moses Cone Health Systems)
Series 2004A DN (A-1+)
2.75%(b) 10/07/05 1,500 1,500,000
See accompanying notes to financial statements
17
BlackRock Funds
STATEMENT OF NET ASSETS
MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
North Carolina (Continued)
North Carolina Municipal Power
Agency RB (Merrill Lynch
P-Float Trust Receipts,
Catawba Electric Co. Project)
Series 2003 MB (AMBAC
Insurance, Merrill Lynch
Capital Services SPBA) (F-1+)
2.40%(c) 01/19/06 $2,000 $ 2,000,000
Raleigh County COP (Downtown
Improvement Project) Series
2004A DN (Depfa Bank PLC
SBPA) (A-1+, VMIG-1)
2.74%(b) 10/07/05 700 700,000
Raleigh County COP (Packaging
Facilities Project) Series
2000A DN (Bank of America
N.A. SBPA) (A-1+, VMIG-1)
2.74%(b) 10/07/05 1,255 1,255,000
Raleigh Durham Airport Authority
RB Series 2002 AMT DN
(FGIC Insurance)
(VMIG-1, F-1+)
2.83%(b) 10/07/05 800 800,000
Rockingham County Industrial
Facilities PCRB (Whiteridge,
Inc. Project) Series 1998 AMT
DN (Branch Banking & Trust
Co. LOC) (Aa3, VMIG-1)
2.87%(b) 10/07/05 60 60,000
Union County GO Series 2005B
DN (Depfa Bank PLC SBPA)
2.75%(b) 10/07/05 5,000 5,000,000
Wake County GO (CDC Trust
Receipts) Series 2005-9-A DN
(IXIS Municipal Products
Liquidity Facility) (A-1+)
2.79%(b)(c) 10/07/05 1,700 1,700,000
Winston-Salem Water & Sewer
System RB Series 2002C DN
(A-1+, VMIG-1)
2.74%(b) 10/07/05 5,675 5,675,000
----------
48,930,000
----------
North Dakota -- 0.1%
North Dakota Housing Finance
Agency RB Series 2001A-19 AMT DN
(Wachovia Bank N.A. LOC) (VMIG-1)
2.82%(b)(c) 10/07/05 330 330,000
----------
Ohio -- 3.1%
Huber Heights GO (Water
Systems Improvement Project)
Series 2005 MB
3.25% 11/01/05 2,000 2,001,079
Lucas County Economic
Development RB (Maumee
Valley Country Day School
Project) Series 1998 AMT DN
(American National Bank &
Trust Co. LOC)
3.73%(b) 10/07/05 1,030 1,030,000
Montgomery County Healthcare
Facilities RB Series 2002 DN
(Bank One N.A. LOC)
2.88%(b) 10/07/05 2,100 2,100,000
Ohio Higher Educational Facility
Community RB Series 2000C DN
(Fifth Third Bank N.A. LOC)
2.83%(b) 10/07/05 840 840,000
Ohio PCRB (Ross Incineration
Project) Series 2000-1 AMT
DN (Bank One N.A. LOC)
2.93%(b) 10/07/05 775 775,000
Summit County Civic Facility RB
(Akron Area Electric Junction
Project) Series 2001 DN
2.82%(b) 10/07/05 1,360 1,360,000
Wood County IDRB (Aluminite,
Inc. Project) Series 1997 AMT
DN (Sky Bank LOC)
3.73%(b) 10/07/05 1,280 1,280,000
----------
9,386,079
----------
Pennsylvania -- 3.6%
Delaware County IDA PCRB
(Exelon Generation Co. LLC
Project) DN (Wachovia Bank
LOC) (A-1+, VMIG-1)
2.95%(b) 10/07/05 400 400,000
Lancaster County Hospital
Authority RB (Health
Center-Masonic Homes
Project) Series 1996 DN
(Wachovia Bank LOC)
(VMIG-1)
2.75%(b) 10/07/05 3,100 3,100,000
Philadelphia Authority IDRB
(Settlement Music School
Project) Series 2004 DN
(Allied Irish Bank PLC)
(VMIG-1)
2.78%(b) 10/07/05 1,250 1,250,000
Philadelphia IDRB (Gift of Life
Donor Program Project) Series
2003 DN (Commerce Bank
N.A. LOC) (A-1, VMIG-1)
2.78%(b) 10/07/05 1,000 1,000,000
Philadelphia Water RB
(ABN-AMRO Munitops Trust
Certificates) Series 2005-15
AMT MB (FSA Insurance,
ABN-AMRO Bank N.V. SBPA)
(F-1+)
2.85%(c) 12/08/05 2,995 2,995,000
Venango County GO (Scrubgrass
Project) Series 2005 TECP (Dexia
Bank N.A. LOC) (A-1+, P-1)
2.80% 10/07/05 2,000 2,000,000
----------
10,745,000
----------
See accompanying notes to financial statements
18
BlackRock Funds
STATEMENT OF NET ASSETS
MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
Puerto Rico -- 1.1%
Commonwealth of Puerto Rico
GO (Tender Option
Certificates) Series 2001 DN
(FSA Insurance, Bank of New
York Liquidity Facility) (A-1+)
2.76%(b)(c) 10/03/05 $ 100 $ 100,000
Commonwealth of Puerto Rico
Highway & Transportation
Authority RB (Merrill Lynch
P-Float Trust Receipts) Series
2002 PT-1052 DN (Merrill
Lynch & Co. Guaranty, Merrill
Lynch Capital Services SBPA)
(A-1)
2.78%(b)(c) 10/07/05 700 700,000
Commonwealth of Puerto Rico
Highway & Transportation
Authority RB Series 1998A DN
(AMBAC Insurance, Bank of
Nova Scotia SBPA)
(A-1+, VMIG-1)
2.72%(b) 10/07/05 700 700,000
Puerto Rico Public Financing
Corp. RB (Morgan Stanley
Trust Certificates) Series
2001-520 DN (MBIA
Insurance, Morgan Stanley
Dean Witter Liquidity Facility)
(VMIG-1)
2.73%(b)(c) 10/07/05 1,845 1,845,000
----------
3,345,000
----------
South Carolina -- 1.9%
Greenwood County Exempt
Facility IDRB Series 2004 AMT DN
(Fuji Photo Film Co. Guaranty)
(A-1+)
2.91%(b) 10/07/05 1,500 1,500,000
Greenwood School District No.
50 GO Series 2005 MB
(AA, Aa1)
3.00% 03/01/06 680 680,612
Medical University Hospital
Authority RB Series 2005A-5
DN (MBIA Insurance, Bank of
America N.A. SBPA) (VMIG-1)
2.80%(b)(c) 10/07/05 2,230 2,230,000
South Carolina Housing Finance
& Development RB (Arrington
Place Apartment Project)
Series 2001 AMT DN
(SunTrust Bank LOC)
(VMIG-1)
2.85%(b) 10/07/05 1,300 1,300,000
----------
5,710,612
----------
Texas -- 5.4%
Frisco Independent School
District GO Series 2004C-24
DN (VMIG-1)
2.77%(b)(c) 10/07/05 3,430 3,430,000
Gulf Coast IDRB (Cinergy
Solutions Project) Series 2004
AMT DN (Cinergy Co.
Guaranty) (A-2, VMIG-2)
3.00%(b) 10/07/05 2,800 2,800,000
Lower Colorado River Authority
RB (Wachovia Merlots Trust
Receipts) Series 2000 DN
(FSA Insurance, Wachovia
Bank N.A. SBPA)
(Aaa, VMIG-1)
2.77%(b)(c) 10/07/05 1,900 1,900,000
Lower Neches Valley Authority
PCRB (Chevron USA, Inc.
Project) Series 1987 MB
(Chevron-Texaco Guaranty)
(A-1+, P-1)
2.83% 02/15/06 1,200 1,200,000
Northside Independent School
District GO (School Building
Project) Series 2005 MB
(Depfa Bank SBPA)
(A-1+, VMIG-1)
2.85% 06/15/06 1,800 1,800,000
San Antonio Electric & Gas
Systems RB (Jr. Lien Project)
Series 2004 MB (Banque
Nationale de Paribas SBPA)
(A-1+, MIG-1)
2.20% 12/01/05 5,000 5,000,000
----------
16,130,000
----------
Vermont -- 0.1%
Vermont Educational & Health
Buildings Financing Agency
RB (Rutland Medical Center
Project) Series 2001A DN
(National Westminster Bank
LOC) (A-1)
2.82%(b) 10/07/05 400 400,000
----------
Virginia -- 6.4%
Alexandria IDRB (Goodwin
House Project) Series 2005
DN (F-1+)
2.80%(b) 10/07/05 1,600 1,600,000
Alexandria IDRB (YMCA of
Billings Project) Series 1998
DN (M&T Bank Corp. LOC)
(A-1)
2.74%(b) 10/07/05 2,625 2,625,000
Chesapeake Bay Bridge &
Tunnel Commonwealth District
RB (Wachovia Merlots Trust
Receipts) Series 2003 DN
(MBIA Insurance, Wachovia
Bank N.A. Liquidity Facility)
(VMIG-1)
2.77%(b)(c) 10/03/05 1,095 1,095,000
Commonwealth of Virginia
Transportation Board RB
(Citibank Trust Receipts)
Series 2002-1013 DN
(Citibank Liquidity Facility)
(A-1+)
2.79%(b)(c) 10/07/05 395 395,000
See accompanying notes to financial statements
19
BlackRock Funds
STATEMENT OF NET ASSETS
MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
Virginia (Continued)
Fairfax County Economic
Development Authority RB
(National Industries for Severe
Handicap Project) Series 2002
DN (SunTrust Bank LOC)
(VMIG-1)
2.75%(b) 10/07/05 $ 450 $ 450,000
Fairfax County GO Series
2005-1036 DN (Morgan
Stanley Group Liquidity
Facility) (AAA, F-1+)
2.78%(b)(c) 10/07/05 1,610 1,610,000
Fairfax County IDRB (Fairfax
Hospital System Project)
Series 1988B DN (Inova
Health System Liquidity
Facility) (A-1+, VMIG-1)
2.66%(b) 10/07/05 100 100,000
Halifax County GO (Vepco
Project) Series 2005 TECP
(Dominion Resources
Guaranty) (A-2, P-1)
2.53% 10/07/05 2,000 2,000,000
Hampton Roads Regional Jail
Authority Facilities RB
(Citibank Trust Receipts)
Series 2004
ROC-RR-II-R-2156 DN (MBIA
Insurance, Citibank Liquidity
Facility) (VMIG-1)
2.79%(b)(c) 10/07/05 670 670,000
Harrisonburg Redevelopment &
Housing Authority Lease
Purchase RB Series 2001A
DN (Societe Generale LOC)
(A-1+)
2.78%(b) 10/07/05 1,600 1,600,000
Loudoun County IDRB (Hill
School Project) Series 2002
DN (SunTrust Bank LOC)
(AA-, A-1+)
2.75%(b) 10/07/05 1,100 1,100,000
Loudoun County IDRB (Howard
Hughes Medical Institute
Project) Series 2003F DN
(A-1+, VMIG-1)
2.73%(b) 10/07/05 400 400,000
Norfolk Redevelopment &
Housing Authority Multi-Family
Housing RB (Residential
Rental Project) Series 2003
AMT DN (SunTrust Bank LOC)
2.90%(b) 10/07/05 2,055 2,055,000
Prince William County GO
(Vepco Project) Series 2005
TECP (Dominion Resources
Guaranty) (A-2, P-1)
2.53% 10/07/05 400 400,000
Richmond IDRB (Diocese of
Virginia Church School
Project) Series 2001 DN
(SunTrust Bank LOC)
(VMIG-1)
2.81%(b) 10/03/05 600 600,000
Roanoke IDA Hospital RB Series
2002 DN (J.P. Morgan Chase
Bank SBPA) (A-1+, VMIG-1)
2.81%(b) 10/07/05 500 500,000
Tobacco Settlement Financing
Corp. RB (Merrill Lynch
P-Float Trust Receipts) Series
2005 PA-1303 DN (Merrill
Lynch & Co. Guaranty, Merrill
Lynch Capital Services SBPA)
(F-1+)
2.83%(b)(c) 10/07/05 1,200 1,200,000
Virginia Public Building Authority
RB Series 2004 ROCS-RR-
II-6027 DN (Citibank Liquidity
Facility) (A-1+, AA+)
2.79%(b)(c) 10/07/05 900 900,000
----------
19,300,000
----------
Washington -- 1.9%
Energy Northwest Electric RB
(Project No. 3) Series
2003B-3-1 DN (A-1+, VMIG-1)
2.74%(b) 10/07/05 5,000 5,000,000
Yakima County Public Corp. RB
(Michelsen Packaging Co.
Project) Series 2000 AMT DN
(Bank of America N.A. LOC)
(A-1+)
2.85%(b) 10/07/05 605 605,000
----------
5,605,000
----------
Wisconsin -- 2.8%
Amery IDRB (Plastech Corp.
Project) Series 1997 AMT DN
(U.S. Bank N.A. LOC)
2.94%(b) 10/07/05 2,000 2,000,000
Mequon IDRB (Johnson Level
GRW Investment Project)
Series 1995 AMT DN (Bank
One N.A. LOC)
2.93%(b) 10/03/05 565 565,000
Wisconsin Health & Educational
Facilities Authority RB
(Froedtert & Community
Health Project) Series 2005B
DN (A-1+, F-1+)
2.75%(b) 10/07/05 5,900 5,900,000
----------
8,465,000
----------
See accompanying notes to financial statements
20
BlackRock Funds
STATEMENT OF NET ASSETS
MUNICIPAL MONEY MARKET PORTFOLIO (Concluded)
As of September 30, 2005
Value
--------------
TOTAL INVESTMENTS IN SECURITIES -- 98.5%
(Cost $295,789,333(a)) $295,789,333
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.5% 4,501,881
------------
NET ASSETS -- 100.0%
(Applicable to
75,733,412 Institutional shares,
93,879,107 Service shares,
126,408,918 Hilliard Lyons shares
and 4,261,760 Investor A shares) $300,291,214
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($75,788,509/75,733,412) $ 1.00
=======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
SERVICE SHARE
($93,844,118/93,879,107) $ 1.00
=======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
HILLIARD LYONS SHARE
($126,396,805/126,408,918) $ 1.00
=======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($4,261,782/4,261,760) $ 1.00
=======
- ----------
(a) Aggregate cost for Federal income tax purposes.
(b) Rates shown are the rates as of September 30, 2005 and maturities shown are
the next interest readjustment date or the date the principal owed can be
recovered through demand.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional investors. As of September
30, 2005, the portfolio held 23.8% of its net assets, with a current market
value of $71,448,000, in securities restricted as to resale.
See accompanying notes to financial statements
21
BlackRock Funds
STATEMENT OF NET ASSETS
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS -- 98.3%
New Jersey - 98.3%
Bernards Township GO Series
2005 BAN
4.25% 09/08/06 $2,335 $2,361,546
Chester Township GO Series
2005 BAN
3.75% 05/26/06 1,028 1,035,179
Egg Harbor GO Series 2005
BAN
3.75% 12/08/05 3,033 3,039,549
Jersey City Redevelopment
Authority RB (Dixon Hills
Project) Series 2000A DN
(Federal National Mortgage
Association Guaranty, Federal
National Mortgage Association
Liquidity Facility) (A-1+)
2.75%(b) 10/07/05 3,350 3,350,000
Little Ferry GO Series 2005 BAN
4.00% 07/21/06 1,100 1,110,563
Manville GO Series 2006 BAN
3.50% 06/27/06 2,683 2,694,230
Middle Township GO (Special
Emergency Notes) Series
2005 MB
4.00% 07/21/06 1,000 1,009,370
Middle Township GO Series
2005C BAN
3.75% 01/20/06 2,408 2,415,666
Middlesex County Improvement
Authority RB (Woodbridge
Township Guaranteed Project)
Series 2004 MB
3.50% 12/22/05 3,000 3,008,901
New Jersey Economic
Development Authority
Multi-Mode IDRB (V&S Amboy
Galvanizing LLC Project)
Series 1999 AMT DN
(KeyBank N.A. LOC)
2.89%(b) 10/07/05 2,270 2,270,000
New Jersey Economic
Development Authority RB
(Cigarette Project) Series
2004R ROC-II DN (Citigroup
Guaranty) (VMIG-1)
2.83%(b)(c) 10/07/05 2,085 2,085,000
New Jersey Economic
Development Authority RB
(Citibank P-Float Trust
Receipts) Series 2004
ROCS-II-R-309 DN (Assured
Guaranty Corp. Insurance,
Citibank N.A. SBPA) (A-1+)
2.80%(b)(c) 10/07/05 7,495 7,495,000
New Jersey Economic
Development Authority RB
(Denglas Technologies
Project) Series 2000 AMT DN
(Commerce Bank N.A. LOC)
2.90%(b) 10/07/05 1,200 1,200,000
New Jersey Economic
Development Authority RB
(First Mortgage-Winchester
Project) Series 2004B DN
(VMIG-1)
2.78%(b) 10/07/05 2,365 2,365,000
New Jersey Economic
Development Authority RB
(Hamilton Industrial
Development Project) Series
1998 AMT DN (Wachovia
Bank N.A. LOC)
2.81%(b) 10/07/05 1,625 1,625,000
New Jersey Economic
Development Authority RB (J.
James Realty Co. Project)
Series 1998 AMT DN
(Wachovia Bank N.A. LOC)
2.86%(b) 10/07/05 580 580,000
New Jersey Economic
Development Authority RB
(Jacea LLC Project) Series
2004 AMT DN (Wachovia
Bank N.A. LOC)
2.86%(b) 10/07/05 3,465 3,465,000
New Jersey Economic Development
Authority RB (Landesbank
Hessen-Thuringen Girozentrale
P-Float Trust Receipts) Series
2004 MT-035 DN (Assured Guaranty
Corp. Insurance, Landesbank
Hessen-Thuringen Girozentrale
SBPA) (A-1)
2.78%(b)(c) 10/07/05 6,850 6,850,000
New Jersey Economic
Development Authority RB
(Macon Trust) Series 2005H
DN (FGIC Insurance, Bank of
America N.A. LOC) (A-1+)
2.78%(b)(c) 10/07/05 625 625,000
New Jersey Economic
Development Authority RB
(Nandan Co. Project) Series
2000 AMT DN (M&T Bank
Corp. LOC) (A-1)
2.80%(b) 10/07/05 3,480 3,480,000
New Jersey Economic
Development Authority RB
(Nandan Co. Project) Series
2001 AMT DN (M&T Bank
Corp. LOC) (A-1)
2.80%(b) 10/07/05 1,765 1,765,000
New Jersey Economic Development
Authority RB (Pennington
Montessori School Project) Series
1998 DN (Wachovia Bank N.A. LOC)
2.86%(b) 10/07/05 1,125 1,125,000
New Jersey Economic
Development Authority RB
(Princeton Day School Project)
Series 2005 DN
2.75% 10/07/05 5,000 5,000,000
New Jersey Economic
Development Authority RB
(Project PT-2634) Series 2005
DN (FSA Insurance, Merrill
Lynch SBPA) (A-1)
2.78%(b)(c) 10/07/05 7,700 7,700,000
See accompanying notes to financial statements
22
BlackRock Funds
STATEMENT OF NET ASSETS
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
New Jersey (Continued)
New Jersey Economic
Development Authority RB
(Thermal Energy LP Project)
Series 1995 AMT DN (Bank
One N.A. LOC) (VMIG-1)
2.80%(b) 10/07/05 $ 750 $ 750,000
New Jersey Economic
Development Authority
Thermal Energy Facilities RB
(Marina Energy LLC Project)
Series 2001A AMT DN
(Wachovia Bank N.A. LOC)
(A-1, VMIG-1)
2.77%(b) 10/07/05 2,000 2,000,000
New Jersey Educational
Facilities Authority RB
(Princeton University Project)
TECP
2.70% 11/04/05 5,000 5,000,000
New Jersey Environmental
Infrastructure Trust RB Series
2004-585 AMT DN (J.P.
Morgan Chase Bank SBPA)
(VMIG-1)
2.80%(b)(c) 10/07/05 4,030 4,030,000
New Jersey Health Care
Facilites Financing Authority
RB Series 2004A-4 DN
(VMIG-1)
2.72%(b) 10/07/05 200 200,000
New Jersey Health Care
Facilities Financing Authority
RB (Beth Israel Hospital
Project) Series 2004A-2 DN
(Commerce Bank LOC)
(VIMG-1)
2.75%(b) 10/07/05 1,185 1,185,000
New Jersey Health Care
Facilities Financing Authority
RB (Merrill Lynch P-Float Trust
Receipts) Series 2001
PT-1319 DN (AMBAC
Insurance, Merrill Lynch
Capital Services SBPA) (A-1)
2.80%(b)(c) 10/07/05 7,930 7,930,000
New Jersey Health Care
Facilities Financing Authority
RB (Recovery Management
Systems, Inc. Project) Series
2005 DN (Commerce Bank
N.A. LOC) (VMIG-1)
2.75%(b) 10/07/05 2,900 2,900,000
New Jersey Health Care
Facilities Financing Authority
RB Series 2004-943 DN
(Morgan Stanley Group
Liquidity Facility, FGIC
Insurance) (F-1+)
2.79%(b) 10/07/05 3,530 3,530,000
New Jersey Healthcare Facilities
Financing Authority RB (Virtua
Health Project) Series 2004
DN (Wachovia Bank LOC)
(VMIG-1)
2.71%(b) 10/07/05 1,600 1,600,000
New Jersey Housing & Mortgage
Finance Agency Multi-Family
RB Series 2005-1012 AMT DN
(FGIC Insurance, Morgan
Stanley Liquid Facility)
(VIMG-1)
2.81%(b)(c) 10/07/05 $2,605 $2,605,000
New Jersey Housing & Mortgage
Finance Agency RB
(Multi-Family Housing Project)
Series 2002D DN (FSA
Insured, Lehman SBPA)
(VMIG-1)
2.78%(b)(c) 10/07/05 700 700,000
New Jersey Housing & Mortgage
Finance Agency RB
(Wachovia Merlots Trust
Receipts) Series 2000A-2 DN
(MBIA Insurance, Wachovia
Bank N.A. SBPA) (Aaa)
2.81%(b)(c) 10/07/05 1,285 1,285,000
New Jersey Tobacco Settlement
Financing Corp. RB (Merrill
Lynch P-Float Trust Receipts)
Series 2005 PA-1284 DN
(Merrill Lynch SBPA, Merrill
Lynch Guarantor) (A-1)
2.81%(b)(c) 10/07/05 5,975 5,975,000
New Jersey Transportation Trust
Fund Authority RB Series
2004-967 DN (FSA Insurance,
Morgan Stanley Group
Liquidity Facility) (AAA, F-1+)
2.77%(b)(c) 10/07/05 3,000 3,000,000
New Jersey Turnpike Authority RB
Series 2003C-3 DN (FSA Insurance)
(A-1+, VMIG-1)
2.73%(b) 10/07/05 530 530,000
New Jersey Turnpike Authority
RB Series 2005-II-R-4071 DN
(Citigroup Liquidity Facility,
FSA Insurance) (VMIG-1)
2.78%(b)(c) 10/07/05 2,500 2,500,000
Port Authority of New York &
New Jersey RB Series
2005-1089 DN
2.82%(b)(c) 10/07/05 1,760 1,760,000
Port Authority of New York &
New Jersey RB Series
2005-1095 DN
2.82%(b)(c) 10/07/05 2,980 2,980,000
Port Authority of New York &
New Jersey RB Series
2005-3177 DN
2.80%(b)(c) 10/07/05 6,585 6,585,000
Port Authority of New York &
New Jersey Special Obligation
RB (Merrill Lynch P-Float Trust
Receipts) Series 2004-056
AMT DN (FGIC Insurance,
Banque Nationale de Paribas
SBPA) (F-1+)
2.80%(b)(c) 10/07/05 7,855 7,855,000
See accompanying notes to financial statements
23
BlackRock Funds
STATEMENT OF NET ASSETS
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO (Concluded)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
New Jersey (Continued)
Salem County Pollution Control
Financing Authority RB
(Atlantic City Electric Co.
Project) Series 1997A DN
(Bank of New York LOC)
(A-1+, VMIG-1)
2.74%(b) 10/07/05 $ 800 $ 800,000
Southampton GO Series 2005B
BAN
4.00% 07/28/06 2,564 2,588,014
Vernon Township GO Series
2005 BAN
3.25% 01/13/06 3,000 3,007,932
Washington Township Warren
County GO Series 2004 BAN
3.25% 11/01/05 1,425 1,426,184
Weehawken Township GO
Series 2005 BAN
4.00% 07/14/06 1,000 1,007,601
West Milford Township GO
Series 2005 BAN
3.25% 01/28/06 5,166 5,175,889
------------
TOTAL INVESTMENTS IN SECURITIES -- 98.3%
(Cost $146,560,624(a)) 146,560,624
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.7% 2,589,120
------------
NET ASSETS -- 100.0% (Applicable to
74,324,326 Institutional shares,
59,813,494 Service shares and
15,020,488 Investor A shares) $149,149,744
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($74,329,012/74,324,326) $ 1.00
=======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
SERVICE SHARE
($59,794,066/59,813,494) $ 1.00
=======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($15,026,666/15,020,488) $ 1.00
=======
- ----------
(a) Aggregate cost for Federal income tax purposes.
(b) Rates shown are the rates as of September 30, 2005 and maturities shown are
the next interest readjustment date or the date the principal owed can be
recovered through demand.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional investors. As of September
30, 2005, the fund held 48.2% of its net assets, with a current market value
of $71,960,000, in securities restricted as to resale.
See accompanying notes to financial statements
24
BlackRock Funds
STATEMENT OF NET ASSETS
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS - 99.6%
North Carolina - 98.7%
Charlotte GO Series 1998 MB
(AAA, Aaa)
5.25% 02/01/06 $ 230 $ 232,049
Charlotte Water & Sewer System
GO Series 2005 TECP
(Wachovia Bank LOC)
(A-1+, P-1)
2.88% 06/08/06 1,400 1,400,000
Charlotte Water & Sewer System
RB Series 2005 TECP
(Wachovia Bank LOC)
(F-1+, A-1+)
2.90% 04/26/06 1,300 1,300,000
Cleveland County Industrial
Facilities PCRB (Blanchford
Rubber Project) Series 2003
DN (Bank One N.A. LOC)
2.83%(b) 10/07/05 2,530 2,530,000
Guilford County Industrial
Facilities PCRB (Recreational
Facilities-YMCA Project)
Series 2002 DN (Branch
Banking & Trust Co. LOC)
(VMIG-1)
2.77%(b) 10/07/05 115 115,000
High Point Combined Enterprise
System RB Series 2005-998
DN (FGIC Insurance, Morgan
Stanley Liquidity Facility)
(F-1+)
2.78%(b)(c) 10/07/05 683 683,000
Lee County Industrial Facilities
PCRB (Trion, Inc. Project)
Series 1995 DN (Wachovia
Bank N.A. LOC)
2.85%(b) 10/07/05 100 100,000
Lee County Industrial Facilities
PCRB (Var-Arden Corp.
Project) Series 1999 AMT DN
(Comerica Bank N.A. LOC)
2.91%(b) 10/07/05 5,000 5,000,000
Mecklenburg County Industrial
Facilities PCRB (Peidmont
Plastics Project) Series 1997
AMT DN (Branch Banking &
Trust Co. LOC) (Aa3, VMIG-1)
2.87%(b) 10/07/05 990 990,000
Mecklenburg County Public
Improvement GO Series MB
1998A (AAA, Aaa)
4.40% 02/01/06 150 150,812
North Carolina Clipper
Certificates of Partnership
Trust RB Series 2005 144A
DN (State Street Bank & Trust
LOC) (VMIG-1)
2.83%(b)(c) 10/07/05 2,745 2,745,000
North Carolina Eastern Municipal
Power Systems RB Series
1996A MB (MBIA Insured)
(AAA, Aaa)
6.00% 01/01/06 2,020 2,036,655
North Carolina Educational
Facilities Finance Agency RB
(Duke University Project)
Series 1991B DN
(A-1+, VMIG-1)
2.70%(b) 10/07/05 2,800 2,800,000
North Carolina Housing Finance
Agency RB Series 2002
ROC-II-R-175 DN (Salomon
Smith Barney Liquidity Facility)
(VMIG-1)
2.83%(b)(c) 10/07/05 5,920 5,920,000
North Carolina Medical Care
Commission Health Care
Facilities RB (Carolina
Meadows, Inc. Project) Series
2004 DN (Allied Irish Bank
PLC LOC) (VMIG-1)
2.77%(b) 10/07/05 3,000 3,000,000
North Carolina Medical Care
Commission Health Care
Facilities RB (Lutheran
Services for the Aging Project)
Series 1998 DN (Branch
Banking & Trust Co. LOC)
(A-1, VMIG-1)
2.75%(b) 10/07/05 100 100,000
North Carolina Medical Care
Commission Health Care
Facilities RB (Novant Health
Group Project) Series 2004A
DN (J.P. Morgan Chase Bank
SBPA) (A-1+, VMIG-1)
2.75%(b) 10/07/05 500 500,000
North Carolina Medical Care
Commission Hospital RB
(Aces-Pooled Equipment
Financing Project) Series 1985
DN (MBIA Insurance, KBC
Bank SBPA) (A-1+, VMIG-1)
2.75%(b) 10/07/05 1,100 1,100,000
North Carolina Medical Care
Commission Hospital RB
(Baptist Hospital Project)
Series 1996 DN (Wachovia
Bank N.A. LOC)
(A-1+, VMIG-1)
2.76%(b) 10/07/05 200 200,000
North Carolina Medical Care
Commission Hospital RB
(Lincoln Health System
Project) Series 1996A DN
(Bank of America N.A. LOC)
(A-1, VMIG-1)
2.75%(b) 10/07/05 600 600,000
North Carolina Medical Care
Commission Hospital RB
(Park Ridge Hospital Project)
Series 1988 DN (NationsBank
LOC) (A-1+)
2.74%(b) 10/07/05 800 800,000
See accompanying notes to financial statements
25
BlackRock Funds
STATEMENT OF NET ASSETS
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
North Carolina (Continued)
North Carolina Medical Care
Commission Retirement Facilities
RB (Aldersgate Project) Series
2001 DN (Branch Banking & Trust
Co. LOC) (A-1)
2.88%(b) 10/07/05 $1,185 $1,185,000
North Carolina Medical Care
Commission Retirement Facilities
RB (Brookwood Project) Series
2001C DN (Branch Banking & Trust
Co. LOC) (A-1)
2.88%(b) 10/07/05 600 600,000
North Carolina Medical Care
Community Hospital RB
(Moses Cone Health System
Project) Series 2001B DN
(Chase Manhattan LOC)
(A-1+)
2.75%(b) 10/07/05 700 700,000
North Carolina Medical Care
Community Hospital RB
(Moses Cone Health System
Project) Series 2004A DN
(A-1+)
2.75%(b) 10/07/05 1,700 1,700,000
North Carolina Municipal Power
Agency RB (Merrill Lynch
P-Float Trust Receipts,
Catawba Electric Co. Project)
Series 2003 MB (AMBAC
Insurance, Merrill Lynch
Capital Services SPBA) (F-1+)
2.40%(c) 01/19/06 2,000 2,000,000
North Carolina Ports Authority
Exempt Facilities RB (Wilmington
Bulk LLC Project) Series 2001A
AMT DN (Branch Banking & Trust
Co. LOC) (VMIG-1)
2.87%(b) 10/07/05 1,205 1,205,000
North Carolina State GO (Public
Improvement Projects) Series
2002A DN (Landesbank
Hessen-Thuringen
Girozentrale LOC)
(A-1+, VMIG-1)
2.74%(b) 10/07/05 1,300 1,300,000
Raleigh County COP (Downtown
Improvement Project) Series
2004A DN (Depfa Bank PLC
SBPA) (A-1+, VMIG-1)
2.74%(b) 10/07/05 100 100,000
Raleigh Durham Airport Authority
Airport RB (P-Floats Trust
Reciepts) Series 2005-100
AMT DN (VMIG-1)
2.83%(b)(c) 10/07/05 3,000 3,000,000
Raleigh Durham Airport Authority
RB Series 2002 AMT DN
(FGIC Insurance)
(VMIG-1, F-1+)
2.83%(b) 10/07/05 2,500 2,500,000
Richmond County Industrial
Facilities PCRB (Ritz-Craft
Corp., Inc.) Series 2005 DN
(Mercantile Safe Deposit &
Trust Co. LOC)
(A-1+, VMIG-1)
2.80%(b) 10/07/05 4,500 4,500,000
Rockingham County Industrial
Facilities PCRB (Medibeg, Inc.
Project) Series 1997 AMT DN
(Wachovia Bank N.A. LOC)
(Aa2)
2.85%(b) 10/07/05 1,200 1,200,000
Rockingham County Industrial
Facilities PCRB (Whiteridge,
Inc. Project) Series 1998 AMT
DN (Branch Banking & Trust
Co. LOC) (Aa3, VMIG-1)
2.87%(b) 10/07/05 540 540,000
Rutherford County Industrial
Facilities PCRB (All American
Homes Project) Series 1996 AMT
DN (Bank One N.A. LOC)
2.93%(b) 10/07/05 1,100 1,100,000
Sampson County Industrial
Facilities PCRB (Dubose
Strapping, Inc. Project) Series
1997 DN (Wachovia Bank
N.A. LOC)
2.90%(b) 10/07/05 700 700,000
Wake County GO (CDC Trust
Receipts) Series 2005-9-A DN
(IXIS Municipal Products
Liquidity Facility) (A-1+)
2.79%(b)(c) 10/07/05 300 300,000
Wake County GO (Public
Improvement) Series 2002 MB
(AAA, Aaa)
4.50% 03/01/06 1,540 1,552,233
Wake County GO Series 1996
MB (AAA, Aaa)
4.50% 03/01/06 1,000 1,007,156
Wake County GO Series 2004A
MB (Landesbank
Hessen-Thuringen
Girozentrale SBPA)
(A-1+, MIG-1)
4.00% 04/01/06 1,000 1,006,353
Wake County Housing Finance
Authority RB (Casa Melvid
Multi-Family Housing Project)
Series 2001A AMT DN
(SunTrust Bank LOC)
(VMIG-1)
2.85%(b) 10/07/05 2,800 2,800,000
Washington County Industrial
Facilities PCRB (Mackey's
Ferry Sawmill, Inc. Project)
Series 1997 AMT DN
(Wachovia Bank N.A. LOC)
(Aa2)
2.85%(b) 10/07/05 500 500,000
See accompanying notes to financial statements
26
BlackRock Funds
STATEMENT OF NET ASSETS
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO (Concluded)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
North Carolina (Continued)
Winston-Salem COP (Risk
Acceptance Management
Corp. Project) Series 1988 DN
(National Westminster Bank
LOC) (A-1+)
2.79%(b) 10/07/05 $415 $ 415,000
Winston-Salem GO Series 1990
DN (Wachovia Bank N.A.
LOC) (A-1+, VMIG-1)
2.74%(b) 10/07/05 220 220,000
-----------
62,433,258
-----------
Puerto Rico -- 0.9%
Commonwealth of Puerto Rico
Highway & Transportation
Authority RB (Merrill Lynch
P-Float Trust Receipts) Series
2002 PT-1052 DN (Merrill
Lynch & Co. Guaranty, Merrill
Lynch Capital Services SBPA)
(A-1)
2.78%(b)(c) 10/07/05 600 600,000
-----------
TOTAL INVESTMENTS IN SECURITIES -- 99.6%
(Cost $63,033,258(a)) 63,033,258
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.4% 228,924
-----------
NET ASSETS -- 100.0% (Applicable to
56,020,525 Institutional shares,
6,923,202 Service shares and
321,469 Investor A shares) $63,262,182
===========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($56,017,320/56,020,525) $ 1.00
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($6,923,410/6,923,202) $ 1.00
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INVESTOR A SHARE
($321,452/321,469) $ 1.00
=======
- ----------
(a) Cost for Federal income tax purposes is $63,040,883.
(b) Rates shown are the rates as of September 30, 2005 and maturities shown are
the next interest readjustment date or the date the principal owed can be
recovered through demand.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional investors. As of September
30, 2005, the fund held 24.1% of its net assets, with a current market value
of $15,248,000, in securities restricted as to resale.
See accompanying notes to financial statements
27
BlackRock Funds
STATEMENT OF NET ASSETS
OHIO MUNICIPAL MONEY MARKET PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS -- 100.1%
Ohio -- 100.1%
Akron COP Series 2005 MB
(Assured Guaranty Insurance)
3.00% 12/01/05 $1,120 $1,120,802
American Municipal Power, Inc.
GO (Amherst City Project)
Series 2004 BAN
2.35% 12/01/05 865 865,000
American Municipal Power, Inc.
GO (Cleveland Public Power
Project) Series 2005 BAN
3.10% 08/17/06 1,783 1,783,000
American Municipal Power, Inc.
GO (Columbus Electric
System Project) Series 2005
BAN
3.00% 07/13/06 500 500,000
American Municipal Power, Inc.
GO (Gorsuch Station Project)
Series 2005-A DN
2.85%(b) 10/07/05 1,000 1,000,000
American Municipal Power, Inc.
GO (Lakeview Project) Series
2005 BAN
2.55% 02/02/06 525 525,000
American Municipal Power, Inc.
GO (Milan Village Project)
Series 2005 BAN
2.55% 01/12/06 563 562,675
American Municipal Power, Inc.
GO (Ohio, Inc. Hubbard
Project) Series 2004 BAN
2.45% 12/14/05 495 495,000
American Municipal Power, Inc.
GO (Plymouth Village Project)
Series 2004 BAN
2.15% 11/09/05 435 435,000
American Municipal Power, Inc.
GO (St. Mary's Project) Series
2004 BAN
1.90% 10/06/05 1,500 1,500,000
American Municipal Power, Inc.
GO (St. Mary's Project) Series
2005 BAN
3.20% 10/05/06 500 500,000
American Municipal Power, Inc.
GO (Woodville Village Project)
Series 2005 BAN
3.25% 07/20/06 800 801,239
Ashtabula County IDRB
(Brighton Manor, Inc. Project)
Series 1986 AMT DN
(KeyBank N.A. LOC)
2.89%(b) 10/07/05 200 200,000
Brooklyn IDRB (Dylon Industries,
Inc. Project) Series 1999 AMT
DN (KeyBank N.A. LOC)
2.89%(b) 10/07/05 820 820,000
Brunswick GO Series 2005 BAN
2.90% 04/06/06 2,030 2,032,023
Clark County GO Series 2005
BAN
2.75% 02/23/06 1,925 1,926,858
Cleveland Airport System RB
(Stars Certificates Project)
Series 2004 DN (Banque
Nationale de Paribas LOC)
(VMIG-1)
2.83%(b)(c) 10/07/05 $5,585 $5,585,000
Columbus Regional Airport
Authority RB Series 2005 DN
(U.S. Bank N.A. LOC)
(Aa1, VMIG-1)
2.77%(b) 10/07/05 900 900,000
Cuyahoga County Civic Facility
RB (Orion Services, Inc.
Project) Series 2001 DN
(Bank One N.A. LOC)
2.88%(b) 10/07/05 3,400 3,400,000
Cuyahoga County Economic
Development RB (Berea
Children's Home Project)
Series 2000 DN (Huntington
National Bank LOC) (VMIG-1)
2.95%(b) 10/07/05 1,940 1,940,000
Cuyahoga County IDRB (Great
Lakes Brewing Co. Project)
Series 2001 AMT DN
(Huntington National Bank
LOC)
3.05%(b) 10/07/05 1,170 1,170,000
Cuyahoga County IDRB (Trio
Diversified Co. Project) Series
2000 AMT DN (KeyBank N.A.
LOC)
2.89%(b) 10/07/05 1,765 1,765,000
Cuyahogo County IDRB (Marine
Mechanical Corp. Project)
Series 2000 AMT DN
2.86%(b) 10/07/05 2,330 2,330,000
Darke County GO Series 2005
BAN
01/05/06-
3.75% 07/11/06 2,000 2,009,986
Delaware County Economic
Development RB (The
Columbus Zoological Park
Associates, Inc. Project)
Series 2003 DN (Huntington
National Bank LOC)
2.95%(b) 10/07/05 2,295 2,295,000
Delaware County IDRB (Air
Waves, Inc. Project) Series
1995 DN (KeyBank N.A. LOC)
2.89%(b) 10/07/05 80 80,000
Englewood GO Series 2005
BAN
4.00% 08/29/06 625 629,959
Franklin County Economic
Development RB (Columbus
Montessori Educational Center
Project) Series 2000 DN
(Huntington National Bank
LOC)
2.85%(b) 10/07/05 1,620 1,620,000
See accompanying notes to financial statements
28
BlackRock Funds
STATEMENT OF NET ASSETS
OHIO MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
Ohio (Continued)
Franklin County Health Care
Facilities RB (Heritage Day
Health Centers Project) Series
2002 DN
2.95%(b) 10/07/05 $1,225 $1,225,000
Fulton County IDRB (Haas Door
Co. & Nofziger Doors
International, Inc. Project)
Series 1999 AMT DN
(National City Bank N.A. LOC)
2.91%(b) 10/07/05 690 690,000
Geauga County RB (Thistle
Lane Project) Series 2000
AMT DN (Huntington National
Bank LOC)
3.05%(b) 10/07/05 2,310 2,310,000
Greene County IDRB (AFC
Stamping & Production, Inc.,
Barsplice Products Project)
Series 1995 AMT DN
(KeyBank N.A. LOC)
2.89%(b) 10/07/05 280 280,000
Huber Heights GO (Brandt Pike
Project) Series 2005 MB
3.25% 03/31/06 1,155 1,158,345
Huber Heights GO (Water
Systems Improvement Project)
Series 2005 MB
3.25% 11/01/05 1,000 1,000,540
Lebanon GO (Fire Department
Improvement Project) Series
2005 BAN
3.75% 07/05/06 1,120 1,127,850
Licking County GO (Moundview
Project) Series 2005 BAN
4.00% 09/07/06 700 705,703
Lorain County IDRB (Ohio
Metallurgical Services Project)
Series 2001 AMT DN (First
Merit Bank N.A. LOC)
3.03%(b) 10/07/05 1,920 1,920,000
Lyndhurst City GO Series 2005
BAN
2.65% 03/02/06 425 425,345
Mahoning County IDRB (M&J
Development Ltd. Project)
Series 2002 AMT DN
(KeyBank N.A. LOC)
2.89%(b) 10/07/05 2,600 2,600,000
Mentor IDRB (Arrow Machine
Co. Ltd. Project) Series 1997
DN (First Merit Bank N.A.
LOC)
2.87%(b) 10/07/05 1,335 1,335,000
Montgomery County GO Series
2005 BAN
3.00% 12/01/05 1,000 1,001,110
Montgomery County Healthcare
Facilities RB Series 2002 DN
(Bank One N.A. LOC)
2.88%(b) 10/07/05 500 500,000
North Canton GO Series 2005
BAN
4.00%(b) 10/07/05 500 504,345
North Olmsted GO Series 2005
BAN
3.15% 05/03/06 875 876,452
Ohio Building Authority RB
(Adult Correctional Building
Funds Project) Series 2001
MB (FSA Insurance)
5.00% 10/01/05 100 100,000
Ohio Building Authority RB
(Merrill Lynch P-Floats Trust
Receipts) Series 2005-2937
DN (A-1)
2.78%(b)(c) 10/07/05 400 400,000
Ohio Higher Educational Facility
Community RB Series 2000C DN
(Fifth Third Bank N.A. LOC)
2.83%(b) 10/07/05 495 495,000
Ohio Higher Educational Facility
RB (Ashland University
Project) Series 2004 DN
(KeyBank N.A. LOC) (A-1)
2.80%(b) 10/07/05 1,250 1,250,000
Ohio Higher Educational Facility
RB (Cedarville University
Project) Series 2004 DN
(KeyBank N.A. LOC)
2.82%(b) 10/07/05 1,295 1,295,000
Ohio Housing Finance Agency
Mortgage RB (Wachovia
Merlots Trust Receipts) Series
2001A-78 DN (Wachovia Bank
N.A. LOC) (VMIG-1)
2.82%(b)(c) 10/07/05 445 445,000
Ohio Housing Finance Agency
Mortgage RB Series 2001
AMT DN (Bank of America
N.A. LOC) (VMIG-1)
2.87%(b)(c) 10/07/05 1,550 1,550,000
Ohio Housing Finance Agency
Multi-Family Housing RB
(Lincoln Park Association
Project) Series 1985 MB
(Bank One N.A. LOC) (MIG-1)
3.50%(b) 11/01/05 1,715 1,715,000
Ohio Housing Finance Agency
RB (Clipper Tax-Exempt
Certificates Trust Project)
Series 2004-08 AMT DN
(Lloyds Bank SBPA) (VMIG-1)
2.87%(b)(c) 10/07/05 8,450 8,450,000
Ohio IDRB (Ashley Ward, Inc.
Project) Series 1997 AMT DN
(Fifth Third Bank N.A. LOC)
2.88%(b) 10/07/05 470 470,000
Ohio PCRB (Ross Incineration
Project) Series 2000-1 AMT
DN (Bank One N.A. LOC)
2.93%(b) 10/07/05 1,725 1,725,000
Pepper Pike City GO Series
2005 BAN
3.00% 06/22/06 396 396,563
See accompanying notes to financial statements
29
BlackRock Funds
STATEMENT OF NET ASSETS
OHIO MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
Ohio (Continued)
Portage County IDRB (Action
Super Abrasive Project) Series
1996 AMT DN (National City
Bank N.A. LOC)
2.97%(b) 10/07/05 $ 780 $ 780,000
Portage County IDRB
(Bauer/Hibbard Properties Ltd.
Project) Series 1998 DN
(National City Bank N.A. LOC)
2.96%(b) 10/07/05 805 805,000
Putnam County Health Care
Facilities RB (Hilty Memorial
Home Project) Series 2004
DN (LaSalle Bank N.A. LOC)
2.84%(b) 10/07/05 3,560 3,560,000
Richland County GO Series
2005 BAN
3.25% 03/29/06 965 967,994
4.00% 08/08/06 475 479,127
Rickenbacker Port Authority RB
(P-Float Trust Receipts) Series
2004 PT-2453 AMT DN
(Merrill Lynch Guaranty)
(F-1+)
2.88%(b)(c) 10/07/05 5,235 5,235,000
St. Mary's GO Series 2005 BAN
3.30% 09/14/06 500 501,152
Stark County IDRB (Thakar
Properties LLC Project) Series
2002 AMT DN
2.86%(b) 10/07/05 3,715 3,715,000
Strongsville IDRB (Web Plastics
Co. Project) Series 1997 DN
(National City Bank N.A. LOC)
2.96%(b) 10/07/05 580 580,000
Summit County IDRB (Flutes
LLC Project) Series 2002 AMT
DN (Marshall & Ilsley Bank
LOC)
2.86%(b) 10/07/05 2,490 2,490,000
Summit County IDRB (Jendrisak
Properties Project) Series
2001 AMT DN (First Merit
Bank N.A. LOC)
3.03%(b) 10/07/05 2,070 2,070,000
Summit County IDRB (KB
Compost Services, Inc.
Project) Series 2001 AMT DN
(KeyBank N.A. LOC)
2.89%(b) 10/07/05 1,650 1,650,000
Summit County IDRB (Sigma
Properties Project) Series
2000A AMT DN (National City
Bank N.A. LOC)
2.91%(b) 10/07/05 1,075 1,075,000
Summit County IDRB (Waltco
Truck Equipment Project)
Series 1988 AMT MB
(Skandinaviska Enskilda LOC)
3.40%(b) 01/15/06 360 360,000
Summit County Port Authority
RB (Meadow Lane Building
LLC Project) Series 2003A
AMT DN (KeyBank N.A. LOC)
2.89%(b) 10/07/05 2,500 2,500,000
Toledo Multi-Family Housing RB
(Cherrywood Apartments
Project) Series 2001 AMT DN
(KeyBank N.A. LOC)
2.89%(b) 10/07/05 2,735 2,735,000
Trumbull County IDRB (Ellwood
Engineered Project) Series 2004
AMT DN (KeyBank N.A. LOC)
2.89%(b) 10/07/05 1,700 1,700,000
Trumbull County IDRB (United
Steel Service, Inc. Project)
Series 2000B AMT DN (Bank
One N.A. LOC)
2.98%(b) 10/07/05 380 380,000
Vermilion City GO Series 2004
BAN
1.90% 10/06/05 415 415,011
Washington Court House GO
(School Construction Project)
Series 2005 BAN
3.40% 11/15/05 1,670 1,671,371
Western Reserve Housing
Development Corp. Economic
RB (Trumbull Metropolitan
Housing Project) Series 2003
DN (KeyBank N.A. LOC)
2.88%(b) 10/07/05 3,480 3,480,000
Wood County Economic
Development RB (Hammill
Manufacturing Co. Project)
Series 2000 AMT DN (Sky
Bank LOC)
3.73%(b) 10/07/05 1,660 1,660,000
Wood County Economic
Development RB (Precision
Aggregate II Project) Series
1996 AMT DN (Mid American
National Banking & Trust
LOC)
3.73%(b) 10/07/05 1,780 1,780,000
Wood County Economic
Development RB (Sun Seed
Holding Co., Inc. Project)
Series 2001A AMT DN (Sky
Bank LOC)
3.73%(b) 10/07/05 1,685 1,685,000
Wood County Economic
Development RB (Toledo
Electrical Joint Apprenticeship
& Training Fund Project)
Series 2000 DN (Sky Bank
LOC)
3.73%(b) 10/07/05 780 780,000
See accompanying notes to financial statements
30
BlackRock Funds
STATEMENT OF NET ASSETS
OHIO MUNICIPAL MONEY MARKET PORTFOLIO (Concluded)
As of September 30, 2005
Par
Maturity (000) Value
------------ ---------- -------------
MUNICIPAL BONDS (Continued)
Ohio (Continued)
Wood County IDRB (TMT
Leasing LLC Project) Series
2004 DN (Huntington National
Bank LOC)
3.05%(b) 10/07/05 $2,130 $ 2,130,000
------------
119,927,450
------------
TOTAL INVESTMENTS IN SECURITIES -- 100.1%
(Cost $119,927,450(a)) 119,927,450
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (0.1)% (113,247)
------------
NET ASSETS -- 100.0% (Applicable to
88,712,189 Institutional shares,
10,226,778 Service shares and
20,902,433 Investor A shares) $119,814,203
============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($88,697,188/88,712,189) $ 1.00
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($10,224,211/10,226,778) $ 1.00
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INVESTOR A SHARE
($20,892,804/20,902,433) $ 1.00
=======
- ----------
(a) Aggregate cost for Federal income tax purposes.
(b) Rates shown are the rates as of September 30, 2005 and maturities shown
are the next interest readjustment date or the date the principal owed
can be recovered through demand.
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional investors. As of
September 30, 2005, the fund held 18.1% of its net assets, with a current
market value of $21,665,000, in securities restricted as to resale.
See accompanying notes to financial statements
31
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS -- 101.5%
Pennsylvania -- 101.2%
Allegheny County GO Series
2003C-56 MB (AAA, Aaa)
4.00% 10/01/05 $ 6,595 $6,595,000
Allegheny County IDRB
(Carnegie Museums
Pittsburgh Project) Series
2005 DN (Citizens Bank LOC)
(Aaa, VMIG-1)
2.75%(b) 10/07/05 4,000 4,000,000
Allegheny County IDRB
(Commonwealth Development
Parkway Project) Series
1994A DN (National City Bank
N.A. LOC) (Aa3)
2.79%(b)(c) 10/07/05 2,400 2,400,000
Allegheny County IDRB (UPMC
Health System Project) Series
2002C DN (Comerica Bank
N.A. LOC) (A-1)
2.77%(b) 10/07/05 1,700 1,700,000
Allentown Package Authority RB
Series 2004 MB (FSA
Insurance) (Aaa, AAA)
2.50% 10/01/05 280 280,000
Berks County IDRB (Backman
Co. Project) Series 1994 AMT
DN (M&T Bank Corp. LOC)
(P-1)
2.81%(b) 10/07/05 1,615 1,615,000
Berks County IDRB (Beacon
Container Corp. Project)
Series 1997A AMT DN
(Wachovia Bank N.A. LOC)
(P-1)
2.90%(b) 10/07/05 605 605,000
Berks County IDRB (Tray Pak
Co. Project) RB Series 2001A
AMT DN (Wachovia Bank N.A.
LOC)
2.90%(b) 10/07/05 2,885 2,885,000
Blair County IDRB Series 2003
AMT DN (Fulton Bank LOC)
(A-1, VMIG-1)
2.95%(b) 10/07/05 2,035 2,035,000
Bucks County IDRB (LTL Color
Compounders Project) Series
1999B DN (Wilmington Trust
Co. LOC)
2.90%(b) 10/07/05 935 935,000
Cambria County IDA Resource
Recovery RB (Cambria Cogen
Co. Project) Series 1998A-2
AMT DN (Bayerische
Landesbank Girozentrale
LOC) (VMIG-1)
2.93%(b) 10/07/05 16,000 16,000,000
Carlisle Area School District GO
Series 2004-G44 DN (MBIA
Insurance, J.P. Morgan Chase
Bank SBPA) (VMIG-1)
2.79%(b)(d) 10/07/05 2,030 2,030,000
Chester County Health &
Education Facilities
Retirement Community RB
(Kendal Crosslands
Community Project) Series
2003 DN (Allied Irish Bank
PLC LOC) (A-1)
2.77%(b) 10/07/05 1,965 1,965,000
Chester County IDA Student
Housing RB (University
Student Housing Limited
Project) Series 2003 DN
(Royal Bank of Scotland PLC
LOC) (VMIG-1)
2.80%(b) 10/07/05 8,150 8,150,000
Chester County IDRB (RV
Industrial, Inc. Project) Series
2001AMT DN (M&T Bank
Corp. LOC) (A-1)
2.90%(b) 10/07/05 3,850 3,850,000
Crawford County IDRB Series
2000 AMT DN (National City
Bank N.A. LOC)
2.91%(b) 10/07/05 1,165 1,165,000
Cumberland County IDRB
(Lawrence Schiff Silk Co.
Project) Series 1998 AMT DN
(Wachovia Bank N.A. LOC)
2.90%(b) 10/07/05 755 755,000
Dauphin County IDRB Series
2005 AMT DN (Citizens Bank
LOC) (A-1+)
2.78%(b) 10/07/05 4,000 4,000,000
Delaware County IDA Airport
Facilites RB (United Parcel
Service Project) Series 1985
DN (A-1+, Aaa)
2.87%(b) 10/03/05 3,415 3,415,000
Delaware Valley Regional
Finance Authority Local
Government RB Series 1985B
DN (National Australia Bank
LOC) (A-2, VMIG-1)
2.75%(b) 10/07/05 1,300 1,300,000
Delaware Valley Regional Finance
Authority Local Government RB
Series 2002 DN (Merrill Lynch &
Co. SPBA) (A-1+)
2.85%(b)(d) 10/07/05 4,995 4,995,000
East Hempfield Township IDRB
(Herley Industrial, Inc. Project)
Series 2001 AMT DN (M&T
Bank Corp. LOC) (A-1)
2.90%(b) 10/07/05 2,700 2,700,000
Erie County IDRB (American
Turned Products Project)
Series 1997 AMT DN
(KeyBank N.A. LOC)
2.89%(b) 10/07/05 1,305 1,305,000
See accompanying notes to financial statements
32
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
Pennsylvania (Continued)
Erie County IDRB (Reed
Manufacturing Project) Series
1997 AMT DN (National City
Bank N.A. LOC)
2.96%(b) 10/07/05 $ 200 $ 200,000
Erie County Water Authority RB
Series 2005 DN (FSA
Insurance, J.P. Morgan Chase
Bank LOC) (A-1+, Aaa)
2.76%(b) 10/07/05 600 600,000
Fayette County IDRB (Dynamic
Material Corp. Project) Series
1998 AMT DN (KeyBank N.A.
LOC)
2.89%(b) 10/07/05 1,765 1,765,000
Franklin County IDRB
(Chambersburg Hospital
Project) Series 2000 DN
(AMBAC Insurance, Wachovia
Bank N.A. SBPA) (A-1)
2.85%(b) 10/07/05 2,105 2,105,000
Franklin County IDRB (Menno
Haven Project) Series 2001
DN (Radian Insurance, Fleet
National Bank SBPA) (A-1+)
2.83%(b) 10/07/05 1,680 1,680,000
Franklin County IDRB (Precast
System Project) Series 2001A
AMT DN (M&T Bank Corp.
LOC) (A-1)
2.90%(b) 10/07/05 1,760 1,760,000
Geisinger Authority Health
System RB (Geisinger Health
System Project) Series 2005B
DN (A-1+, VMIG-1)
2.81%(b) 10/03/05 5,300 5,300,000
Greater Latrobe School Authority
RB (School Building Project)
Series 1998 MB
4.45% 04/01/06 200 202,261
Harrisburg Authority School RB
(Harrisburg Project) Series
2003 DN (AMBAC Insurance,
Westdeutsche Landesbank
Girozentrale Liquidity Facility)
(A-1+)
2.75%(b) 10/07/05 14,890 14,890,000
Horizon Hospital System
Authority Health & Housing
Facility RB (St. Paul Homes
Project) Series 2002 DN (M&T
Bank Corp. LOC) (VMIG-1)
2.80%(b) 10/07/05 7,455 7,455,000
Horizon Hospital System
Authority Health & Housing
Facility RB (St. Paul Homes
Project) Series 2005 DN (M&T
Bank Corp. LOC) (A-1+)
2.80%(b) 10/07/05 7,900 7,900,000
Lackawanna County IDRB (Herff
Jones, Inc. Project) Series
2001 AMT DN (National City
Bank N.A. LOC)
2.86%(b) 10/07/05 2,800 2,800,000
Lancaster County Hospital
Authority RB (Health Center
Luthercare Project) Series 1999
DN (M&T Bank Corp. LOC) (A-1)
2.80%(b) 10/07/05 5,085 5,085,000
Lancaster County Hospital
Authority RB (Health
Center-Masonic Homes
Project) Series 1996 DN
(Wachovia Bank LOC)
(VMIG-1)
2.75%(b) 10/07/05 200 200,000
Lancaster County Hospital
Authority RB (Lancaster
General Hospital Project)
Series 2002 DN (Fulton Bank
LOC) (VMIG-1)
2.90%(b) 10/07/05 4,000 4,000,000
Lancaster County Hospital
Authority RB (Landis Homes
Retirement Community
Project) Series 2002 DN (M&T
Bank Corp. LOC) (A-1)
2.80%(b) 10/07/05 4,510 4,510,000
Lancaster County Hospital Authority
RB (Quarryville Presbyterian
Project) Series 2000 DN (M&T Bank
Corp. LOC) (A-1)
2.77%(b) 10/07/05 3,175 3,175,000
Lancaster County IDRB (Clean
Creek Partners Project) Series
2000 AMT DN (M&T Bank
Corp. LOC) (A-1)
2.90%(b) 10/07/05 5,030 5,030,000
Lancaster County IDRB (D&P
Skibo LLC Project) Series
2001 AMT DN (Wachovia
Bank N.A. LOC)
2.90%(b) 10/07/05 1,705 1,705,000
Lancaster County IDRB (John F.
Martin & Sons Project) Series
2001 AMT DN (Fulton Bank
LOC) (A-2)
3.00%(b) 10/07/05 700 700,000
Lancaster County IDRB (Miller
Building Systems Project)
Series 1998 AMT DN (Bank
One N.A. LOC)
2.93%(b) 10/07/05 1,500 1,500,000
Lancaster County IDRB
(Oakfront LP Project) Series
2001 AMT DN (M&T Bank
Corp. LOC) (A-2, P-1)
2.90%(b) 10/07/05 2,320 2,320,000
Lawrence County IDRB (L&N
Metallurgical Products Project)
Series 1996 AMT DN (Banque
Nationale de Paribas LOC)
3.01%(b) 10/07/05 4,150 4,150,000
See accompanying notes to financial statements
33
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
Pennsylvania (Continued)
Lawrence County IDRB (Villa
Maria Project) Series 2003 DN
(Allied Irish Bank PLC LOC)
(VMIG-1)
2.77%(b) 10/07/05 $5,345 $5,345,000
Lebanon County Health Facility
RB Series 2000 DN (Northern
Trust LOC) (A-1+)
2.80%(b) 10/07/05 3,000 3,000,000
Lebanon County Health Facility
RB Series 2002 DN (Radian
Insurance, Fleet National Bank
SPBA) (A-1)
2.85%(b) 10/07/05 5,100 5,100,000
Mercer County Industrial
Authority Economic
Development RB (Solar
Atmospheres Western
Pennsylvania Project) Series
2001 DN (Fulton Bank LOC)
(A-1)
2.77%(b) 10/07/05 2,460 2,460,000
Montgomery County Higher
Education & Health Authority
RB (Pennsylvania Higher
Education & Health Loan
Project) Series 1996A DN
(M&T Bank Corp. LOC) (A-2)
2.74%(b) 10/07/05 2,890 2,890,000
Montgomery County IDRB
(Apple Fresh Foods Ltd.
Project) Series 1996 AMT DN
(Wachovia Bank N.A. LOC)
(VMIG-1)
2.85%(b) 10/07/05 695 695,000
Montgomery County IDRB (First
Mortgage Meadowood Corp.
Project) Series 2005 DN
(Citizens Bank LOC) (VMIG-1)
2.78%(b) 10/07/05 4,650 4,650,000
Montgomery County IDRB
(Laneko Engineering Co.
Project) Series 1999A AMT
DN (Wachovia Bank N.A.
LOC)
2.85%(b) 10/07/05 930 930,000
North Pocono School District GO
Series 2003-8 DN
(ABN-AMRO Bank N.V. SBPA,
FGIC Insurance) (F-1+)
2.77%(b)(d) 10/07/05 295 295,000
Northampton County IDRB
(Bethlehem Contracting
Project) Series 2001A AMT
DN (M&T Bank Corp. LOC)
(A-1)
2.90%(b) 10/07/05 3,440 3,440,000
Northampton County IDRB
(Trent Family Partnership
Project) Series 2002 AMT DN
(Wachovia Bank N.A. LOC)
2.90%(b) 10/07/05 2,065 2,065,000
Pennsylvania Economic
Development Financing Authority
RB (Homewood Retirement Project)
Series 1992E DN (M&T Bank Corp.
LOC) (VMIG-1)
2.71%(b) 10/07/05 4,825 4,825,000
Pennsylvania Economic
Development Financing
Authority RB (Material
Technology Project) Series
2000D AMT DN (Wachovia
Bank N.A. LOC)
2.85%(b) 10/07/05 800 800,000
Pennsylvania Economic
Development Financing
Authority RB (Merrill Lynch
P-Float Trust Receipts) Series
2004 PA-1282 DN (Merrill
Lynch & Co. LOC) (A-1)
2.82%(b) 10/07/05 5,000 5,000,000
Pennsylvania Economic
Development Financing
Authority RB (Merrill Lynch
P-Float Trust Receipts) Series
2005 PA-3114 AMT DN (Merrill
Lynch Capital Services SBPA,
Merrill Lynch & Co. Guaranty)
2.82%(b)(d) 10/07/05 4,015 4,015,000
Pennsylvania Economic
Development Financing
Authority RB (Sunoco, Inc.
Project) Series 2004A AMT
DN (Sunoco, Inc. Guaranty)
(A-2, P-2)
2.88%(b) 10/07/05 4,700 4,700,000
Pennsylvania Energy
Development Authority RB
(B&W Ebensburg Project)
Series 1988 DN (Swiss Bank
LOC) (A-1+, VMIG-1)
2.78%(b) 10/07/05 1,000 1,000,000
Pennsylvania Higher Education
Assistance Agency Student
Loan RB Series 1988E AMT
DN (Lloyds Bank LOC, Merrill
Lynch Capital Services SBPA)
(A-1+, VMIG-1)
2.79%(b) 10/07/05 300 300,000
Pennsylvania Higher Educational
Facilities Authority RB (Drexel
University Project) Series
2003B DN (Aaa, AA)
2.75%(b) 10/07/05 8,060 8,060,000
See accompanying notes to financial statements
34
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
Pennsylvania (Continued)
Pennsylvania Higher Educational
Assistance Agency Student
Loan RB Series 1988A AMT
DN (Student Loan Marketing
Association Guaranty,
Westdeutsche Landesbank
Gironzentrale SBPA)
(A-1+, VMIG-1)
2.79%(b) 10/07/05 $ 1,300 $1,300,000
Pennsylvania Higher Educational
Assistance Agency Student
Loan RB Series 1994A AMT
DN (Student Loan Marketing
Association Guaranty)
(A-1+, VMIG-1)
2.79%(b) 10/07/05 1,500 1,500,000
Pennsylvania Higher Educational
Assistance Agency Student
Loan RB Series 1997A AMT
DN (Dexia Credit Local SBPA)
(A-1+, VMIG-1)
2.81%(b) 10/07/05 2,300 2,300,000
Pennsylvania Higher Educational
Assistance Agency Student
Loan RB Series 2001A AMT
DN (AMBAC Insurance)
(A-1+, VMIG-1)
2.81%(b) 10/07/05 1,000 1,000,000
Pennsylvania Higher Educational
Assistance Agency Student
Loan RB Series 2002A AMT
DN (FSA Insurance)
(A-1+, VMIG-1)
2.81%(b) 10/07/05 19,000 19,000,000
Pennsylvania Higher Educational
Facilities Authority RB
(Association of Independent
Colleges & Universities
Project) Series 2004M-3 MB
(M&T Bank Corp. LOC) (A-1)
2.00% 11/01/05 4,000 4,000,000
Pennsylvania Higher Educational
Facilities Authority RB (Holy
Family College Project) Series
2002A DN (Commerce Bank
N.A. LOC) (VMIG-1)
2.78%(b) 10/07/05 1,025 1,025,000
Pennsylvania Higher Educational
Facilities Authority RB
(Lycoming College Project)
Series 2003 MB (Allied Irish
Bank PLC Liquidity Facility)
(MIG-1)
2.00% 11/01/05 5,500 5,500,000
Pennsylvania Higher Educational
Facilities Authority RB (Merrill
Lynch P-Float Trust Receipts)
Series 2004 MT-042 DN
(Lloyds Bank LOC, Merrill
Lynch Capital Services SBPA)
(F-1+)
2.81%(b)(d) 10/07/05 18,300 18,300,000
Pennsylvania Higher Educational
Facilities Authority RB (Merrill
Lynch P-Float Trust Receipts)
Series 2005-2498 DN (Merrill
Lynch Guaranty) (F-1+)
2.85%(b)(d) 10/07/05 5,060 5,060,000
Pennsylvania Higher Educational
Facilities Authority RB (Mount
Aloysuis College Project)
Series 2003 DN (Allied Irish
Bank PLC LOC) (A-1)
2.78%(b) 10/07/05 2,500 2,500,000
Pennsylvania Higher Educational
Facilities Authority RB (Mount
Aloysuis College Project)
Series 2003 MB (M&T Bank
Corp. LOC) (MIG-1)
2.00% 11/01/05 1,300 1,300,000
Pennsylvania Higher Educational
Facilities Authority RB (TOC
Trust Receipts) Series 2005P
DN (Goldman Sachs PLC
Liquidity Facility) (A-1)
2.78%(b)(d) 10/07/05 2,500 2,500,000
Pennsylvania Higher Educational
Facilities Authority RB Series
1998 DN (Banque Nationale
de Paribas LOC) (VMIG-1)
2.82%(b) 10/07/05 2,900 2,900,000
Pennsylvania Housing Finance
Agency Single Family
Mortgage RB (Landesbank
Hessen P-Float Trust
Receipts) Series 2004-83B
AMT DN (Landesbank Hessen
SBPA) (A-1+, VMIG-1)
2.83%(b) 10/07/05 12,700 12,700,000
Pennsylvania Housing Finance
Agency Single Family
Mortgage RB (Landesbank
Hessen P-Float Trust
Receipts) Series 2004-85C
AMT DN (Landesbank Hessen
SBPA) (A-1+, VMIG-1)
2.83%(b) 10/07/05 10,000 10,000,000
Pennsylvania Housing Finance
Agency Single Family
Mortgage RB Series 2005-87C
AMT DN (Depfa Bank PLC
SBPA) (A-1+, VMIG-1)
2.83%(b) 10/07/05 22,300 22,300,000
Pennsylvania Housing Financing
Agency RB Series 2005 AMT
DN (Depfa Bank SBPA)
(VMIG-1)
2.83%(b) 10/07/05 15,900 15,900,000
Pennsylvania State GO Second
Series 2003 DN (Wachovia
Bank N.A. LOC) (VMIG-1)
2.77%(b)(d) 10/07/05 2,955 2,955,000
Pennsylvania State Turnpike
Commission RB (ABN-AMRO
Munitops Trust Certificates)
Series 2004-9 MB (AAA, Aaa)
2.77%(d) 10/05/05 13,435 13,435,000
Philadelphia Airport RB (Merrill
Lynch P-Float Trust Receipts)
Series 2005-3077 AMT DN
(MBIA Insurance, Merrill Lynch
Capital Services SBPA)
2.83%(b)(d) 10/07/05 1,000 1,000,000
See accompanying notes to financial statements
35
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
Pennsylvania (Continued)
Philadelphia Authority IDRB
(Airport Project) Series
1998P-1 AMT DN (FGIC
Insurance, Bank of America
N.A. SBPA)
2.90%(b)(d) 10/07/05 $ 5,000 $5,000,000
Philadelphia Authority IDRB
(Airport Project) Series 2005C
AMT DN (MBIA Insurance, JP
Morgan Chase SBPA)
(A-1+, VMIG-1)
2.83%(b) 10/07/05 9,000 9,000,000
Philadelphia Authority IDRB
(Girard Estate Facility Leasing
Project) Series 2001 DN
(Morgan Guaranty Trust LOC)
(A-1+)
2.76%(b) 10/07/05 2,900 2,900,000
Philadelphia Authority IDRB
(Greater Philadelphia Health
System Project) Series 2003
DN (Commerce Bank N.A.
Liquidity Facility) (VMIG-1)
2.78%(b) 10/07/05 4,645 4,645,000
Philadelphia Authority IDRB
(Inglis Housing Project) Series
1997 MB (Morgan Guaranty
Trust LOC) (A-1+)
2.70% 01/03/06 2,400 2,400,000
Philadelphia Authority IDRB
(Universal Community Homes
Project) Series 2003 DN
(Wachovia Bank N.A. LOC)
2.85%(b) 10/07/05 2,745 2,745,000
Philadelphia GO Series 2003A
MB
4.00% 02/15/06 375 376,923
Philadelphia Hospital & Higher
Education (Childrens Hospital
Philadelphia Project) Series
2005-A DN (Fleet Bank LOC)
(A-1+, VMIG-1)
2.81%(b) 10/03/05 1,000 1,000,000
Philadelphia IDRB (Gift of Life
Donor Program Project) Series
2003 DN (Commerce Bank
N.A. LOC) (A-1, VMIG-1)
2.78%(b) 10/07/05 1,900 1,900,000
Philadelphia Redevelopment
Authority RB Series 2005 AMT
DN (FGIC Insurance)
(Deutsche Bank Liquidity
Facility) (F1+)
2.80%(b)(d) 10/07/05 10,310 10,310,000
Philadelphia School District GO
Series 1999 MB (MBIA
Insurance)
5.25% 03/01/06 170 171,763
Philadelphia School District GO
Series 2005 DN (AMBAC
Insurance)
2.78%(b)(d) 10/07/05 5,305 5,305,000
Philadelphia Water RB
(ABN-AMRO Munitops Trust
Certificates) Series 2005-15
AMT MB (FSA Insurance,
ABN-AMRO Bank N.V. SBPA)
(F-1+)
2.85%(d) 12/08/05 7,000 7,000,000
Pittsburgh Water & Sewer
Systems RB (Merrill Lynch
P-Float Trust Receipts) Series
2005-71 AMT MB (Merrill
Lynch Capital Services SBPA,
Merrill Lynch & Co. Guaranty)
2.83%(b)(d) 10/07/05 5,725 5,725,000
Scranton Lackawanna Health &
Welfare Authority RB
(Wachovia Merlots Trust
Receipts) Series 2002A-18 DN
(Wachovia Bank N.A. LOC)
(VMIG-1)
2.77%(b)(d) 10/07/05 2,550 2,550,000
South Allegheny County School
District GO Series 2005A MB
(FSA Insurance) (AAA)
3.00% 10/03/05 1,040 1,040,000
Southcentral General Authority
RB (Homewood Hanover
Project) Series 2003 DN (M&T
Bank Corp. LOC) (A-1)
2.80%(b) 10/07/05 18,500 18,500,000
Southcentral General Authority
RB (York Cerebral Palsy
Home Project) Series 2000
DN (Fulton Bank LOC) (A-1)
2.90%(b) 10/07/05 3,600 3,600,000
Southcentral General Authority
RB Series 2003 DN (AMBAC
Insurance) (A-1)
2.80%(b) 10/07/05 8,000 8,000,000
Southeastern Pennsylvania
Transportation Authority
Municipal Securities Trust
Certificates RB (Bear Stearns
Municipal Trust Certificates)
Series 2001-9016A DN (FGIC
Insurance) (A-1)
2.78%(b)(d) 10/07/05 575 575,000
Southeastern Pennsylvania
Transportation Authority
Municipal Securities Trust
Certificates RB (Bear Stearns
Municipal Trust Certificates)
Series 2001-9022 DN (FGIC
Insurance) (A-1)
2.78%(b)(d) 10/07/05 100 100,000
State Public School Building
Authority RB (Philadelphia
School District Project) Series
2003-24 DN (FSA Insurance,
ABN-AMRO Bank N.V. SBPA)
(VMIG-1)
2.77%(b)(d) 10/07/05 2,145 2,145,000
See accompanying notes to financial statements
36
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
Pennsylvania (Continued)
State Public School Building
Authority RB (Wachovia
Merlots Trust Receipts) Series
2004A-1 DN (FSA Insurance,
Wachovia Bank N.A. LOC)
(VMIG-1)
2.77%(b)(d) 10/07/05 $ 3,630 $ 3,630,000
Union County Hospital Authority
RB (Evangelical Community
Hospital Project) Series 2001
MB (Fleet National Bank
SPBA, Radian Insurance)
(A-1)
2.45% 02/01/06 7,500 7,500,000
Union County IDRB (Playworld
Systems, Inc. Project) Series
1999 AMT DN (Wachovia
Bank N.A. LOC)
2.90%(b) 10/07/05 1,000 1,000,000
Union County IDRB (Stabler
Cos., Inc. Project) Series 2001
AMT DN (M&T Bank Corp.
LOC) (A-1)
2.90%(b) 10/07/05 7,205 7,205,000
Upper Merion Municipal Utility
Authority RB Series 2003 DN
(Commerce Bank N.A. LOC)
(VMIG-1)
2.78%(b) 10/07/05 560 560,000
Upper St. Clair Township GO
Series 2002 MB (FSA
Insurance, ABN-AMRO Bank
N.V. SBPA) (AAA, MIG-1)
2.87%(b)(d) 11/23/05 9,650 9,650,000
Venango County GO (Scrubgrass
Project) Series 2005 TECP (Dexia
Bank N.A. LOC) (A-1+, P-1)
2.80% 10/07/05 23,094 23,094,000
Venango County IDRB
(Scrubgrass Project) AMT MB
2.80% 10/07/05 18,000 18,000,000
Westmoreland County IDRB
(Industrial Development
McCutcheon Enterprise
Project) Series 1999 AMT DN
(National City Bank N.A. LOC)
2.86%(b) 10/07/05 1,900 1,900,000
York County Hospital Authority
RB (Homewood Retirement
Centers of The United Church
of Christ, Inc. Project) Series
1990 DN (M&T Bank Corp.
LOC) (VMIG-1)
2.71%(b) 10/07/05 4,950 4,950,000
York County IDRB (Allied-Signal,
Inc. Project) Series 1993 DN
(FGIC Insurance) (A-1)
2.93%(b) 10/07/05 1,000 1,000,000
York County IDRB (Interstate
Holdings Co. Project) Series
2003 AMT DN (Wachovia
Bank N.A. Liquidity Facility)
2.90%(b) 10/07/05 1,335 1,335,000
York County IDRB (York Sheet
Metal, Inc. Project) Series
1998 DN (Wachovia Bank
N.A. LOC)
2.81%(b) 10/07/05 2,450 2,450,000
York County IDRB Series 2000
AMT DN (M&T Bank Corp.
LOC) (A-2)
2.90%(b) 10/07/05 2,560 2,560,000
York General Authority RB
(Strand Capitol Performing Arts
Center Project) Series 2002 DN
(M&T Bank Corp. LOC) (A-2)
2.83%(b) 10/07/05 3,800 3,800,000
-----------
543,379,947
-----------
Puerto Rico - 0.3%
Puerto Rico Public Financing
Corp. RB (Morgan Stanley
Trust Certificates) Series
2001-520 DN (MBIA
Insurance, Morgan Stanley
Dean Witter Liquidity Facility)
(VMIG-1)
2.73%(b)(d) 10/07/05 1,500 1,500,000
-----------
TOTAL INVESTMENTS IN SECURITIES --
101.5%
(Cost $544,879,947(a)) 544,879,947
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (1.5)% (8,205,132)
-----------
NET ASSETS -- 100.0% (Applicable to
430,391,572 Institutional shares,
34,230,571 Service shares and
72,081,947 Investor A shares) $536,674,815
============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($430,376,411/430,391,572) $ 1.00
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($34,219,117/34,230,571) $ 1.00
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INVESTOR A SHARE
($72,079,287/72,081,947) $ 1.00
=======
See accompanying notes to financial statements
37
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO (Concluded)
As of September 30, 2005
- ----------
(a) Aggregate cost for Federal income tax purposes.
(b) Rates shown are the rates as of September 30, 2005 and maturities shown are
the next interest readjustment date or the date the principal owed can be
recovered through demand.
(c) Illiquid security. As of September 30, 2005, the Portfolio held 0.5% of its
net assets, with a current market value of $2,400,000 in these securities.
(d) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional investors. As of September
30, 2005, the fund held 20.1% of its net assets, with a current market value
of $108,075,000, in securities restricted as to resale.
See accompanying notes to financial statements
38
BlackRock Funds
STATEMENT OF NET ASSETS
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS -- 99.4%
Virginia -- 90.8%
Alexandria IDRB (Association for
Supervision & Curriculum
Development Project) Series
1997 DN (Wachovia Bank
N.A. LOC) (A-1)
2.75%(b) 10/07/05 $ 300 $ 300,000
Alexandria IDRB (YMCA of
Billings Project) Series 1998
DN (M&T Bank Corp. LOC)
(A-1)
2.74%(b) 10/07/05 1,000 1,000,000
Arlington County IDRB
(Woodbury Park Project)
Series 2005A DN (Federal
Home Loan Mortgage Liquidity
Facility) (AAA, VMIG-1)
2.75%(b) 10/07/05 700 700,000
Chesapeake Bay Bridge &
Tunnel Commonwealth District
RB (Wachovia Merlots Trust
Receipts) Series 2003 DN
(MBIA Insurance, Wachovia
Bank N.A. Liquidity Facility)
(VMIG-1)
2.77%(b)(c) 10/03/05 500 500,000
Chesterfield County IDRB
(Merrill Lynch P-Float Trust
Receipts) Series 2004
PT-2133 DN (Merrill Lynch &
Co. Guaranty, Merrill Lynch
Capital Services SBPA)
(F-1+, AA-)
2.84%(b)(c) 10/07/05 1,250 1,250,000
Fairfax County Economic
Development Authority RB
(Citibank Trust Receipts)
Series 2003-4024 DN
(Citibank Liquidity Facility)
(VMIG-1)
2.79%(b)(c) 10/07/05 700 700,000
Fairfax County GO Series
2005-1036 DN (Morgan
Stanley Group Liquidity
Facility) (AAA, F-1+)
2.78%(b)(c) 10/07/05 245 245,000
Fairfax County IDRB (Fairfax
Hospital System Project)
Series 1988B DN (Inova
Health System Liquidity
Facility) (A-1+, VMIG-1)
2.66%(b) 10/07/05 500 500,000
Fairfax County IDRB (Inova
Health Systems Project)
Series 2000 DN (Inova Health
System Liquidity Facility)
(A-1+, VMIG-1)
2.66%(b) 10/07/05 800 800,000
Harrisonburg Redevelopment &
Housing Authority Lease
Purchase RB Series 2001A
DN (Societe Generale LOC)
(A-1+)
2.78%(b) 10/07/05 1,300 1,300,000
Henrico County Economic
Development Authority
Residential Care Facility RB
(Westminster Centerbury
Project) Series 2003B DN
(KBC Bank LOC) (VMIG-1)
2.75%(b) 10/07/05 100 100,000
Loudoun County IDRB (Howard
Hughes Medical Institute
Project) Series 2003D DN
(A-1+, VMIG-1)
2.74%(b) 10/07/05 300 300,000
Loudoun County IDRB (Howard
Hughes Medical Institute
Project) Series 2003E DN
(A-1+, VMIG-1)
2.82%(b) 10/03/05 400 400,000
Newport News IDRB Series
2004 DN (Bank of America
N.A. LOC) (Aa1, VMIG-1)
2.75%(b) 10/07/05 1,050 1,050,000
Prince William County GO
(Vepco Project) Series 2005
TECP (Dominion Resources
Guaranty) (A-2, P-1)
2.53% 10/07/05 200 200,000
Richmond GO Series 1993A MB
5.30% 01/15/06 1,000 1,007,707
Richmond IDRB (Diocese of
Virginia Church School
Project) Series 2001 DN
(SunTrust Bank LOC)
(VMIG-1)
2.81%(b) 10/03/05 400 400,000
Tobacco Settlement Financing
Corp. RB (Merrill Lynch
P-Float Trust Receipts) Series
2005 PA-1303 DN (Merrill
Lynch & Co. Guaranty, Merrill
Lynch Capital Services SBPA)
(F-1+)
2.83%(b)(c) 10/07/05 3,050 3,050,000
University of Virginia RB
(Wachovia Merlots Trust
Receipts) Series 2003B-31 DN
(Wachovia Bank N.A. SBPA)
(VMIG-1)
2.77%(b)(c) 10/07/05 900 900,000
Virginia Beach Development
Authority IDRB (Ocean Ranch
Motel Corp. Project) Series
1998 DN (Branch Banking &
Trust Co. LOC) (VMIG-1)
2.77%(b) 10/07/05 800 800,000
Virginia College Building
Authority RB Series 2003-379
DN (J.P. Morgan Chase Bank
LOC) (A-1+)
2.79%(b)(c) 10/07/05 2,395 2,395,000
See accompanying notes to financial statements
39
BlackRock Funds
STATEMENT OF NET ASSETS
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO (Concluded)
As of September 30, 2005
Par
Maturity (000) Value
------------ ----------- --------------
MUNICIPAL BONDS (Continued)
Virginia (Continued)
Virginia Public Building Authority
RB Series 2004 ROCS-RR-
II-6027 DN (Citibank Liquidity
Facility) (A-1+, AA+)
2.79%(b)(c) 10/07/05 $1,195 $1,195,000
Virginia Public School Authority
RB (Merrill Lynch P-Floats
Trust Receipts) Series
2005-2746 (Merrill Lynch &
Co. Guaranty, Merrill Lynch
Captial Services SBPA)
2.77%(b)(c) 10/07/05 600 600,000
Virginia Resource Authority
Clean Water State Revolving
Fund RB (Merrill Lynch
P-Float Trust Receipts) Series
2000 PA-790 DN (Merrill
Lynch & Co. Guaranty, Merrill
Lynch Captial Services SBPA)
(A-1)
2.77%(b)(c) 10/07/05 505 505,000
Virginia State Public School
Authority RB Series 2003 MB
(AA+, Aa1)
4.00% 04/15/06 750 755,566
Winchester Authority Residential
Care Facility IDRB
(Westminster-Cantenbury
Project) Series 2005B DN
(Branch Banking & Trust LOC)
(VMIG-1)
2.77%(b) 10/07/05 1,000 1,000,000
----------
21,953,273
----------
Puerto Rico -- 5.4%
Commonwealth of Puerto Rico
Electric Power Authority RB
(Goldman Sachs Trust
Receipts) Series 2002-1 DN
(MBIA Insurance, Bank of New
York SBPA) (A-1+)
2.77%(b)(c) 10/07/05 800 800,000
Commonwealth of Puerto Rico
Highway & Transportation
Authority RB (Merrill Lynch
P-Float Trust Receipts) Series
2002 PT-1052 DN (Merrill
Lynch & Co. Guaranty, Merrill
Lynch Capital Services SBPA)
(A-1)
2.78%(b)(c) 10/07/05 500 500,000
==========
1,300,000
----------
Guam -- 3.2%
Guam Government Ltd. GO
Series 2001-A MB (FSA
Insurance) (AAA, Aaa)
5.00% 12/01/05 775 778,111
----------
TOTAL INVESTMENTS IN SECURITIES -- 99.4%
(Cost $24,031,384(a)) 24,031,384
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.6% 137,856
----------
NET ASSETS -- 100.0%
(Applicable to 24,170,014
Institutional shares) $24,169,240
===========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($24,169,240/24,170,014) $ 1.00
=======
- ----------
(a) Aggregate cost for Federal income tax purposes.
(b) Rates shown are the rates as of September 30, 2005 and maturities shown are
the next interest readjustment date or the date the principal owed can be
recovered through demand.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional investors. As of September
30, 2005, the fund held 52.3% of its net assets, with a current market value
of $12,640,000, in securities restricted as to resale.
See accompanying notes to financial statements
40
BlackRock Funds
Key to Investment Abbreviations
AMBAC ...........................American Municipal Bond Assurance Corp.
AMT .............................................Alternative Minimum Tax
BAN ..............................................Bond Anticipation Note
CDC ...................................................CDC Funding Group
COP .......................................Certificates of Participation
DN .........................................................Demand Notes
FGIC ...................................Financial Guaranty Insurance Co.
FSA ........................................Financial Security Assurance
GIC .....................................Guaranteed Investment Contracts
GO ...................................................General Obligation
IDA ....................................Industrial Development Authority
IDRB ................................Industrial Development Revenue Bond
LOC ....................................................Letter of Credit
MB .......................................................Municipal Bond
MBIA ...............................Municipal Bond Insurance Association
PCRB .....................................Pollution Control Revenue Bond
RB .........................................................Revenue Bond
ROC ............................................Reset Option Certificate
SBPA ...................................Stand-by Bond Purchase Agreement
TAN ...............................................Tax Anticipation Note
TECP ........................................Tax-Exempt Commercial Paper
TOC ...........................................Tender Option Certificate
TRAN ..................................Tax and Revenue Anticipation Note
XLCA ...............................................XL Capital Assurance
The ratings provided by the Fitch Investors Service, Moody's Investors Service,
Inc. and Standard & Poor's Ratings Service of the investments in the various
Portfolios are believed to be the most recent ratings available at September 30,
2005. The ratings have not been audited by the Independent Registered Public
Accounting Firm and, therefore, are not covered by the Report of the Independent
Registered Public Accounting Firm.
41
BlackRock Funds
STATEMENTS OF OPERATIONS
U.S. Treasury Municipal
Money Market Money Market Money Market
For the Year Ended September 30, 2005 Portfolio Portfolio Portfolio
---------------- --------------- ---------------
Investment income:
Interest ....................................... $ 40,371,174 $ 11,479,224 $ 7,032,790
------------ ------------ -----------
Expenses:
Investment advisory fee ........................ 6,353,854 1,957,165 1,483,174
Administration fee ............................. 1,101,251 369,383 280,155
Administration fee - class specific ............ 1,388,260 413,179 313,115
Custodian fee .................................. 145,293 55,182 45,453
Transfer agent fee ............................. 471,860 55,237 42,340
Transfer agent fee - class specific ............ 263,431 78,288 59,325
Shareholder servicing fees - class specific..... 2,375,419 636,404 554,473
Distribution fees - class specific ............. 692,827 38,650 138,774
Legal and audit fees ........................... 204,673 71,148 61,701
Printing fee ................................... 340,282 62,641 53,597
Registration fees and expenses ................. 72,227 46,522 54,907
Trustees' fees ................................. 50,952 14,641 11,269
Other .......................................... 78,269 38,178 21,370
------------ ------------ -----------
Total expenses ................................ 13,538,598 3,836,618 3,119,653
Less investment advisory fees waived.......... (2,874,530) (959,206) (721,549)
Less administration fees waived .............. -- -- --
Less administration fees waived -
class specific .............................. (671,768) (266,759) (140,115)
Less custodian fee waived .................... (7,193) (2,958) (3,140)
Less transfer agent fee waived ............... (41,529) (6,338) (4,237)
Less distribution fees waived - class
specific .................................... (544,105) (38,650) (138,774)
Less shareholder servicing fees
waived - class specific ..................... (49,451) -- (332,197)
------------ ------------ -----------
Net expenses .................................. 9,350,022 2,562,707 1,779,641
------------ ------------ -----------
Net investment income ........................... 31,021,152 8,916,517 5,253,149
------------ ------------ -----------
Net realized gain (loss) on investments ......... (12,296) (13,138) 11,076
------------ ------------ -----------
Net increase in net assets resulting
from operations ................................ $ 31,008,856 $ 8,903,379 $ 5,264,225
============ ============ ===========
See accompanying notes to financial statements.
42
Mew Jersey North Carolina Ohio Pennsylvania Virginia
Municipal Municipal Municipal Municipal Municipal
Money Market Money Market Money Market Money Market Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio
-------------- --------------- -------------- ---------------- -------------
Investment income:
Interest ....................................... $ 3,230,298 $ 1,314,471 $ 3,280,326 $ 11,164,516 $ 425,200
----------- ----------- ----------- ------------ ---------
Expenses:
Investment advisory fee ........................ 682,969 276,705 675,663 2,276,680 89,319
Administration fee ............................. 129,005 52,267 127,625 428,765 16,871
Administration fee - class specific ............ 144,182 58,416 142,640 480,630 18,856
Custodian fee .................................. 22,754 11,336 23,549 58,088 6,882
Transfer agent fee ............................. 23,052 9,507 20,160 73,324 4,713
Transfer agent fee - class specific ............ 27,319 11,074 27,027 91,067 3,572
Shareholder servicing fees - class specific..... 187,550 1,821 80,108 163,382 4
Distribution fees - class specific ............. 13,738 325 24,758 54,517 --
Legal and audit fees ........................... 36,204 40,873 36,302 84,862 18,784
Printing fee ................................... 22,905 7,725 18,578 90,325 2,941
Registration fees and expenses ................. 16,209 15,119 13,016 18,490 16,926
Trustees' fees ................................. 5,333 1,824 5,420 17,624 299
Other .......................................... 10,439 6,780 10,649 28,479 4,034
----------- ----------- ----------- ------------ ---------
Total expenses ................................ 1,321,659 493,772 1,205,495 3,866,233 183,201
Less investment advisory fees waived.......... (380,906) (247,044) (369,321) (1,032,835) (89,319)
Less administration fees waived .............. -- -- -- -- (14,770)
Less administration fees waived -
class specific .............................. (100,118) (57,923) (114,196) (411,404) (18,856)
Less custodian fee waived .................... (1,149) (883) (1,268) (3,009) (422)
Less transfer agent fee waived ............... (2,217) (793) (1,928) (6,758) (283)
Less distribution fees waived - class
specific .................................... (13,738) (325) (24,758) (54,517) --
Less shareholder servicing fees
waived - class specific ..................... -- -- -- -- --
----------- ----------- ----------- ------------ ---------
Net expenses .................................. 823,531 186,804 694,024 2,357,710 59,551
----------- ----------- ----------- ------------ ---------
Net investment income ........................... 2,406,767 1,127,667 2,586,302 8,806,806 365,649
----------- ----------- ----------- ------------ ---------
Net realized gain (loss) on investments ......... (2,025) 6,898 -- (33,844) (506)
----------- ----------- ----------- ------------ ---------
Net increase in net assets resulting
from operations ................................ $ 2,404,742 $ 1,134,565 $ 2,586,302 $ 8,772,962 $ 365,143
=========== =========== =========== ============ =========
43
BlackRock Funds
STATEMENTS OF CHANGES IN NET ASSETS
Money Market Portfolio
---------------------------------------
For the For the
Year Year
Ended Ended
9/30/05 9/30/04
------------------- -------------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................... $ 31,021,152 $ 16,426,664
Net realized gain (loss) on investments ......... (12,296) 76,821
-------------- ---------------
Net increase in net assets resulting from
operations ..................................... 31,008,856 16,503,485
-------------- ---------------
Distributions to shareholders from:
Net investment income:
Institutional Class ............................. (11,776,659) (11,959,475)
Service Class ................................... (7,897,918) (2,148,489)
Hilliard Lyons Class ............................ (2,356,333) (553,341)
Investor A Class ................................ (8,655,993) (1,750,399)
Investor B Class ................................ (262,118) (13,456)
Investor C Class ................................ (72,131) (1,504)
-------------- ---------------
Total distributions from net investment
income ......................................... (31,021,152) (16,426,664)
-------------- ---------------
Capital share transactions ........................ 103,371,897 (1,597,395,056)
-------------- ---------------
Total increase (decrease) in net assets ......... 103,359,601 (1,597,318,235)
Net assets:
Beginning of year ............................... 1,456,377,991 3,053,696,226
-------------- ---------------
End of year ..................................... $1,559,737,592 $ 1,456,377,991
============== ===============
End of period undistributed net investment
income ......................................... $ 64,239 $ 64,239
U.S.Treasury Municipal
Money Market Portfolio Money Market Portfolio
----------------------------------- ----------------------------------
For the For the For the For the
Year Year Year Year
Ended Ended Ended Ended
9/30/05 9/30/04 9/30/05 9/30/04
----------------- ----------------- ---------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................... $ 8,916,517 $ 3,056,516 $ 5,253,149 $ 3,446,121
Net realized gain (loss) on investments ......... (13,138) 8,597 11,076 2,605
------------- ------------- ------------- -------------
Net increase in net assets resulting from
operations ..................................... 8,903,379 3,065,113 5,264,225 3,448,726
------------- ------------- ------------- -------------
Distributions to shareholders from:
Net investment income:
Institutional Class ............................. (3,930,861) (2,049,993) (1,830,876) (2,271,744)
Service Class ................................... (4,276,660) (864,910) (1,193,977) (354,795)
Hilliard Lyons Class ............................ -- -- (2,152,442) (791,645)
Investor A Class ................................ (708,996) (141,613) (75,854) (27,937)
Investor B Class ................................ -- -- -- --
Investor C Class ................................ -- -- -- --
------------- ------------- ------------- -------------
Total distributions from net investment
income ......................................... (8,916,517) (3,056,516) (5,253,149) (3,446,121)
------------- ------------- ------------- -------------
Capital share transactions ........................ 16,889,278 (242,262,681) (31,069,940) (347,358,162)
------------- ------------- ------------- -------------
Total increase (decrease) in net assets ......... 16,876,140 (242,254,084) (31,058,864) (347,355,557)
Net assets:
Beginning of year ............................... 437,206,163 679,460,247 331,350,078 678,705,635
------------- ------------- ------------- -------------
End of year ..................................... $ 454,082,303 $ 437,206,163 $ 300,291,214 $ 331,350,078
============= ============= ============= =============
End of period undistributed net investment
income ......................................... $ 46,591 $ 46,591 $ -- $ --
See accompanying notes to financial statements
44
BlackRock Funds
New Jersey Municipal North Carolina Municipal Ohio Municipal
Money Market Portfolio Money Market Portfolio Money Market Portfolio
---------------------------- ----------------------------- ----------------------------
For the For the For the For the For the For the
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
9/30/05 9/30/04 9/30/05 9/30/04 9/30/05 9/30/04
------------- ------------- ------------ --------------- ------------- -------------
Increase (decrease) in net assets:
Operations:
Net investment income ................. $ 2,406,767 $ 926,093 $ 1,127,667 $ 684,695 $ 2,586,302 $ 1,075,474
Net realized gain (loss) on
investments .......................... (2,025) 6,081 6,898 (9,007) -- --
------------- ------------- ------------ --------------- ------------- -------------
Net increase in net assets resulting
from operations ...................... 2,404,742 932,174 1,134,565 675,688 2,586,302 1,075,474
------------- ------------- ------------ --------------- ------------- -------------
Distributions to shareholders from:
Net investment income:
Institutional Class ................... (1,340,022) (589,129) (1,115,968) (681,816) (2,074,310) (861,610
Service Class ......................... (875,861) (274,543) (6,820) (1,083) (147,686) (92,021
Hilliard Lyons Class .................. -- -- -- -- -- --
Investor A Class ...................... (190,884) (62,421) (4,879) (1,796) (364,306) (121,843
Investor B Class ...................... -- -- -- -- -- --
Investor C Class ...................... -- -- -- -- -- --
------------- ------------- ------------ --------------- ------------- -------------
Total distributions from net
investment income .................... (2,406,767) (926,093) (1,127,667) (684,695) (2,586,302) (1,075,474
------------- ------------- ------------ --------------- ------------- -------------
Capital share transactions .............. (4,098,458) (6,118,893) 4,608,534 (104,373,941) (49,696,441) 35,359,206
------------- ------------- ------------ --------------- ------------- -------------
Total increase (decrease) in net
assets ................................ (4,100,483) (6,112,812) 4,615,432 (104,382,948) (49,696,441) 35,359,206
Net assets:
Beginning of year ..................... 153,250,227 159,363,039 58,646,750 163,029,698 169,510,644 134,151,438
------------- ------------- ------------ --------------- ------------- -------------
End of year ........................... $ 149,149,744 $ 153,250,227 $ 63,262,182 $ 58,646,750 $ 119,814,203 $ 169,510,644
============= ============= ============ =============== ============= =============
End of period undistributed net
investment income .................... $ -- $ -- $ -- $ -- $ -- $ --
Pennsylvania Municipal Virginia Municipal
Money Market Portfolio Money Market Portfolio
----------------------------------- ---------------------------------
For the For the For the For the
Year Year Year Year
Ended Ended Ended Ended
9/30/05 9/30/04 9/30/05 9/30/04
----------------- ----------------- ---------------- ----------------
Increase (decrease) in net assets:
Operations:
Net investment income ................. $ 8,806,806 $ 3,424,471 $ 365,649 $ 137,645
Net realized gain (loss) on
investments .......................... (33,844) 34,005 (506) 584
------------- ------------- ------------ -------------
Net increase in net assets resulting
from operations ...................... 8,772,962 3,458,476 365,143 138,229
------------- ------------- ------------ -------------
Distributions to shareholders from:
Net investment income:
Institutional Class ................... (7,394,998) (3,106,702) (365,617) (133,087)
Service Class ......................... (518,169) (161,394) (32) (4,558)
Hilliard Lyons Class .................. -- -- -- --
Investor A Class ...................... (893,639) (156,375) -- --
Investor B Class ...................... -- -- -- --
Investor C Class ...................... -- -- -- --
------------- ------------- ------------ -------------
Total distributions from net
investment income .................... (8,806,806) (3,424,471) (365,649) (137,645)
------------- ------------- ------------ -------------
Capital share transactions .............. 48,065,937 (5,693,646) 6,312,686 (45,117,405)
------------- ------------- ------------ -------------
Total increase (decrease) in net
assets ................................ 48,032,093 (5,659,641) 6,312,180 (45,116,821)
Net assets:
Beginning of year ..................... 488,642,722 494,302,363 17,857,060 62,973,881
------------- ------------- ------------ -------------
End of year ........................... $ 536,674,815 $ 488,642,722 $ 24,169,240 $ 17,857,060
============= ============= ============ =============
End of period undistributed net
investment income .................... $ -- $ -- $ -- $ --
45
BlackRock Funds
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net
asset Distributions asset
value Net from net value
beginning investment investment end of
of period income income period
===========================================================================
- ----------------------
Money Market Portfolio
- ----------------------
Institutional Class
9/30/05 $ 1.00 $ 0.0233 $ (0.0233) $ 1.00
9/30/04 1.00 0.0083 (0.0083) 1.00
9/30/03 /11/ 1.00 0.0103 (0.0103) 1.00
9/30/02 /11/ 1.00 0.0186 (0.0186) 1.00
9/30/01 /11/ 1.00 0.0496 (0.0496) 1.00
Service Class
9/30/05 $ 1.00 $ 0.0203 $ (0.0203) $ 1.00
9/30/04 1.00 0.0054 (0.0054) 1.00
9/30/03 /11/ 1.00 0.0073 (0.0073) 1.00
9/30/02 /11/ 1.00 0.0156 (0.0156) 1.00
9/30/01 /11/ 1.00 0.0466 (0.0466) 1.00
Hilliard Lyons Class
9/30/05 $ 1.00 $ 0.0198 $ (0.0198) $ 1.00
9/30/04 1.00 0.0043 (0.0043) 1.00
9/30/03 /11/ 1.00 0.0056 (0.0056) 1.00
9/30/02 /11/ 1.00 0.0139 (0.0139) 1.00
9/30/01 /11/ 1.00 0.0450 (0.0450) 1.00
Investor A Class
9/30/05 $ 1.00 $ 0.0199 $ (0.0199) $ 1.00
9/30/04 1.00 0.0044 (0.0044) 1.00
9/30/03 /11/ 1.00 0.0056 (0.0056) 1.00
9/30/02 /11/ 1.00 0.0139 (0.0139) 1.00
9/30/01 /11/ 1.00 0.0449 (0.0449) 1.00
Investor B Class
9/30/05 $ 1.00 $ 0.0151 $ (0.0151) $ 1.00
9/30/04 1.00 0.0015 (0.0015) 1.00
9/30/03 /11/ 1.00 0.0014 (0.0014) 1.00
9/30/02 /11/ 1.00 0.0079 (0.0079) 1.00
9/30/01 /11/ 1.00 0.0389 (0.0389) 1.00
Investor C Class
9/30/05 $ 1.00 $ 0.0151 $ (0.0151) $ 1.00
9/30/04 1.00 0.0014 (0.0014) 1.00
9/30/03 /11/ 1.00 0.0014 (0.0014) 1.00
9/30/02 /11/ 1.00 0.0078 (0.0078) 1.00
9/30/01 /11/ 1.00 0.0389 (0.0389) 1.00
- ------------------------------------
U.S. Treasury Money Market Portfolio
- ------------------------------------
Institutional Class
9/30/05 $ 1.00 $ 0.0221 $ (0.0221) $ 1.00
9/30/04 1.00 0.0072 (0.0072) 1.00
9/30/03 /11/ 1.00 0.0091 (0.0091) 1.00
9/30/02 /11/ 1.00 0.0166 (0.0166) 1.00
9/30/01 /11/ 1.00 0.0464 (0.0464) 1.00
Service Class
9/30/05 $ 1.00 $ 0.0190 $ (0.0190) $ 1.00
9/30/04 1.00 0.0042 (0.0042) 1.00
9/30/03 /11/ 1.00 0.0061 (0.0061) 1.00
9/30/02 /11/ 1.00 0.0136 (0.0136) 1.00
9/30/01 /11/ 1.00 0.0435 (0.0435) 1.00
See accompanying notes to financial statements.
46
BlackRock Funds
Ratio of net
Net Ratio of total investment income (Loss)
assets Ratio of expenses to average Ratio of net to average
end of net expenses to net assets investment income net assets
Total period average net (excluding to average net (excluding
return (000) assets waivers) assets waivers)
============================================================================================================
- ----------------------
Money Market Portfolio
- ----------------------
Institutional Class
9/30/05 2.36% $ 574,473 0.42% 0.71% 2.30% 2.01%
9/30/04 0.84 593,380 0.42 0.63 0.78 0.57
9/30/03 /11/ 1.04 2,006,202 0.42 0.62 1.04 0.84
9/30/02 /11/ 1.87 2,462,579 0.42 0.61 1.86 1.67
9/30/01 /11/ 5.08 2,507,649 0.42 0.60 4.96 4.79
Service Class
9/30/05 2.05% $ 411,831 0.72% 0.96% 2.02% 1.78%
9/30/04 0.54 374,441 0.71 0.93 0.54 0.32
9/30/03 /11/ 0.74 431,854 0.72 0.94 0.74 0.53
9/30/02 /11/ 1.57 567,574 0.72 0.91 1.60 1.41
9/30/01 /11/ 4.77 853,306 0.72 0.90 4.66 4.49
Hilliard Lyons Class
9/30/05 2.00% $ 116,066 0.77% 1.07% 1.98% 1.68%
9/30/04 0.43 116,254 0.82 1.13 0.42 0.11
9/30/03 /11/ 0.57 148,277 0.89 1.10 0.56 0.34
9/30/02 /11/ 1.40 144,271 0.89 1.08 1.40 1.21
9/30/01 /11/ 4.59 163,056 0.89 1.07 4.49 4.31
Investor A Class
9/30/05 2.01% $ 433,609 0.76% 1.06% 2.04% 1.74%
9/30/04 0.44 362,495 0.82 1.13 0.43 0.12
9/30/03 /11/ 0.57 451,676 0.89 1.11 0.57 0.36
9/30/02 /11/ 1.39 539,268 0.89 1.08 1.38 1.19
9/30/01 /11/ 4.59 531,518 0.89 1.07 4.43 4.25
Investor B Class
9/30/05 1.52% $ 18,716 1.24% 1.74% 1.66% 1.16%
9/30/04 0.15 8,924 1.10 1.79 0.14 (0.55)
9/30/03 /11/ 0.14 13,490 1.34 1.86 0.15 (0.37)
9/30/02 /11/ 0.79 21,864 1.49 1.837 0.77 0.427
9/30/01 /11/ 3.96 15,853 1.49 1.827 3.64 3.317
Investor C Class
9/30/05 1.52% $ 5,043 1.24% 1.73% 1.79% 1.30%
9/30/04 0.15 884 1.10 1.79 0.14 (0.56)
9/30/03/11/ 0.14 2,197 1.35 1.86 0.15 (0.35)
9/30/02/11/ 0.79 7,873 1.49 1.839 0.79 0.459
9/30/01/11/ 3.96 9,429 1.49 1.829 3.68 3.359
- ------------------------------------
U.S. Treasury Money Market Portfolio
- ------------------------------------
Institutional Class
9/30/05 2.23% $ 164,905 0.41% 0.73% 2.18% 1.86%
9/30/04 0.72 176,136 0.41 0.70 0.68 0.39
9/30/03 /11/ 0.92 379,240 0.41 0.70 0.93 0.64
9/30/02 /11/ 1.68 526,344 0.41 0.68 1.62 1.35
9/30/01 /11/ 4.74 380,200 0.41 0.68 4.61 4.34
Service Class
9/30/05 1.93% $ 257,187 0.71% 0.98% 1.99% 1.72%
9/30/04 0.42 219,788 0.71 0.99 0.41 0.13
9/30/03 /11/ 0.62 250,314 0.71 1.00 0.61 0.32
9/30/02 /11/ 1.37 265,841 0.71 0.98 1.39 1.11
9/30/01 /11/ 4.43 398,130 0.71 0.98 4.39 4.12
47
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net
asset Distributions asset
value Net from net value
beginning investment investment end of
of period income income period
===============================================================================================
- -----------------------------------------------
U.S. Treasury Money Market Portfolio (Continued)
- -----------------------------------------------
Investor A Class
9/30/05 $ 1.00 $ 0.0186 $ (0.0186) $ 1.00
9/30/04 1.00 0.0031 (0.0031) 1.00
9/30/03 /11/ 1.00 0.0044 (0.0044) 1.00
9/30/02 /11/ 1.00 0.0119 (0.0119) 1.00
9/30/01 /11/ 1.00 0.0417 (0.0417) 1.00
Investor C Class
1/22/02 /3/,/11/ through 2/6/02 $ 1.00 $ 0.0003 $ (0.0003) $ 1.00
- --------------------------------
Municipal Money Market Portfolio
- --------------------------------
Institutional Class
9/30/05 $ 1.00 $ 0.0172 $ (0.0172) $ 1.00
9/30/04 1.00 0.0073 (0.0073) 1.00
9/30/03 /11/ 1.00 0.0092 (0.0092) 1.00
9/30/02 /11/ 1.00 0.0142 (0.0142) 1.00
9/30/01 /11/ 1.00 0.0315 (0.0315) 1.00
Service Class
9/30/05 $ 1.00 $ 0.0143 $ (0.0143) $ 1.00
9/30/04 1.00 0.0043 (0.0043) 1.00
9/30/03 /11/ 1.00 0.0062 (0.0062) 1.00
9/30/02 /11/ 1.00 0.0112 (0.0112) 1.00
9/30/01 /11/ 1.00 0.0285 (0.0285) 1.00
Hilliard Lyons Class
9/30/05 $ 1.00 $ 0.0163 $ (0.0163) $ 1.00
9/30/04 1.00 0.0056 (0.0056) 1.00
9/30/03 /11/ 1.00 0.0070 (0.0070) 1.00
9/30/02 /11/ 1.00 0.0120 (0.0120) 1.00
9/30/01 /11/ 1.00 0.0292 (0.0292) 1.00
Investor A Class
9/30/05 $ 1.00 $ 0.0136 $ (0.0136) $ 1.00
9/30/04 1.00 0.0042 (0.0042) 1.00
9/30/03 /11/ 1.00 0.0048 (0.0048) 1.00
9/30/02 /11/ 1.00 0.0095 (0.0095) 1.00
9/30/01 /11/ 1.00 0.0268 (0.0268) 1.00
- -------------------------------------------
New Jersey Municipal Money Market Portfolio
- -------------------------------------------
Institutional Class
9/30/05 $ 1.00 $ 0.0175 $ (0.0175) $ 1.00
9/30/04 1.00 0.0074 (0.0074) 1.00
9/30/03 /11/ 1.00 0.0089 (0.0089) 1.00
9/30/02 /11/ 1.00 0.0134 (0.0134) 1.00
9/30/01 /11/ 1.00 0.0305 (0.0305) 1.00
Service Class
9/30/05 $ 1.00 $ 0.0145 $ (0.0145) $ 1.00
9/30/04 1.00 0.0044 (0.0044) 1.00
9/30/03 /11/ 1.00 0.0059 (0.0059) 1.00
9/30/02 /11/ 1.00 0.0104 (0.0104) 1.00
9/30/01 /11/ 1.00 0.0275 (0.0275) 1.00
See accompanying notes to financial statements.
48
BlackRock Funds
Ratio of net
Net Ratio of total investment income (Loss)
assets Ratio of expenses to average Ratio of net to average
end of net expenses to net assets investment income net assets
Total period average net (excluding to average net (excluding
return (000) assets waivers) assets waivers)
========================================================================================================
- -----------------------------------------------
U.S. Treasury Money Market Portfolio (Continued)
- -----------------------------------------------
Investor A Class
9/30/05 1.88% $ 31,990 0.75% 1.07% 1.83% 1.51%
9/30/04 0.31 41,283 0.82 1.19 0.31 (0.06)
9/30/03 /11/ 0.44 49,906 0.88 1.17 0.47 0.17
9/30/02 /11/ 1.20 68,299 0.88 1.16 1.15 0.87
9/30/01 /11/ 4.26 35,178 0.88 1.15 4.17 3.90
Investor C Class
1/22/02 /3/,/11/
through 2/6/02 0.03% $ --/6/ 1.48%/2/ 1.76%/2/ 0.72%/2/ 0.44%/2/
Institutional Class
9/30/05 1.74% $ 75,789 0.42% 0.74% 1.69% 1.37%
9/30/04 0.73 126,534 0.42 0.71 0.69 0.41
9/30/03 /11/ 0.92 437,613 0.42 0.71 0.92 0.64
9/30/02 /11/ 1.43 428,743 0.42 0.70 1.41 1.13
9/30/01 /11/ 3.19 491,052 0.42 0.69 3.11 2.83
Service Class
9/30/05 1.44% $ 93,844 0.72% 0.99% 1.45% 1.18%
9/30/04 0.43 70,344 0.72 1.00 0.42 0.14
9/30/03 /11/ 0.62 88,769 0.72 1.01 0.63 0.34
9/30/02 /11/ 1.12 104,474 0.72 1.00 1.13 0.85
9/30/01 /11/ 2.88 138,402 0.72 0.99 2.82 2.54
Hilliard Lyons Class
9/30/05 1.64% $ 126,397 0.52% 1.09% 1.62% 1.05%
9/30/04 0.57 127,151 0.59 1.13 0.56 0.02
9/30/03 /11/ 0.70 143,305 0.64 0.93 0.70 0.41
9/30/02 /11/ 1.20 147,755 0.64 0.92 1.17 0.89
9/30/01 /11/ 2.96 101,506 0.64 0.94 2.92 2.63
Investor A Class
9/30/05 1.37% $ 4,262 0.79% 1.11% 1.29% 0.97%
9/30/04 0.43 7,322 0.72 1.19 0.42 (0.05)
9/30/03 /11/ 0.49 9,019 0.85 1.18 0.47 0.15
9/30/02 /11/ 0.95 6,587 0.89 1.17 0.96 0.68
9/30/01 /11/ 2.71 9,013 0.89 1.16 2.65 2.37
- -------------------------------------------
New Jersey Municipal Money Market Portfolio
- -------------------------------------------
Institutional Class
9/30/05 1.76% $ 74,329 0.39% 0.74% 1.73% 1.38%
9/30/04 0.74 80,530 0.39 0.72 0.74 0.40
9/30/03 /11/ 0.89 77,267 0.39 0.72 0.89 0.56
9/30/02 /11/ 1.35 86,573 0.39 0.71 1.34 1.02
9/30/01 /11/ 3.10 97,007 0.39 0.70 3.03 2.72
Service Class
9/30/05 1.46% $ 59,794 0.69% 0.99% 1.45% 1.15%
9/30/04 0.44 59,899 0.69 1.01 0.44 0.12
9/30/03 /11/ 0.59 64,313 0.69 1.02 0.59 0.26
9/30/02 /11/ 1.04 65,074 0.69 1.01 1.04 0.71
9/30/01 /11/ 2.79 60,296 0.69 1.00 2.75 2.44
49
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net
asset Distributions asset
value Net from net value
beginning investment investment end of
of period income income period
=========================================================================================
- -------------------------------------------------------
New Jersey Municipal Money Market Portfolio (Continued)
- -------------------------------------------------------
Investor A Class
9/30/05 $ 1.00 $ 0.0138 $ (0.0138) $ 1.00
9/30/04 1.00 0.0044 (0.0044) 1.00
9/30/03 /11/ 1.00 0.0045 (0.0045) 1.00
9/30/02 /11/ 1.00 0.0087 (0.0087) 1.00
9/30/01 /11/ 1.00 0.0258 (0.0258) 1.00
- -----------------------------------------------
North Carolina Municipal Money Market Portfolio
- -----------------------------------------------
Institutional Class
9/30/05 $ 1.00 $ 0.0185 $ (0.0185) $ 1.00
9/30/04 1.00 0.0084 (0.0084) 1.00
9/30/03 /11/ 1.00 0.0097 (0.0097) 1.00
9/30/02 /11/ 1.00 0.0134 (0.0134) 1.00
9/30/01 /11/ 1.00 0.0313 (0.0313) 1.00
Service Class
9/30/05 $ 1.00 $ 0.0155 $ (0.0155) $ 1.00
9/30/04 1.00 0.0054 (0.0054) 1.00
9/30/03 /11/ 1.00 0.0067 (0.0067) 1.00
9/30/02 /11/ 1.00 0.0104 (0.0104) 1.00
9/30/01 /11/ 1.00 0.0283 (0.0283) 1.00
Investor A Class
9/30/05 $ 1.00 $ 0.0151 $ (0.0151) $ 1.00
9/30/04 1.00 0.0054 (0.0054) 1.00
9/30/03 /11/ 1.00 0.0053 (0.0053) 1.00
9/30/02 /11/ 1.00 0.0082 (0.0082) 1.00
9/30/01 /11/ 1.00 0.0266 (0.0266) 1.00
Investor B Class
10/1/01 /11/ through 12/14/01 $ 1.00 $ 0.0012 $ (0.0012) $ 1.00
9/30/01 /11/ 1.00 0.0203 (0.0203) 1.00
- -------------------------------------
Ohio Municipal Money Market Portfolio
- -------------------------------------
Institutional Class
9/30/05 $ 1.00 $ 0.0182 $ (0.0182) $ 1.00
9/30/04 1.00 0.0087 (0.0087) 1.00
9/30/03 /11/ 1.00 0.0105 (0.0105) 1.00
9/30/02 /11/ 1.00 0.0154 (0.0154) 1.00
9/30/01 /11/ 1.00 0.0331 (0.0331) 1.00
Service Class
9/30/05 $ 1.00 $ 0.0152 $ (0.0152) $ 1.00
9/30/04 1.00 0.0057 (0.0057) 1.00
9/30/03 /11/ 1.00 0.0075 (0.0075) 1.00
9/30/02 /11/ 1.00 0.0124 (0.0124) 1.00
9/30/01 /11/ 1.00 0.0301 (0.0301) 1.00
Investor A Class
9/30/05 $ 1.00 $ 0.0150 $ (0.0150) $ 1.00
9/30/04 1.00 0.0046 (0.0046) 1.00
9/30/03 /11/ 1.00 0.0058 (0.0058) 1.00
9/30/02 /11/ 1.00 0.0107 (0.0107) 1.00
9/30/01 /11/ 1.00 0.0284 (0.0284) 1.00
See accompanying notes to financial statements.
50
BlackRock Funds
Ratio of net
Net Ratio of total investment income (Loss)
assets Ratio of expenses to average Ratio of net to average
end of net expenses to net assets investment income net assets
Total period average net (excluding to average net (excluding
return (000) assets waivers) assets waivers)
===================================================================================================================================
- -------------------------------------------------------
New Jersey Municipal Money Market Portfolio (Continued)
- -------------------------------------------------------
Investor A Class
9/30/05 1.39% $ 15,027 0.75% 1.11% 1.40% 1.04%
9/30/04 0.44 12,821 0.69 1.21 0.43 (0.09)
9/30/03 /11/ 0.45 17,783 0.82 1.19 0.44 0.07
9/30/02 /11/ 0.87 14,244 0.86 1.18 0.87 0.54
9/30/01 /11/ 2.61 16,417 0.86 1.17 2.40 2.09
- -----------------------------------------------
North Carolina Municipal Money Market Portfolio
- -----------------------------------------------
Institutional Class
9/30/05 1.87% $ 56,017 0.30% 0.80% 1.84% 1.34%
9/30/04 0.85 58,168 0.30 0.74 0.84 0.40
9/30/03 /11/ 0.97 162,465 0.30 0.74 0.96 0.53
9/30/02 /11/ 1.35 156,476 0.30 0.72 1.32 0.90
9/30/01 /11/ 3.18 115,139 0.30 0.70 3.10 2.70
Service Class
9/30/05 1.56% $ 6,923 0.60% 1.07% 1.69% 1.22%
9/30/04 0.54 160 0.60 1.03 0.55 0.11
9/30/03 /11/ 0.67 227 0.60 1.04 0.63 0.20
9/30/02 /11/ 1.05 205 0.60 1.02 1.14 0.71
9/30/01 /11/ 2.87 519 0.60 1.00 2.80 2.40
Investor A Class
9/30/05 1.52% $ 321 0.64% 1.15% 1.51% 1.00%
9/30/04 0.55 319 0.60 1.23 0.54 (0.09)
9/30/03 /11/ 0.53 338 0.74 1.21 0.53 0.06
9/30/02 /11/ 0.88 375 0.77 1.19 0.88 0.46
9/30/01 /11/ 2.70 415 0.77 1.17 2.52 2.12
Investor B Class
10/1/01 /11/ through
12/14/01 0.12% $ --/4/ 1.37%/2/ 1.79%/2/ 0.60%/2/ 0.18%/2/
9/30/01 /11/ 2.05 6 1.37 1.77 2.02 1.62
- -------------------------------------
Ohio Municipal Money Market Portfolio
- -------------------------------------
Institutional Class
9/30/05 1.83% $ 88,697 0.39% 0.73% 1.79% 1.45%
9/30/04 0.87 122,030 0.39 0.72 0.87 0.54
9/30/03 /11/ 1.06 94,936 0.39 0.72 1.05 0.71
9/30/02 /11/ 1.55 104,426 0.39 0.72 1.52 1.19
9/30/01 /11/ 3.36 77,620 0.39 0.71 3.31 2.98
Service Class
9/30/05 1.53% $ 10,224 0.69% 0.98% 1.50% 1.21%
9/30/04 0.57 15,311 0.69 1.01 0.56 0.24
9/30/03 /11/ 0.75 13,061 0.69 1.03 0.75 0.41
9/30/02 /11/ 1.25 11,511 0.69 1.02 1.19 0.87
9/30/01 /11/ 3.05 12,667 0.69 1.01 2.95 2.63
Investor A Class
9/30/05 1.51% $ 20,893 0.71% 1.06% 1.47% 1.12%
9/30/04 0.46 32,171 0.80 1.20 0.46 0.06
9/30/03 /11/ 0.58 26,154 0.86 1.19 0.59 0.25
9/30/02 /11/ 1.07 30,851 0.86 1.18 1.09 0.77
9/30/01 /11/ 2.88 44,050 0.86 1.18 2.84 2.51
51
BlackRock Funds
FINANCIAL HIGHLIGHTS (Concluded)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net
asset Distributions asset
value Net from net value
beginning investment investment end of
of period income income period
============================================================================================
- ---------------------------------------------
Pennsylvania Municipal Money Market Portfolio
- ---------------------------------------------
Institutional Class
9/30/05 $ 1.00 $ 0.0178 $ (0.0178) $ 1.00
9/30/04 1.00 0.0073 (0.0073) 1.00
9/30/03 /11/ 1.00 0.0093 (0.0093) 1.00
9/30/02 /11/ 1.00 0.0131 (0.0131) 1.00
9/30/01 /11/ 1.00 0.0299 (0.0299) 1.00
Service Class
9/30/05 $ 1.00 $ 0.0148 $ (0.0148) $ 1.00
9/30/04 1.00 0.0043 (0.0043) 1.00
9/30/03 /11/ 1.00 0.0063 (0.0063) 1.00
9/30/02 /11/ 1.00 0.0101 (0.0101) 1.00
9/30/01 /11/ 1.00 0.0269 (0.0269) 1.00
Investor A Class
9/30/05 $ 1.00 $ 0.0155 $ (0.0155) $ 1.00
9/30/04 1.00 0.0045 (0.0045) 1.00
9/30/03 /11/ 1.00 0.0049 (0.0049) 1.00
9/30/02 /11/ 1.00 0.0084 (0.0084) 1.00
9/30/01 /11/ 1.00 0.0252 (0.0252) 1.00
Investor Class B
12/12/01 /1/,/11/ through 4/9/02 $ 1.00 $ 0.0003 $ (0.0003) $ 1.00
- -----------------------------------------
Virginia Municipal Money Market Portfolio
- -----------------------------------------
Institutional Class
9/30/05 $ 1.00 $ 0.0181 $ (0.0181) $ 1.00
9/30/04 1.00 0.0082 (0.0082) 1.00
9/30/03 /11/ 1.00 0.0094 (0.0094) 1.00
9/30/02 /11/ 1.00 0.0144 (0.0144) 1.00
9/30/01 /11/ 1.00 0.0323 (0.0323) 1.00
Service Class
05/13/05 through 06/27/05 /9/ $ 1.00 $ 0.0023 $ (0.0023) $ 1.00
10/01/03 through 10/07/03 /8/,/11/ 1.00 0.0001 (0.0001) 1.00
9/30/03 /11/ 1.00 0.0084 (0.0084) 1.00
9/30/02 /11/ 1.00 0.0124 (0.0124) 1.00
9/30/01 /11/ 1.00 0.0293 (0.0293) 1.00
Investor A Class
10/1/01 through 3/12/02 /11/ $ 1.00 $ 0.0051 $ (0.0051) $ 1.00
9/30/01 /11/ 1.00 0.0276 (0.0276) 1.00
/1/ Commencement of operations of share class.
/2/ Annualized.
/3/ Reissuance of shares.
/4/ There were no Investor B shares outstanding as of September 30, 2002.
/5/ There were no Investor A shares outstanding as of September 30, 2002.
/6/ There were no Investor C shares outstanding as of September 30, 2002.
See accompanying notes to financial statements.
52
BlackRock Funds
Ratio of net
Net Ratio of total investment income (Loss)
assets Ratio of expenses to average Ratio of net to average
end of net expenses to net assets investment income net assets
Total period average net (excluding to average net (excluding
return (000) assets waivers) assets waivers)
====================================================================================================================================
- ---------------------------------------------
Pennsylvania Municipal Money Market Portfolio
- ---------------------------------------------
Institutional Class
9/30/05 1.79% $430,376 0.42% 0.72% 1.78% 1.48%
9/30/04 0.73 426,130 0.42 0.71 0.73 0.44
9/30/03 /11/ 0.93 416,412 0.42 0.71 0.93 0.64
9/30/02 /11/ 1.31 466,039 0.42 0.70 1.30 1.02
9/30/01 /11/ 3.03 459,885 0.42 0.69 2.97 2.70
Service Class
9/30/05 1.49% $ 34,219 0.72% 0.97% 1.47% 1.22%
9/30/04 0.43 32,866 0.72 0.99 0.43 0.15
9/30/03 /11/ 0.63 44,164 0.72 1.01 0.64 0.35
9/30/02 /11/ 1.01 54,574 0.72 1.01 1.01 0.73
9/30/01 /11/ 2.72 75,431 0.72 0.99 2.73 2.46
Investor A Class
9/30/05 1.56% $ 72,079 0.65% 0.96% 1.64% 1.33%
9/30/04 0.45 29,647 0.70 1.17 0.44 (0.03)
9/30/03 /11/ 0.49 33,726 0.87 1.18 0.51 0.19
9/30/02 /11/ 0.84 68,204 0.88 1.16 0.83 0.55
9/30/01 /11/ 2.54 75,332 0.89 1.16 2.46 2.19
Investor Class B
12/12/01 /1/,/11/
through
4/9/02 0.05% $ --/4/ 1.49%/2/ 1.76%/2/ 0.14%/2/ (0.13)%/2/
- -----------------------------------------
Virginia Municipal Money Market Portfolio
- -----------------------------------------
Institutional Class
9/30/05 1.83% $ 24,169 0.30% 0.92% 1.84% 1.22%
9/30/04 0.82 17,857 0.30 0.89 0.83 0.23
9/30/03 /11/ 0.95 21,963 0.30 0.75 0.93 0.48
9/30/02 /11/ 1.45 19,808 0.30 0.75 1.50 1.06
9/30/01 /11/ 3.28 53,823 0.30 0.73 3.26 2.83
Service Class
05/13/05 through
06/27/05 /9/ 0.23%/10/ $ --/9/ 0.60%/2/ 1.18%/2/ 1.96%/2/ 1.38%/2/
10/01/03 through
10/07/03 /8/,/11/ 0.01 --/8/ 0.40/2/ 1.06/2/ 0.71/2/ 0.04/2/
9/30/03 /11/ 0.85 41,011 0.40 1.05 0.85 0.19
9/30/02 /11/ 1.25 44,143 0.40 1.00 1.19 0.60
9/30/01 /11/ 2.97 611 0.60 1.03 2.94 2.51
Investor A Class
10/1/01 through
3/12/02 /11/ 0.51% $ --/5/ 0.77%/2/ 1.20%/2/ 1.21%/2/ 0.77%/2/
9/30/01 /11/ 2.80 3,008 0.77 1.20 2.72 2.28
/7/ Certain prior year amounts were reclassified to conform to current year
presentation.
/8/ There were no Service shares outstanding as of September 30, 2004.
/9/ There were no Service shares outstanding as of September 30, 2005.
/10/ Not Annualized.
/11/ Audited by other auditors.
53
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS
(A) Organization
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 (the "1940 Act"), as amended, as an open-end management investment
company. The Fund currently has 50 registered portfolios, eight 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, mostly due to differences
in distribution and service fees. As of September 30, 2005, no BlackRock Shares
were outstanding.
Under the Fund's organizational documents, its officers and trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts with its vendors and others that provide for general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund.
However, based on experience, the Fund considers the risk of loss from such
claims to be remote.
(B) Fund Reorganization
On January 31, 2005, BlackRock, Inc., the parent of BlackRock Advisors,
Inc. ("BlackRock"), acquired SSRM Holdings, Inc., the parent of State Street
Research & Management Company ("SSRM"), the investment adviser to the former
State Street Research mutual funds.
On January 31, 2005, the Money Market Portfolio acquired all of the assets
and certain stated liabilities of the State Street Research Money Market Fund.
The reorganization was pursuant to an Agreement and Plan of Reorganization,
which was approved by the State Street Research shareholders on January 25,
2005. Under the Agreement and Plan of Reorganization, 8,688,440 Class B and
154,741,254 Class E shares of the State Street Research Money Market Fund were
exchanged for 8,688,440 and 154,741,254 Investor A Class shares of the BlackRock
Money Market Portfolio, respectively; 15,158,957 Class B(1) shares of the State
Street Research Money Market Fund were exchanged for 15,158,957 Investor B Class
shares of the BlackRock Money Market Portfolio; 4,761,926 Class C shares of the
State Street Research Money Market Fund were exchanged for 4,761,926 Investor C
Class shares of the BlackRock Money Market Portfolio and 26,966,565 Class S
shares of the State Street Research Money Market Fund were exchanged for
26,966,565 Institutional Class shares of the BlackRock Money Market Portfolio.
The assets of the State Street Research Money Market Fund, which consisted of
securities and related receivables less liabilities, were converted on a
tax-free basis. Upon the reorganization of such funds on January 31, 2005, the
value of the BlackRock Money Market Portfolio's net assets (including
$210,334,574 in net assets of the State Street Research Money Market Fund) was
$1,605,776,413 before the open of business.
(C) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Portfolios in the preparation of their financial statements.
Security Valuation -- Portfolio securities are valued under the amortized
cost method which approximates current market value in accordance with Rule 2a-7
of the 1940 Act. Under this method, securities are valued at cost when purchased
and thereafter, a constant proportionate amortization of any discount or premium
is recorded until the maturity of the security. Regular review and monitoring of
the valuation is performed in an attempt to avoid dilution or other unfair
results to shareholders. The Fund seeks to maintain the net asset value per
share of each Portfolio at $1.00, although there is no assurance that it will be
able to do so on a continuing basis.
Dividends to Shareholders -- Dividends from net investment income are
declared daily and paid monthly. Net realized capital gains, if any, are
distributed at least annually.
Investment 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, generally first in first out, for
both financial reporting and federal income tax purposes. Interest income is
recorded on the accrual basis.
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
54
BlackRock Funds
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 Portfolio's custodian or an authorized
securities depository.
Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("generally accepted accounting principles") requires the use of management
estimates. Actual results could differ from these estimates.
Other -- Expenses that are directly related to one of the Portfolios are
charged directly to that Portfolio. Other operating expenses are prorated to the
Portfolios on the basis of relative net assets. Class-specific expenses are
borne by that class. Differences in net expense ratios between classes of a
Portfolio are due to class-specific expenses, waivers and accrual adjustments.
Income, other expenses and realized and unrealized gains and losses of a
Portfolio are allocated to the respective class on the basis of the relative net
assets each day.
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.
Class-Specific Fee Arrangement
------------------------------
Share Classes
------------------------------------------------------------------------
Institutional Service Hilliard Lyons
---------------------- ---------------------- ----------------------
Contractual Actual Contractual Actual Contractual Actual
Portfolio Fees Fees (4) Fees (1) Fees (4) Fees (2) Fees (4)
--------- ----------- -------- ----------- -------- ----------- --------
Money Market None None 0.25% 0.25% 0.35% 0.25%
U.S. Treasury None None 0.25% 0.25% N/A N/A
Municipal None None 0.25% 0.25% 0.35% None
New Jersey Municipal None None 0.25% 0.25% N/A N/A
North Carolina Municipal None None 0.25% 0.25% N/A N/A
Ohio Municipal None None 0.25% 0.25% N/A N/A
Pennsylvania Municipal None None 0.25% 0.25% N/A N/A
Virginia Municipal None None 0.25% N/A N/A N/A
Share Classes
------------------------------------------------------------------------
Investor A Investor B Investor C
---------------------- ---------------------- ----------------------
Contractual Actual Contractual Actual Contractual Actual
Portfolio Fees (2) Fees (4) Fees (3) Fees (4) Fees (3) Fees (4)
--------- ----------- -------- ----------- -------- ----------- --------
Money Market 0.35% 0.25% 1.00% 0.75% 1.00% 0.75%
U.S. Treasury 0.35% 0.25% 1.00% N/A 1.00% N/A
Municipal 0.35% 0.25% 1.00% N/A 1.00% N/A
New Jersey Municipal 0.35% 0.25% 1.00% N/A 1.00% N/A
North Carolina Municipal 0.35% 0.25% 1.00% N/A 1.00% N/A
Ohio Municipal 0.35% 0.25% 1.00% N/A 1.00% N/A
Pennsylvania Municipal 0.35% 0.25% 1.00% N/A 1.00% N/A
Virginia Municipal 0.35% N/A 1.00% N/A 1.00% N/A
(1) -- the maximum annual contractual fees are comprised of a 0.25% service fee.
(2) -- the maximum annual contractual fees are comprised of a 0.10% distribution
fee and a 0.25% service fee.
(3) -- the maximum annual contractual fees are comprised of a 0.75% distribution
fee and a 0.25% service fee.
(4) -- the actual fees are as of September 30, 2005.
Each of the Institutional, Service, Hilliard Lyons, Investor A, Investor B
and Investor C share classes bear a Transfer Agent fee at an annual rate not to
exceed 0.018% of the average daily net assets of such respective classes plus
per account fees and disbursements.
55
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
For the year ended September 30, 2005, the following shows the various
types of class-specific expenses borne directly by each class of each Portfolio
and any associated waivers of those expenses.
Administration Fees Share Classes
--------------------------------------------------------------------------------
Hilliard
Institutional Service Lyons Investor A Investor B Investor C
--------------- ------------ ------------ ------------ ------------ ------------
Money Market ..................... $ 482,728 $ 369,860 $ 113,002 $ 403,832 $ 14,976 $ 3,862
U.S. Treasury .................... 171,513 204,949 -- 36,717 -- --
Municipal ........................ 103,103 78,176 126,235 5,601 -- --
New Jersey Municipal ............. 73,643 57,488 -- 13,051 -- --
North Carolina Municipal ......... 57,723 384 -- 309 -- --
Ohio Municipal ................... 109,815 9,305 -- 23,520 -- --
Pennsylvania Municipal ........... 395,355 33,484 -- 51,791 -- --
Virginia Municipal ............... 18,854 2 -- -- -- --
Administration Fees
TOTAL
------------
Money Market ..................... $ 1,388,260
U.S. Treasury .................... 413,179
Municipal ........................ 313,115
New Jersey Municipal ............. 144,182
North Carolina Municipal ......... 58,416
Ohio Municipal ................... 142,640
Pennsylvania Municipal ........... 480,630
Virginia Municipal ............... 18,856*
* Fund also had a fund level administration waiver of $14,770.
Administration Fees Waived Share Classes
-----------------------------------------------------------------------------
Hilliard
Institutional Service Lyons Investor A Investor B Investor C Total
--------------- ------------ --------- ------------ ------------ ------------ ------------
Money Market ..................... $ 482,728 $ 179,361 $-- $-- $ 8,229 $ 1,450 $ 671,768
U.S. Treasury .................... 171,513 95,246 -- -- -- -- 266,759
Municipal ........................ 103,103 37,012 -- -- -- -- 140,115
New Jersey Municipal ............. 73,643 26,475 -- -- -- -- 100,118
North Carolina Municipal ......... 57,722 201 -- -- -- -- 57,923
Ohio Municipal ................... 109,815 4,381 -- -- -- -- 114,196
Pennsylvania Municipal ........... 395,355 16,049 -- -- -- -- 411,404
Virginia Municipal ............... 18,854 2 -- -- -- -- 18,856
Transfer Agent Fees Share Classes
------------------------------------------------------------------------------
Hilliard
Institutional Service Lyons Investor A Investor B Investor C Total
--------------- ----------- ----------- ------------ ------------ ------------ ------------
Money Market ..................... $ 91,847 $ 70,079 $ 21,412 $ 76,524 $ 2,837 $ 732 $ 263,431
U.S. Treasury .................... 32,497 38,833 -- 6,958 -- -- 78,288
Municipal ........................ 19,535 14,811 23,918 1,061 -- -- 59,325
New Jersey Municipal ............. 13,954 10,892 -- 2,473 -- -- 27,319
North Carolina Municipal ......... 10,942 73 -- 59 -- -- 11,074
Ohio Municipal ................... 20,807 1,763 -- 4,457 -- -- 27,027
Pennsylvania Municipal ........... 74,910 6,344 -- 9,813 -- -- 91,067
Virginia Municipal ............... 3,572 -- -- -- -- -- 3,572
56
BlackRock Funds
Shareholder Service Fees Share Classes
------------------------------------------------------------------
Hilliard
Service Lyons Investor A Investor B Investor C Total
------------ ------------ -------------- ------------ ------------ --------------
Money Market ........................ $ 975,043 $ 305,685 $ 1,042,319 $ 42,329 $ 10,043 $ 2,375,419
U.S. Treasury ....................... 540,763 -- 95,641 -- -- 636,404
Municipal ........................... 206,036 332,197 16,240 -- -- 554,473
New Jersey Municipal ................ 150,488 -- 37,062 -- -- 187,550
North Carolina Municipal ............ 1,012 -- 809 -- -- 1,821
Ohio Municipal ...................... 24,488 -- 55,620 -- -- 80,108
Pennsylvania Municipal .............. 88,115 -- 75,267 -- -- 163,382
Virginia Municipal Money Market ..... 4 -- -- -- -- 4
Shareholder Service Fees Waived Share Classes
----------------------------------------------------
Hilliard
Service Lyons Investor B Investor C Total
--------- ---------- ------------ ------------ -----------
Money Market ................. $-- $ -- $ 39,334 $ 10,117 $ 49,451
Municipal .................... -- 332,197 -- -- 332,197
Distribution Fees Share Classes
-------------------------------------------------------------
Hilliard Lyons Investor A Investor B Investor C Total
---------------- ------------ ------------ ------------ ------------
Money Market ..................... $ 118,954 $ 425,151 $ 118,229 $ 30,493 $ 692,827
U.S. Treasury .................... -- 38,650 -- -- 38,650
Municipal ........................ 132,879 5,895 -- -- 138,774
New Jersey Municipal ............. -- 13,738 -- -- 13,738
North Carolina Municipal ......... -- 325 -- -- 325
Ohio Municipal ................... -- 24,758 -- -- 24,758
Pennsylvania Municipal ........... -- 54,517 -- -- 54,517
Distribution Fees Waived Share Classes
-------------------------------
Hilliard Lyons Investor A Total
---------------- ------------ ------------
Money Market ..................... $ 118,954 $ 425,151 $ 544,105
U.S. Treasury .................... -- 38,650 38,650
Municipal ........................ 132,879 5,895 138,774
New Jersey Municipal ............. -- 13,738 13,738
North Carolina Municipal ......... -- 325 325
Ohio Municipal ................... -- 24,758 24,758
Pennsylvania Municipal ........... -- 54,517 54,517
57
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
(D) Transactions with Affiliates and Related Parties
Pursuant to an Investment Advisory Agreement, BlackRock serves as
investment adviser to the Portfolios. BlackRock Institutional Management Corp.
("BIMC"), 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.
For its advisory services, BlackRock is entitled to receive fees, computed
daily and payable monthly, at the following annual rates, based on each
Portfolio's average daily net assets: 0.45% of the first $1 billion, 0.40% of
the next $1 billion, 0.375% of the next $1 billion and 0.35% of net assets in
excess of $3 billion.
In the interest of limiting the expenses of the Portfolios, BlackRock and
the Fund have entered into a series of annual expense limitation agreements. The
agreements set a limit on certain operating expenses of each Portfolio for the
next year and require BlackRock to waive or reimburse fees or expenses if these
operating expenses exceed that limit. These expense limits apply to the
aggregate expenses incurred on a share class (excluding: interest, taxes,
brokerage commissions and other extraordinary expenses).
BlackRock has contractually agreed to waive or reimburse fees or expenses
until February 1, 2006, in order to limit expenses as follows. This agreement is
reviewed annually by the Fund's Board.
Portfolio Share Classes
--------------------------------------------------------------------------------
Institutional Service Hilliard Lyons Investor A Investor B Investor C
--------------- --------- ---------------- ------------ ------------ -----------
Money Market ................. 0.42% 0.72% 0.91% 0.89% 1.49% 1.49%
U.S. Treasury ................ 0.41% 0.71% NA 0.88% NA NA
Municipal .................... 0.42% 0.72% 0.66% 0.89% NA NA
New Jersey Municipal ......... 0.39% 0.69% NA 0.96% NA NA
North Carolina Municipal ..... 0.30% 0.60% NA 0.87% NA NA
Ohio Municipal ............... 0.39% 0.69% NA 0.96% NA NA
Pennsylvania Municipal ....... 0.42% 0.72% NA 0.99% NA NA
Virginia Municipal ........... 0.30% NA NA NA NA NA
If in the following two years the operating expenses of a share class that
previously received a waiver or reimbursement from BlackRock are less than the
expense limit for that share class, the share class is required to repay
BlackRock up to the amount of fees waived or expenses reimbursed under the
agreement if: (1) the Portfolio of which the share class is a part 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 at the previous quarterly meeting.
At September 30, 2005, the amounts subject to possible future reimbursement
under the expense limitation agreement are as follows:
Expiring Expiring Expiring Total waivers subject
January 31, 2006 January 31, 2007 January 31, 2008 to reimbursement
------------------ ------------------ ------------------ ----------------------
Money Market ................. $ 6,569,912 $ 3,692,376 $ 1,969,872 $ 12,232,160
U.S. Treasury ................ 2,107,024 1,317,236 786,143 4,210,403
Municipal .................... 1,946,590 1,151,500 423,264 3,521,354
New Jersey Municipal ......... 553,395 479,468 293,867 1,326,730
North Carolina Municipal ..... 645,013 261,156 200,227 1,106,396
Ohio Municipal ............... 492,327 431,627 276,709 1,200,663
Pennsylvania Municipal ....... 1,505,526 1,334,315 886,830 3,726,671
Virginia Municipal ........... 233,309 101,140 86,880 421,329
58
BlackRock Funds
The following waivers previously incurred on the portfolios which were
subject to recoupment by BlackRock expired on January 31, 2005, in the amounts
of $7,697,755 for Money Market Portfolio, $2,639,070 for U.S. Treasury Money
Market Portfolio, $2,114,002 for Municipal Money Market Portfolio, $582,682 for
New Jersey Municipal Money Market Portfolio, $611,462 for North Carolina
Municipal Money Market Portfolio, $506,362 for Ohio Municipal Money Market
Portfolio, $1,845,254 for Pennsylvania Municipal Money Market Portfolio and
$282,198 for Virginia Municipal Money Market Portfolio.
BlackRock pays BIMC a fee for its subadvisory services.
PFPC Inc. ("PFPC"), an indirect wholy-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: 0.085% of the first
$500 million, 0.075% of the next $500 million and 0.065% of assets in excess of
$1 billion. In addition, each of the share classes is charged an administration
fee based on the following percentage of average daily net assets of each
respective class: 0.095% of the first $500 million, 0.085% of the next $500
million and 0.075% of assets in excess of $1 billion. In addition, PFPC and
BlackRock may have, at their discretion, voluntarily waived all or any portion
of their administration fees for any Portfolio or share class.
PFPC Trust Co., an indirect subsidiary of The PNC Financial Services
Group, Inc., serves as custodian for each of the Fund's Portfolios. The
custodian has agreed to voluntarily waive a portion of their fees during the
year.
PFPC serves as transfer and dividend disbursing agent. The transfer agent
has agreed to voluntarily waive a portion of their fees during the year.
Pursuant to the Fund's Amended and Restated Distribution and Service Plan
(the "Plan"), the Fund may pay BlackRock Distributors, Inc. (the "Distributor")
and/or BlackRock or any other affiliate of PNC Financial Services Group, Inc.
fees for distribution and sales support services. Currently, only Hilliard Lyons
Shares, Investor A Shares, Investor B Shares and Investor C Shares bear the
expense of distribution fees under the Plan. In addition, the Fund may pay
brokers, dealers, financial institutions and industry professionals (including
PNC Financial Services Group, Inc. and its affiliates) ("service organizations")
fees for the provision of personal services to shareholders. BlackRock may
receive some of the service fees paid by the Fund in return for providing
services to shareholders. Currently, only Hilliard Lyons Shares, Investor A
Shares, Investor B Shares, Investor C Shares and Service Shares bear the expense
of service fees under the Plan.
Since January 31, 2005, BlackRock has maintained a call center which is
responsible for providing certain shareholder services to the BlackRock Funds,
such as responding to shareholder inquiries and processing transactions based
upon instructions from shareholders with respect to the subscription and
redemption of fund shares. During the period February 1, 2005 through September
30, 2005, the following amounts have been accrued by each portfolio to reimburse
BlackRock for costs incurred running the call center, which are a component of
the Transfer Agent fees in the accompanying Statement of Operations.
Hilliard
Institutional Service Lyons Investor A Investor B Investor C Total
--------------- ----------- --------- ------------ ------------ ------------ ------------
Money Market ..................... $ 37,670 $ 29,733 $ 9,196 $ 35,513 $ 1,529 $ 452 $ 114,093
U.S. Treasury .................... 14,852 17,710 -- 3,203 -- -- 35,765
Municipal ........................ 9,088 6,604 10,401 416 -- -- 26,509
New Jersey Municipal ............. 5,746 4,969 -- 1,079 -- -- 11,794
North Carolina Municipal ......... 4,627 38 -- 26 -- -- 4,691
Ohio Municipal ................... 8,380 573 -- 2,089 -- -- 11,042
Pennsylvania Municipal ........... 32,399 2,725 -- 5,079 -- -- 40,203
Virginia Municipal ............... 2,064 -- -- -- -- -- 2,064
59
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
As of the fiscal year ended September 30, 2005, affiliated payables were as
follows:
PFPC(1) BlackRock(2) PFPC(3)
------------ -------------- ------------
Money Market ..................... $ 118,017 $ 448,729 $ 208,485
U.S. Treasury .................... 34,443 120,300 63,758
Municipal ........................ 22,891 83,568 20,307
New Jersey Municipal ............. 11,307 33,081 15,108
North Carolina Municipal ......... 4,839 2,267 254
Ohio Municipal ................... 9,271 26,926 5,999
Pennsylvania Municipal ........... 37,644 136,687 21,417
Virginia Municipal ............... 2,192 761 --
(1) -- payables to PFPC are for Accounting, Administration, Custody and Transfer
Agent services.
(2) -- payables to BlackRock are for Advisory and Administration services and
for amounts due BlackRock for costs incurred related to the BlackRock
Funds Call Center.
(3) -- payables to PNC Bank affiliates are for distribution and sales support
services as described under the Plan. The total payable on behalf of the
Fund, as of September 30, 2005, was $5,313,103, a portion of which is
paid to service organizations, including other PNC Bank affiliates.
In April of 2005, BlackRock determined that the Municipal Money Market
Portfolio had purchased a security, the interest on which is subject to the
Federal Alternative Minimum Tax ("AMT") (an "AMT Security"), in violation of the
Portfolio's investment policy that limits the Portfolio investments in AMT
securities to 20% of its nets assets. Once the issue was identified, the amount
of AMT securities were decreased and the Portfolio did not incur a gain or loss.
Due to the violation of investment policy, the Advisor reimbursed the Portfolio
$3,098, which represents the additional tax liability that would be incurred by
shareholders if all of the shareholders of the Portfolio were subject to the
AMT.
60
BlackRock Funds
(E) Capital Shares
Because the Portfolios have each sold and redeemed shares only at a
constant net asset value of $1.00 per share, the number of shares represented by
such sales, acquisitions, reinvestments, and redemptions is the same as the
dollar amounts shown on the next page for such transactions.
Transactions in capital shares for each period were as follows:
Money Market
-------------------------------------------
For the Year For the Year
Ended Ended
09/30/05 9/30/04
------------------- ---------------------
Shares issued from the acquisition:/(1)/
Institutional Class .................... $ 26,966,565 $ --
Investor A Class ....................... 163,429,694 --
Investor B Class ....................... 15,158,957 --
Investor C Class ....................... 4,761,926 --
Shares sold:
Institutional Class .................... 1,471,011,786 2,276,620,055
Service Class .......................... 1,456,169,230 1,474,934,413
Hilliard Lyons Class ................... 114,338,508 173,608,883
Investor A Class ....................... 364,963,335 171,522,913
Investor B Class ....................... 9,040,751 3,083,308
Investor C Class ....................... 4,097,308 328,491
Shares issued in reinvestment of dividends:
Institutional Class .................... 411,878 5,468
Service Class .......................... 1,285,575 356,508
Hilliard Lyons Class ................... 2,448,010 497,046
Investor A Class ....................... 8,575,542 1,548,464
Investor B Class ....................... 235,555 8,642
Investor C Class ....................... 64,255 940
Shares redeemed:
Institutional Class .................... (1,517,293,240) (3,689,497,408)
Service Class .......................... (1,420,060,947) (1,532,716,956)
Hilliard Lyons Class ................... (116,973,705) (206,133,442)
Investor A Class ....................... (465,850,554) (262,262,407)
Investor B Class ....................... (14,643,659) (7,658,078)
Investor C Class ....................... (4,764,873) (1,641,896)
---------------- -----------------
Net increase (decrease) ................... $ 103,371,897 $ (1,597,395,056)
================ =================
/(1)/ See Note (B).
61
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
U.S. Treasury
-----------------------------------------
For the Year For the Year
Ended Ended
9/30/05 9/30/04
------------------- -------------------
Shares sold:
Institutional Class .................... $ 581,006,132 $ 615,824,214
Service Class .......................... 1,246,791,596 1,039,846,394
Investor A Class ....................... 31,284,000 28,719,726
Shares issued in reinvestment of dividends:
Institutional Class .................... 536 402
Service Class .......................... 210,607 18,679
Investor A Class ....................... 736,089 120,288
Shares redeemed:
Institutional Class .................... (592,231,695) (818,934,544)
Service Class .......................... (1,209,596,697) (1,070,394,239)
Investor A Class ....................... (41,311,290) (37,463,601)
---------------- ----------------
Net increase (decrease) ................... $ 16,889,278 $ (242,262,681)
================ ================
Municipal
----------------------------------------
For the Year For the Year
Ended Ended
9/30/05 9/30/04
------------------ -------------------
Shares sold:
Institutional Class .................... $ 285,681,384 $ 623,753,440
Service Class .......................... 228,128,150 233,032,663
Hilliard Lyons Class ................... 136,113,807 126,790,716
Investor A Class ....................... 32,576,400 18,673,688
Shares issued in reinvestment of dividends:
Institutional Class .................... 8,419 2,237
Service Class .......................... 211,590 53,046
Hilliard Lyons Class ................... 2,251,776 742,597
Investor A Class ....................... 79,599 25,918
Shares redeemed:
Institutional Class .................... (336,438,973) (934,868,983)
Service Class .......................... (204,841,772) (251,500,050)
Hilliard Lyons Class ................... (139,124,201) (143,666,837)
Investor A Class ....................... (35,716,119) (20,396,597)
-------------- ---------------
Net decrease .............................. $ (31,069,940) $ (347,358,162)
============== ===============
62
BlackRock Funds
New Jersey Municipal
-----------------------------------
For the Year For the Year
Ended Ended
9/30/05 9/30/04
---------------- ----------------
Shares sold:
Institutional Class .................... $ 227,139,327 $ 201,648,068
Service Class .......................... 60,335,438 20,828,471
Investor A Class ....................... 32,747,181 32,564,149
Shares issued in reinvestment of dividends:
Institutional Class .................... 106,670 32,143
Service Class .......................... 52,789 13,401
Investor A Class ....................... 197,999 60,914
Shares redeemed:
Institutional Class .................... (233,444,754) (198,420,615)
Service Class .......................... (60,492,949) (25,258,071)
Investor A Class ....................... (30,740,159) (37,587,353)
-------------- --------------
Net decrease .............................. $ (4,098,458) $ (6,118,893)
============== ==============
North Carolina Municipal
--------------------------------------
For the Year For the Year
Ended Ended
9/30/05 9/30/04
---------------- -------------------
Shares sold:
Institutional Class .................... $ 209,741,015 $ 202,122,387
Service Class .......................... 7,584,781 519,017
Investor A Class ....................... 42,000 42,000
Shares issued in reinvestment of dividends:
Institutional Class .................... 613,029 206,053
Service Class .......................... -- 54
Investor A Class ....................... 5,082 1,717
Shares redeemed:
Institutional Class .................... (212,511,399) (306,616,657)
Service Class .......................... (821,749) (585,549)
Investor A Class ....................... (44,225) (62,963)
-------------- ---------------
Net increase (decrease) ................... $ 4,608,534 $ (104,373,941)
============== ===============
63
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Ohio Municipal
-------------------------------------
For the Year For the Year
Ended Ended
9/30/05 9/30/04
------------------ ----------------
Shares sold:
Institutional Class .................... $ 416,216,719 $ 288,880,251
Service Class .......................... 102,881,674 157,732,223
Investor A Class ....................... 74,822,659 57,848,699
Shares issued in reinvestment of dividends:
Institutional Class .................... 193,067 91,212
Service Class .......................... 34,216 44,984
Investor A Class ....................... 384,943 109,169
Shares redeemed:
Institutional Class .................... (449,742,164) (261,878,328)
Service Class .......................... (108,002,227) (155,527,630)
Investor A Class ....................... (86,485,328) (51,941,374)
-------------- --------------
Net increase (decrease) ................... $ (49,696,441) $ 35,359,206
============== ==============
Pennsylvania Municipal
-----------------------------------
For the Year For the Year
Ended Ended
9/30/05 9/30/04
---------------- ----------------
Shares sold:
Institutional Class .................... $ 691,010,747 $ 562,836,682
Service Class .......................... 82,803,397 59,624,658
Investor A Class ....................... 150,289,355 94,465,452
Shares issued in reinvestment of dividends:
Institutional Class .................... 113,667 28,073
Service Class .......................... 183,050 43,501
Investor A Class ....................... 914,451 146,226
Shares redeemed:
Institutional Class .................... (686,849,356) (553,173,570)
Service Class .......................... (81,630,970) (70,969,774)
Investor A Class ....................... (108,768,404) (98,694,894)
-------------- --------------
Net increase (decrease) ................... $ 48,065,937 $ (5,693,646)
============== ==============
Virginia Municipal
-------------------------------------
For the Year For the Year
Ended Ended
9/30/05 9/30/04
---------------- ------------------
Shares sold:
Institutional Class .................... $ 94,946,827 $ 71,096,927
Service Class .......................... 14,980 --
Shares issued in reinvestment of dividends:
Institutional Class .................... 36,052 15,183
Shares redeemed:
Institutional Class .................... (88,670,193) (75,219,028)
Service Class .......................... (14,980) (41,010,487)
------------- --------------
Net increase (decrease) ................... $ 6,312,686 $ (45,117,405)
============= ==============
64
BlackRock Funds
On September 30, 2005, four shareholders held approximately 78% of the
outstanding shares of the Money Market Portfolio, four shareholders held
approximately 88% of the outstanding shares of the U.S. Treasury Money Market
Portfolio, four shareholders held approximately 92% of the outstanding shares of
the Municipal Money Market Portfolio, four shareholders held approximately 93%
of the outstanding shares of the New Jersey Municipal Money Market Portfolio,
five shareholders held approximately 92% of the outstanding shares of the North
Carolina Municipal Money Market Portfolio, two shareholders held approximately
81% of the outstanding shares of the Ohio Municipal Money Market Portfolio, two
shareholders held approximately 86% of the outstanding shares of the
Pennsylvania Municipal Money Market Portfolio and four shareholders held
approximately 96% of the outstanding shares of the Virginia Municipal Money
Market Portfolio. Some of the shareholders are comprised of omnibus accounts,
which are held on behalf of several individual shareholders.
(F) At September 30, 2005, net assets consisted of:
New Jersey
Money Market U.S. Treasury Municipal Municipal
------------------ ----------------- ---------------- ----------------
Capital paid-in ............. $ 1,559,870,253 $ 454,086,291 $ 300,288,514 $ 149,151,769
Undistributed net investment
income .................... 64,239 46,591 -- --
Accumulated net realized gain
(loss) on investment
transactions .............. (196,900) (50,579) 2,700 (2,025)
--------------- ------------- ------------- -------------
$ 1,559,737,592 $ 454,082,303 $ 300,291,214 $ 149,149,744
=============== ============= ============= =============
North
Carolina Ohio Pennsylvania Virginia
Municipal Municipal Municipal Municipal
--------------- ---------------- ---------------- ---------------
Capital paid-in .................. $ 63,265,075 $ 119,841,401 $ 536,708,659 $ 24,169,823
Accumulated net realized loss on
investment transactions ......... (2,893) (27,198) (33,844) (583)
------------ ------------- ------------- ------------
$ 63,262,182 $ 119,814,203 $ 536,674,815 $ 24,169,240
============ ============= ============= ============
(G) Federal Tax Information
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. Short-term capital gain distributions that are reported in the
Statements of Changes in Net Assets are reported as ordinary income for federal
tax purposes. There were no short-term or long-term capital gain distributions
for the fiscal year ended September 30, 2005.
Dividends from net investment income and distributions from net realized
capital gains are determined in accordance with U.S. Federal income tax
regulations, which may differ from those amounts determined under accounting
principles generally accepted in the United States.
Dividends from tax-free income and net investment income and distributions
from net capital gains are determined in accordance with U.S. Federal income tax
regulations, which may differ from those amounts determined under accounting
principles generally accepted in the United States. These book/tax differences
are either temporary or permanent in nature. To the extent these differences are
permanent, they are charged or credited to paid-in-capital or accumulated net
realized gain, as appropriate, in the period that the differences arise. The
following permanent differences as of September 30, 2005 attributable to capital
loss carryover expiration and redemptions that represent capital gain
distributions which for tax purposes, are not available to offset future income,
were reclassified to the following accounts:
65
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Concluded)
Decrease Increase (Decrease)
Increase in Accumulated Net Undistributed Net
Paid-in-Capital Realized Gain (Loss) Investment Income
----------------- ---------------------- --------------------
Money Market .............................. 1,987 (1,987) --
New Jersey Municipal Money Market ......... 4,786 (4,786) --
Pennsylvania Muni Money Market ............ 11,260 (11,260) --
The tax character of distributions paid during the fiscal years ended
September 30, 2005 and September 30, 2004 were as follows:
Tax-Free Ordinary
Income Income
------------ ---------------
Money Market
9/30/05 ............... $ -- $ 31,021,152
9/30/04 ............... -- 16,426,664
U.S. Treasury
9/30/05 ............... -- 8,916,517
9/30/04 ............... -- 3,056,516
Municipal Money
9/30/05 ............... 5,253,149 --
9/30/04 ............... 3,446,121 --
New Jersey Municipal
9/30/05 ............... 2,406,767 --
9/30/04 ............... 926,093 --
North Carolina Municipal
9/30/05 ............... 1,127,667 --
9/30/04 ............... 684,695 --
Ohio Municipal
9/30/05 ............... 2,586,302 --
9/30/04 ............... 1,075,474 --
Pennsylvania Municipal
9/30/05 ............... 8,806,806 --
9/30/04 ............... 3,424,471 --
Virginia Municipal
9/30/05 ............... 365,649 --
9/30/04 ............... 137,645 --
As of September 30, 2005, the components of distributable
earnings/(accumulated losses) were as follows:
Undistributed Undistributed Undistributed Accumulated Post-
Tax-Free Ordinary Long-Term Capital October
Income Income Capital Gain Losses Losses
--------------- --------------- --------------- --------------- -----------
Money Market ..................... $ -- $ 2,224,886 $ -- $ (184,604) $ 12,296
U.S. Treasury .................... -- 1,095,900 -- (37,441) 13,138
Municipal ........................ 275,633 -- 2,700 -- --
New Jersey Municipal ............. 219,553 -- -- -- 2,025
North Carolina Municipal ......... 58,442 -- 4,732 -- --
Ohio Municipal ................... 177,421 -- -- (27,198) --
Pennsylvania Municipal ........... 781,629 -- -- -- 33,844
Virginia Municipal ............... 42,631 -- -- (77) 506
Post-October losses represent losses realized on investment transactions
from November 1, 2004 through September 30, 2005 that, in accordance with
Federal income tax regulations, the Portfolios may defer and treat as having
arisen in the following fiscal year. For Federal income tax purposes, capital
loss carryforwards may be carried forward and applied against future capital
gains. During the fiscal year ended September 30, 2005, $8,376 of Municipal
Money Market's and $784 of North Carolina Municipal Money Market's capital loss
carryforward were used to offset net taxable gains realized in the fiscal year
September 30, 2005.
66
BlackRock Funds
At September 30, 2005, the Portfolios had capital loss carryforwards
available to offset future realized capital gains through the indicated
expiration dates:
Expiring September 30
--------------------------------------------------------------------------------------
2006 2007 2008 2009 2010 2011 Total
-------- --------- -------- ----------- --------- ----------- ------------
Money Market ............... $ 547 $ 268 $ -- $ 97,341 $ -- $ 86,448 $ 184,604
U.S. Treasury .............. -- -- -- 13,150 11,911 12,380 37,441
Ohio Municipal ............. 3,203 16,541 6,193 -- -- 1,261 27,198
Virginia Municipal ......... -- -- -- -- 77 -- 77
67
BlackRock Funds
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of BlackRock Funds:
We have audited the accompanying statements of net assets of the Money Market,
U.S. Treasury Money Market, Municipal Money Market, New Jersey Municipal Money
Market, North Carolina Municipal Money Market, Ohio Municipal Money Market,
Pennsylvania Municipal Money Market, and Virginia Municipal Money Market
Portfolios [eight of the fifty portfolios constituting BlackRock Funds (the
"Fund"), collectively the "Portfolios"], as of September 30, 2005 and the
related statements of operations for the year then ended, the statements of
changes in net assets and financial highlights for each of the two years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights of the Portfolios for the periods ended
September 30, 2003, September 30, 2002 and September 30, 2001 were audited by
other auditors whose report, dated November 26, 2003, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Funds are not required to have, nor were we engaged to perform, an audit of
their internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of September 30, 2005, by
correspondence with the custodians and brokers; where replies were not received
from brokers, we performed other auditing procedures. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Portfolios as of September 30, 2005, the results of their operations for the
year then ended, the changes in their net assets and their financial highlights
for each of the two years in the period then ended, in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 25, 2005
68
BlackRock Funds
FUND MANAGEMENT (Unaudited)
Information pertaining to the Trustees and officers of the Fund is set forth
below. The statement of additional information (SAI) includes additional
information about the Trustees and is available without charge, upon request, by
calling (888) 825-2257. Institutional and service share class investors should
call (800) 441-7450.
- -----------------------------------------------------------------------------------------------------------------------------------
Number of
Portfolios Total Fund
Term of in Fund Other Compensation
Position(s) Office/(1)/ Complex/(2) Directorships for the
Name, Address and Held with and Length Principal Occupation(s) Overseen Held by Year Ending
Age Fund of Time During Past Five Years by Trustee Trustee 9/30/05
- -----------------------------------------------------------------------------------------------------------------------------------
Interested Trustees
- -----------------------------------------------------------------------------------------------------------------------------------
Richard S. Davis/(3)/ Trustee Since 2005 Managing Director, BlackRock, Inc. 55 None N/A
BlackRock, Inc. (since 2005); Chief Executive Officer, (includes
40 E. 52nd Street State Street Research & 50
New York, NY 10022 Management Company (2000-2005); Portfolios
Age: 59 Chairman of the Board of Trustees, of the Fund
State Street Research mutual funds and 5
("SSR Funds") (2000-2005); Senior Portfolios
Vice President, Metropolitan Life of
Insurance Company (1999-2000); BlackRock
Chairman, SSR Realty (2000-2004). Bond
Allocation
Target
Shares)
- -----------------------------------------------------------------------------------------------------------------------------------
Laurence D. Fink/(4)/ Trustee Since 2000 Director, Chairman and Chief 55 Director, N/A
BlackRock, Inc. Executive Officer of BlackRock, Inc. (includes BlackRock,
40 E. 52nd Street since its formation in 1998 and of 50 Inc.
New York, NY 10022 BlackRock, Inc.'s predecessor Portfolios
Age: 52 entities since 1988; Chairman of the of the Fund
Management Committee; formerly, and 5
Managing Director of the First Portfolios
Boston Corporation, Member of its of
Management Committee, Co-head of BlackRock
its Taxable Fixed Income Division Bond
and Head of its Mortgage and Real Allocation
Estate Products Group; Chairman of Target
the Board of Nomura BlackRock Shares)
Asset Management and several of
BlackRock's alternative investment
vehicles; Director of several of
BlackRock's offshore funds;
Co-Chairman of the Board of
Trustees of Mount Sinai-NYU;
Co-Chairman of the Board of
Trustees of NYU Hospitals Center;
member of the Board of Trustees of
NYU; member of the Board of
Executives of the New York Stock
Exchange, and Trustee of the
American Folk Art Museum.
- -----------------------------------------------------------------------------------------------------------------------------------
69
BlackRock funds
FUND MANAGEMENT (Unaudited) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
Number of
Term of Portfolios Total Fund
Office/(1)/ in Fund Other Compensation
Position(s) and Length Complex(2) Directorships for the
Name, Address and Held With of Time Principal Occupation(s) Overseen Held by Year Ending
Age Fund Served During Past Five Years by Trustee Trustee 9/30/05
- -----------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
Bruce R. Bond Trustee Since 2005 Retired; Trustee and member 55 Director, Avaya, $ 84,600
c/o BlackRock Funds of the Governance Committee, (includes Inc.(information
100 Bellevue Parkway SSR Funds (1997-2005). 50 technology).
Wilmington, DE 19809 Portfolios
Age: 59 of the Fund
and 5
Portfolios
of
BlackRock
Bond
Allocation
Target
Shares)
- -----------------------------------------------------------------------------------------------------------------------------------
Peter S. Drotch Trustee Since 2005 Retired; Trustee and member 55 Director, First $ 84,600
c/o BlackRock Funds of the Audit Committee, (includes Marblehead Corp.
100 Bellevue Parkway SSR Funds (2003-2005); Partner, 50 (student loan
Wilmington, DE 19809 Pricewater- houseCoopers LLP Portfolios processing and
Age: 64 (accounting firm) ( 1964-2000). of the Fund securitization);
and 5 Trustee, University
Portfolios of Connecticut;
of Trustee, Huntington
BlackRock Theatre.
Bond
Allocation
Target
Shares)
- -----------------------------------------------------------------------------------------------------------------------------------
Honorable Stuart E. Trustee and Since 2001 Partner, Covington & Burling 55 Director, Mirant $130,100
Eizenstat Covington Chairman of (law firm) (2001-Present); (includes Corporation; Advisory
& Burling 1201 the Deputy Secretary of the 50 Board member, The
Pennsylvania Avenue, Nominating Treasury (1999-2001); Under Portfolios Coca-Cola Company;
NW Committee Secretary of State for of the Fund Advisory Board
Washington, DC 20004 Economic, Business and and 5 member, Group
Age: 62 Agricultural Affairs Portfolios Menatep; Advisory
(1997-1999); Under Secretary of of Board member, BT
Commerce for International BlackRock Americas.
Trade (1996-1997); U.S. Bond
Ambassador to the European Allocation
Union (1993-1996); Chairman, Target
International Board of Shares)
Governors, Weizmann Institute
of Science.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert M. Hernandez Trustee, Since 1996 Retired; Director (1991-2001), 55 Lead Director, ACE $140,100
c/o BlackRock Funds Vice Vice Chairman and Chief (includes Limited (insurance
100 Bellevue Parkway Chairman of Financial Officer (1994-2001), 50 company); Director
Wilmington, DE 19809 the Board Executive Vice President- Portfolios and Chairman of the
Age: 61 and Accounting and Finance and of the Fund Board, RTI
Chairman of Chief Financial Officer and 5 International Metals,
the Audit (1991-1994), USX Corporation Portfolios Inc.: Director,
Committee (a diversified company of Eastman Chemical
principally engaged in energy BlackRock Company.
and steel businesses). Bond
Allocation
Target
Shares)
- -----------------------------------------------------------------------------------------------------------------------------------
70
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
Number of
Portfolios Total Fund
Term of in Fund Other Compensation
Position(s) Office/(1)/ Complex/(2)/ Directorships for the
Name, Address and Held With and Length Principal Occupation(s) Overseen Held by Year Ending
Age Fund of Time During Past Five Years by Trustee Trustee 9/30/05
- -----------------------------------------------------------------------------------------------------------------------------------
Dr. Matina Horner Trustee and Since 2004 Retired; Executive Vice 55 Chair of the Board of $104,550
c/o BlackRock Funds Chairperson President of Teachers (includes the Massachusetts
100 Bellevue Parkway of the Insurance and Annuity 50 General Hospital
Wilmington, DE 19809 Governance Association and College Portfolios Institute of Health
Age: 66 Committee Retirement Equities Fund of the Fund Professions; Chair of
(TIAA-CREF) (1989-2003). and 5 the Board of the
Portfolios Greenwall Foundation;
of Trustee, Century
BlackRock Foundation (formerly
Bond The Twentieth Century
Allocation Fund); Director, N
Target STAR (formerly called
Shares) Boston Edison);
Director, The Neiman
Marcus Group;
Honorary Trustee,
Massachusetts
General Hospital
Corporation.
- -----------------------------------------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Since 2005 President, Founders 55 Director, A.P. Pharma, $ 84,600
c/o BlackRock Funds Investment Ltd. (private (includes Inc.
100 Bellevue Parkway investments) (since 1999); 50
Wilmington, DE 19809 Trustee, SSR Funds Portfolios
Age: 67 (1993-2003). of the Fund
and 5
Portfolios
of
BlackRock
Bond
Allocation
Target
Shares)
- -----------------------------------------------------------------------------------------------------------------------------------
David R. Wilmerding, Trustee and Since 1996 Chairman, Wilmerding & 56 None $135,100
Jr. c/o BlackRock Chairperson Associates, Inc. (investment (includes
Funds 100 Bellevue of the advisers) (since 1989); 50
Parkway Wilmington, Board Chairman, Coho Partners, Portfolios
DE 19809 Age: 70 Ltd. (investment advisers) of the Fund,
(since 2003); Director, 5 Portfolios
Beaver Management Corporation of
(land management BlackRock
corporation); Managing Bond
General Partner, Chestnut Allocation
Street Exchange Fund. Target
Shares and
1 Portfolio
of Chestnut
Street
Exchange
Fund, which
is managed
by
BlackRock
Financial
Management
Inc. and
BlackRock
Institutional
Management
Corporation.)
- -----------------------------------------------------------------------------------------------------------------------------------
71
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Continued)
- ------------------------------------------------------------------------------------------------------------------------
Term of Total Fund
Office/(5)/ Compensation
Position(s) and Length for the
Name, Address and Held With of Time Principal Occupation(s) Year Ending
Age Fund Served During Past Five Years 9/30/05
- ------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------
Anne Ackerley Vice President Since 2003 Managing Director, BlackRock, Inc. (since May N/A
BlackRock, Inc. (previously 2000); First Vice President and Operating
40 E. 52nd Street served as Officer, Mergers and Acquisitions Group
New York, NY 10022 Assistant (1997-2000), First Vice President and Operating
Age: 43 Secretary Officer, Public Finance Group (1995-1997), and
since First Vice President, Emerging Markets Fixed
2000) Income Research (1994-1995), Merrill Lynch &
Co.
- ------------------------------------------------------------------------------------------------------------------------
Edward Baer Assistant Since 2005 Director and Senior Counsel of BlackRock, Inc. N/A
BlackRock, Inc. Secretary (since 2004); Associate, Willkie Farr &
40 E. 52nd Street Gallagher LLP (2000-2004); Associate, Morgan
New York, NY 10022 Lewis & Bockius LLP (1995-2000).
Age: 37
- ------------------------------------------------------------------------------------------------------------------------
Bart Battista Chief Since 2004 Chief Compliance Officer and Anti-Money $368,547
BlackRock, Inc. Compliance Laundering Compliance Officer of BlackRock,
40 E. 52nd Street Officer and Inc. (since 2004); Managing Director (since
New York, NY 10022 Anti-Money 2003), and Director (1998-2002) of BlackRock,
Age: 46 Laundering Inc.; Compliance Officer at Moore Capital
Compliance Management (1995-1998).
Officer
- ------------------------------------------------------------------------------------------------------------------------
Ellen L. Corson Assistant Since 1998 Senior Director and Vice President of Fund N/A
PFPC Inc. Treasurer Accounting and Administration, PFPC Inc.
103 Bellevue Parkway (since 2003); Vice President and Director of
Wilmington, DE 19809 Mutual Fund Accounting and Administration,
Age: 41 PFPC Inc. (since November 1997); Assistant
Vice President, PFPC Inc. (March
1997-November 1997); Senior Accounting
Officer, PFPC Inc. (March 1993-March 1997).
- ------------------------------------------------------------------------------------------------------------------------
Henry Gabbay President Since 2005 Managing Director, BlackRock, Inc. (since N/A
BlackRock, Inc. 1989).
40 E. 52nd Street
New York, NY 10022
Age: 57
- ------------------------------------------------------------------------------------------------------------------------
Brian P. Kindelan Secretary Since 1997 Managing Director and Senior Counsel (since N/A
BlackRock Advisors, Inc. January 2005), Director and Senior Counsel
100 Bellevue Parkway (2001-2004) and Vice President and Senior
Wilmington, DE 19809 Counsel (1998-2000), BlackRock Advisors,
Age: 46 Inc.; Senior Counsel, PNC Bank Corp. May
1995-April 1998).
- ------------------------------------------------------------------------------------------------------------------------
72
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Concluded)
- --------------------------------------------------------------------------------------------------------------
Term of Total Fund
Office/(5)/ Compensation
Position(s) and Length for the
Name, Address and Held With of Time Principal Occupation(s) Year Ending
Age Fund Served During Past Five Years 9/30/05
- --------------------------------------------------------------------------------------------------------------
William McGinley Treasurer Since 2005 Managing Director of BlackRock, Inc. (since N/A
BlackRock, Inc. 2004); Partner, PricewaterhouseCoopers LLP
100 Bellevue Parkway ( 1990-2004).
Wilmington, DE 19809
Age: 38
- --------------------------------------------------------------------------------------------------------------
Vincent Tritto Assistant Since 2003 Managing Director and Assistant Secretary N/A
BlackRock, Inc. Secretary (since January 2005) and Director and Senior
40 E. 52nd Street Counsel (2002-2004) of BlackRock, Inc.
New York, NY 10022 Executive Director (2000-2002) and Vice
Age: 44 President (1998-2000), Morgan Stanley & Co.
Incorporated and Morgan Stanley Asset
Management Inc. and officer of various Morgan
Stanley-sponsored investment vehicles:
Counsel (1998); Associate (1988-1997),
Rogers & Wells LLP, New York, NY.
- --------------------------------------------------------------------------------------------------------------
(1) Each Trustee holds office for an indefinite term until the earlier of (1)
the next meeting of shareholders at which Trustees are elected and until his
or her successor is elected and qualified and (2) such time as such Trustee
resigns or his or her term as a Trustee is terminated in accordance with the
Fund's code of regulations and Declaration of Trust.
(2) A Fund Complex means two or more registered investment companies that hold
themselves out to investors as related companies for purposes of investment
and investor services, that have a common investment adviser or that have an
investment adviser that is an affiliated person of the investment adviser of
any of the other registered investment companies.
(3) Mr. Davis is an interested person of the Fund due to his position at
BlackRock, Inc.
(4) Mr. Fink is an interested person of the Fund due to his position at
BlackRock, Inc.
(5) Each officer holds office for an indefinite term until the earlier of (1)
the next meeting of trustees at which his or her successor is appointed and
(2) such time as such officer resigns or his or her term as an officer is
terminated in accordance with the Fund's code of regulations and Declaration
of Trust.
73
BlackRock Funds
ADDITIONAL INFORMATION (Unaudited)
(A) A proxy statement was sent to shareholders of all portfolios of the Fund
asking them to consider and vote upon the election of nine trustees to the
Board of Trustees of the Fund (the "Board"). Five of the nine nominees were
already serving as trustees of the Fund and the additional nominees had
previously served as trustees of the State Street Research Funds. Due to
the increased size and complexity of the Fund resulting from the
reorganization with the State Street Research Funds, and an increase in the
responsibilities of boards of trustees of funds generally, the Board
believed it was in the best interest of the Fund to increase the size of
the Board. In addition, shareholders of the Money Market Portfolio were
asked to consider and vote upon a proposal to change the fundamental
investment limitation on the concentration of investments in the banking
industry to a concentration of investments in the financial services
industry. The proposed change was designed to provide greater flexibility
in managing the Money Market Portfolio. On April 29, 2005, the special
meeting of shareholders was held, at which all of the nominees included in
the proxy were duly elected to the Board and the change to the fundamental
investment limitation as described above of the Money Market Portfolio was
approved by its shareholders.
The votes for the election of trustees were as follows:
Affirmative Negative
--------------- ----------
Bruce R. Bond .................... 3,006,153,475 9,427,152
Richard S. Davis ................. 3,006,504,966 9,075,661
Peter S. Drotch .................. 3,006,391,368 9,189,259
Stuart E. Eizenstat .............. 3,005,972,578 9,608,049
Laurence D. Fink ................. 3,006,652,923 8,927,704
Robert M. Hernandez .............. 3,006,095,141 9,485,487
Dr Matina Horner ................. 3,005,916,103 9,664,525
Toby Rosenblatt .................. 3,006,157,679 9,422,948
David R. Wilmerding, Jr. ......... 3,006,022,868 9,557,759
The votes for the change to the fundamental investment limitation on the
concentration of investments for the Money Market Portfolio were as
follows:
For Against Abstain Broker non-votes
----------- ---------- --------- ----------------
755,131,268 28,770,439 3,373,727 40,243,976
(B) PricewaterhouseCoopers LLP ("PwC"), the Fund's former independent
registered public accounting firm, has been hired as an internal audit
supporting service provider by The PNC Financial Services Group, Inc.
("PNC"), the parent company of the Fund's investment adviser and certain
other service providers. In order to provide certain services to PNC and
its affiliates which would have caused PwC to no longer be independent with
respect to the Fund, PwC declined to stand for re-election as the
independent registered public accounting firm of the Fund after the
completion of the fiscal 2003 audit.
The Fund's Audit Committee approved engaging Deloitte & Touche LLP as the
independent registered public accounting firm to audit the Fund's financial
statements for fiscal year 2006. A majority of the Fund's Board of
Trustees, including a majority of the independent Trustees, approved the
appointment of Deloitte & Touche LLP as the Fund's independent registered
public accounting firm for the Fund's fiscal 2006 audit on November 29,
2005, subject to the right of the Fund, by a majority vote of the
shareholders at any meeting called for that purpose, to terminate the
appointment without penalty.
74
BlackRock Funds
(C) As previously disclosed, BlackRock has received subpoenas from various
federal and state governmental and regulatory authorities and various
information requests from the Securities and Exchange Commission in
connection with ongoing industry-wide investigations of mutual fund
matters.
(D) As required by the Internal Revenue Code, the following BlackRock
Portfolios for the year ended September 30, 2005 are designating long-term
capital gain distributions as follows:
Long-Term
Capital Gain
------------
BlackRock North Carolina Municipal Market Portfolio $ 4,732
BlackRock Municipal Money Market Portfolio $ 2,700
75
BlackRock Funds
Investment Adviser
BlackRock Advisors, Inc.
Wilmington, Delaware 19809
Sub-Adviser
BlackRock Institutional Management Corporation
Wilmington, Delaware 19809
Custodian
PFPC Trust Co.
Philadelphia, Pennsylvania 19153
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Distributor
BlackRock Distributors, Inc.
King of Prussia, Pennsylvania 19406
Co-Administrator
BlackRock Advisors, Inc.
Wilmington, Delaware 19809
Counsel
Simpson Thacher & Bartlett LLP
New York, New York 10017
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Philadelphia, Pennsylvania 19103
The Fund will mail only one copy of shareholder documents, including
prospectuses, annual and semi-annual reports and proxy statements, to
shareholders with multiple accounts at the same address. This practice is
commonly called "householding" and it is intended to reduce expenses and
eliminate duplicate mailings of shareholder documents. Mailings of your
shareholder documents may be householded indefinitely unless you instruct us
otherwise. If you do not want the mailing of these documents to be combined with
those for other members of your household, please contact the Fund at (800)
441-7762.
The Fund has delegated proxy voting responsibilities to BlackRock and its
affiliates, subject to the general oversight of the Fund's Board of Trustees. A
description of the policies and procedures that BlackRock and its affiliates use
to determine how to vote proxies relating to portfolio securities is available
without charge, upon request, by calling (800)441-7762, or on the website of the
Securities and Exchange Commission (the "Commission") at http://www.sec.gov.
Information on how proxies relating to the Fund's voting securities were voted
(if any) by BlackRock during the most recent 12-month period ended June 30th is
available, upon request and without charge, by calling (800) 441-7762 or on the
website of the Commission at http://www.sec.gov.
The Fund files its complete schedule of portfolio holdings for the first and
third quarters of its fiscal year with the Commission on Form N-Q. The Fund's
Form N-Q is available on the Commission's website at http://www.sec.gov and may
be reviewed and copied at the Commission's Public Reference Room in Washington,
D.C. Information regarding the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The Fund's Form N-Q may also be obtained
upon request, without charge, by calling (800) 441-7762.
BlackRock Funds
FUND SPECTRUM
BlackRock Funds is a leading mutual fund company currently managing
approximately $26 billion in the following 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.
STOCK PORTFOLIOS
- --------------------------------------
Investment Trust Small Cap Core Equity
Large Cap Value Equity Small Cap Growth Equity
Large Cap Growth Equity Global Science & Technology Opportunities
Dividend AchieversTM Global Resources
Legacy All-Cap Global Resources
Mid-Cap Value Equity Health Sciences
Mid-Cap Growth Equity U.S. Opportunities
Aurora International Opportunities
Small/Mid-Cap Growth Index Equity
Small Cap Value Equity
STOCK & BOND PORTFOLIOS
- --------------------------------------
Asset Allocation
BOND PORTFOLIOS
- --------------------------------------
Enhanced Income Government Income
Low Duration Bond Inflation Protected Bond
Intermediate Government Bond GNMA
Intermediate Bond Managed Income
Intermediate PLUS Bond International Bond
Core Bond Total Return High Yield Bond
Core PLUS Total Return
TAX-FREE BOND PORTFOLIOS
- --------------------------------------
UltraShort Municipal Ohio Tax-Free Income
Tax-Free Income Delaware Tax-Free Income
Pennsylvania Tax-Free Income Kentucky Tax-Free Income
New Jersey 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
Account Information
Call us at 1-800-441-7762 to get information about your account balances, recent
transactions and share prices. You can also reach us on the web at
www.blackrock.com.
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 $50 or more from their BlackRock portfolios, as
long as their account is at least $10,000.
Retirement Plans
Shareholders may make investments in conjunction with Traditional, Rollover,
Roth, Coverdell and Simple IRA's.
Additional Information About the Blackrock Funds
For additional reports or additional information, as well as more current
information about portfolio holdings and characteristics, BlackRock Fund
shareholders and prospective investors may call 1-800-441-7762.
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.
MM-ANN 11/05 BlackRock
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock Funds
Taxable Bond Portfolios
Annual Report
September 30, 2005
[GRAPHIC APPEARS HERE]
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE [LOGO OF BLACKROCK]
BlackRock Funds
TAXABLE BOND PORTFOLIOS
*Enhanced Income *Intermediate PLUS Bond *GNMA
*Low Duration Bond *Core Bond Total Return *Managed Income
*Intermediate Government Bond *Core PLUS Total Return *International Bond
*Intermediate Bond *Government Income *High Yield Bond
*Inflation Protected Bond
TABLE of CONTENTS
Shareholder Letter ............................................................1
Portfolio Summaries
Enhanced Income ........................................................2-3
Low Duration Bond ......................................................4-5
Intermediate Government Bond ...........................................6-7
Intermediate Bond ......................................................8-9
Intermediate PLUS Bond ...............................................10-11
Core Bond Total Return ...............................................12-13
Core PLUS Total Return ...............................................14-15
Government Income ....................................................16-17
Inflation Protected Bond .............................................18-19
GNMA .................................................................20-21
Managed Income .......................................................22-23
International Bond ...................................................24-25
High Yield Bond ......................................................26-27
Note on Performance Information ........................................ 28
Statements of Net Assets/Schedule of Investments .........................29-109
Intermediate PLUS Bond Statement of Assets and Liabilities ..............60
Core Bond Total Return Statement of Assets and Liabilities ..............70
Core PLUS Total Return Statement of Assets and Liabilities ..............79
Government Income Statement of Assets and Liabilities ...................82
GNMA Statement of Assets and Liabilities ................................87
Managed Income Statement of Assets and Liabilities ......................94
High Yield Statement of Assets and Liabilities .........................109
Investment Abbreviations ...............................................110
Portfolio Financial Statements
Statements of Operations ...........................................112-113
Statement of Cash Flows
Enhanced Income ........................................................114
Low Duration ...........................................................115
Intermediate Government ................................................116
Statements of Changes in Net Assets .....................................118-121
Financial Highlights ....................................................122-139
Notes to Financial Statements ...........................................140-172
Report of Independent Registered Public Accounting Firm .....................173
Fund Management (Unaudited) .............................................174-178
Additional Information (Unaudited) ..........................................179
PRIVACY PRINCIPLES OF BLACKROCK FUNDS
BlackRock Funds is committed to maintaining the privacy of its shareholders and
to safeguarding their nonpublic personal information. The following information
is provided to help you understand what personal information BlackRock Funds
collects, how we protect that information, and why in certain cases we may share
such information with select other parties.
BlackRock Funds does not receive any nonpublic personal information relating to
its shareholders who purchase shares through their broker-dealers. In the case
of shareholders who are record owners of BlackRock Funds, BlackRock Funds
receives nonpublic personal information on account applications or other forms.
With respect to these shareholders, BlackRock Funds also has access to specific
information regarding their transactions in BlackRock Funds.
BlackRock Funds does not disclose any nonpublic personal information about its
shareholders or former shareholders to anyone, except as permitted by law or as
is necessary in order to service our shareholders' accounts (for example, to a
transfer agent).
BlackRock Funds restricts access to nonpublic personal information about its
shareholders to BlackRock employees with a legitimate business need for the
information. BlackRock Funds maintains physical, electronic and procedural
safeguards designed to protect the nonpublic personal information of our
shareholders.
BlackRock Funds
September 30, 2005
Dear Shareholder:
We are pleased to present the Annual Report of the BlackRock Funds' Taxable
Bond Portfolios for the year ended September 30, 2005. On January 31, 2005, the
State Street Research Funds reorganized into BlackRock Funds and we at BlackRock
would like to welcome the former State Street Research Funds shareholders and
our new shareholders to the BlackRock Funds Family.
The Annual Report includes important information on each Portfolio:
.. Portfolio Summary - discusses recent portfolio management activity and
highlights total returns.
.. Fund Profile - displays characteristics of each Portfolio's holdings as of
September 30, 2005.
.. Expense Example - discusses costs in a shareholder account and provides
information for a shareholder to estimate his or her expenses by share
class and to compare expenses of each share class to other funds.
.. Statement of Net Assets (or Schedule of Investments/Statement of Assets and
Liabilities) - lists portfolio holdings and includes each holding's market
value and par amount/number of shares as of September 30, 2005. The
Statement of Net Assets also contains the net asset value for each share
class of a Portfolio. If your Portfolio has a Schedule of Investments, then
the net asset value for each share class may be found in the Statement of
Assets and Liabilities.
.. Statement of Operations - displays the components of each Portfolio's
investment income and provides a detailed look at each Portfolio's
expenses. The Statement of Operations also lists the aggregate change in
value of a Portfolio's securities due to market fluctuations and security
sales.
.. Statement of Cash Flows - explains the change during the period in cash and
cash equivalents (including foreign currency).
.. Statements of Changes in Net Assets - compares Portfolio information from
the prior period to the current period. Specifically, it details
shareholder distributions by share class, aggregate realized gains and
losses, and the change in net assets from the beginning of the period to
the end of the period.
.. Financial Highlights - include each Portfolio's expense ratios, net asset
values, total returns, distributions per share, and turnover ratios for the
last five years or since inception.
.. Notes to Financial Statements - provide additional information on fees, a
summary of significant accounting policies, a list of affiliated
transactions, and a summary of purchases and sales of securities.
.. Fund Management Table - lists information regarding BlackRock Funds'
Trustees and Officers.
In addition to these items, a summary of shareholder privileges is listed
on the inside back cover of the report. Shareholders can find information on
this page describing how to access account balances, recent transactions, and
share prices. It also includes a summary of the Fund's various investment plans.
At BlackRock, we maintain an unwavering commitment to placing our clients
first and we value the trust you have placed in us. We hope you find the report
informative, and we thank you for making BlackRock part of your investment
strategy. Should you have questions concerning this report, please contact your
financial advisor or contact us at 1-800-441-7762 or visit us at
www.blackrock.com/funds.
Sincerely,
/s/ Anne Ackerley
- -----------------
Anne Ackerley
Managing Director
BlackRock Advisors, Inc.
1
Enhanced Income Portfolio
Total Net Assets (9/30/05): $56.3 million
Performance Benchmark:
Citigroup 1 Year Treasury Index
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management by investing primarily in bonds diversified among
several categories. The management team selects bonds from several sectors
including: U.S. Treasuries and agency securities, commercial and residential
mortgage-backed securities ("CMBS" and "MBS"), collateralized mortgage
obligations ("CMOs"), asset-backed securities ("ABS"), corporate bonds and
non-U.S. Government securities. The Portfolio may also invest in money market
instruments. The Portfolio's dollar weighted effective duration will be between
0 and 18 months during normal market conditions. Individual investments will be
restricted to those securities whose maximum effective duration at the time of
purchase is less than 5 years.
Recent Portfolio Management Activity:
. The BlackRock, Institutional and Service share classes outperformed
the benchmark for the annual period. The Investor A share class underperformed
the benchmark for the annual period.
. During the first half of the annual period, yields largely increased
as the Federal Reserve ("Fed") continued to pursue its policy of interest rate
"normalization". The Fed Funds target rate began the fiscal year at 1.75%. For
the next twelve months, the Fed emphasized sustainable economic growth,
contained inflation, and accommodative monetary conditions. In the beginning of
the second half of the annual period, longer maturity yields largely declined
due to the perceived softening of the global economy driven primarily by the
dramatic upswing in oil prices. However, by the end of September, the evidence
of economic vitality was compelling enough to survive not only surging energy
costs but two highly destructive hurricanes. Longer maturity yields increased as
the Fed began to signal that its greater concern was increasing inflation.
During the annual period, the Federal Open Market Committee voted a 0.25%
tightening at each of its eight meetings lifting the Fed Funds target rate to
3.75%. In contrast, longer interest rates, as measured by the 5-year Treasury,
increased by a modest 0.82%, ending the period at 4.19%.
. The major domestic spread sectors - agencies, corporate securities,
ABS, CMBS and MBS - all posted positive excess returns over duration-weighted
Treasuries during the annual period. Investment grade corporate securities
lagged behind the other domestic spread sectors. Corporate bond performance was
driven by both solid credit fundamentals and strong investor demand in the
beginning of the period. However, with the downgrading of both General Motors
and Ford, two of the largest corporate bond issuers in the world, to below
investment grade, investors became noticeably more cautious. In spite of higher
short-term interest rates and flattening of the yield curve, which has
dramatically reduced the carry advantage of MBS, the sector was able to post a
positive excess return over Treasuries. Valuations of ABS remained stable, and
spreads remained near historically tight levels despite robust supply. Demand
has continued to be firm for higher quality assets in the sector. The net supply
of agencies continued to be negative as government sponsored enterprises were
unable to grow given unresolved accounting issues and intense political
scrutiny. This lack of supply has kept spreads tight. CMBS, the best performing
domestic spread sector during the annual period, has enjoyed strong demand due
to the sector's attractive relative value characteristics.
. During the annual period, the Portfolio's short duration position
relative to its benchmark benefited performance as interest rates increased. The
Portfolio's allocation to the agency sector aided performance, as agencies
returned 0.76% over duration-adjusted Treasuries. Within the agency sector, the
Portfolio continues to focus on callable debentures. The Portfolio's allocation
to the ABS sector benefited performance, as the sector returned 0.75% over
duration-adjusted Treasuries for the annual period. The Portfolio increased its
allocation to ABS during the annual period, concentrating in non-prepayment
sensitive sectors such as autos and credit cards. The Portfolio maintained its
allocation to the MBS sector, which benefited returns. Within the mortgages
sector, the Portfolio continues to favor adjustable rate mortgages and short
duration CMOs. The Portfolio also increased its allocation to CMBS during the
annual period, as the portfolio management team believes the sector is
attractively valued relative to agencies and MBS. The CMBS sector provided
strong excess returns versus Treasuries for the annual period. Lastly, the
Portfolio's allocation to the corporate sector was a positive contributor to
performance, as the sector returned 0.29% over duration-adjusted Treasuries.
Within the corporate sector, the Portfolio continues to maintain a bias towards
financials and high credit quality issues.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE ENHANCED INCOME
PORTFOLIO AND THE CITIGROUP 1 YEAR TREASURY INDEX FROM INCEPTION.
[LINE CHART]
Institutional Investor A Citigroup 1 Year Treasury Index
------------- ---------- -------------------------------
03/04/2004 $ 10,000 $ 9,699 $ 10,000
03/31/2004 10,032 9,719 10,016
06/30/2004 10,007 9,678 9,983
09/30/2004 10,059 9,706 10,031
12/31/2004 10,106 9,715 10,047
03/31/2005 10,132 9,743 10,068
06/30/2005 10,207 9,816 10,152
09/30/2005 10,265 9,863 10,197
For period ending September 30, 2005
Average Annual Total Return
1 Year From Inception
-------- --------------
BlackRock Class 2.15% 1.73%
Institutional Class 2.05% 1.68%
Service Class 1.76% 1.63%
Investor A Class (Load Adjusted) (1.46)% (0.87)%
Investor A Class (NAV) 1.62% 1.07%
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, 3/4/04; Institutional Shares,
3/19/04; Service Shares, 3/19/04; Investor A Shares, 3/19/04. See "Note on
Performance Information" on page 28 for further information on how performance
data was calculated, including important information on the line graph+ above.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as the periods indicated, the Portfolio is actively
managed and its composition will vary.
2
Enhanced Income Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 92.2%
AA 4.3
A 1.8
BBB 1.7
-----
Total 100.0%
=====
Sector Allocation (% of long-term investments)
Asset Backed Securities 36.1%
U.S. Government & Agency Obligations 18.2
Collateralized Mortgage Obligations 15.7
Mortgage Pass-Throughs 11.2
Corporate Bonds 9.8
Commercial Mortgage Backed Securities 8.4
Multi-Class Mortgage Pass-Throughs 0.5
Taxable Municipal Bonds 0.1
-----
Total 100.0%
=====
Portfolio Statistics
Average maturity (years) 1.39
Effective Duration/2/ 0.82
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors
Service ("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration
represents an expected 1% change in the net asset value of the fund for
every 1% change in interest rates. Effective duration is typically
calculated for bonds with embedded options and assumes that expected cash
flows will fluctuate as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) where applicable; and
(2) ongoing costs, including advisory fees, distribution (12b-1) and service
fees, where applicable; and other Portfolio expenses. This Example is intended
to help you understand your ongoing costs (in dollars) of investing in the
Portfolio and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Hypothetical Expenses
Actual Expenses (5% return before expenses)
---------------------------------------------------- ----------------------------------------------------
BlackRock Institutional Service Investor BlackRock Institutional Service Investor
Class Class Class A Class Class Class Class A Class
---------- ------------- ---------- ---------- ---------- ------------- ---------- -----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,013.70 1,013.20 1,011.80 1,012.40 1,023.32 1,022.87 1,021.19 1,021.19
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 1.67 2.12 3.78 3.78 1.68 2.13 3.81 3.81
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.33%, 0.42%, 0.75%, and 0.75% for the BlackRock, Institutional,
Service, and Investor A share class, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
3
Low Duration Bond Portfolio
Total Net Assets (9/30/05): $1.5 billion
Performance Benchmark:
Merrill Lynch 1-3 Year Treasury Index
Investment Approach:
Seeks to realize a rate of return that exceeds the total return of the
Merrill Lynch 1-3 Year Treasury Index by investing primarily in investment grade
bonds that allow it to maintain an average portfolio duration that is within +/-
20% of the duration of the benchmark. The management team selects bonds from
several sectors including: U.S. Treasuries and agency securities, commercial and
residential mortgage-backed securities ("CMBS" and "MBS"), collateralized
mortgage obligations ("CMOs"), asset-backed securities ("ABS"), and corporate
bonds. The Portfolio may invest up to 5% of its assets in non-investment grade
bonds or convertible securities with a minimum rating of 'B' and up to 10% of
its assets in non-dollar denominated bonds of issuers located outside of the
United States. Securities are purchased for the Portfolio when the management
team determines that they have the potential for above-average total return.
Recent Portfolio Management Activity:
. The BlackRock, Service, Institutional and Investor A share classes
outperformed the benchmark for the annual period. The Investor B and C share
classes underperformed the benchmark for the annual period.
. During the first half of the annual period, yields largely increased
as the Federal Reserve ("Fed") continued to pursue its policy of interest rate
"normalization". The Fed Funds target rate began the fiscal year at 1.75%. For
the next twelve months, the Fed emphasized sustainable economic growth,
contained inflation, and accommodative monetary conditions. In the beginning of
the second half of the annual period, longer maturity yields largely declined
due to the perceived softening of the global economy which was driven primarily
by the dramatic upswing in oil prices. However, by the end of September, the
evidence of economic vitality was compelling enough to survive not only surging
energy costs but two highly destructive hurricanes. Longer maturity yields
increased as the Fed began to signal that its greater concern was increasing
inflation. During the annual period, the Federal Open Market Committee voted a
0.25% tightening at each of its eight meetings lifting the Fed Funds target rate
to 3.75%. In contrast, longer interest rates, as measured by the 5-year
Treasury, increased by a modest 0.82%, ending the period at 4.19%.
. The major domestic spread sectors - agencies, corporate securities,
ABS, CMBS and MBS - all posted positive excess returns over duration-weighted
Treasuries during the annual period. Investment grade corporate securities
lagged behind the other domestic spread sectors. Corporate bond performance was
driven by both solid credit fundamentals and strong investor demand in the
beginning of the period. However, with the downgrading of both General Motors
and Ford, two of the largest corporate bond issuers in the world, to below
investment grade, investors became noticeably more cautious. In spite of higher
short-term interest rates and flattening of the yield curve, which has
dramatically reduced the carry advantage of MBS, the sector was able to post a
positive excess return over Treasuries. Valuations of ABS remained stable, and
spreads remained near historically tight levels despite robust supply. Demand
has continued to be firm for higher quality assets in the sector. The net supply
of agencies continued to be negative as government sponsored enterprises were
unable to grow given unresolved accounting issues and intense political
scrutiny. This lack of supply has kept spreads tight. CMBS, the best performing
domestic spread sector during the annual period, has enjoyed strong demand due
to the sector's attractive relative value characteristics.
. During the annual period, the Portfolio's short duration position
relative to its benchmark benefited performance as interest rates increased. The
Portfolio's allocation to the agency sector aided performance, as agencies
returned 0.76% over duration-adjusted Treasuries. Within the agency sector, the
Portfolio continues to focus on callable debentures. The Portfolio's allocation
to the ABS sector benefited performance, as the sector returned 0.75% over
duration-adjusted Treasuries for the annual period. The Portfolio increased its
allocation to ABS during the annual period, concentrating in non-prepayment
sensitive sectors such as autos and credit cards. The Portfolio maintained its
allocation to the MBS sector, which benefited returns. Within the mortgages
sector, the Portfolio continues to favor adjustable rate mortgages ("ARMs") and
short duration CMOs. The Portfolio also increased its allocation to CMBS during
the annual period as the portfolio management team believes the sector is
attractively valued relative to agencies and MBS. The CMBS sector provided
strong excess returns versus Treasuries. Lastly, the Portfolio's allocation to
the corporate sector was a positive contributor to performance, as the sector
returned 0.29% over duration-adjusted Treasuries for the annual period. Within
the corporate sector, the Portfolio continues to maintain a bias towards
financials and high credit quality issues.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
LOW DURATION BOND PORTFOLIO AND THE MERRILL LYNCH 1-3 YEAR
TREASURY INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Merrill Lynch 1-3
Institutional Investor A Year Treasury Index
------------- ---------- -------------------
09/30/1995 $ 10,000 $ 9,696 $ 10,000
12/31/1995 10,198 9,888 10,252
03/31/1996 10,209 9,883 10,286
06/30/1996 10,321 9,979 10,390
09/30/1996 10,489 10,129 10,561
12/31/1996 10,712 10,332 10,762
03/31/1997 10,761 10,368 10,833
06/30/1997 10,993 10,579 11,072
09/30/1997 11,211 10,777 11,289
12/31/1997 11,360 10,907 11,478
03/31/1998 11,545 11,071 11,647
06/30/1998 11,732 11,237 11,825
09/30/1998 12,028 11,507 12,189
12/31/1998 12,114 11,576 12,282
03/31/1999 12,256 11,698 12,355
06/30/1999 12,338 11,763 12,426
09/30/1999 12,498 11,901 12,583
12/31/1999 12,605 11,990 12,658
03/31/2000 12,770 12,132 12,817
06/30/2000 12,977 12,314 13,037
09/30/2000 13,284 12,591 13,311
12/31/2000 13,647 12,920 13,670
03/31/2001 14,024 13,275 14,047
06/30/2001 14,183 13,397 14,212
09/30/2001 14,640 13,812 14,693
12/31/2001 14,702 13,867 14,805
03/31/2002 14,739 13,872 14,806
06/30/2002 15,068 14,166 15,157
09/30/2002 15,420 14,493 15,522
12/31/2002 15,574 14,611 15,657
03/31/2003 15,663 14,682 15,749
06/30/2003 15,819 14,830 15,862
09/30/2003 15,855 14,851 15,929
12/31/2003 15,868 14,849 15,953
03/31/2004 16,017 14,961 16,113
06/30/2004 15,868 14,824 15,941
09/30/2004 16,018 14,953 16,095
12/31/2004 16,082 14,989 16,098
03/31/2005 16,075 14,972 16,057
06/30/2005 16,203 15,096 16,239
09/30/2005 16,248 15,113 16,253
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------- ------- ------ -------
BlackRock Class 1.49% 1.88% 4.27% 5.09%
Institutional Class 1.43% 1.76% 4.11% 4.97%
Service Class 1.17% 1.47% 3.81% 4.67%
Investor A Class (Load Adjusted) (1.94)% 0.37% 3.10% 4.22%
Investor A Class (NAV) 1.07% 1.41% 3.72% 4.54%
Investor B Class (Load Adjusted) (4.02)% (0.44)% 2.59% 3.85%
Investor B Class (NAV) 0.41% 0.68% 2.95% 3.85%
Investor C Class (Load Adjusted) (0.57)% 0.68% 2.95% 3.85%
Investor C Class (NAV) 0.41% 0.68% 2.95% 3.85%
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 Shares, 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 28 for further information on how performance data was calculated,
including important information on the line graph+ above.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as the periods indicated, the Portfolio is actively
managed and its composition will vary.
4
Low Duration Bond Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 90.8%
AA 5.7
A 1.4
BBB 2.1
-----
Total 100.0%
=====
Sector Allocation (% of long-term investments)
U.S. Government & Agency Obligations 32.4%
Asset Backed Securities 25.4
Collateralized Mortgage Obligations 11.6
Mortgage Pass-Throughs 10.6
Corporate Bonds 10.6
Commercial Mortgage Backed Securities 6.5
Foreign Bonds 1.6
Taxable Municipal Bonds 0.5
Preferred Stocks 0.5
Multiple Class Mortgage Pass-Throughs 0.1
----
Total 99.8%
====
Portfolio Statistics
Average maturity (years) 2.55
Effective Duration/2/ 1.53
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors
Service ("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration
represents an expected 1% change in the net asset value of the fund for
every 1% change in interest rates. Effective duration is typically
calculated for bonds with embedded options and assumes that expected cash
flows will fluctuate as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) where applicable; and
(2) ongoing costs, including advisory fees, distribution (12b-1) and service
fees, where applicable; and other Portfolio expenses. This Example is intended
to help you understand your ongoing costs (in dollars) of investing in the
Portfolio and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
---------- ------------- ---------- ---------- ---------- ----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,011.50 1,010.80 1,009.50 1,009.50 1,005.70 1,006.70
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.02 2.77 4.08 4.08 7.84 7.85
Hypothetical Expenses
(5% return before expenses)
------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
---------- ------------- ---------- ---------- ---------- ----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,022.97 1,022.21 1,020.89 1,020.89 1,017.08 1,017.08
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.03 2.79 4.11 4.11 7.92 7.92
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.40%, 0.55%, 0.81%, 0.81%, 1.56%, and 1.56% for the BlackRock,
Institutional, Service, Investor A, B, and C share classes, respectively,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period).
5
Intermediate Government Bond Portfolio
Total Net Assets (9/30/05) $656.3 million
Performance Benchmark:
Lehman Brothers Intermediate Government Index
Investment Approach:
Seeks to maximize total return consistent with income generation and
prudent investment management by investing primarily in the highest rated
government and agency bonds that allow it to maintain an average portfolio
duration that is within +/- 20% of the Lehman Brothers Intermediate Government
Index. The Portfolio normally invests at least 80% of its assets in bonds that
are issued or guaranteed by the U.S. Government and its agencies. The management
team selects bonds from several sectors including: U.S. Treasuries and agency
securities, commercial and residential mortgage-backed securities ("CMBS" and
"MBS"), collateralized mortgage obligations ("CMOs"), asset-backed securities
("ABS") and corporate bonds. Securities are purchased for the Portfolio when the
management team determines that they have the potential for above-average total
return.
Recent Portfolio Management Activity:
. On January 31, 2005, BlackRock, Inc., the parent of BlackRock
Advisors, Inc. (BAI), acquired SSRM Holdings, Inc., the parent of State Street
Research & Management Company (SSRM), the investment adviser to the State Street
Research mutual funds. In connection with the transaction, the BlackRock
Intermediate Government Bond Portfolio (the Portfolio) reorganized with the
State Street Research Government Income Fund (the SSR Fund). The SSR Fund
transferred substantially all of its assets and liabilities to the Portfolio in
exchange for shares of the Portfolio, which were then distributed to the SSR
Fund shareholders.
. The Institutional share class outperformed the benchmark for the
annual period. The Investor A, B, C and Service share classes underperformed the
benchmark for the annual period.
. During the first half of the annual period, yields largely increased
as the Federal Reserve ("Fed") continued to pursue its policy of interest rate
"normalization". The Fed Funds target rate began the fiscal year at 1.75%. For
the next twelve months, the Fed emphasized sustainable economic growth,
contained inflation, and accommodative monetary conditions. In the beginning of
the second half of the annual period, longer maturity yields largely declined
due to the perceived softening of the global economy driven primarily by the
dramatic upswing in oil prices. However, by the end of September, the evidence
of economic vitality was compelling enough to survive not only surging energy
costs but two highly destructive hurricanes. Longer maturity yields increased as
the Fed began to signal that its greater concern was increasing inflation.
During the annual period, the Federal Open Market Committee voted a 0.25%
tightening at each of its eight meetings lifting the Fed Funds target rate to
3.75%. In contrast, longer interest rates, as measured by the 10-year Treasury,
increased by a modest 0.21%, ending the period at 4.33%.
. The major domestic spread sectors - agencies, corporate securities,
ABS, CMBS and MBS - all posted positive excess returns over duration-weighted
Treasuries during the annual period. Investment grade corporate securities
lagged behind the other domestic spread sectors. Corporate bond performance was
driven by both solid credit fundamentals and strong investor demand in the
beginning of the period. However, with the downgrading of both General Motors
and Ford, two of the largest corporate bond issuers in the world, to below
investment grade, investors became noticeably more cautious. In spite of higher
short-term interest rates and flattening of the yield curve, which has
dramatically reduced the carry advantage of MBS, the sector was able to post a
positive excess return over Treasuries. Valuations of ABS remained stable, and
spreads remained near historically tight levels despite robust supply. The net
supply of agencies continued to be negative as government sponsored enterprises
were unable to grow given unresolved accounting issues and intense political
scrutiny. This lack of supply has kept spreads tight. CMBS, the best performing
domestic spread sector during the annual period, has enjoyed strong demand due
to the sector's attractive relative value characteristics.
. During the annual period, the Portfolio benefited from its short
duration position relative to its benchmark as interest rates increased. The
Portfolio's underweight to agencies detracted from performance as the sector
returned 0.76% for the annual period. The Portfolio continues to maintain an
underweight position in agencies with a focus on callable debentures. The
Portfolio's allocation to ABS, with a focus on non-prepayment sensitive sectors
such as autos and credit cards, contributed to performance as the sector
returned 0.75% over duration-adjusted Treasuries. The Portfolio's allocation to
CMBS and MBS contributed to performance as the sectors returned 0.79% and 0.74%,
respectively. Furthermore, the Portfolio maintained its allocation to corporate
securities, which was beneficial to performance.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
INTERMEDIATE GOVERNMENT BOND PORTFOLIO AND THE LEHMAN BROTHERS
INTERMEDIATE GOVERNMENT INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Lehman Brothers
Institutional Investor A Intermediate Government Index
------------- ---------- -----------------------------
09/30/1995 $10,000 $ 9,598 $10,000
12/31/1995 10,292 9,878 10,335
03/31/1996 10,238 9,805 10,264
06/30/1996 10,300 9,852 10,333
09/30/1996 10,482 10,016 10,510
12/31/1996 10,746 10,255 10,754
03/31/1997 10,744 10,241 10,750
06/30/1997 11,043 10,515 11,051
09/30/1997 11,329 10,774 11,333
12/31/1997 11,576 10,997 11,584
03/31/1998 11,748 11,147 11,758
06/30/1998 11,974 11,348 11,976
09/30/1998 12,442 11,778 12,534
12/31/1998 12,458 11,779 12,565
03/31/1999 12,479 11,785 12,531
06/30/1999 12,413 11,709 12,507
09/30/1999 12,536 11,811 12,633
12/31/1999 12,562 11,833 12,628
03/31/2000 12,766 11,999 12,835
06/30/2000 12,986 12,204 13,068
09/30/2000 13,356 12,537 13,418
12/31/2000 13,848 12,984 13,951
03/31/2001 14,292 13,384 14,369
06/30/2001 14,351 13,437 14,429
09/30/2001 15,078 14,113 15,145
12/31/2001 15,062 14,068 15,125
03/31/2002 15,050 14,040 15,085
06/30/2002 15,589 14,525 15,668
09/30/2002 16,281 15,152 16,423
12/31/2002 16,426 15,268 16,583
03/31/2003 16,570 15,399 16,737
06/30/2003 16,870 15,644 17,019
09/30/2003 16,785 15,546 16,997
12/31/2003 16,744 15,505 16,962
03/31/2004 17,069 15,787 17,337
06/30/2004 16,732 15,458 16,937
09/30/2004 17,122 15,786 17,320
12/31/2004 17,189 15,831 17,357
03/31/2005 17,089 15,739 17,240
06/30/2005 17,425 16,032 17,638
09/30/2005 17,358 15,955 17,546
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------- -------- ------- -------
Institutional Class 1.38% 2.16% 5.38% 5.67%
Service Class 1.08% 1.85% 5.05% 5.35%
Investor A Class (Load Adjusted) (3.01)% 0.37% 4.09% 4.78%
Investor A Class (NAV) 1.07% 1.74% 4.94% 5.21%
Investor B Class (Load Adjusted) (4.17)% (0.14)% 3.79% 4.49%
Investor B Class (NAV) 0.22% 0.95% 4.13% 4.49%
Investor C Class (Load Adjusted) (0.76)% 0.95% 4.15% 4.50%
Investor C Class (NAV) 0.22% 0.95% 4.15% 4.50%
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 28 for further
information on how performance data was calculated, including important
information on the line graph+ above.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as the periods indicated, the Portfolio is actively
managed and its composition will vary.
6
Intermediate Government Bond Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 99.3%
AA 0.4
A 0.3
-----
Total 100.0%
=====
Sector Allocation (% of long-term investments)
U.S. Government & Agency Obligations 49.2%
Mortgage Pass-Throughs 25.4
Collateralized Mortgage Obligations 8.3
Commercial Mortgage Backed Securities 6.4
Asset Backed Securities 6.3
Corporate Bonds 3.4
Taxable Municipal Bonds 0.7
Project Loans 0.2
Multiple Class Mortgage Pass-Throughs 0.1
-----
Total 100.0%
=====
Portfolio Statistics
Average maturity (years) 4.25
Effective Duration/2/ 2.84
- ----------
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors
Service ("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration
represents an expected 1% change in the net asset value of the fund for
every 1% change in interest rates. Effective duration is typically
calculated for bonds with embedded options and assumes that expected cash
flows will fluctuate as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) where applicable; and
(2) ongoing costs, including advisory fees, distribution (12b-1) and service
fees, where applicable; and other Portfolio expenses. This Example is intended
to help you understand your ongoing costs (in dollars) of investing in the
Portfolio and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
-----------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
------------- ---------- ---------- ---------- ----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,015.80 1,014.30 1,013.80 1,010.00 1,010.00
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 3.03 4.54 5.00 8.82 8.82
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
------------- ---------- ---------- ---------- ----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,021.95 1,020.43 1,019.97 1,016.12 1,016.12
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 3.05 4.57 5.03 8.88 8.88
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.60%, 0.90%, 0.99%, 1.75%, and 1.75% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
7
Intermediate Bond Portfolio
Total Net Assets (9/30/05): $897.7 million
Performance Benchmark:
Lehman Brothers Intermediate Government/Credit Index
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management by investing primarily in bonds that allow it to
maintain an average portfolio duration that is within +/- 20% of the Lehman
Brothers Intermediate Government/Credit Index. The Portfolio normally invests at
least 80% of its assets in bonds and only buys securities rated investment grade
at the time of purchase by at least one major rating agency or determined by the
management team to be of similar quality. The portfolio management team selects
bonds from several categories including: U.S. Treasuries and agency securities,
commercial and residential mortgage-backed securities ("CMBS" and "MBS"),
collateralized mortgage obligations ("CMOs"), asset-backed securities ("ABS")
and corporate bonds. Securities are purchased for the Portfolio when the
management team determines that they have the potential for above-average total
return. The Portfolio's dollar-weighted average maturity will be between 3 and
10 years.
Recent Portfolio Management Activity:
. The BlackRock share class outperformed the benchmark for the annual
period. The Institutional, Investor A, B, C and Service share classes
underperformed the benchmark for the annual period.
. During the first half of the annual period, yields largely increased
as the Federal Reserve ("Fed") continued to pursue its policy of interest rate
"normalization". The Fed Funds target rate began the fiscal year at 1.75%. For
the next twelve months, the Fed emphasized sustainable economic growth,
contained inflation, and accommodative monetary conditions. In the beginning of
the second half of the annual period, longer maturity yields largely declined
due to the perceived softening of the global economy driven primarily by the
dramatic upswing in oil prices. However, by the end of September, the evidence
of economic vitality was compelling enough to survive not only surging energy
costs but two highly destructive hurricanes. Longer maturity yields increased as
the Fed began to signal that its greater concern was increasing inflation.
During the annual period, the Federal Open Market Committee voted a 0.25%
tightening at each of its eight meetings lifting the Fed Funds target rate to
3.75%. In contrast, longer interest rates, as measured by the 10-year Treasury,
increased by a modest 0.21%, ending the period at 4.33%.
. The major domestic spread sectors - agencies, corporate securities,
ABS, CMBS and MBS - all posted positive excess returns over duration-weighted
Treasuries during the annual period. Investment grade corporate securities
lagged behind the other domestic spread sectors. Corporate bond performance was
driven by both solid credit fundamentals and strong investor demand in the
beginning of the period. However, with the downgrading of General Motors and
Ford, two of the largest corporate bond issuers in the world, to below
investment grade, investors became noticeably more cautious. In spite of higher
short-term interest rates and flattening of the yield curve, which has
dramatically reduced the carry advantage of MBS, the sector was able to post a
positive excess return over Treasuries. Valuations of ABS remained stable, and
spreads remained near historically tight levels despite robust supply. The net
supply of agencies continued to be negative as government sponsored enterprises
were unable to grow given unresolved accounting issues and intense political
scrutiny. This lack of supply has kept spreads tight. CMBS, the best performing
domestic spread sector during the annual period, has enjoyed strong demand due
to the sector's attractive relative value characteristics.
. During the annual period, the Portfolio was short duration relative to
its benchmark which benefited performance as interest rates increased. The
Portfolio maintained an underweight to the corporate sector on a duration basis
which detracted from performance as the sector outperformed duration-adjusted
Treasuries in the period. However, successful security selection generally
offset the negative effect of the sector underweight. Within the corporate
sector, the Portfolio exhibited a bias towards financials and higher quality
issues. The Portfolio maintained its position to the mortgage sector with
positions in short duration adjustable rate mortgages and CMOs. The overweight
to the mortgage sector benefited performance for the period as the sector
returned 0.74% over duration-adjusted Treasuries. The Portfolio was relatively
underweight to its benchmark in Treasuries, with a focus on off-the-run
securities, and also maintained a relative underweight to agency securities with
holdings focused in callable debentures. Instead, the Portfolio held overweight
allocations to the CMBS and ABS sectors, both of which aided performance as the
sectors returned 0.79% and 0.75%, respectively, over duration-adjusted
Treasuries. The management team favored CMBS securities as they believed the
sector to be attractively valued relative to agencies and corporate securities.
Within the ABS sector, the Portfolio focused on non-prepayment sensitive issues.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
INTERMEDIATE BOND PORTFOLIO AND THE LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CREDIT INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Lehman Brothers Intermediate
Institutional Investor A Government/Credit Index
------------- ---------- ----------------------------
09/30/1995 $ 10,000 $ 9,602 $ 10,000
12/31/1995 10,333 9,913 10,351
03/31/1996 10,253 9,835 10,265
06/30/1996 10,328 9,895 10,330
09/30/1996 10,510 10,058 10,513
12/31/1996 10,778 10,302 10,771
03/31/1997 10,773 10,285 10,759
06/30/1997 11,092 10,577 11,076
09/30/1997 11,393 10,852 11,375
12/31/1997 11,598 11,034 11,618
03/31/1998 11,782 11,196 11,799
06/30/1998 11,992 11,382 12,021
09/30/1998 12,396 11,752 12,560
12/31/1998 12,420 11,761 12,596
03/31/1999 12,487 11,811 12,573
06/30/1999 12,435 11,747 12,524
09/30/1999 12,533 11,826 12,639
12/31/1999 12,542 11,821 12,645
03/31/2000 12,756 11,995 12,835
06/30/2000 12,988 12,198 13,053
09/30/2000 13,396 12,581 13,428
12/31/2000 13,888 13,029 13,925
03/31/2001 14,363 13,458 14,397
06/30/2001 14,446 13,506 14,493
09/30/2001 15,167 14,165 15,160
12/31/2001 15,122 14,121 15,173
03/31/2002 15,161 14,141 15,139
06/30/2002 15,639 14,569 15,678
09/30/2002 16,337 15,202 16,388
12/31/2002 16,645 15,475 16,665
03/31/2003 16,923 15,721 16,917
06/30/2003 17,409 16,142 17,377
09/30/2003 17,382 16,119 17,373
12/31/2003 17,370 16,110 17,383
03/31/2004 17,768 16,448 17,814
06/30/2004 17,360 16,056 17,364
09/30/2004 17,829 16,478 17,834
12/31/2004 17,910 16,542 17,912
03/31/2005 17,792 16,422 17,756
06/30/2005 18,170 16,761 18,197
09/30/2005 18,089 16,674 18,102
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------- ------ ------ -------
BlackRock Class 1.61% 3.61% 6.35% 6.23%
Institutional Class 1.46% 3.45% 6.19% 6.11%
Service Class 1.30% 3.20% 5.91% 5.81%
Investor A Class (Load Adjusted) (2.87)% 1.73% 4.93% 5.25%
Investor A Class (NAV) 1.20% 3.13% 5.80% 5.67%
Investor B Class (Load Adjusted) (3.95)% 1.29% 4.68% 5.07%
Investor B Class (NAV) 0.44% 2.36% 5.01% 5.07%
Investor C Class (Load Adjusted) (0.43)% 2.36% 5.00% 5.08%
Investor C Class (NAV) 0.54% 2.36% 5.00% 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, 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
28 for further information on how performance data was calculated, including
important information on the line graph+ above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as the periods indicated, the Portfolio is actively
managed and its composition will vary.
8
Intermediate Bond Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 73.4%
AA 14.0
A 6.4
BBB 5.9
less than BBB 0.3
-----
Total 100.0%
=====
Sector Allocation (% of long-term investments)
Corporate Bonds 32.8%
U.S. Government & Agency Obligations 32.7
Collateralized Mortgage Obligations 9.2
Asset Backed Securities 9.1
Commercial Mortgage Backed Securities 7.8
Mortgage Pass-Throughs 6.5
Taxable Municipal Bonds 1.5
Multiple Class Mortgage Pass-Throughs 0.2
Certificate of Deposit 0.1
Project Loans 0.1
-----
Total 100.0%
=====
Portfolio Statistics
Average maturity (years) 4.51
Effective Duration/2/ 3.14
- ----------
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors
Service ("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration
represents an expected 1% change in the net asset value of the fund for
every 1% change in interest rates. Effective duration is typically
calculated for bonds with embedded options and assumes that expected cash
flows will fluctuate as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) where applicable; and
(2) ongoing costs, including advisory fees, distribution (12b-1) and service
fees, where applicable; and other Portfolio expenses. This Example is intended
to help you understand your ongoing costs (in dollars) of investing in the
Portfolio and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
---------- ------------- ---------- ---------- ---------- ----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,017.40 1,016.70 1,016.50 1,015.40 1,011.60 1,011.60
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.28 3.03 4.35 4.34 8.12 8.17
Hypothetical Expenses
(5% return before expenses)
------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
---------- ------------- ---------- ---------- ---------- ----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,022.72 1,021.95 1,020.63 1,020.63 1,016.83 1,016.78
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.28 3.05 4.37 4.37 8.17 8.22
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.45%, 0.60%, 0.86%, 0.86%, 1.61%, and 1.62% for the BlackRock,
Institutional, Service, Investor A, B, and C share classes, respectively,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period).
9
Intermediate Plus Bond Portfolio
Total Net Assets (9/30/05): $31.0 million
Performance Benchmark:
Lehman Brothers Intermediate Aggregate Index
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management, by investing primarily in bonds that allow it to
maintain an average portfolio duration that is within +/- 20% of the duration of
the Lehman Brothers Intermediate Aggregate Index. The Portfolio invests
primarily in dollar-denominated investment grade bonds, but may invest up to 20%
of its assets in any combination of non-investment grade bonds (high yield or
junk bonds), non-dollar denominated bonds and bonds of emerging market issuers.
The Portfolio's investment in non-dollar denominated bonds may be on a currency
hedged or unhedged basis. The portfolio management team selects bonds from
several categories including: U.S. Treasuries and agency securities, commercial
and residential mortgage-backed securities ("CMBS" and "MBS"), collateralized
mortgage obligations ("CMOs"), asset-backed securities ("ABS") and corporate
bonds. Securities are purchased for the Portfolio when the management team
determines that they have the potential for above-average total return. The
Portfolio's dollar-weighted average maturity will be between 3 and 10 years.
Recent Portfolio Management Activity:
. In late January, the Portfolio changed its benchmark to the Lehman
Brothers Intermediate Aggregate Index. The new benchmark more adequately
reflects the universe of securities in which the Portfolio will invest.
. The BlackRock, Institutional, Service and Investor A share classes of
the Portfolio outperformed the Lehman Brothers Intermediate Government/Credit
Index, the Portfolio's former benchmark, while the Investor B and C share
classes underperformed that benchmark for the annual period. All share classes
of the Portfolio underperformed the Lehman Brothers Intermediate Aggregate
Index, the Portfolio's current benchmark, for the annual period.
. During the first half of the annual period, yields largely increased
as the Federal Reserve ("Fed") continued to pursue its policy of interest rate
"normalization". The Fed Funds target rate began the fiscal year at 1.75%. For
the next twelve months, the Fed emphasized sustainable economic growth,
contained inflation, and accommodative monetary conditions. In the beginning of
the second half of the annual period, longer maturity yields largely declined
due to the perceived softening of the global economy driven primarily by the
dramatic upswing in oil prices. However, by the end of September, the evidence
of economic vitality was compelling enough to survive not only surging energy
costs but two highly destructive hurricanes. Longer maturity yields increased as
the Fed began to signal that its greater concern was increasing inflation.
During the annual period, the Federal Open Market Committee voted a 0.25%
tightening at each of its eight meetings lifting the Fed Funds target rate to
3.75%. In contrast, longer interest rates, as measured by the 10-year Treasury,
increased by a modest 0.21%, ending the period at 4.33%.
. The major domestic spread sectors - agencies, corporate securities,
ABS, CMBS and MBS - all posted positive excess returns over duration-weighted
Treasuries during the annual period. Investment grade corporate securities
lagged behind the other domestic spread sectors. Corporate bond performance was
driven by both solid credit fundamentals and strong investor demand in the
beginning of the period. However, with the downgrading of both General Motors
and Ford to below investment grade, two of the largest corporate bond issuers in
the world, investors became noticeably more cautious. In spite of higher
short-term interest rates and flattening of the yield curve, which has
dramatically reduced the carry advantage of MBS, the sector was able to post a
positive excess return over Treasuries. Valuations of ABS remained stable, and
spreads remained near historically tight levels despite robust supply. The net
supply of agencies continued to be negative as government sponsored enterprises
were unable to grow given unresolved accounting issues and intense political
scrutiny. This lack of supply has kept spreads tight. CMBS, the best performing
domestic spread sector during the annual period, has enjoyed strong demand due
to the sector's attractive relative value characteristics.
. During the annual period, the Portfolio's short duration position
relative to its benchmark benefited performance as interest rates increased. The
Portfolio's underweight to corporate securities on a duration basis, with a bias
towards financials and higher quality credits, detracted from performance as the
sector outperformed duration-adjusted Treasuries. The underweight to MBS
detracted from performance, as the sector returned 0.74% over duration-adjusted
Treasuries. The Portfolio's overweight to CMBS aided performance as the sector
returned 0.79% over duration-adjusted Treasuries. The portfolio management team
believes the sector is attractively valued relative to agencies and corporates.
An overweight to ABS was beneficial to performance as the sector returned 0.75%
over duration-adjusted Treasuries. The Portfolio maintained its focus on
non-prepayment sensitive issues within this sector. Lastly, an allocation to the
emerging markets and high yield sectors benefited performance as each sector
outperformed duration-adjusted Treasuries. The portfolio management team sold
out of emerging market securities towards the end of the period to realize
gains.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERMEDIATE
PLUS BOND PORTFOLIO, THE LEHMAN BROTHERS INTERMEDIATE AGGREGATE INDEX AND
THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CREDIT INDEX FROM INCEPTION.
[LINE CHART]
Lehman Brothers Lehman Brothers
Intermediate Intermediate
Institutional Investor A Aggregate Index Government/Credit Index
------------- ---------- --------------- -----------------------
08/18/2004 $ 10,000 $ 9,597 $ 10,000 $ 10,000
09/30/2004 10,060 9,655 10,064 10,063
12/31/2004 10,109 9,701 10,142 10,107
03/31/2005 10,059 9,643 10,085 10,019
06/30/2005 10,259 9,833 10,329 10,268
09/30/2005 10,239 9,809 10,289 10,214
For Period Ending September 30, 2005
Average Annual Total Return
1 Year From Inception
------------ ---------------
BlackRock Class 1.98% 2.29%
Institutional Class 1.78% 2.14%
Service Class 1.58% 1.78%
Investor A Class (Load Adjusted) (2.48)% (1.72)%
Investor A Class (NAV) 1.60% 1.97%
Investor B Class (Load Adjusted) (3.67)% (2.32)%
Investor B Class (NAV) 0.81% 1.26%
Investor C Class (Load Adjusted) (0.22)% 1.24%
Investor C Class (NAV) 0.78% 1.24%
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio on 8/18/04.
See "Note on Performance Information" on page 28 for further information on how
performance data was calculated, including important information on the line
graph+ above.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as the periods indicated, the Portfolio is actively
managed and its composition will vary.
10
Intermediate Plus Bond Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 85.2%
AA 7.3
A 2.0
BBB 3.4
less than BBB 2.1
-----
Total 100.0%
=====
Sector Allocation (% of long-term investments)
Mortgage Pass-Throughs 26.7%
U.S. Government & Agency Obligations 24.1
Corporate Bonds 18.8
Commercial Mortgage Backed Securities 10.4
Asset Backed Securities 8.4
Collateralized Mortgage Obligations 8.1
Foreign Bonds 2.1
Taxable Municipal Bonds 0.9
Multiple Class Mortgage Pass-Throughs 0.4
Preferred Stocks 0.1
-----
Total 100.0%
=====
Portfolio Statistics
Average maturity (years) 5.03
Effective Duration/2/ 2.92
- ----------
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors
Service ("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration
represents an expected 1% change in the net asset value of the fund for
every 1% change in interest rates. Effective duration is typically
calculated for bonds with embedded options and assumes that expected cash
flows will fluctuate as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) where applicable; and
(2) ongoing costs, including advisory fees, distribution (12b-1) and service
fees, where applicable; and other Portfolio expenses. This Example is intended
to help you understand your ongoing costs (in dollars) of investing in the
Portfolio and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
---------- ------------- ---------- ---------- ---------- ----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,018.50 1,018.00 1,017.00 1,017.20 1,013.20 1,013.00
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.02 2.78 4.05 4.05 7.82 7.82
Hypothetical Expenses
(5% return before expenses)
------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
---------- ------------- ---------- ---------- ---------- ----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,022.97 1,022.21 1,020.94 1,020.94 1,017.13 1,017.13
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.03 2.79 4.06 4.06 7.87 7.87
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.40%, 0.55%, 0.80%, 0.80%, 1.55%, and 1.55% for the BlackRock,
Institutional, Service, Investor A, B, and C share classes, respectively,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the period the fund was open during the one-half year period).
11
Core Bond Total Return Portfolio
Total Net Assets (9/30/05): $2.7 billion
Performance Benchmark:
Lehman Brothers U.S. Aggregate Index
Investment Approach:
Seeks to realize a total return that exceeds that of the Lehman Brothers
U.S. Aggregate Index by normally investing at least 80% of its assets in bonds
that allow it to maintain an average portfolio duration that is within +/- 20%
of the duration of the benchmark. The Portfolio management team selects bonds
from several categories including: U.S. Treasuries and agency securities,
commercial and residential mortgage-backed securities ("CMBS" and "MBS"),
collateralized mortgage obligations ("CMOs"), asset-backed securities ("ABS")
and corporate bonds. The Portfolio may invest up to 10% of its assets in
non-dollar denominated bonds of issuers located outside of the United States.
The Portfolio's investment in non-dollar denominated bonds may be on a currency
hedged or unhedged basis. Securities are purchased for the Portfolio when the
management team determines that they have the potential for above-average total
return.
Recent Portfolio Management Activity:
. The BlackRock and Institutional share classes outperformed the
benchmark for the annual period. The Investor A, B, C and Service share classes
underperformed the benchmark for the annual period.
. During the first half of the annual period, yields largely increased
as the Federal Reserve ("Fed") continued to pursue its policy of interest rate
"normalization". The Fed Funds target rate began the fiscal year at 1.75%. For
the next twelve months, the Fed emphasized sustainable economic growth,
contained inflation, and accommodative monetary conditions. In the beginning of
the second half of the annual period, longer maturity yields largely declined
due to the perceived softening of the global economy driven primarily by the
dramatic upswing in oil prices. However, by the end of September, the evidence
of economic vitality was compelling enough to survive not only surging energy
costs but two highly destructive hurricanes. Longer maturity yields increased as
the Fed began to signal that its greater concern was increasing inflation.
During the annual period, the Federal Open Market Committee voted a 0.25%
tightening at each of its eight meetings lifting the Fed Funds target rate to
3.75%. In contrast, longer interest rates, as measured by the 10-year Treasury,
increased by a modest 0.21%, ending the period at 4.33%.
. The major domestic spread sectors - agencies, corporate securities,
ABS, CMBS and MBS - all posted positive excess returns over duration-weighted
Treasuries during the annual period. Investment grade corporate securities
lagged behind the other domestic spread sectors. Corporate bond performance was
driven by both solid credit fundamentals and strong investor demand in the
beginning of the period. However, with the downgrading of both General Motors
and Ford, two of the largest corporate bond issuers in the world, to below
investment grade, investors became noticeably more cautious. In spite of higher
short-term interest rates and flattening of the yield curve, which has
dramatically reduced the carry advantage of MBS, the sector was able to post a
positive excess return over Treasuries. Valuations of ABS remained stable, and
spreads remained near historically tight levels despite robust supply. The net
supply of agencies continued to be negative as government sponsored enterprises
were unable to grow given unresolved accounting issues and intense political
scrutiny. This lack of supply has kept spreads tight. CMBS, the best performing
domestic spread sector during the annual period, has enjoyed strong demand due
to the sector's attractive relative value characteristics.
. During the annual period, the Portfolio's short duration position
relative to its benchmark benefited performance as interest rates increased. The
Portfolio also benefited from its yield curve positioning during the annual
period. The Portfolio's overweight to CMBS aided performance as the sector
returned 0.79% over duration-adjusted Treasuries. The portfolio management team
believes the sector is attractively valued relative to agencies and MBS. The
Portfolio also benefited from the overweight to ABS, as the sector returned
0.75% over duration-adjusted Treasuries. The Portfolio maintained its focus on
non-prepayment sensitive issues within this sector. The Portfolio's underweight
to MBS detracted from performance, as the sector returned 0.74% over
duration-adjusted Treasuries. Within the sector, the Portfolio favored 15-year
over 30-year pass-throughs. Additionally, the Portfolio maintained allocations
to CMOs and adjustable rate mortgages. The Portfolio continued to be underweight
corporate securities on a duration-weight basis, with a bias towards financials
and higher quality credits. Lastly, an underweight to agencies relative to its
benchmark detracted from performance.
COMPARISON OF CHANGE IN VALUE OF A $10,000
INVESTMENT IN THE CORE BOND TOTAL RETURN PORTFOLIO AND
THE LEHMAN BROTHERS U.S. AGGREGATE INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Lehman Brothers
Institutional Investor A U.S. Aggregate Index
------------- ---------- --------------------
09/30/1995 $ 10,000 $ 9,602 $ 10,000
12/31/1995 10,441 10,025 10,426
03/31/1996 10,194 9,778 10,240
06/30/1996 10,255 9,824 10,298
09/30/1996 10,460 10,009 10,488
12/31/1996 10,818 10,339 10,803
03/31/1997 10,788 10,298 10,743
06/30/1997 11,148 10,630 11,139
09/30/1997 11,509 10,962 11,510
12/31/1997 11,794 11,219 11,849
03/31/1998 11,985 11,388 12,032
06/30/1998 12,268 11,644 12,313
09/30/1998 12,726 12,062 12,833
12/31/1998 12,756 12,077 12,877
03/31/1999 12,739 12,046 12,811
06/30/1999 12,614 11,914 12,698
09/30/1999 12,705 11,986 12,785
12/31/1999 12,677 11,946 12,770
03/31/2000 12,995 12,231 13,051
06/30/2000 13,219 12,414 13,279
09/30/2000 13,631 12,800 13,679
12/31/2000 14,228 13,345 14,254
03/31/2001 14,652 13,741 14,687
06/30/2001 14,670 13,741 14,769
09/30/2001 15,409 14,416 15,450
12/31/2001 15,394 14,386 15,458
03/31/2002 15,400 14,374 15,472
06/30/2002 15,960 14,879 16,044
09/30/2002 16,543 15,389 16,779
12/31/2002 16,884 15,708 17,043
03/31/2003 17,150 15,925 17,280
06/30/2003 17,605 16,334 17,712
09/30/2003 17,567 16,300 17,687
12/31/2003 17,611 16,310 17,742
03/31/2004 18,014 16,668 18,214
06/30/2004 17,678 16,344 17,769
09/30/2004 18,213 16,843 18,337
12/31/2004 18,409 16,996 18,512
03/31/2005 18,367 16,964 18,423
06/30/2005 18,805 17,356 18,977
09/30/2005 18,725 17,271 18,849
For Period Ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
-------- -------- -------- ---------
BlackRock Class 2.96% 4.36% 6.75% 6.63%
Institutional Class 2.81% 4.22% 6.56% 6.47%
Service Class 2.54% 3.95% 6.25% 6.17%
Investor A Class (Load Adjusted) (1.60)% 2.51% 5.31% 5.62%
Investor A Class (NAV) 2.54% 3.92% 6.17% 6.05%
Investor B Class (Load Adjusted) (2.77)% 2.04% 5.04% 5.28%
Investor B Class (NAV) 1.67% 3.11% 5.36% 5.28%
Investor C Class (Load Adjusted) 0.79% 3.11% 5.38% 5.29%
Investor C Class (NAV) 1.77% 3.11% 5.38% 5.29%
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 28 for further information on how performance data was calculated,
including important information on the line graph+ above.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is actively
managed and its composition will vary.
12
Core Bond Total Return Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 82.8%
AA 9.6
A 3.3
BBB 4.0
less than BBB 0.3
-----
Total 100.0%
=====
Sector Allocation (% of long-term investments)
U.S. Government & Agency Obligations 24.7%
Mortgage Pass-Throughs 24.1
Corporate Bonds 21.2
Asset Backed Securities 9.7
Commercial Mortgage Backed Securities 9.2
Collateralized Mortgage Obligations 8.9
Foreign Bonds 1.6
Taxable Municipal Bonds 0.4
Certificate of Deposit 0.2
----
Total 100.0%
======
Portfolio Statistics
Average maturity (years) 6.86
Effective Duration/2/ 3.76
- ----------
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors
Service ("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration
represents an expected 1% change in the net asset value of the fund for
every 1% change in interest rates. Effective duration is typically
calculated for bonds with embedded options and assumes that expected cash
flows will fluctuate as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) where applicable; and
(2) ongoing costs, including advisory fees, distribution (12b-1) and service
fees, where applicable; and other Portfolio expenses. This Example is intended
to help you understand your ongoing costs (in dollars) of investing in the
Portfolio and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
---------- ------------- ---------- ---------- ---------- ----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,020.20 1,019.50 1,018.20 1,018.10 1,014.30 1,014.30
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.03 2.78 4.10 4.10 7.88 7.88
Hypothetical Expenses
(5% return before expenses)
------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
---------- ------------- ---------- ---------- ---------- ----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,022.97 1,022.21 1,020.89 1,020.89 1,017.08 1,017.08
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.03 2.79 4.11 4.11 7.92 7.92
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.40%, 0.55%, 0.81%, 0.81%, 1.56%, and 1.56% for the BlackRock,
Institutional, Service, Investor A, B, and C share classes, respectively,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period).
13
Core Plus Total Return Portfolio
Total Net Assets (9/30/05): $326.3 million
Performance Benchmark:
Lehman Brothers U.S. Aggregate Index
Investment Approach:
Seeks to realize a total return that exceeds that of the Lehman Brothers
U.S. Aggregate Index by normally investing at least 80% of its assets in bonds
that allow it to maintain an average portfolio duration that is within +/- 20%
of the duration of the benchmark. The portfolio management team invests
primarily in dollar-denominated investment grade bonds but may invest up to 20%
of its assets in any combination of non-investment grade bonds (high yield or
junk bonds), non-dollar denominated bonds and bonds of emerging market issuers.
The Portfolio's investment in non-dollar denominated bonds may be on a currency
hedged or unhedged basis. The portfolio management team selects bonds from
several categories including: U.S. Treasuries and agency securities, commercial
and residential mortgage-backed securities ("CMBS" and "MBS"), collateralized
mortgage obligations ("CMOs"), asset-backed securities ("ABS") and corporate
bonds. Securities are purchased for the Portfolio when the management team
determines that they have the potential for above-average total return.
Recent Portfolio Management Activity:
. The BlackRock and Institutional share classes outperformed the
benchmark for the annual period. The Investor A share class performed in line
with the benchmark for the annual period. The Service, Investor B and C share
classes underperformed the benchmark for the annual period.
. During the first half of the annual period, yields largely increased
as the Federal Reserve ("Fed") continued to pursue its policy of interest rate
"normalization". The Fed Funds target rate began the fiscal year at 1.75%. For
the next twelve months, the Fed emphasized sustainable economic growth,
contained inflation, and accommodative monetary conditions. In the beginning of
the second half of the annual period, longer maturity yields largely declined
due to the perceived softening of the global economy driven primarily by the
dramatic upswing in oil prices. However, by the end of September, the evidence
of economic vitality was compelling enough to survive not only surging energy
costs but two highly destructive hurricanes. Longer maturity yields increased as
the Fed began to signal that its greater concern was increasing inflation.
During the annual period, the Federal Open Market Committee voted a 0.25%
tightening at each of its eight meetings lifting the Fed Funds target rate to
3.75%. In contrast, longer interest rates, as measured by the 10-year Treasury,
increased by a modest 0.21%, ending the period at 4.33%.
. The major domestic spread sectors - agencies, corporate securities,
ABS, CMBS and MBS - all posted positive excess returns over duration-weighted
Treasuries during the annual period. Investment grade corporate securities
lagged behind the other domestic spread sectors. Corporate bond performance was
driven by both solid credit fundamentals and strong investor demand in the
beginning of the period. However, with the downgrading of both General Motors
and Ford, two of the largest corporate bond issuers in the world, to below
investment grade, investors became noticeably more cautious. In spite of higher
short-term interest rates and flattening of the yield curve, which has
dramatically reduced the carry advantage of MBS, the sector was able to post a
positive excess return over Treasuries. Valuations of ABS remained stable, and
spreads remained near historically tight levels despite robust supply. The net
supply of agencies continued to be negative as government sponsored enterprises
were unable to grow given unresolved accounting issues and intense political
scrutiny. This lack of supply has kept spreads tight. CMBS, the best performing
domestic spread sector during the annual period, has enjoyed strong demand due
to the sector's attractive relative value characteristics.
. During the annual period, the Portfolio's short duration position
relative to its benchmark benefited performance as interest rates increased. The
Portfolio also benefited from its yield curve positioning during the annual
period. The Portfolio's overweight to ABS was also beneficial as the sector
returned 0.75% over duration-adjusted Treasuries. The Portfolio maintained its
focus on non-prepayment sensitive issues within this sector. Also, the
Portfolio's overweight to CMBS contributed to performance as the sector returned
0.79%. On the contrary, the Portfolio's underweight to MBS detracted from
performance as the sector returned 0.74% over duration-adjusted Treasuries for
the annual period. Within the sector, the Portfolio favored 15-year over 30-year
pass-throughs. Additionally, the Portfolio maintained allocations to CMOs and
adjustable rate mortgages. The Portfolio's underweight to agencies relative to
its benchmark detracted from performance as the sector returned 0.76%.
Furthermore, the Portfolio continued to be underweight corporate securities on a
duration-weight basis, with a bias towards financials and higher quality
credits. Lastly, the Portfolio's allocations to high yield, with a focus on
higher quality issues, and emerging market were beneficial to performance as the
sectors returned 4.88% and 12.62%, respectively, over duration-adjusted
Treasuries. The Portfolio's non-dollar allocation represented approximately
1.80% of the Portfolio, with allocations to Germany and New Zealand Dollar
securities, at the end of the annual period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE CORE PLUS TOTAL
RETURN PORTFOLIO AND THE LEHMAN BROTHERS U.S. AGGREGATE INDEX FROM INCEPTION.
[LINE CHART]
Institutional Investor A Lehman Brothers U.S. Aggregate Index
------------- ---------- ------------------------------------
12/07/2001 $ 10,000 $ 9,597 $ 10,000
12/31/2001 10,098 9,691 10,086
03/31/2002 10,061 9,648 10,095
06/30/2002 10,358 9,921 10,468
09/30/2002 10,721 10,257 10,948
12/31/2002 10,992 10,507 11,120
03/31/2003 11,143 10,642 11,275
06/30/2003 11,489 10,963 11,557
09/30/2003 11,455 10,921 11,540
12/31/2003 11,492 10,957 11,576
03/31/2004 11,705 11,172 11,884
06/30/2004 11,434 10,937 11,594
09/30/2004 11,788 11,276 11,964
12/31/2004 11,926 11,400 12,079
03/31/2005 11,892 11,359 12,021
06/30/2005 12,197 11,642 12,382
09/30/2005 12,151 11,590 12,299
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year From Inception
-------- -------- --------------
BlackRock Class 3.21% 4.61% 5.56%
Institutional Class 3.08% 4.26% 5.24%
Service Class 2.77% 4.35% 5.31%
Investor A Class (Load Adjusted) (1.31)% 2.75% 3.94%
Investor A Class (NAV) 2.79% 4.16% 5.07%
Investor B Class (Load Adjusted) (2.45)% 2.25% 3.62%
Investor B Class (NAV) 2.02% 3.35% 4.32%
Investor C Class (Load Adjusted) 0.93% 3.32% 4.30%
Investor C Class (NAV) 1.93% 3.32% 4.30%
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio on 12/7/01.
See "Note on Performance Information" on page 28 for further information on how
performance data was calculated, including important information on the line
graph+ above.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is actively
managed and its composition will vary.
14
Core PLUS Total Return Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 81.9%
AA 8.3
A 3.5
BBB 4.5
less than BBB 1.8
-----
Total 100.0%
=====
Sector Allocation (% of long-term investments)
Mortgage Pass-Throughs 26.4%
U.S. Government & Agency Obligations 21.0
Corporate Bonds 20.9
Collateralized Mortgage Obligations 10.7
Commercial Mortgage Backed Securities 9.6
Asset Backed Securities 9.0
Foreign Bonds 1.8
Taxable Municipal Bonds 0.4
Preferred Stocks 0.1
Certificate of Deposit 0.1
-----
Total 100.0%
=====
Portfolio Statistics
Average maturity (years) 6.97
Effective Duration/2/ 3.77
- ----------
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors
Service ("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration
represents an expected 1% change in the net asset value of the fund for
every 1% change in interest rates. Effective duration is typically
calculated for bonds with embedded options and assumes that expected cash
flows will fluctuate as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) where applicable; and
(2) ongoing costs, including advisory fees, distribution (12b-1) and service
fees, where applicable; and other Portfolio expenses. This Example is intended
to help you understand your ongoing costs (in dollars) of investing in the
Portfolio and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
---------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
------------- ------------- ------------- ------------- ------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,022.40 1,021.83 1,020.20 1,020.30 1,015.50 1,015.60
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.03 2.79 4.05 4.10 7.88 7.93
Hypothetical Expenses
(5% return before expenses)
---------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
------------- ------------- ------------- ------------- ------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,022.97 1,022.21 1,020.94 1,020.89 1,017.08 1,017.03
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.03 2.79 4.06 4.11 7.92 7.97
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.40%, 0.55%, 0.80%, 0.81%, 1.56%, and 1.57% for the BlackRock,
Institutional, Service, Investor A, B, and C share classes, respectively,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period).
15
Government Income Portfolio
Total Net Assets (9/30/05): $543.8 million
Performance Benchmark:
Lehman Brothers Mortgage/Merrill Lynch 10-Year Treasury Index
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management, by investing primarily in the highest rated
government and agency bonds in the ten to fifteen year maturity range and in
mortgages guaranteed by the U.S. Government or its agencies. Securities
purchased for the Portfolio are rated in the highest rating category (AAA or
Aaa) at the time of purchase by at least one major rating agency or are
determined by the management team to be of similar quality. The portfolio
management team selects bonds from several categories including: U.S. Treasuries
and agency securities, commercial and residential mortgage-backed securities
("CMBS" and "MBS"), collateralized mortgage obligations ("CMOs"), asset-backed
securities ("ABS") and corporate bonds. Securities are purchased for the
Portfolio when the management team determines that they have the potential for
above-average total return.
Recent Portfolio Management Activity:
. All share classes underperformed the benchmark for the annual period.
. During the first half of the annual period, yields largely increased
as the Federal Reserve ("Fed") continued to pursue its policy of interest rate
"normalization". The Fed Funds target rate began the fiscal year at 1.75%. For
the next twelve months, the Fed emphasized sustainable economic growth,
contained inflation, and accommodative monetary conditions. In the beginning of
the second half of the annual period, longer maturity yields largely declined
due to the perceived softening of the global economy driven primarily by the
dramatic upswing in oil prices. However, by the end of September, the evidence
of economic vitality was compelling enough to survive not only surging energy
costs but two highly destructive hurricanes. Longer maturity yields increased as
the Fed began to signal that its greater concern was increasing inflation.
During the annual period, the Federal Open Market Committee voted a 0.25%
tightening at each of its eight meetings lifting the Fed Funds target rate to
3.75%. In contrast, longer interest rates, as measured by the 10-year Treasury,
increased by a modest 0.21%, ending the period at 4.33%.
. The major domestic spread sectors - agencies, corporate securities,
ABS, CMBS and MBS - all posted positive excess returns over duration-weighted
Treasuries during the annual period. While MBS have returned 0.74% over
duration-adjusted Treasuries, higher short-term rates and flattening of the
yield curve has dramatically reduced the carry advantage of MBS. Domestic banks,
who have been the primary sponsor of MBS, have reduced their MBS holdings.
Additionally, with the portfolio growth of the government sponsored enterprises
falling, the MBS market has become much more reliant on overseas demand.
. During the annual period, the Portfolio's short duration position
relative to its benchmark benefited performance as interest rates increased. The
Portfolio also benefited from its overweight to 15-year maturity bonds as
15-year issues outperformed 30-year issues. The Portfolio continues to have a
bias toward 15-year maturity bonds relative to 30-year maturity bonds as 15-year
issues tend to exhibit a better convexity and more stable duration profile. In
terms of sector allocation, the Portfolio largely had an underweight to MBS
during the annual period, which was a detractor from performance. The
Portfolio's non-benchmark allocation to CMBS was also beneficial to performance
as the sector returned 0.79% over duration-adjusted Treasuries. At the end of
the annual period, the Portfolio was underweight Treasuries and overweight
mortgages relative to the benchmark. The Portfolio continues to maintain a small
allocation to non-benchmark holdings such as adjustable rate mortgages, CMBS,
agencies and CMOs.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GOVERNMENT INCOME
PORTFOLIO AND THE LEHMAN BROTHERS MORTGAGE/MERRILL LYNCH
10-YEAR TREASURY INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Investor A Lehman Brothers Mortgage/Merrill Lynch 10 year Treasury In
---------- ----------------------------------------------------------
09/30/1995 $ 9,553 $ 10,000
12/31/1995 9,941 10,453
03/31/1996 9,743 10,210
06/30/1996 9,769 10,210
09/30/1996 9,976 10,400
12/31/1996 10,280 10,734
03/31/1997 10,257 10,623
06/30/1997 10,658 11,075
09/30/1997 11,022 11,467
12/31/1997 11,362 11,844
03/31/1998 11,543 12,022
06/30/1998 11,830 12,292
09/30/1998 12,249 13,020
12/31/1998 12,270 13,013
03/31/1999 12,167 12,867
06/30/1999 11,990 12,628
09/30/1999 12,077 12,711
12/31/1999 11,993 12,583
03/31/2000 12,252 12,923
06/30/2000 12,520 13,165
09/30/2000 12,969 13,511
12/31/2000 13,605 14,220
03/31/2001 13,992 14,546
06/30/2001 13,960 14,459
09/30/2001 14,932 15,277
12/31/2001 14,848 15,109
03/31/2002 14,838 15,033
06/30/2002 15,665 15,735
09/30/2002 16,660 16,817
12/31/2002 16,859 16,879
03/31/2003 17,031 17,055
06/30/2003 17,461 17,410
09/30/2003 17,382 17,303
12/31/2003 17,372 17,264
03/31/2004 17,924 17,829
06/30/2004 17,303 17,295
09/30/2004 17,963 17,956
12/31/2004 18,052 18,091
03/31/2005 17,947 17,969
06/30/2005 18,516 18,654
09/30/2005 18,324 18,432
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
-------- -------- -------- -------
BlackRock Class 2.43% 3.70% 7.45% 6.88%
Service Class 1.92% 3.20% 7.14% 6.72%
Investor A Class (Load Adjusted) (2.61)% 1.65% 6.18% 6.24%
Investor A Class (NAV) 2.01% 3.22% 7.16% 6.73%
Investor B Class (Load Adjusted) (3.14)% 1.38% 6.05% 5.94%
Investor B Class (NAV) 1.25% 2.45% 6.36% 5.94%
Investor C Class (Load Adjusted) 0.28% 2.46% 6.35% 5.92%
Investor C Class (NAV) 1.25% 2.46% 6.35% 5.92%
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio, rather than
the date such class was introduced. The inception dates of the Portfolio's share
classes were as follows: Investor A Shares, 10/3/94; Investor B Shares,
10/3/94; Investor C Shares, 2/28/97; BlackRock Shares, 2/10/03; and service
shares, 10/27/04. See "Note on Performance Information" on page 28 for further
information on how performance data was calculated. The performance shown in the
line graph is that of Investor A Shares of the Portfolio. Excluding the effects
of sales charges, the actual performance of Investor B and Investor C Shares is
lower than the performance of investor A Shares because Investor B and Investor
C Shares have higher expenses than investor A Shares. Purchases of Investor A
Shares generally pay a front-end sales charge, while purchasers of Investor B
and Investor C shares may pay a contingent deferred sales charge (depending on
how long they hold their shares) when they sell their shares.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is actively
managed and its composition will vary.
16
Government Income Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 99.7%
AA 0.3
------
Total 100.0%
======
Sector Allocation (% of long-term investments)
Mortgage Pass-Throughs 66.2%
U.S. Government & Agency Obligations 32.9
Collateralized Mortgage Obligations 0.4
Asset Backed Securities 0.3
Commercial Mortgage Backed Securities 0.2
------
Total 100.0%
======
Portfolio Statistics
Average maturity (years) 6.68
Effective Duration/2/ 4.61
- ----------
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors
Service ("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration
represents an expected 1% change in the net asset value of the fund for
every 1% change in interest rates. Effective duration is typically
calculated for bonds with embedded options and assumes that expected cash
flows will fluctuate as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) where applicable; and
(2) ongoing costs, including advisory fees, distribution (12b-1) and service
fees, where applicable; and other Portfolio expenses. This Example is intended
to help you understand your ongoing costs (in dollars) of investing in the
Portfolio and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
-------------------------------------------------------------------
BlackRock Service Investor Investor Investor
Class Class A Class B Class C Class
----------- ----------- ----------- ----------- -----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,023.10 1,021.10 1,021.10 1,017.20 1,017.30
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.28 4.36 4.36 8.14 8.09
Hypothetical Expenses
(5% return before expenses)
-------------------------------------------------------------------
BlackRock Service Investor Investor Investor
Class Class A Class B Class C Class
----------- ----------- ----------- ----------- -----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,022.72 1,020.63 1,020.63 1,016.83 1,016.88
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.28 4.37 4.37 8.17 8.12
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.45%, 0.86%, 0.86%, 1.61%, and 1.60% for the BlackRock, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
17
Inflation Protected Bond Portfolio
Total Net Assets (9/30/05): $38.6 million
Performance Benchmark:
Lehman Global Real: U.S. TIPS Index
Investment Approach:
Seeks to maximize real return, consistent with preservation of real capital
and prudent investment management. The Portfolio normally invests at least 80%
of its assets in inflation-indexed bonds of varying maturities issued by the
U.S. and non-U.S. governments, their agencies or instrumentalities, and U.S. and
non-U.S. corporations. The Portfolio maintains an average portfolio duration
that is within +/- 20% of the Lehman Global Real: U.S. TIPS Index. The Portfolio
may invest up to 20% of its assets in non investment grade bonds or securities
of emerging market issuers. The Portfolio may also invest up to 20% of its
assets in non-dollar denominated securities of non-U.S. issuers, and may invest
without limit in U.S. dollar denominated securities of non-U.S. issuers. The
management team may also purchase U.S. Treasury and agency securities,
commercial and residential mortgage backed securities, collateralized mortgage
obligations ("CMOs"), asset-backed securities and corporate bonds. Securities
are purchased for the Portfolio when the management team believes that they have
the potential for above-average real return.
Recent Portfolio Management Activity:
. The BlackRock, Institutional, Service and Investor A share classes
outperformed the benchmark for the annual period. The Investor B and C share
classes underperformed the benchmark for the annual period.
. During the first half of the annual period, yields largely increased
as the Federal Reserve ("Fed") continued to pursue its policy of interest rate
"normalization". The Fed Funds target rate began the fiscal year at 1.75%. For
the next twelve months, the Fed emphasized sustainable economic growth,
contained inflation, and accommodative monetary conditions. In the beginning of
the second half of the annual period, longer maturity yields largely declined
due to the perceived softening of the global economy driven primarily by the
dramatic upswing in oil prices. However, by the end of September, the evidence
of economic vitality was compelling enough to survive not only surging energy
costs but two highly destructive hurricanes. Longer maturity yields increased as
the Fed began to signal that its greater concern was increasing inflation.
During the annual period, the Federal Open Market Committee voted a 0.25%
tightening at each of its eight meetings lifting the Fed Funds target rate to
3.75%. In contrast, longer interest rates, as measured by the 10-year Treasury,
increased by a modest 0.21%, ending the period at 4.33%.
. Treasury Inflation Protected Securities ("TIPS") outperformed nominal
Treasuries during the annual period. During the first half of the annual period,
TIPS found support from dollar weakness and rising commodity prices. However, in
the second quarter of 2005, TIPS struggled due to a combination of lower
commodity prices, a stronger dollar and a decline in the core Consumer Price
Index. TIPS rebounded in the third quarter of 2005 due to higher energy and
commodity prices, driven in large part by damage done during Hurricanes Katrina
and Rita. Ten-year breakevens (measure of inflation expectations equal to the
difference between yields on inflation-linked bonds and equivalent maturity
nominal Treasuries) rallied from 2.28% to 2.55% during the third quarter of
2005, as investors raised their future inflation expectation due to higher
energy prices.
. During the annual period, the Portfolio's short duration relative to
its benchmark benefited performance as interest rates rose during the quarter.
In terms of the Portfolio's non-benchmark allocations, the Portfolio reduced its
exposure to commercial mortgage-backed securities (through the use of a total
return swap) during the annual period. The Portfolio maintained its allocation
to adjustable rate mortgages which continues to give the Portfolio exposure to
an attractively priced, high quality spread product in the front end of the
yield curve. The Portfolio's non-US position, which includes holdings in Canada,
Sweden, Germany and the U.K., was beneficial to performance. Lastly, the
Portfolio established a position in emerging market debt through Argentine
inflation-linked bonds as real yields appeared attractive.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INFLATION PROTECTED
BOND PORTFOLIO AND THE LEHMAN GLOBAL REAL: U.S. TIPS INDEX FROM INCEPTION.
[LINE CHART]
Institutional Investor A Lehman Global Real: U.S. TIPS Index
------------- ---------- -----------------------------------
06/28/2004 $ 10,000 $ 9,699 $ 10,000
06/30/2004 10,110 9,806 10,118
09/30/2004 10,540 10,195 10,506
12/31/2004 10,808 10,438 10,771
03/31/2005 10,796 10,427 10,735
06/30/2005 11,098 10,703 11,062
09/30/2005 11,151 10,758 11,065
For period ending September 30, 2005
Average Annual Total Return
1 Year From Inception
------ --------------
BlackRock Class 5.91% 8.85%
Institutional Class 5.80% 9.05%
Service Class 5.52% 7.59%
Investor A Class (Load Adjusted) 2.40% 5.98%
Investor A Class (NAV) 5.52% 8.58%
Investor B Class (Load Adjusted) 0.14% 4.79%
Investor B Class (NAV) 4.62% 7.93%
Investor C Class (Load Adjusted) 3.70% 8.24%
Investor C Class (NAV) 4.70% 8.24%
The performance information above includes information relating to each class
of the Portfolio since the commencement of operations of the Portfolio on
6/28/04. See "Note on Performance Information" on page 28 for further
information on how performance data was calculated, including important
information on the line graph+ above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as the periods indicated, the Portfolio is actively
managed and its composition will vary.
18
Inflation Protected Bond Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 99.5%
BBB 0.2
less than BBB 0.3
-----
Total 100.0%
=====
Sector Allocation (% of long-term investments)
U.S. Government & Agency Obligations 91.2%
Foreign Bonds 4.5
Mortgage Pass-Throughs 4.1
Corporate Bonds 0.2
-----
Total 100.0%
=====
Portfolio Statistics
Average maturity (years) 10.87
Effective Duration/2/ 7.53
- ----------
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors
Service ("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration
represents an expected 1% change in the net asset value of the fund for
every 1% change in interest rates. Effective duration is typically
calculated for bonds with embedded options and assumes that expected cash
flows will fluctuate as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) where applicable; and
(2) ongoing costs, including advisory fees, distribution (12b-1) and service
fees, where applicable; and other Portfolio expenses. This Example is intended
to help you understand your ongoing costs (in dollars) of investing in the
Portfolio and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
---------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
------------- ------------- ------------- ------------- ------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,034.10 1,032.90 1,032.00 1,031.70 1,027.70 1,027.60
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 1.53 2.04 3.57 3.57 7.37 7.32
Hypothetical Expenses
(5% return before expenses)
---------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
------------- ------------- ------------- ------------- ------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,023.48 1,022.97 1,021.45 1,021.45 1,017.64 1,017.69
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 1.52 2.03 3.55 3.55 7.36 7.31
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.30%, 0.40%, 0.70%, 0.70%, 1.45%, and 1.44% for the BlackRock,
Institutional, Service, Investor A, B, and C share classes, respectively,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the period the fund was open during the one-half year period).
19
GNMA Portfolio
Total Net Assets (9/30/05): $202.4 million
Performance Benchmark:
Lehman Brothers GNMA MBS Index
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management, by investing primarily in securities issued by
the Government National Mortgage Association ("GNMA") as well as other U.S.
Government securities in the five to ten year maturity range. Securities
purchased by the Portfolio are rated in the highest rating category (AAA or Aaa)
at the time of purchase by at least one major rating agency or are determined by
the portfolio management team to be of similar quality. Securities are purchased
for the Portfolio when the management team determines that they have the
potential for above-average total return.
Recent Portfolio Management Activity:
. All share classes underperformed the benchmark for the annual period.
. During the first half of the annual period, yields largely increased
as the Federal Reserve ("Fed") continued to pursue its policy of interest rate
"normalization". The Fed Funds target rate began the fiscal year at 1.75%. For
the next twelve months, the Fed emphasized sustainable economic growth,
contained inflation, and accommodative monetary conditions. In the beginning of
the second half of the annual period, longer maturity yields largely declined
due to the perceived softening of the global economy driven primarily by the
dramatic upswing in oil prices. However, by the end of September, the evidence
of economic vitality was compelling enough to survive not only surging energy
costs but two highly destructive hurricanes. Longer maturity yields increased as
the Fed began to signal that its greater concern was increasing inflation.
During the annual period, the Federal Open Market Committee voted a 0.25%
tightening at each of its eight meetings lifting the Fed Funds target rate to
3.75%. In contrast, longer interest rates, as measured by the 10-year Treasury,
increased by a modest 0.21%, ending the period at 4.33%.
. The major domestic spread sectors - agencies, corporate securities,
asset-backed securities ("ABS"), commercial mortgage-backed securities ("CMBS")
and mortgage-backed securities ("MBS") - all posted positive excess returns over
duration-weighted Treasuries during the annual period. While MBS have returned
0.74% over duration-adjusted Treasuries, higher short-term rates and flattening
of the yield curve has dramatically reduced the carry advantage of MBS. Domestic
banks, who have been the primary sponsor of MBS, have reduced their MBS
holdings. Additionally, with the portfolio growth of the government sponsored
enterprises falling, the MBS market has become much more reliant on overseas
demand.
. During the annual period, the Portfolio's short duration position
relative to its benchmark benefited performance as interest rates increased. The
Portfolio also benefited from its overweight to 15-year maturity bonds as
15-year issues outperformed 30-year issues. The Portfolio continues to have a
bias toward 15-year maturity bonds over 30-year maturity bonds as 15-year issues
tend to exhibit a better convexity and more stable duration profile. In terms of
sector allocation, the Portfolio largely had an underweight to MBS during the
annual period, which was a detractor from performance. The Portfolio's
non-benchmark allocation to ABS was beneficial to performance as the sector
returned 0.75% over duration-adjusted Treasuries. At the end of the annual
period, the Portfolio maintained an underweight to MBS and held small
non-benchmark positions in adjustable rate mortgages, CMBS, collateralized
mortgage obligations and ABS.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GNMA PORTFOLIO AND
THE LEHMAN BROTHERS GNMA MBS INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A Lehman Brothers GNMA MBS Index
------------- ---------- ------------------------------
05/18/1998 $ 10,000 $ 9,597 $ 10,000
06/30/1998 10,099 9,684 10,077
09/30/1998 10,331 9,896 10,334
12/31/1998 10,448 9,996 10,426
03/31/1999 10,529 10,061 10,531
06/30/1999 10,409 9,935 10,486
09/30/1999 10,503 10,013 10,581
12/31/1999 10,477 9,977 10,627
03/31/2000 10,702 10,179 10,834
06/30/2000 10,963 10,415 11,064
09/30/2000 11,311 10,722 11,396
12/31/2000 11,719 11,141 11,808
03/31/2001 12,073 11,464 12,126
06/30/2001 12,186 11,557 12,283
09/30/2001 12,762 12,088 12,755
12/31/2001 12,884 12,200 12,778
03/31/2002 13,029 12,323 12,915
06/30/2002 13,478 12,730 13,334
09/30/2002 13,773 12,994 13,695
12/31/2002 14,020 13,210 13,889
03/31/2003 14,119 13,288 14,005
06/30/2003 14,262 13,406 14,081
09/30/2003 14,324 13,448 14,141
12/31/2003 14,471 13,570 14,285
03/31/2004 14,660 13,730 14,511
06/30/2004 14,533 13,596 14,380
09/30/2004 14,892 13,919 14,728
12/31/2004 15,031 14,039 14,907
03/31/2005 15,001 14,002 14,915
06/30/2005 15,232 14,208 15,220
09/30/2005 15,231 14,198 15,227
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year From Inception
------ ------ ------ --------------
BlackRock Class 2.44% 3.51% 6.19% 5.92%
Institutional Class 2.28% 3.41% 6.13% 5.88%
Service Class 2.02% 3.09% 5.81% 5.55%
Investor A Class (Load Adjusted) (2.04)% 1.60% 4.92% 4.87%
Investor A Class (NAV) 2.01% 3.00% 5.78% 5.46%
Investor B Class (Load Adjusted) (3.16)% 1.17% 4.59% 4.65%
Investor B Class (NAV) 1.25% 2.24% 4.92% 4.65%
Investor C Class (Load Adjusted) 0.27% 2.25% 4.93% 4.63%
Investor C Class (NAV) 1.26% 2.25% 4.93% 4.63%
The performance information above includes information relating to each class
of the portfolio since the commencement of operations of the portfolio on
5/18/98. See "Note on Performance Information" on page 28 for further
information on how performance data was calculated, including important
information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
20
GNMA Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 99.2%
AA 0.8
------
Total 100.0%
======
Sector Allocation (% of long-term investments)
Mortgage Pass-Throughs 96.2%
Collaterized Mortgage Obligations 1.7
Asset Backed Securities 0.9
U.S. Government & Agency Obligations 0.6
Commercial Mortgage Backed Securities 0.6
------
Total 100.0%
======
Portfolio Statistics
Average maturity (years) 5.76
Effective Duration/2/ 2.64
- ----------
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors
Service ("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration
represents an expected 1% change in the net asset value of the fund for
every 1% change in interest rates. Effective duration is typically
calculated for bonds with embedded options and assumes that expected cash
flows will fluctuate as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) where applicable; and
(2) ongoing costs, including advisory fees, distribution (12b-1) and service
fees, where applicable; and other Portfolio expenses. This Example is intended
to help you understand your ongoing costs (in dollars) of investing in the
Portfolio and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
---------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
------------- ------------- ------------- ------------- ------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,015.10 1,015.40 1,013.10 1,014.00 1,010.30 1,010.30
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.27 3.03 4.34 4.29 8.11 8.11
Hypothetical Expenses
(5% return before expenses)
---------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
------------- ------------- ------------- ------------- ------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,022.72 1,021.95 1,020.63 1,020.69 1,016.83 1,016.83
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.28 3.05 4.37 4.31 8.17 8.17
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.45%, 0.60%, 0.86%, 0.85%, 1.61%, and 1.61% for the BlackRock,
Institutional, Service, Investor A, B, and C share classes, respectively,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period).
21
Managed Income Portfolio
Total Net Assets (9/30/05): $705.7 million
Performance Benchmark:
Lehman Brothers U.S. Aggregate Index
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management, by investing primarily in investment grade bonds
that allow it to maintain an average portfolio duration that is within +/- 20%
of the duration of the Lehman Brothers U.S. Aggregate Index. The Portfolio
normally invests at least 80% of its assets in bonds and only buys securities
rated investment grade at the time of purchase by at least one major rating
agency or determined by the management team to be of similar quality. The
Portfolio may invest up to 10% of its assets in non-dollar denominated bonds of
issuers located outside of the United States. The Portfolio's investment in
non-dollar denominated bonds may be on a currency hedged or unhedged basis. The
portfolio management team selects bonds from several categories including: U.S.
Treasuries and agency securities, commercial and residential mortgage-backed
securities ("CMBS" and "MBS"), collateralized mortgage obligations ("CMOs"),
asset-backed securities ("ABS") and corporate bonds. Securities are purchased
for the Portfolio when the management team determines that they have the
potential for above-average total return.
Recent Portfolio Management Activity:
. The Institutional share class outperformed the benchmark for the
annual period. The Investor A, B, C and Service share classes underperformed the
benchmark for the annual period.
. During the first half of the annual period, yields largely increased
as the Federal Reserve ("Fed") continued to pursue its policy of interest rate
"normalization". The Fed Funds target rate began the fiscal year at 1.75%. For
the next twelve months, the Fed emphasized sustainable economic growth,
contained inflation, and accommodative monetary conditions. In the beginning of
the second half of the annual period, longer maturity yields largely declined
due to the perceived softening of the global economy driven primarily by the
dramatic upswing in oil prices. However, by the end of September, the evidence
of economic vitality was compelling enough to survive not only surging energy
costs but two highly destructive hurricanes. Longer maturity yields increased as
the Fed began to signal that its greater concern was increasing inflation.
During the annual period, the Federal Open Market Committee voted a 0.25%
tightening at each of its eight meetings lifting the Fed Funds target rate to
3.75%. In contrast, longer interest rates, as measured by the 10-year Treasury,
increased by a modest 0.21%, ending the period at 4.33%.
. The major domestic spread sectors - agencies, corporate securities,
ABS, CMBS and MBS - all posted positive excess returns over duration-weighted
Treasuries during the annual period. Investment grade corporate securities
lagged behind the other domestic spread sectors. Corporate bond performance was
driven by both solid credit fundamentals and strong investor demand in the
beginning of the period. However, with the downgrading of both General Motors
and Ford, two of the largest corporate bond issuers in the world, to below
investment grade, investors became noticeably more cautious. In spite of higher
short-term interest rates and flattening of the yield curve, which has
dramatically reduced the carry advantage of MBS, the sector was able to post a
positive excess return over Treasuries. Valuations of ABS remained stable, and
spreads remained near historically tight levels despite robust supply. The net
supply of agencies continued to be negative as government sponsored enterprises
were unable to grow given unresolved accounting issues and intense political
scrutiny. This lack of supply has kept spreads tight. CMBS, the best performing
domestic spread sector during the annual period, has enjoyed strong demand due
to the sector's attractive relative value characteristics.
. During the annual period, the Portfolio's short duration position
relative to its benchmark benefited performance as interest rates increased. The
Portfolio also benefited from its yield curve positioning during the annual
period. The Portfolio's overweight to ABS also contributed to performance as the
sector returned 0.75% over duration-adjusted Treasuries. The Portfolio
maintained its focus on non-prepayment sensitive issues within this sector.
Lastly, the Portfolio's overweight to CMBS contributed to performance as the
sector returned 0.79% for the annual period. On the contrary, the Portfolio's
underweight to MBS detracted from performance as the sector returned 0.74% over
duration-adjusted Treasuries. Within this sector, the Portfolio favored 15-year
over 30-year pass-throughs. Additionally, the Portfolio maintained allocations
to CMOs and adjustable rate mortgages. The Portfolio's underweight to agencies
relative to its benchmark detracted from performance as the sector returned
0.76% for the annual period. Lastly, the Portfolio continued to be underweight
corporate securities on a duration-weight basis, with a bias toward financials
and higher quality credits.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE MANAGED INCOME
PORTFOLIO AND THE LEHMAN BROTHERS U.S. AGGREGATE INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A Lehman Brothers U.S. Aggregate Index
------------- ---------- ------------------------------------
09/30/1995 $ 10,000 $ 9,549 $ 10,000
12/31/1995 10,424 9,943 10,426
03/31/1996 10,216 9,732 10,240
06/30/1996 10,258 9,761 10,298
09/30/1996 10,433 9,915 10,488
12/31/1996 10,782 10,236 10,803
03/31/1997 10,751 10,194 10,743
06/30/1997 11,138 10,548 11,139
09/30/1997 11,502 10,881 11,510
12/31/1997 11,802 11,152 11,849
03/31/1998 11,975 11,302 12,032
06/30/1998 12,289 11,585 12,313
09/30/1998 12,566 11,832 12,833
12/31/1998 12,663 11,909 12,877
03/31/1999 12,670 11,902 12,811
06/30/1999 12,540 11,766 12,698
09/30/1999 12,637 11,843 12,785
12/31/1999 12,585 11,781 12,770
03/31/2000 12,855 12,019 13,051
06/30/2000 13,077 12,225 13,279
09/30/2000 13,502 12,595 13,679
12/31/2000 14,086 13,137 14,254
03/31/2001 14,524 13,530 14,687
06/30/2001 14,570 13,556 14,769
09/30/2001 15,310 14,215 15,450
12/31/2001 15,307 14,196 15,458
03/31/2002 15,287 14,160 15,472
06/30/2002 15,839 14,654 16,044
09/30/2002 16,354 15,113 16,779
12/31/2002 16,765 15,475 17,043
03/31/2003 17,021 15,693 17,280
06/30/2003 17,511 16,126 17,712
09/30/2003 17,499 16,095 17,687
12/31/2003 17,534 16,108 17,742
03/31/2004 17,925 16,449 18,214
06/30/2004 17,577 16,110 17,769
09/30/2004 18,112 16,583 18,337
12/31/2004 18,285 16,740 18,512
03/31/2005 18,244 16,671 18,423
06/30/2005 18,688 17,060 18,977
09/30/2005 18,630 16,990 18,849
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------ ------ ------ -------
Institutional Class 2.86% 4.44% 6.65% 6.42%
Service Class 2.45% 4.09% 6.31% 6.10%
Investor A Class (Load Adjusted) (2.15)% 2.41% 5.19% 5.44%
Investor A Class (NAV) 2.45% 3.98% 6.17% 5.93%
Investor B Class (Load Adjusted) (2.73)% 2.15% 5.05% 5.28%
Investor B Class (NAV) 1.69% 3.21% 5.38% 5.28%
Investor C Class (Load Adjusted) 0.71% 3.21% 5.35% 5.26%
Investor C Class (NAV) 1.69% 3.21% 5.35% 5.26%
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio, rather than
the date such class was introduced. The inception dates of the Portfolio's share
classes were as follows: Institutional Shares, 11 /1/89; Investor A Shares, 2 /5
/92; Service Shares, 7/29/93; Investor B Shares, 7/15 /97; and Investor C
Shares, 11/22/99. See "Note on Performance Information" on page 28 for further
information on how performance data was calculated, including important
information on the line graph+ above.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is actively
managed and its composition will vary.
22
Managed Income Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 84.2%
AA 8.7
A 3.9
BBB 3.0
less than BBB 0.2
------
Total 100.0%
======
Sector Allocation (% of long-term investments)
U.S. Government & Agency Obligations 26.3%
Mortgage Pass-Throughs 24.8
Corporate Bonds 20.5
Commercial Mortgage Backed Securities 10.5
Asset Backed Securities 8.5
Collateralized Mortgage Obligations 4.8
Project Loans 2.3
Taxable Municipal Bonds 1.3
Foreign Bonds 0.8
Certificate of Deposit 0.2
------
Total 100.0%
======
Portfolio Statistics
Average maturity (years) 7.01
Effective Duration/2/ 3.77
- ----------
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors
Service ("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration
represents an expected 1% change in the net asset value of the fund for
every 1% change in interest rates. Effective duration is typically
calculated for bonds with embedded options and assumes that expected cash
flows will fluctuate as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including front and back end sales charges (loads) where applicable; and
(2) ongoing costs, including advisory fees, distribution (12b-1) and service
fees, where applicable; and other Portfolio expenses. This Example is intended
to help you understand your ongoing costs (in dollars) of investing in the
Portfolio and to compare these costs with the ongoing costs of investing in
other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transactional costs were included, your
costs would have been higher.
Actual Expenses
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
------------- ------------- ------------- ------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,021.20 1,018.60 1,019.10 1,015.30 1,014.40
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 3.29 4.81 5.26 9.09 9.09
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
------------- ------------- ------------- ------------- -------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,021.70 1,020.18 1,019.72 1,015.86 1,015.86
Expenses Incurred
During Period
(4/01/05 -
9/30/05) 3.30 4.82 5.28 9.14 9.14
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.65%, 0.95%, 1.04%, 1.80%, and 1.80% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
23
International Bond Portfolio
Total Net Assets (9/30/05): $820.5 million
Performance Benchmark:
Citigroup Non-U.S.World Government Bond Index
Investment Approach:
Seeks to realize a total return that exceeds that of the Citigroup
Non-U.S. World Government Bond Index by investing primarily in non-dollar
denominated bonds of issuers located outside of the United States in the five
to fifteen year maturity range. The Portfolio normally invests at least 80% of
its assets in bonds and at least 65% of it assets in bonds of a diversified
group on non-U.S. issuers from at least three developed countries. The
Portfolio may only buy securities rated investment grade at the time of
purchase by at least one major rating agency or determined by the management
team to be of similar quality. Securities are purchased for the Portfolio when
the management team determines that they have the potential for above-average
total return.
Recent Portfolio Management Activity:
. All share classes of the Portfolio underperformed the benchmark for
the annual period.
. Non-U.S. bond markets outperformed during the first half of the annual
period, mainly due to strong performance during the fourth quarter of 2004. The
rebound in U.S. economic growth and the determination of the Federal Reserve to
maintain their measured tightening process contrasted with more sluggish
conditions in Europe and Japan. Disappointing economic releases dampened
optimism for a significant European rebound as higher oil prices and the strong
euro continued to hamper manufacturing, resulting in sluggish GDP growth in the
entire Euro-zone. Japan also experienced disappointing economic news as fourth
quarter GDP was released as a modest negative number, the third consecutive
quarter of negative growth. In the Dollar Bloc, Canadian bonds outperformed U.S.
bonds as the Bank of Canada halted their tightening program given the strength
of the Canadian dollar. In contrast, the Reserve Bank of Australia and the
Reserve Bank of New Zealand both raised official rates with a 25 basis point
rise to 5.50% in Australia and a 50 basis point increase to 6.75% in New
Zealand.
. In the first half of the annual period, the Portfolio held a short
duration stance in Japan and the Euro Bloc versus its benchmark. The Portfolio
had a yield curve flattening bias in the Euro and Asia Blocs. The Portfolio
maintained a short duration position in the U.S. with a yield curve flattening
bias. From a country perspective, the Portfolio benefited from its overweight
country allocations to New Zealand versus Australia; and Sweden and Denmark
versus the Euro Bloc. The Portfolio additionally held overweights to Mexico and
Germany with an underweight to Japan. The Portfolio was underweight United
Kingdom ("U.K.") bonds versus euro bonds in the period. From a sector
perspective, the Portfolio was overweight U.K. and Swedish swap spread products
and held a position in Danish mortgages, all of which benefited performance.
. During the second half of the annual period, economic growth remained
lackluster in Europe and market participants expressed doubt regarding the
sustainability of the European economic expansion. In contrast, the Bank of
Canada resumed its tightening stance by raising rates 25 basis points to 2.75%
in September. Despite hawkish rhetoric, the Reserve Bank of New Zealand did not
raise interest rates in the second half of the annual period. During the latter
half of the period, several developments in Japan reinforced the notion of a
sustainable economic recovery. The second quarter GDP release highlighted the
continued recovery in domestic demand, labor force numbers showed strength and
the Nikkei surged more than 20% during the third quarter of 2005.
. In the second half of the annual period, within the Dollar Bloc, the
Portfolio maintained a short duration stance in the U.S. While this detracted
from performance during the second quarter of 2005, our short duration position
aided performance during the third quarter of 2005. The Portfolio held an
underweight country allocation to Australia versus an overweight position in New
Zealand. The Portfolio's yield curve flattening bias in Canada and a position in
Canadian dollar supranationals benefited performance in the second half of the
annual period. In the Pan Europe Bloc, the Portfolio held underweight duration
positions in the Euro Bloc and the U.K. While the short duration position in the
U.K. detracted from returns during the second quarter of 2005 when rates rallied
across the curve, the Portfolio benefited from this position in the third
quarter of 2005 as the majority of the yields across the curve increased. In
addition, the Portfolio held overweight country allocations to Germany and
Poland. In the Asia Bloc, the Portfolio's underweight to Japan detracted from
performance as rates rallied during the second quarter of 2005, while the
underweight benefited performance in the third quarter of 2005 as rates
increased. We maintained a yield curve flattening bias in Japan throughout the
period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
INTERNATIONAL BOND PORTFOLIO AND THE CITIGROUP NON-U.S. WORLD
GOVERNMENT BOND INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Citigroup Non-U.S.
Service Investor A World Government Bond Index
--------- ---------- ------------------------------
09/30/1995 $ 10,000 $ 9,498 $ 10,000
12/31/1995 10,487 9,960 10,207
03/31/1996 10,524 9,995 10,035
06/30/1996 10,763 10,220 10,075
09/30/1996 11,180 10,611 10,403
12/31/1996 11,578 10,982 10,624
03/31/1997 11,689 11,083 10,010
06/30/1997 12,080 11,449 10,292
09/30/1997 12,435 11,780 10,314
12/31/1997 12,729 12,053 10,171
03/31/1998 13,056 12,358 10,213
06/30/1998 13,278 12,563 10,383
09/30/1998 13,949 13,192 11,381
12/31/1998 14,148 13,375 11,980
03/31/1999 14,348 13,558 11,401
06/30/1999 14,214 13,426 10,889
09/30/1999 14,172 13,380 11,555
12/31/1999 14,174 13,376 11,373
03/31/2000 14,460 13,640 11,241
06/30/2000 14,830 13,984 11,152
09/30/2000 15,124 14,255 10,647
12/31/2000 15,783 14,870 11,074
03/31/2001 16,327 15,376 10,530
06/30/2001 16,462 15,496 10,323
09/30/2001 16,935 15,935 11,123
12/31/2001 16,996 15,985 10,682
03/31/2002 16,907 15,896 10,482
06/30/2002 17,346 16,302 11,947
09/30/2002 17,845 16,763 12,286
12/31/2002 18,134 17,027 13,030
03/31/2003 18,518 17,380 13,516
06/30/2003 19,268 18,060 14,085
09/30/2003 19,747 18,519 14,473
12/31/2003 21,001 19,670 15,443
03/31/2004 21,212 19,876 15,686
06/30/2004 20,548 19,245 15,155
09/30/2004 21,108 19,767 15,652
12/31/2004 23,274 21,795 17,317
03/31/2005 22,515 21,084 16,780
06/30/2005 21,716 20,354 16,328
09/30/2005 21,574 20,204 16,144
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
-------- ------ ------ -------
BlackRock Class 2.62% 6.88% 7.70% 8.30%
Institutional Class 2.46% 6.80% 7.65% 8.28%
Service Class 2.21% 6.53% 7.36% 7.99%
Investor A Class (Load Adjusted) (2.89)% 4.63% 6.13% 7.29%
Investor A Class (NAV) 2.21% 6.42% 7.22% 7.84%
Investor B Class (Load Adjusted) (2.94)% 4.57% 6.11% 7.08%
Investor B Class (NAV) 1.45% 5.63% 6.43% 7.08%
Investor C Class (Load Adjusted) 0.56% 5.65% 6.48% 7.10%
Investor C Class (NAV) 1.53% 5.65% 6.48% 7.10%
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 28
for further information on how performance data was calculated, including
important information on the line graph * above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
24
International Bond Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 79.2%
AA 15.8
A 4.6
BBB 0.4
------
Total 100.0%
======
Top 10 Country Allocation (% of long-term investments)
Germany 25.8%
United States 17.4
Japan 8.6
United Kingdom 7.2
Canada 7.2
Ireland 6.5
France 6.2
Italy 5.5
Poland 3.1
Finland 2.8
-----
Total 90.3%
=====
Portfolio Statistics
Average maturity (years) 7.59
Effective Duration/2/ 4.47
- ----------
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors
Service ("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration
represents an expected 1% change in the net asset value of the fund for
every 1% change in interest rates. Effective duration is typically
calculated for bonds with embedded options and assumes that expected cash
flows will fluctuate as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) or
redemption/exchange fees, where applicable; and (2) ongoing costs, including
advisory fees, distribution (12b-1) and service fees, where applicable; and
other Portfolio expenses. This Example is intended to help you understand your
ongoing costs (in dollars) of investing in the Portfolio and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
---------- ------------- ---------- ---------- ---------- ----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 960.10 959.40 958.20 958.20 954.60 954.70
Expenses Incurred
During Period
(4/01/05 -
9/30/05) 3.83 4.72 5.89 5.89 9.60 9.56
Hypothetical Expenses
(5% return before expenses)
------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
---------- ------------- ---------- ---------- ---------- ----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,021.04 1,020.13 1,018.91 1,018.91 1,015.05 1,015.10
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 3.96 4.87 6.09 6.09 9.95 9.90
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.78%, 0.96%, 1.20%, 1.20%, 1.96%, and 1.95% for the BlackRock,
Institutional, Service, Investor A, B, and C share classes, respectively,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period) and 134/365 for the BlackRock class (to
reflect the period the class was open during the one-half year.)
25
High Yield Bond Portfolio
Total Net Assets (9/30/05): $916.7 million
Performance Benchmark:
Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management, by investing primarily in non-investment grade
bonds with maturities of ten years or less. The Portfolio normally invests at
least 80% of its net assets in high yield bonds, including convertible and
preferred securities. The high yield securities purchased by the Portfolio will
generally be in the lower rating categories of major rating agencies (BB or
lower by Standard & Poor's or Ba or lower by Moody's) or will be determined by
the portfolio management team to be of similar quality. The Portfolio may
invest up to 10% of its assets in non-dollar denominated bonds of issuers
located outside of the United States. The management team evaluates sectors of
the high yield market and individual bonds within these sectors. Securities are
purchased for the Portfolio when the management team determines that they have
the potential for above average total return.
Recent Portfolio Management Activity:
. On January 31, 2005, BlackRock, Inc., the parent of BlackRock
Advisors, Inc. (BAI), acquired SSRM Holdings, Inc., the parent of State Street
Research & Management Company (SSRM), the investment adviser to the State Street
Research mutual funds. In connection with the transaction, the BlackRock High
Yield Bond Portfolio (the Portfolio) reorganized with the State Street Research
High Income Fund (the SSR Fund). The SSR Fund transferred substantially all of
its assets and liabilities to the Portfolio in exchange for shares of the
Portfolio, which were then distributed to the SSR Fund shareholders.
. In July, the Portfolio changed its benchmark to the Lehman Brothers
U.S. Corporate High Yield 2% Issuer Cap Index from the Lehman Brothers U.S.
Corporate High Yield Index. The recent downgrade of General Motors' ("GM") debt
securities from investment grade to high yield and the subsequent introduction
of GM into high yield indices at as much as a 6% weight has changed the
composition of many indices. The new benchmark's 2% issuer limit allows
BlackRock to overweight a particular issuer and to maintain prudent
diversification.
. All share classes outperformed the Portfolio's former and current
benchmarks for the annual period.
. During the first half of the annual period, yields largely increased
as the Federal Reserve ("Fed") continued to pursue its policy of interest rate
"normalization". The Fed Funds target rate began the fiscal year at 1.75%. For
the next twelve months, the Fed emphasized sustainable economic growth,
contained inflation, and accommodative monetary conditions. During the annual
period, the Federal Open Market Committee voted a 0.25% tightening at each of
its eight meetings lifting the Fed Funds target rate to 3.75%. In contrast,
longer interest rates, as measured by the 10-year Treasury, increased by a
modest 0.21%, ending the period at 4.33%.
. The high yield market returned 4.88% over duration-adjusted Treasuries
during the annual period. Much of the out-performance is attributable to the
fourth quarter of 2004. However, a reassessment of risk was triggered by the
much-reduced earnings forecast by GM and widespread expectation of an eventual
downgrade to below investment grade. The market facilitated a relatively smooth
transition once rating agency Standard & Poor's cut GM's rating to high yield
status. Lastly, in the aftermath of Hurricanes Katrina and Rita, high crude oil
prices have gotten the most attention, but the rally in fuel commodities has
been broad-based.
. During the annual period, in terms of credit biases, the Portfolio's
overweight to B-rated issues relative to BB-rated issues was beneficial to
performance as B-rated issues returned 4.66% over duration-adjusted Treasuries.
In terms of sector biases, the Portfolio's overweight to the electric,
construction machinery and media non-cable sectors and underweight to the
automotive suppliers sector were beneficial to performance. However, the
Portfolio's underweight to the building materials, wirelines and media cable
sectors detracted from performance. At the end of the annual period, the
Portfolio continues to have an overweight to `B' and split-rated `CCC'
securities and an underweight to `BB' securities. From a sector perspective, at
the end of the annual period, the Portfolio was overweight in the electric,
aerospace/defense, transportation services and construction machinery sectors
and underweight in airlines, home construction, media non-cable, and health care
sectors. The Portfolio remains biased toward companies with pricing power and
the ability to generate free cash flow to reduce debt.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE HIGH YIELD BOND
PORTFOLIO, THE LEHMAN BROTHERS U.S. CORPORATE HIGH YIELD 2% ISSUER CAP INDEX
AND THE LEHMAN BROTHERS U.S. CORPORATE HIGH YIELD INDEX FROM INCEPTION.
[LINE CHART]
Lehman Brothers U.S. Corporate Lehman Brothers U.S. Corporate
Institutional Investor A High Yield 2% Issuer Cap Index* High Yield Index
------------- ---------- -------------------------------- -------------------------------
11/19/1998 $ 10,000 $ 9,497 $ 10,000 $ 10,000
12/31/1998 10,128 9,613 10,011 10,160
03/31/1999 10,465 9,922 10,196 10,347
06/30/1999 10,622 10,059 10,231 10,382
09/30/1999 10,593 10,019 10,086 10,234
12/31/1999 11,013 10,394 10,250 10,402
03/31/2000 10,883 10,269 10,011 10,159
06/30/2000 10,994 10,362 10,127 10,276
09/30/2000 10,923 10,282 10,182 10,334
12/31/2000 10,221 9,610 9,657 9,793
03/31/2001 10,764 10,110 10,283 10,415
06/30/2001 10,647 9,988 10,054 10,177
09/30/2001 10,318 9,667 9,630 9,746
12/31/2001 10,941 10,239 10,184 10,310
03/31/2002 11,210 10,478 10,360 10,483
06/30/2002 10,860 10,140 9,842 9,810
09/30/2002 10,510 9,800 9,547 9,523
12/31/2002 11,060 10,301 10,159 10,164
03/31/2003 11,785 10,949 10,922 10,938
06/30/2003 13,024 12,088 12,025 12,044
09/30/2003 13,346 12,373 12,359 12,377
12/31/2003 14,164 13,133 13,083 13,109
03/31/2004 14,518 13,446 13,394 13,416
06/30/2004 14,450 13,368 13,265 13,287
09/30/2004 15,085 13,944 13,907 13,931
12/31/2004 15,894 14,700 14,540 14,568
03/31/2005 15,702 14,494 14,307 14,334
06/30/2005 16,000 14,760 14,678 14,730
09/30/2005 16,391 15,112 14,823 14,866
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year From Inception
------ ------ ------ --------------
BlackRock Class 8.82% 16.14% 8.62% 7.60%
Institutional Class 8.66% 15.97% 8.46% 7.47%
Service Class 8.38% 15.64% 8.14% 7.13%
Investor A Class (Load Adjusted) 2.94% 13.55% 6.90% 6.20%
Investor A Class (NAV) 8.38% 15.53% 8.01% 7.00%
Investor B Class (Load Adjusted) 3.10% 13.79% 6.95% 6.20%
Investor B Class (NAV) 7.57% 14.68% 7.23% 6.20%
Investor C Class (Load Adjusted) 6.44% 14.67% 7.19% 6.18%
Investor C Class (NAV) 7.44% 14.67% 7.19% 6.18%
* The performance for the Lehman Brothers U.S. corporate high yield 2% issuer
cap index in the chart starts on 12/1/1998. The performance information above
includes information relating to each class of the Portfolio since the
commencement of operations of the Portfolio on 11/19/98. See "Note on
Performance Information" on page 28 for further information on how performance
data was calculated, including important information on the line graph + above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
26
High Yield Bond Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
BBB or BBB 5.1%
BB 27.6
B 51.0
CCC 11.2
<CCC 1.0
Unrated 4.1
------
Total 100.0%
======
Top 10 Industries (% of long-term investments)
Energy & Utilities 11.6%
Telecommunications 10.2
Oil & Gas 10.0
Manufacturing 6.1
Broadcasting 5.9
Entertainment & Leisure 5.0
Finance 5.0
Chemicals 4.5
Business Services 3.9
Construction 3.2
-----
Total 65.4%
=====
Portfolio Statistics
Average maturity (years) 6.12
Modified Duration/2/ 5.18
- ----------
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors
Service ("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration
represents an expected 1% change in the net asset value of the fund for
every 1% change in interest rates. Modified duration assumes that cash
flows remain constant as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) or
redemption/exchange fees, where applicable; and (2) ongoing costs, including
advisory fees, distribution (12b-1) and service fees, where applicable; and
other Portfolio expenses. This Example is intended to help you understand your
ongoing costs (in dollars) of investing in the Portfolio and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
---------- ------------- ---------- ---------- ---------- ----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,044.70 1,043.90 1,042.60 1,042.60 1,038.70 1,038.70
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.82 3.59 4.92 4.92 8.74 8.79
Hypothetical Expenses
(5% return before expenses)
------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
---------- ------------- ---------- ---------- ---------- ----------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,022.21 1,021.45 1,020.13 1,020.13 1,016.32 1,016.27
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.79 3.55 4.87 4.87 8.68 8.73
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.55%, 0.70%, 0.96%, 0.96%, 1.71%, and 1.72% for the BlackRock,
Institutional, Service, Investor A, B, and C share classes, respectively,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period).
27
BlackRock Funds
NOTE ON PERFORMANCE INFORMATION
The performance information above includes information for each class of
each Portfolio since the commencement of operations of each 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/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. Additionally, the performance information above does not
reflect accounting adjustments required under accounting principles generally
accepted in the United States of America and as a result there may be variances
between what is reported within this section and that reported in the total
return calculation in the Financial Highlights.
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 PLUS Bond, Intermediate Government Bond, Intermediate Bond, Core
Bond Total Return, Core PLUS Total Return and GNMA - 4.00%; Government Income
and Managed Income - 4.50%; International Bond and High Yield Bond - 5.00%; and
Inflation Protected Bond, Enhanced Income 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 and reimbursements
that subsidize and reduce the total operating expenses of each Portfolio. The
Portfolios' returns would have been lower if there were not such waivers and
reimbursements. BlackRock Advisors, Inc. is under no obligation to waive or
continue waiving its fees after February 1, 2006 or February 1, 2007 as
described in the prospectus of the Portfolios. 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.
+ The performance shown in the line graph is that of Institutional Shares and
Investor A Shares of the Portfolios. The actual performance of Investor B,
Investor C and Service Shares is lower than the performance of
Institutional Shares because Investor B, Investor C and Service Shares have
higher expenses than Institutional Shares. Excluding the effects of sales
charges, the actual performance of Investor B and Investor C Shares is
lower than the performance of Investor A Shares because Investor B and
Investor C Shares have higher expenses than Investor A Shares. Purchasers
of Investor A Shares generally pay a front-end sales charge, while
purchasers of Investor B and Investor C Shares may pay a contingent
deferred sales charge (depending on how long they hold their shares) when
they sell their shares.
* The performance shown in the line graph is that of Service Shares and
Investor A Shares of the Portfolios. The actual performance of Investor B
and Investor C Shares is lower than the performance of Service Shares
because Investor B and Investor C Shares have higher expenses than Service
Shares. Excluding the effects of sales charges, the actual performance of
Investor B and Investor C Shares is lower than the performance of Investor
A Shares because Investor B and Investor C Shares have higher expenses than
Investor A shares. Purchasers of Investor A Shares generaly pay a front-end
sales charge, while purchasers of Investor B and Investor C Shares may pay
a contingent deferred sales charge (depending on how long they hold their
shares) when they sell their shares.
Important Tax Information for Shareholders of the BlackRock Taxable Bond
Portfolios (unaudited)
During the fiscal year ended September 30, 2005, the following portfolios
of the BlackRock Funds declared the following dividends from net realized
capital gains:
Short-term Long-term
capital gain capital gain
per share per share
-------------- -------------
Intermediate Government Bond Portfolio ...... $ -- $ 0.0475
Intermediate Bond Portfolio ................. -- 0.0766
Intermediate PLUS Bond Portfolio ............ 0.006 0.0028
Core Bond Total Return Portfolio ............ 0.0001 0.0167
Inflation Protected Portfolio ............... 0.1012 0.0009
Managed Income Portfolio .................... 0.0001 0.0384
High Yield Bond Portfolio ................... 0.1265 0.0101
International Bond Portfolio ................ 0.0022 0.0038
Because the Portfolios' fiscal year is not the calendar year, another
notification will be sent with respect to calendar year 2005. The second
notification, which reflects the amounts to be used by calendar year taxpayers
on their U.S. federal income tax returns, has been made in conjunction with
form 1099-DIV and will be mailed in January 2006.
28
BlackRock Funds
STATEMENT OF NET ASSETS
ENHANCED INCOME PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
--------------- ------------ ---------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 17.1%
Federal Home Loan Bank
1.70% 12/30/05 $ 745 $ 740,921
Federal Home Loan Mortgage Corp.,
Unsecured Notes
5.25% 01/15/06 1,725 1,730,673
1.88% 02/15/06 900 892,732
Federal National Mortgage
Association
2.77% 12/29/06 275 269,688
Federal National Mortgage
Association, Unsecured Notes
2.75% 05/10/06 800 792,798
2.71% 01/30/07 550 538,259
6.62% 09/15/09 75 80,597
U.S. Treasury Bonds
12.75% 11/15/10 255 257,610
10.38% 11/15/12 325 365,397
U.S. Treasury Notes
2.38% 08/31/06 140 137,851
3.12% 01/31/07 2,300 2,269,274
4.00% 08/31/07 1,470 1,465,005
4.12% 08/15/08 65 64,904
----------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost $9,673,824) 9,605,709
----------
MORTGAGE PASS-THROUGHS -- 10.5%
Federal Home Loan Mortgage Corp.
ARM
3.54%(b) 05/01/34 701 680,634
3.57%(b) 07/01/34 717 709,787
4.31%(b) 11/01/34 497 493,930
4.87%(b) 05/01/35 763 759,490
4.96%(b) 10/01/37 211 211,327
Federal National Mortgage
Association
5.00% 10/18/20 1,700 1,695,219
Federal National Mortgage
Association ARM
4.87%(b) 06/01/35 452 456,819
5.33%(b) 10/01/35 400 397,750
Government National Mortgage
Association II ARM
4.12%(b) 11/20/29 74 75,650
3.50%(b) 08/20/31 130 131,299
Government National Mortgage
Association II Hybrid
3.75%(b) 06/20/34 319 315,101
----------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $5,962,392) 5,927,006
----------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS -- 0.5%
Federal National Mortgage
Association, Series 05-68, Class
PB
5.75%
(Cost $256,441) 07/25/35 249 253,791
----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 14.7%
Adjustable Rate Mortgage Trust,
Series 04-4, Class 5A3
4.20%(b) 03/25/35 360 360,616
Banc of America Funding Corp.,
Series 04-C, Class 4A2
4.14%(b) 12/20/34 456 457,407
Bear Stearns Mortgage Trust, Series
04-12, Class 1A1
4.18%(b) 01/25/35 352 352,267
Bear Stearns Mortgage Trust, Series
04-13, Class A1
4.20%(b) 11/25/34 511 513,708
Bear Stearns Mortgage Trust, Series
04-7, Class 4A
3.20%(b) 10/25/34 272 268,048
Countrywide Home Loans, Series
04-29, Class 1A1
4.10%(b) 02/25/35 587 586,766
Credit Suisse First Boston Mortgage
Securities Corp., Series 02-10,
Class 2A1
7.50% 05/25/32 75 76,015
Federal Home Loan Mortgage Corp.,
Series 2763, Class PA
4.50% 09/15/10 96 96,427
Federal Home Loan Mortgage Corp.,
Series 2808, Class PA
4.00% 09/15/12 745 742,799
Federal Home Loan Mortgage Corp.,
Series SF5, Class GB
1.77% 12/15/07 343 337,471
Federal National Mortgage
Association, Series 02-39, Class
FB
4.14%(b) 03/18/32 56 56,279
Federal National Mortgage
Association, Series 04-25, Class
PA
5.50% 10/25/30 121 122,640
Federal National Mortgage
Association, Series 04-36, Class
BS
5.50% 11/25/30 165 166,203
Federal National Mortgage
Association, Series 04-W10, Class
A1
5.75% 08/25/34 181 181,799
GSAA Home Equity Trust, Series
04-8, Class A3A
4.20%(b) 09/25/34 348 348,624
GSR Mortgage Loan Trust, Series
04-9, Class 3A1
3.69%(b) 08/25/34 159 158,947
Merrill Lynch Mortgage Investors,
Inc., Series 97-B, Class A
3.85%(b) 03/15/26 629 630,014
Merrill Lynch Mortgage Investors,
Inc., Series 04-E, Class A2A
3.72%(b) 11/25/29 390 389,969
MortgageIT Trust, Series 04-1, Class
A1
4.22%(b) 11/25/34 527 527,795
Residential Accredit Loans, Inc.,
Series 01-QS19, Class A1
6.00% 12/25/16 250 249,422
Structured Asset Securities Corp.,
Series 04-3AC, Class A2
4.92%(b) 03/25/34 235 234,499
Structured Mortgage Loan Trust,
Series 04-13, Class A2
4.13%(b) 09/25/34 365 364,576
See accompanying notes to financial statements.
29
BlackRock Funds
STATEMENT OF NET ASSETS
ENHANCED INCOME PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Washington Mutual Mortgage Loan
Trust, Series 03-AR8, Class A
4.03% 08/25/33 $ 255 $ 252,100
Wells Fargo Mortgage Backed
Securities Trust, Series 04-V, Class
1A2
3.83%(b) 10/25/34 835 823,655
----------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $8,337,412) 8,298,046
----------
COMMERCIAL MORTGAGE BACKED SECURITIES -- 7.8%
Bayview Financial Acquisition Trust,
Series 98-1, Class A1
7.01%(c) 05/25/29 239 237,581
Bear Stearns Commercial Mortgage
Securities, Series 00-WF, Class A1
7.11% 10/15/32 308 319,783
Commercial Mortgage Acceptance
Corp., Series 98-C2, Class A2
6.03% 09/15/30 314 321,725
Credit Suisse First Boston Mortgage
Securities Corp., Series 98-C1,
Class A1B
6.48% 05/17/40 304 315,367
Credit Suisse First Boston Mortgage
Securities Corp., Series 00-C1,
Class A1
7.32% 04/15/42 388 405,198
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 99-C3, Class A2
7.18% 08/15/36 160 170,778
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 03-C2, Class X2 (IO)
0.29%(c)(d) 05/10/40 6,799 49,436
Goldman Sachs Mortgage Securities
Corp. II, Series 98-C1, Class A3
6.14% 10/18/30 474 489,609
Homebanc Mortgage Trust, Series
05-4, Class A1
4.10%(b) 10/25/35 645 647,213
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 00-C5,
Class A1
6.41% 12/15/19 394 404,560
Merrill Lynch Mortgage Trust, Series
02-MW1, Class XP (IO)
1.55%(c)(d) 07/12/34 2,521 118,443
Nationslink Funding Corp., Series 99,
Class 1
6.32% 01/20/31 436 452,771
Structured Asset Receivable Trust,
Series 04-1
4.13%(b)(c) 04/21/11 482 481,829
----------
TOTAL COMMERCIAL MORTGAGE BACKED
SECURITIES
(Cost $4,469,124) 4,414,293
----------
ASSET BACKED SECURITIES -- 33.8%
American Express Credit Account
Master Trust, Series 01-1, Class A
3.91%(b) 09/15/08 625 625,343
Auto Receivables Owner Trust,
Series 05-1, Class A3
3.53% 10/21/08 550 543,059
Bank One Issuance Trust, Series
03-A2, Class A2
3.82%(b) 10/15/08 600 600,124
BMW Vehicle Owner Trust, Series
05-A, Class A3
4.02% 02/25/09 575 571,401
Capital Auto Receivables Asset Trust,
Series 04-1, Class A3
2.00% 11/15/07 702 693,018
Capital Auto Receivables Asset Trust,
Series 04-2, Class A2
3.35% 02/15/08 725 716,278
Chase Issuance Trust, Series 04-A9,
Class A9
3.22% 06/15/10 400 390,156
Chase Manhattan Auto Owner Trust,
Series 03-C, Class A3
2.26% 11/15/07 655 650,069
Citibank Credit Card Issuance Trust,
Series 03-A2, Class A2
2.70% 01/15/06 375 373,407
Citibank Credit Card Issuance Trust,
Series 04, Class A1
2.55% 01/20/07 325 317,252
Citibank Credit Card Issuance Trust,
Series 04-A4, Class A4
3.20% 08/24/07 300 292,764
Conseco Finance Securitizations
Corp., Series 01-4, Class A3
6.09% 09/01/33 275 276,775
Countrywide Asset-Backed
Certificates, Series 05-BC4, Class
2A1
3.79%(b) 11/25/28 625 625,000
DaimlerChrysler Auto Trust, Series
03-A, Class A3
2.12% 11/08/06 133 132,946
DaimlerChrysler Auto Trust, Series
03-B, Class A3
2.25% 08/08/07 455 453,174
DaimlerChrysler Auto Trust, Series
04-B, Class A2
2.48% 02/08/07 297 296,816
Discover Card Master Trust I, Series
01-2, Class A
3.93%(b) 07/15/08 525 525,254
Discover Card Master Trust I, Series
02-4, Class A
3.83%(b) 10/17/05 430 429,996
Ford Credit Auto Owner Trust, Series
05-A, Class A3
3.48% 11/15/08 675 667,467
Ford Credit Auto Owner Trust, Series
05-B, Class A3
4.17% 01/15/09 225 223,812
Ford Credit Auto Owner Trust, Series
05-C, Class A2
4.24% 03/15/08 475 474,980
Green Tree Financial Corp., Series
99-1, Class A4
5.76% 11/01/18 249 249,422
Honda Auto Receivables Owner
Trust, Series 02-3, Class A4
3.61% 12/18/07 376 374,243
See accompanying notes to financial statements.
30
BlackRock Funds
STATEMENT OF NET ASSETS
ENHANCED INCOME PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
ASSET BACKED SECURITIES (Continued)
Honda Auto Receivables Owner
Trust, Series 03-2, Class A3
1.69% 02/21/07 $ 269 $ 267,596
Honda Auto Receivables Owner
Trust, Series 04-2, Class A2
2.52% 02/15/07 269 268,069
Honda Auto Receivables Owner
Trust, Series 04-2, Class A3
3.30% 06/16/08 150 148,545
Honda Auto Receivables Owner
Trust, Series 05-4, Class A3
4.51% 05/20/09 325 324,730
Long Beach Asset Holdings Corp.
Series 05-2, Class N1
4.15%(c) 04/25/35 229 228,334
MBNA Master Credit Card Trust,
Series 96-G, Class A
3.95%(b) 12/15/08 1,180 1,181,687
Nissan Auto Receivables Owner
Trust, Series 03-A, Class A3
1.89% 12/15/06 122 122,304
Nissan Auto Receivables Owner
Trust, Series 03-C, Class A4
2.70% 12/17/07 675 666,800
Nissan Auto Receivables Owner
Trust, Series 04-C, Class A3
2.85% 10/15/07 550 543,895
Option One Mortgage Loan Trust,
Series 01-4, Class A
4.43%(b) 01/25/32 32 31,846
Option One Mortgage Loan Trust,
Series 05-4, Class A2
4.08% 11/25/35 525 525,000
Residential Asset Securities Corp.,
Series 01-KS4, Class AIB
4.15%(b) 05/25/32 334 333,897
Saxson Asset Securities Trust, Series
02-3, Class AV
4.23%(b) 12/25/32 33 32,943
Specialty Underwriting & Residential
Finance, Series 05-BC3, Class
A2A
3.87%(b) 06/25/36 575 575,000
Standard Credit Card Master Trust,
Series 95-9, Class A
6.55% 10/07/07 600 600,312
USAA Auto Owner Trust, Series 03-1,
Class A3
1.58% 06/15/07 169 168,429
USAA Auto Owner Trust, Series 04-1,
Class A3
2.06% 04/15/08 508 502,059
USAA Auto Owner Trust, Series 04-2,
Class A3
3.03% 06/16/08 250 247,420
USAA Auto Owner Trust, Series 05-1,
Class A2
3.55% 09/17/07 350 348,915
USAA Auto Owner Trust, Series 05-1,
Class A3
3.93% 07/15/09 325 321,942
USAA Auto Owner Trust, Series 05-2,
Class A3
4.07% 12/15/09 650 644,222
Vanderbilt Mortgage & Finance, Inc.,
Series 99-D, Class IA3
7.06%(b) 10/07/17 39 39,794
WFS Financial Owner Trust, Series
02-4, Class A3A
2.39% 08/20/07 1 730
WFS Financial Owner Trust, Series
02-4, Class A4A
3.11% 08/20/10 425 419,546
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $19,161,804) 19,046,771
-----------
CORPORATE BONDS -- 9.2%
Aerospace -- 0.4%
Northrop Grumman Corp., Senior
Unsecured Notes
4.08% 11/16/06 150 149,275
Northrop Grumman Corp., Unsecured
Notes
7.00% 03/01/06 45 45,492
-----------
194,767
-----------
Banks -- 2.1%
Banc One Corp., Senior Unsecured
Notes
2.62% 06/30/08 20 19,007
Bank of America Corp., Senior
Unsecured Notes
3.88% 01/15/08 100 98,530
3.25% 08/15/08 20 19,292
Bayerische Landesbank New York,
Senior Notes
2.50% 04/28/06 500 494,854
Citigroup, Inc., Senior Unsecured
Notes
3.50% 02/01/08 200 195,190
J.P. Morgan Chase & Co., Senior
Unsecured Notes
5.25% 05/30/07 150 151,763
U.S. Central Credit Union, Unsecured
Notes
2.75% 05/30/08 30 28,598
Wells Fargo & Co., Senior Unsecured
Notes
5.12% 02/15/07 180 181,048
-----------
1,188,282
-----------
Energy & Utilities -- 0.0%
PSEG Funding Trust, Capital
Security
5.38% 11/16/07 25 25,195
-----------
Finance -- 3.1%
General Electric Capital Corp.,
Unsecured Notes
3.45%(b) 07/07-01/08 1,450 1,450,244
3.60% 10/15/08 125 121,526
Golden West Financial Corp., Senior
Unsecured Notes
4.12% 08/15/07 15 14,892
See accompanying notes to financial statements.
31
BlackRock Funds
STATEMENT OF NET ASSETS
ENHANCED INCOME PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Finance (Continued)
Household Finance Corp., Unsecured
Notes
4.12% 12/15/08 $ 150 $ 147,410
----------
1,734,072
----------
Insurance -- 0.3%
ASIF Global Financing, Unsecured
Notes
3.90%(c) 10/22/08 20 19,475
Metropolitan Life Global Funding,
Inc., Unsecured Notes
2.60%(c) 06/19/08 75 70,892
Prudential Insurance Co., Notes
6.38%(c) 07/23/06 100 101,381
----------
191,748
----------
Oil & Gas -- 0.2%
Consolidated Natural Gas Co.,
Senior Unsecured Notes
5.38% 11/01/06 130 131,002
----------
Pharmaceuticals -- 0.6%
Merck & Co., Inc., Senior Unsecured
Notes
5.25% 07/01/06 50 50,208
Merck & Co., Inc., Unsecured Notes
4.73%(b)(c) 02/22/06 300 300,106
----------
350,314
----------
Railroad & Shipping -- 0.2%
Canadian National Railway Co.,
Senior Notes
6.45% 07/15/06 125 126,782
----------
Real Estate -- 0.3%
Avalonbay Communities, Inc., Senior
Unsecured Notes
8.25% 07/15/08 140 152,355
----------
Retail Merchandising -- 0.3%
Federated Department Stores, Inc.,
Senior Unsecured Notes
6.62% 09/01/08 25 26,174
May Department Stores Co.,
Unsecured Notes
3.95% 07/15/07 150 147,894
----------
174,068
----------
Telecommunications -- 1.1%
BellSouth Corp., Unsecured Notes
4.26%(b)(c)(e) 04/26/06 250 249,648
Lenfest Communications, Inc., Senior
Notes
7.62% 02/15/08 125 132,242
Sprint Capital Corp., Senior
Unsecured Notes
7.12% 01/30/06 75 75,617
Verizon Global Funding Corp., Senior
Unsecured Notes
6.12% 06/15/07 125 128,174
Vodafone Group PLC, Senior
Unsecured Notes
3.95% 01/30/08 10 9,863
----------
595,544
----------
Transportation -- 0.2%
Union Pacific Corp., Senior
Unsecured Notes
5.75% 10/15/07 75 76,463
Union Pacific Corp., Unsecured
Notes
6.79% 11/09/07 50 52,082
----------
128,545
----------
Yankee -- 0.4%
Republic of Italy, Unsecured Notes
2.75%(f) 12/15/06 125 122,934
Tyco International Group SA
(Luxembourg), Senior Unsecured
Notes
5.80%(f) 08/01/06 75 75,706
----------
198,640
----------
TOTAL CORPORATE BONDS
(Cost $5,229,448)
5,191,314
----------
TAXABLE MUNICIPAL BONDS -- 0.1%
New York Sales Tax Asset
Receivables Corp. Revenue
Bonds, Series 04, Class B
3.29%
(Cost $80,000) 10/15/07 80 78,174
----------
Par/Shares
(000)
-----------
SHORT TERM INVESTMENTS -- 9.9%
Federal National Mortgage
Association, Discount Notes
3.50%(g) 10/03/05 3,800 3,799,261
Galileo Money Market Fund 1,771 1,771,067
---------
TOTAL SHORT TERM INVESTMENTS
(Cost $5,570,328) 5,570,328
---------
TOTAL INVESTMENTS IN SECURITIES -- 103.6%
(Cost $58,740,773(a)) 58,385,432
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (3.6)% (2,047,227)
----------
NET ASSETS -- 100.0%
(Applicable to 2,397,110 BlackRock
shares, 3,311,002 Institutional
shares, 5,005 Service shares, 239
Investor A shares outstanding) $ 56,338,205
============
See accompanying notes to financial statements.
32
BlackRock Funds
STATEMENT OF NET ASSETS
ENHANCED INCOME PORTFOLIO (Concluded)
As of September 30, 2005
Value
------------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
BLACKROCK SHARE
($23,641,717/2,397,110) $ 9.86
============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($32,645,566/3,311,002) $ 9.86
============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($48,569/5,005) $ 9.70
============
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($2,353/239) $ 9.85
============
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.85/0.970) $ 10.15
============
- ----------
(a) Cost for Federal income tax purposes is $58,742,280. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 19,576
Gross unrealized depreciation (376,424)
------------
$ (356,848)
============
(b) Rates shown are the rates as of September 30, 2005.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 3.3% of its net assets, with a current market
value of $1,857,125 in securities restricted as to resale.
(d) Rates shown are the effective yields as of September 30, 2005.
(e) Securities, or a portion thereof, pledged as collateral with a value of
$249,648 on 29 long U.S. Treasury Note futures contracts and 70 short U.S.
Treasury Note futures contacts expiring December 2005. The value of such
contracts on September 30, 2005 was $13,450,985 with an unrealized gain of
$20,256 (including commissions of $218).
(f) Security is a foreign domiciled issuer which is registered with the
Securities and Exchange Commission.
(g) The rate shown is the effective yield on the discount notes at the time of
purchase.
See accompanying notes to financial statements.
33
BlackRock Funds
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------- ---------------
PREFERRED STOCKS -- 0.6%
Raytheon Co. Trust I
(Cost $9,572,030) 180,000 $ 9,314,280
---------------
Par
Maturity (000) Value
------------- ---------- ---------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS --
40.4%
Federal Home Loan Mortgage Corp.,
Unsecured Notes
5.25% 01/15/06 $ 47,875 48,032,461
1.88% 02/15/06 39,350 39,032,249
Federal National Mortgage Association
2.77%(b) 12/29/06 7,640 7,492,426
Federal National Mortgage Association,
Unsecured Notes
2.71% 01/30/07 44,825 43,868,076
6.62% 09/15/09 23,695 25,463,168
Small Business Administration
Participation Certificates,
Series 97, Class A
4.35%(b)(c) 08/15/22 965 918,768
U.S. Treasury Bonds
10.38%(d)(e) 11/15/12 9,020 10,141,159
U.S. Treasury Notes
1.50% 03/31/06 19,585 19,354,719
2.25%(f) 04/30/06 99,580 98,599,734
2.75%(f) 07/31/06 20,215 19,997,850
2.50%(f) 10/31/06 103,305 101,541,584
2.88%(f) 11/30/06 88,935 87,660,028
3.88%(f) 07/31/07 10,905 10,847,072
4.00%(f) 08/31/07 56,490 56,298,047
4.12% 08/15/08 14,540 14,518,423
4.25%(f) 08/15/15 19,285 19,164,469
---------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $608,392,457) 602,930,233
---------------
MORTGAGE PASS-THROUGHS -- 13.2%
Federal Home Loan Mortgage Corp.
8.25% 06/01/09 3 2,775
Federal Home Loan Mortgage Corp.
ARM
5.21%(b) 07/01/20 591 593,465
3.54%(b) 05/01/34 5,715 5,552,322
3.33%(b) 07/01/34 1,232 1,219,479
3.57%(b) 07/01/34 4,096 4,054,909
4.31%(b) 11/01/34 17,843 17,726,409
Federal National Mortgage Association
6.50% 11/01/08 423 438,918
6.00% 03/12-02/17 1,228 1,264,548
5.50% 01/01/20 95 96,660
5.00% 10/18/20 47,200 47,067,274
Federal National Mortgage Association
1Year CMT
4.91%(b) 09/01/29 69 70,019
5.21%(b) 12/01/30 819 844,071
6.64%(b) 12/01/31 808 824,828
5.54%(b) 08/01/32 1,881 1,918,482
5.52%(b) 01/01/33 4,055 4,055,176
Federal National Mortgage Association
ARM
4.15%(b) 10/01/33 1,063 1,055,288
4.29%(b) 01/01/34 959 953,819
4.01%(b) 04/01/34 904 887,120
3.93%(b) 05/01/34 19,236 18,980,076
4.56%(b) 02/01/35 26,931 26,764,443
4.87%(b) 06/01/35 15,253 15,400,934
6.18%(b) 04/01/40 2,751 2,819,861
Federal National Mortgage Association
COFI
4.82%(b) 05/01/27 150 152,998
Federal National Mortgage Association
MULTI
3.89%(b) 12/01/09 8,396 8,406,425
Government National Mortgage Association
7.25%(g) 04/15/06 0 413
6.00% 12/08-02/11 792 810,994
6.50% 06/15/09 626 650,681
Government National Mortgage Association
1 Year CMT
3.75%(b) 05/20/34 13,894 13,714,178
Government National Mortgage Association
II Hybrid
3.75%(b) 06/20/34 20,485 20,220,151
---------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $197,345,388)
196,546,716
---------------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS --
0.2%
Federal National Mortgage
Association Grantor Trust,
Series 02-T6, Class A1
3.31%
(Cost $2,362,930) 02/25/32 2,469 2,320,597
---------------
COLLATERALIZED MORTGAGE OBLIGATIONS --
14.5%
Bear Stearns Mortgage Trust,
Series 04-13, Class A1
4.20%(b) 11/25/34 13,692 13,755,959
Bear Stearns Mortgage Trust, Series
04-7, Class 4A
3.20%(b) 10/25/34 15,324 15,092,188
Countrywide Alternative Loan Trust,
Series 05-CB, Class 2A3
5.50% 07/25/35 10,641 10,693,539
Countrywide Home Loans, Series
04-29, Class 1A1
4.10%(b) 02/25/35 10,577 10,568,572
Federal Home Loan Mortgage Corp.
Strip Notes, Series 19, Class F
3.29%(b) 06/01/28 1,362 1,352,362
Federal Home Loan Mortgage Corp.,
Series 1165, Class LD
7.00% 11/15/21 2,067 2,067,313
Federal Home Loan Mortgage Corp.,
Series 2642, Class JA
5.00% 11/15/16 5,501 5,503,580
Federal Home Loan Mortgage Corp.,
Series 2663, Class LA
5.00% 09/15/23 2,361 2,365,225
See accompanying notes to financial statements.
34
BlackRock Funds
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- ---------------
COLLATERALIZED MORTGAGE OBLIGATIONS
(Continued)
Federal Home Loan Mortgage Corp.,
Series 2744, Class PB
5.50% 03/15/26 $ 10,347 $ 10,405,943
Federal Home Loan Mortgage Corp.,
Series 2996, Class PB
5.50% 05/15/35 12,519 12,598,060
Federal National Mortgage
Association, Series 03-27, Class
TJ
4.00% 10/25/16 1,982 1,974,926
Federal National Mortgage
Association, Series 04-W10, Class
A1
5.75% 08/25/34 23,854 23,942,951
Goldman Sachs Mortgage Securities
Corp. II, Series 00-1, Class A
4.15%(b)(c) 06/20/24 683 683,942
Goldman Sachs Mortgage Securities
Corp., Series 04-11, Class 2A2
4.15%(b) 12/25/34 12,510 12,522,604
GSR Mortgage Loan Trust, Series
04-9, Class 3A1
3.69%(b) 08/25/34 20,759 20,758,544
Harborview Mortgage Loan Trust,
Series 05-10, Class 2A1A
3.98%(b) 11/19/35 15,985 15,985,256
Merrill Lynch Mortgage Investors, Inc.,
Series 97-B, Class A
3.85%(b) 03/15/26 1,624 1,627,236
MLCC Mortgage Investors, Inc.,
Series 99-A, Class A
4.15%(b) 03/15/25 862 865,988
MortgageIT Trust, Series 04-1,
Class A1
4.22%(b) 11/25/34 17,081 17,102,035
Residential Accredit Loans, Inc.,
Series 01-QS19, Class A1
6.00% 12/25/16 533 531,361
Residential Funding Mortgage
Securities I, Inc., Series 04-SRI,
Class A1
5.50% 09/25/33 13,578 13,658,202
Structured Asset Securities Corp.,
Series 04-3AC, Class A2
4.92%(b) 03/25/34 13,270 13,249,207
Structured Mortgage Loan Trust,
Series 04-13, Class A2
4.13%(b) 09/25/34 8,000 8,000,281
Washington Mutual Mortgage
Securities Corp., Series 02-AR1,
Class IA1
5.09%(b) 11/25/30 1,065 1,081,807
---------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $218,149,562) 216,387,081
---------------
COMMERCIAL MORTGAGE BACKED SECURITIES --
8.1%
Bayview Financial Acquisition Trust,
Series 98-1, Class A1
7.01%(c) 05/25/29 586 583,155
Citigroup Commercial Mortgage Trust,
Series 05-EMG, Class A1
4.15%(c) 09/20/51 11,616 11,453,770
Commercial Mortgage Acceptance Corp.,
Series 98-C2, Class A2
6.03% 09/15/30 10,184 10,420,311
Credit Suisse First Boston Mortgage
Securities Corp., Series 98-C2,
Class A2
6.30% 11/11/30 8,503 8,855,687
First Union-Chase Commercial
Mortgage Trust, Series 99-C2,
Class A2
6.64% 04/15/09 15,020 15,783,666
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 99-C3, Class A2
7.18% 08/15/36 9,061 9,688,200
Goldman Sachs Mortgage Securities
Corp. II, Series 98-C1, Class A3
6.14% 10/18/30 12,609 13,012,891
Goldman Sachs Mortgage Securities
Corp. II, Series 03-C1, Class X2
(IO)
0.97%(c)(h) 01/10/40 268,661 7,258,605
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 00-C5,
Class A1
6.41% 12/15/19 10,607 10,900,642
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 03-C3,
Class XCP (IO)
1.30%(c)(h) 02/15/37 40,827 1,552,698
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 03-C5,
Class XCP (IO)
1.15%(c)(h) 04/15/37 194,719 5,282,225
Nationslink Funding Corp., Series 99,
Class 1
6.32% 01/20/31 10,674 11,090,507
Structured Asset Receivables Trust,
Series 03-1
3.18%(b)(c) 01/21/10 15,427 15,450,661
---------------
TOTAL COMMERCIAL MORTGAGE BACKED
SECURITIES
(Cost $123,262,476) 121,333,018
---------------
PROJECT LOANS -- 0.0%
Federal Housing Authority 7.43%
(Cost $22,719) 09/01/22 23 23,680
---------------
ASSET BACKED SECURITIES -- 31.6%
Amresco Independence Funding, Inc.,
Series 99-1, Class A
4.75%(b) 06/15/20 4,971 4,933,625
Bank One Issuance Trust, Series
03-A3, Class A3
3.88%(b) 12/15/10 14,550 14,587,185
Bank One Issuance Trust, Series
04-A2, Class A2
3.80%(b) 10/15/09 15,000 15,004,656
BMW Vehicle Owner Trust, Series
05-A, Class A3
4.02% 02/25/09 14,075 13,986,890
Business Loan Express, Inc., Series
98-1, Class A
5.25%(b)(c) 01/15/25 390 380,379
Capco America Securitization Corp.,
Series 98-D7, Class PS1 (IO)
1.45%(c)(h) 10/15/30 34,736 1,250,852
See accompanying notes to financial statements.
35
BlackRock Funds
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- ---------------
ASSET BACKED SECURITIES (Continued)
Capital Auto Receivables Asset Trust,
Series 02-3, Class A3
3.58%(e) 10/16/06 $ 2,093 $ 2,092,126
Capital Auto Receivables Asset Trust,
Series 02-5, Class A4
2.92% 04/15/08 12,768 12,663,455
Capital Auto Receivables Asset Trust,
Series 04-1, Class A3
2.00% 11/15/07 15,453 15,250,856
Capital Auto Receivables Asset Trust,
Series 04-2, Class A2
3.35% 02/15/08 18,300 18,079,833
Capital Auto Receivables Asset Trust,
Series 05-1, Class A4
4.05% 07/15/09 12,825 12,720,861
Chase Issuance Trust, Series 04-A9,
Class A9
3.22% 06/15/10 13,875 13,533,536
Chase Manhattan Auto Owner Trust,
Series 02-B, Class A4
4.21% 01/15/09 10,049 10,049,950
Citibank Credit Card Issuance Trust,
Series 03-A2, Class A2
2.70% 01/15/06 16,395 16,325,370
Citibank Credit Card Issuance Trust,
Series 04, Class A1
2.55% 01/20/07 17,550 17,131,608
Citibank Credit Card Issuance Trust,
Series 04-A4, Class A4
3.20% 08/24/07 16,700 16,297,196
Countrywide Asset-Backed
Certificates, Series 05-BC4, Class
2A1
3.79%(b) 11/25/28 17,664 17,664,000
DaimlerChrysler Auto Trust,
Series 03-B, Class A3
2.25% 08/08/07 12,968 12,907,076
DaimlerChrysler Auto Trust,
Series 05-A, Class A2
3.17% 09/08/07 5,628 5,607,294
Epoch, Series 02, Class 2l
3.49%(b)(c) 05/30/07 8,500 8,585,000
Ford Credit Auto Owner Trust,
Series 05-A, Class A2
3.08% 07/15/07 8,690 8,660,211
Ford Credit Auto Owner Trust,
Series 05-A, Class A3
3.48% 11/15/08 17,500 17,304,700
Ford Credit Auto Owner Trust,
Series 05-C, Class A2
4.24% 03/15/08 12,500 12,499,475
Green Tree Financial Corp.,
Series 93-4, Class A5
7.05% 01/15/19 1,798 1,852,222
Green Tree Financial Corp.,
Series 96-8, Class A6
7.60% 10/15/27 4,215 4,428,772
Green Tree Financial Corp.,
Series 98-6, Class A6
6.27% 06/01/30 203 204,484
Green Tree Financial Corp.,
Series 99-2, Class A3
6.08% 12/01/30 5,127 5,169,569
Heller Financial Commercial
Mortgage Asset Corp., Series 98-1,
Class A
4.12%(b)(c) 07/15/24 2,598 2,539,953
Honda Auto Receivables Owner Trust,
Series 04-2, Class A2
2.52% 02/15/07 6,887 6,866,697
Honda Auto Receivables Owner Trust,
Series 04-2, Class A3
3.30% 06/16/08 17,915 17,741,224
Honda Auto Receivables Owner Trust,
Series 04-3, Class A3
2.91% 10/20/08 15,350 15,083,370
Honda Auto Receivables Owner Trust,
Series 05-4, Class A3
4.51% 05/20/09 11,150 11,140,746
IFC Small Business Administration
Loan-Backed Certificates,
Series 97-1, Class A
4.50%(b)(c) 01/15/24 962 962,334
MBNA Master Credit Card Trust,
Series 99-L, Class A
4.02%(b) 03/16/09 21,175 21,228,014
The Money Store Small Business
Administration Loan-Backed
Securities, Series 96-2, Class A
4.36%(b) 04/15/24 229 223,463
The Money Store Small Business
Administration Loan-Backed
Securities, Series 97-1, Class A
4.25%(b) 01/15/25 633 618,173
The Money Store Small Business
Administration Loan-Backed
Securities, Series 97-1, Class B
4.73%(b) 01/15/25 360 343,357
Mortgage Capital Funding, Inc.,
Series 98-MC1, Class X (IO)
0.64%(h) 03/18/30 74,924 881,018
Nissan Auto Receivables Owner Trust,
Series 05-B, Class A3
3.99% 07/15/09 15,350 15,219,372
Option One Mortgage Loan Trust,
Series 05-4, Class A2
4.08%(b) 11/25/35 14,375 14,375,000
PBG Equipment Trust, Series 00-1A,
Class A
6.27%(c) 01/20/12 1,597 1,598,838
PMC Capital Limited Partnership,
Series 98-1, Class A
5.25%(b)(c) 04/01/21 3,096 3,147,419
Residential Asset Mortgage Products, Inc.,
Series 05-RS8, Class A1
3.95%(b) 05/25/25 11,700 11,700,000
Specialty Underwriting & Residential Finance,
Series 05-BC3, Class A2A
3.87%(b) 06/25/36 15,725 15,725,000
Student Loan Marketing Association
Student Loan Trust, Series 05-5,
Class A1
3.46%(b) 01/25/18 14,075 14,059,602
See accompanying notes to financial statements.
36
BlackRock Funds
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- ---------------
ASSET BACKED SECURITIES (Continued)
SWB Loan Backed Certificates,
Series 98-1, Class AV
4.25%(b)(c) 09/15/24 $ 806 $ 806,420
USAA Auto Owner Trust, Series 05-1,
Class A2
3.55% 09/17/07 9,850 9,819,465
USAA Auto Owner Trust, Series 05-1,
Class A3
3.93% 07/15/09 8,650 8,568,604
USAA Auto Owner Trust, Series 05-2,
Class A3
4.07% 12/15/09 20,750 20,565,532
---------------
TOTAL ASSET BACKED SECURITIES
(Cost $474,595,594) 472,384,782
---------------
CORPORATE BONDS -- 13.2%
Aerospace -- 0.2%
Northrop Grumman Corp.,
Senior Unsecured Notes
4.08% 11/16/06 2,225 2,214,253
Northrop Grumman Corp.,
Unsecured Notes
7.00% 03/01/06 1,000 1,010,934
---------------
3,225,187
---------------
Banks -- 3.7%
Bank of America Corp.,
Senior Unsecured Notes
3.25% 08/15/08 2,175 2,098,027
Bayerische Landesbank New York,
Senior Notes
2.50% 04/28/06 12,300 12,173,396
Citigroup, Inc.,
Senior Unsecured Notes
3.50%(d) 02/01/08 5,200 5,074,940
J.P. Morgan Chase & Co.,
Senior Unsecured Notes
6.00% 08/01/08 3,180 3,291,904
State Street Capital Trust II,
Capital Securities
4.29%(b) 02/15/08 1,700 1,699,422
U.S. Bank N.A.,
Subordinated Notes
6.50% 02/01/08 3,580 3,725,620
U.S. Central Credit Union,
Unsecured Notes
2.75% 05/30/08 3,700 3,527,025
Wells Fargo & Co.,
Senior Unsecured Notes
3.97%(b) 09/15/09 22,515 22,514,325
Wells Fargo & Co.,
Unsecured Notes
3.50% 04/04/08 1,200 1,171,064
---------------
55,275,723
---------------
Energy & Utilities -- 0.4%
Dominion Resources, Inc.,
Senior Unsecured Notes
3.66% 11/15/06 4,550 4,502,166
Virginia Electric & Power Co.,
Senior Unsecured Notes
5.75% 03/31/06 2,315 2,329,226
---------------
6,831,392
---------------
Finance -- 4.4%
Eksportfinans ASA,
Unsecured Notes
3.38% 01/15/08 9,315 9,104,062
General Electric Capital Corp.,
Notes
8.75% 05/21/07 5,320 5,670,514
General Electric Capital Corp.,
Unsecured Notes
3.45%(b) 07/07-01/08 34,750 34,676,835
4.12% 03/04/08 8,300 8,219,390
Household Finance Corp.,
Unsecured Notes
4.12% 12/15/08 4,375 4,299,444
Nationwide Building Society,
Senior Unsecured Notes
3.50%(c) 07/31/07 1,975 1,937,771
PSEG Funding Trust I,
Capital Securities
5.38% 11/16/07 1,250 1,259,743
Student Loan Marketing Corp.,
Senior Unsecured Notes
3.62% 03/17/08 650 635,348
---------------
65,803,107
---------------
Insurance -- 0.2%
ASIF Global Financing,
Unsecured Notes
3.90%(c) 10/22/08 2,540 2,473,350
Prudential Insurance Co.,
Notes
6.38%(c) 07/23/06 1,250 1,267,260
---------------
3,740,610
---------------
Pharmaceuticals -- 0.6%
Merck & Co., Inc.,
Senior Unsecured Notes
5.25% 07/01/06 1,750 1,757,282
Merck & Co., Inc.,
Unsecured Notes
4.73%(b)(c) 02/22/06 6,800 6,802,400
---------------
8,559,682
---------------
Railroad & Shipping -- 0.3%
Canadian National Railway Co.,
Senior Notes
6.45% 07/15/06 3,970 4,026,592
---------------
Real Estate -- 0.3%
Avalonbay Communities, Inc.,
Senior Unsecured Notes
8.25% 07/15/08 3,945 4,293,142
---------------
Retail Merchandising -- 0.4%
Federated Department Stores, Inc.,
Senior Unsecured Notes
6.62% 09/01/08 800 837,580
May Department Stores Co.,
Unsecured Notes
3.95% 07/15/07 4,675 4,609,344
---------------
5,446,924
---------------
Telecommunications -- 1.4%
BellSouth Corp.,
Unsecured Notes
4.26%(b)(c) 04/26/06 5,450 5,442,326
Lenfest Communications, Inc.,
Senior Notes
7.62% 02/15/08 3,850 4,073,069
Sprint Capital Corp.,
Senior Unsecured Notes
7.12% 01/30/06 4,023 4,056,105
See accompanying notes to financial statements.
37
BlackRock Funds
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- ---------------
CORPORATE BONDS (Continued)
Telecommunications (Continued)
Verizon Global Funding Corp.,
Senior Unsecured Notes
6.12% 06/15/07 $ 5,415 $ 5,552,487
Vodafone Group PLC,
Senior Unsecured Notes
3.95% 01/30/08 1,543 1,521,792
---------------
20,645,779
---------------
Transportation -- 0.3%
Union Pacific Corp.,
Senior Unsecured Notes
5.75% 10/15/07 2,025 2,064,490
Union Pacific Corp.,
Unsecured Notes
6.79% 11/09/07 1,775 1,848,918
---------------
3,913,408
---------------
Yankee -- 1.0%
Republic of Italy,
Unsecured Notes
2.75%(i) 12/15/06 13,100 12,883,457
Tyco International Group SA (Luxembourg),
Senior Unsecured Notes
5.80%(i) 08/01/06 2,200 2,220,707
---------------
15,104,164
---------------
TOTAL CORPORATE BONDS
(Cost $198,536,834) 196,865,710
---------------
FOREIGN BONDS -- 2.0%
Bundesrepublic Deutschland
(Germany) (EUR)
4.75% 07/04/34 2,275 3,305,269
4.00% 01/04/37 9,175 11,904,060
General Electric Capital Corp.,
Senior Unsubordinated Notes (NZD)
6.50% 09/28/15 545 368,541
Government of New Zealand (NZD)
7.00% 07/15/09 12,655 9,087,069
Province of Manitoba (NZD)
6.38% 09/01/15 1,300 888,699
Province of Ontario,
Unsecured Notes (NZD)
6.25% 06/16/15 7,480 5,101,045
---------------
TOTAL FOREIGN BONDS
(Cost $30,687,458) 30,654,683
---------------
TAXABLE MUNICIPAL BONDS -- 0.7%
New York Sales Tax Asset
Receivables Corp. Revenue
Bonds, Series 04, Class B
3.29% 10/15/07 2,640 2,579,729
Texas Public Finance Authority
Unemployment Compensation
Obligation Assessment Revenue
Bonds, Series 03, Class B
2.62% 06/15/06 7,430 7,348,493
---------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $10,065,510) 9,928,222
---------------
SHORT TERM INVESTMENTS -- 1.3%
Federal Home Loan Bank,
Discount Notes
3.18%(j) 10/03/05 10,200 10,198,198
Galileo Money Market Fund 9,661 9,660,784
---------------
TOTAL SHORT TERM INVESTMENTS
(Cost $19,858,982) 19,858,982
---------------
TOTAL INVESTMENTS IN SECURITIES -- 125.8%
(Cost $1,892,851,940(a)) 1,878,547,984
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (25.8)%
(385,643,768)
---------------
NET ASSETS -- 100.0%
(Applicable to 54,726,015 BlackRock
shares, 38,135,228 Institutional
shares, 38,011,617 Service shares,
7,616,105 Investor A shares,
4,626,719 Investor B shares and
7,262,514 Investor C shares
outstanding) $ 1,492,904,216
===============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
BLACKROCK SHARE
($543,043,548/54,726,015) $ 9.92
===============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($378,711,829/38,135,228) $ 9.93
===============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($377,470,306/38,011,617) $ 9.93
===============
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($75,652,111/7,616,105) $ 9.93
===============
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.93/0.970) $ 10.24
===============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($45,941,679/4,626,719) $ 9.93
===============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($72,084,743/7,262,514) $ 9.93
===============
See accompanying notes to financial statements.
38
BlackRock Funds
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (Concluded)
As of September 30, 2005
- ----------
(a) Cost for Federal income tax purposes is $1,893,054,880. The gross
unrealized appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 8,995,982
Gross unrealized depreciation (23,502,878)
-------------
$ (14,506,896)
=============
(b) Rates shown are the rates as of September 30, 2005.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 5.4% of its net assets, with a current market
value of $80,378,128 in securities restricted as to resale.
(d) Securities, or a portion thereof, with a market value of $2,391,938 have
been pledged as collateral for swap and swaption contracts. (e)
Securities, or a portion thereof, pledged as collateral with a value of
$9,138,035 on 1,496 long U.S. Treasury Note futures contracts, 2,076 short
U.S. Treasury Note futures contracts and 408 short Euro-Bobl futures
contracts expiring December 2005. The value of such contracts on September
30, 2005 was $586,775,514 with an unrealized gain of $131,799 (including
commissions of $8,879).
(f) Securities, or a portion thereof, subject to financing transactions.
(g) Par held is less than $1,000.
(h) Rates shown are the effective yields as of September 30, 2005.
(i) Security is a foreign domiciled issuer which is registered with the
Securities and Exchange Commission.
(j) The rate shown is the effective yield on the discount notes at the time of
purchase.
See accompanying notes to financial statements.
39
BlackRock Funds
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- ---------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS --
58.6%
Federal Home Loan Bank
4.00% 07/13/07 $ 6,212 $ 6,146,606
2.75% 01/09/08 4,410 4,241,084
Federal Home Loan Bank,
Unsecured Notes
2.40% 03/30/07 6,000 5,829,096
3.00% 04/30/07 5,010 4,905,036
Federal Home Loan Mortgage Corp.,
Unsecured Notes
2.50% 08/24/06 4,525 4,452,627
2.75%(b) 09/15/06 8,100 7,979,812
3.01% 04/07-04/07 10,760 10,547,156
3.50% 07/30/07 3,910 3,852,066
3.30% 09/14/07 7,125 6,988,891
3.25% 11/02/07 6,918 6,760,028
3.06% 07/15/08 3,155 3,044,152
Federal National Mortgage Association,
Debentures
5.88% 02/02/06 3,800 3,821,869
Federal National Mortgage Association,
Unsecured Notes
2.10% 04/19/06 5,400 5,337,657
2.00% 04/20/06 5,100 5,038,295
2.75% 05/10/06 5,925 5,871,663
2.80% 11/17/06 5,000 4,914,240
2.71% 01/30/07 7,275 7,119,693
3.00% 02/23/07 5,000 4,906,075
4.15% 07/13/07 8,855 8,796,353
3.53% 10/19/07 8,950 8,753,923
7.12% 06/15/10 13,375 14,818,136
6.62% 11/15/10 5,000 5,467,200
4.75% 02/21/13 1,595 1,583,983
4.12% 04/15/14 18,475 17,834,804
Small Business Administration
Participation Certificates,
Series 96-20H, Class 1
7.25% 08/01/16 1,628 1,711,050
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 1,485 1,556,669
Small Business Administration
Participation Certificates, Series
98-20J, Class 1
5.50% 10/01/18 2,555 2,611,529
U.S. Treasury Bonds
12.75% 11/15/10 2,275 2,298,282
10.62%(c) 08/15/15 26,000 38,907,570
9.88%(d) 11/15/15 7,700 11,114,473
8.75% 08/15/20 2,900 4,197,185
8.00% 11/15/21 1,150 1,591,942
6.25% 08/15/23 5,105 6,104,263
U.S. Treasury Notes
1.62% 02/28/06 1,180 1,169,353
2.75% 06/30/06 10,880 10,777,151
7.00% 07/15/06 17,175 17,550,703
2.38% 08/15/06 7,775 7,662,628
3.88%(c) 07/07-07/10 8,645 8,551,392
4.00%(c) 08/07-09/07 64,090 63,872,451
3.38%(c) 10/15/09 3,615 3,503,304
3.50% 12/15/09 1,955 1,901,695
3.62%(c) 01/15/10 13,655 13,339,761
6.50%(c) 02/15/10 16,505 17,983,997
5.75% 08/15/10 1,130 1,205,171
4.25%(c) 11/14-08/15 7,485 7,436,135
4.12%(c) 05/15/15 1,510 1,483,987
---------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost $383,938,354) 385,541,136
---------------
MORTGAGE PASS-THROUGHS -- 30.2%
Federal Home Loan Mortgage Corp.
9.00% 12/01/09 407 430,971
Federal Home Loan Mortgage Corp.
ARM
3.54%(b) 05/01/34 3,970 3,856,925
3.57%(b) 07/01/34 3,995 3,954,526
3.74%(b) 07/01/34 2,441 2,371,374
4.40%(b) 11/01/34 3,131 3,112,250
4.33%(b) 03/01/35 9,697 9,551,181
4.77%(b) 03/35-09/35 21,575 21,450,548
4.78%(b) 04/01/35 11,428 11,366,006
Federal National Mortgage
Association
3.55% 11/16/07 6,675 6,559,082
8.00% 04/08-06/08 658 676,662
6.50% 05/08-10/33 2,044 2,124,436
3.25% 05/16/08 6,725 6,524,319
6.09% 10/01/08 6,703 6,895,807
8.50% 02/09-08/09 734 760,960
9.00% 05/09-04/16 663 700,939
5.00% 03/15-06/23 5,104 5,066,617
6.00% 04/01/16 5 5,058
7.00% 01/17-04/32 1,734 1,812,967
4.50% 10/01/18 20 20,019
5.50% 01/24-10/35 6,115 6,172,270
7.50% 07/01/29 736 780,523
See accompanying notes to financial statements.
40
BlackRock Funds
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- ---------------
MORTGAGE PASS-THROUGHS (Continued)
Federal National Mortgage
Association ARM
4.47%(b) 12/01/32 $ 5,125 $ 5,157,293
4.01%(b) 04/01/34 2,128 2,088,428
3.89%(b) 05/01/34 2,353 2,303,489
4.42%(b) 06/01/34 8,230 8,168,590
3.72%(b) 07/01/34 3,415 3,310,500
4.51%(b) 07/01/34 10,259 10,179,008
4.64%(b) 02/01/35 14,074 14,031,342
4.60%(b) 03/01/35 6,482 6,448,044
4.77%(b) 07/01/35 7,125 7,062,933
4.95%(b) 07/01/35 15,831 15,814,979
Federal National Mortgage
Association Hybrid, ARM
3.47%(b) 06/01/34 2,740 2,725,600
Federal National Mortgage
Association Multi-Family
6.54%(b) 12/01/18 552 564,967
Government National Mortgage
Association
6.00% 02/15/11 468 478,609
9.50% 09/15/19 46 50,417
5.00% 05/20/35 10,704 10,759,428
Government National Mortgage
Association II ARM
4.50%(b) 02/20/35 4,845 4,834,578
Government National Mortgage
Association II Hybrid
3.75%(b) 06/20/34 3,320 3,277,057
3.50%(b) 07/20/34 7,432 7,248,083
MLCC Mortgage Investors, Inc.,
Series 95-C2 (IO)
1.22%(e) 06/15/21 1,952 73,809
---------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $199,476,517) 198,770,594
---------------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS --
0.1%
Federal National Mortgage
Association Grantor Trust, Series
02-T6, Class A1
3.31%
(Cost $605,594) 02/25/32 654 614,468
---------------
COLLATERALIZED MORTGAGE OBLIGATIONS --
9.9%
Bear Stearns Mortgage Trust, Series
04-13, Class A1
4.20%(b) 11/25/34 2,546 2,557,135
Countrywide Alternative Loan Trust,
Series 05-56, Class 1A1
4.69%(b) 11/25/35 6,100 6,161,000
Credit Suisse First Boston Mortgage
Securities Corp., Series 01-33,
Class 4A1
6.50% 04/25/16 26 26,196
Deutsche Mortgage Securities, Inc.,
Series 04-4, Class 3AR1
3.74%(b) 06/25/34 1,234 1,217,096
Federal Home Loan Mortgage Corp.,
Series 1361, Class I
6.00% 09/15/07 109 109,801
Federal Home Loan Mortgage Corp.,
Series 2668, Class AD
4.00% 01/15/15 2,418 2,385,322
Federal Home Loan Mortgage Corp.,
Series 2718, Class MR
4.00% 08/15/13 2,439 2,417,749
Federal Home Loan Mortgage Corp.,
Series 2730, Class PA
3.75% 03/15/11 $ 3,256 $ 3,244,490
Federal Home Loan Mortgage Corp.,
Series 2748, Class LJ
4.00% 03/15/10 2,109 2,103,998
Federal Home Loan Mortgage Corp.,
Series 2990, Class WF
4.17%(b) 02/15/35 4,134 4,133,462
Federal National Mortgage
Association, Series 01-35, Class
VC
6.50% 07/25/31 4,200 4,220,415
Federal National Mortgage
Association, Series 01-T2, Class B
6.02% 11/25/10 3,600 3,800,072
Federal National Mortgage
Association, Series 04-W10, Class
A1
5.75% 08/25/34 3,133 3,145,126
Federal National Mortgage
Association, Series 05-29, Class
JB
4.50% 04/25/35 8,849 8,769,182
Federal National Mortgage
Association, Series 05-57, Class
PA
5.50% 05/25/27 3,618 3,657,231
Federal National Mortgage
Association, Series 05-68, Class
PC
5.50% 07/25/35 5,306 5,383,778
GSR Mortgage Loan Trust, Series
04-9, Class 3A1
3.69%(b) 08/25/34 3,139 3,139,213
MortgageIT Trust, Series 04-1, Class
A1
4.22%(b) 11/25/34 2,819 2,822,239
Structured Mortgage Loan Trust,
Series 04-13, Class A2
4.13%(b) 09/25/34 1,286 1,286,204
Summit Mortgage Trust, Series 00-1,
Class B1
6.29%(b)(f) 12/28/12 65 65,256
Washington Mutual Mortgage
Securities Corp., Series 03-AR4,
Class A6
3.42%(b) 05/25/33 4,350 4,251,227
---------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $65,377,760) 64,896,192
---------------
COMMERCIAL MORTGAGE BACKED SECURITIES --
7.7%
Bear Stearns Commercial Mortgage
Securities, Series 02-TOP6, Class
A1
5.92% 10/15/36 2,328 2,408,038
Bear Stearns Commercial Mortgage
Securities, Series 04-PWR4, Class
A1
4.36% 06/11/41 2,175 2,155,162
Chase Commercial Mortgage
Securities Corp., Series 98-2,
Class A1
6.02% 11/18/30 19 19,337
See accompanying notes to financial statements.
41
BlackRock Funds
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- ---------------
COMMERCIAL MORTGAGE BACKED SECURITIES
(Continued)
First Union National Bank
Commercial Mortgage Trust, Series
00-C2, Class A2
7.20% 10/15/32 $ 3,640 $ 3,991,380
First Union-Chase Commercial
Mortgage Trust, Series 99-C2,
Class A2
6.64% 04/15/09 5,992 6,296,402
General Electric Capital Commercial
Mortgage Corp., Series 02-1A,
Class A3
6.27% 12/10/35 3,540 3,788,596
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 97-C1, Class X (IO)
1.53%(e) 07/15/29 10,700 464,284
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 99-C3, Class A2
7.18% 08/15/36 1,446 1,546,235
J.P. Morgan Chase Commercial
Mortgage Securities Corp., Series
01-C1, Class A3
5.87% 10/12/35 3,580 3,749,557
J.P. Morgan Chase Commercial
Mortgage Securities Corp., Series
01-CIBC, Class A3
6.26% 03/15/33 1,650 1,754,699
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 00-C5,
Class A1
6.41% 12/15/19 2,154 2,213,842
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 01-C7,
Class A3
5.64% 12/15/25 3,817 3,897,010
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 04-C2,
Class A2
3.25% 03/15/29 2,100 2,004,158
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 04-C4,
Class A1
3.82% 06/15/29 2,334 2,299,110
Master Asset Backed Securities
Trust, Series 05-HE2, Class A2
3.95%(b) 10/25/35 5,425 5,425,000
Morgan Stanley Dean Witter Capital
I, Series 99-WF1, Class A1
5.91% 11/15/31 230 230,606
Morgan Stanley Dean Witter Capital
I, Series 02-TOP7, Class A1
5.38% 01/15/39 3,475 3,540,921
Wachovia Bank Commercial
Mortgage Trust, Series 03-C5,
Class A1
2.99% 06/15/35 2,561 2,391,146
Wachovia Bank Commercial
Mortgage Trust, Series 04-C12,
Class A1
3.40% 07/15/41 2,342 2,282,607
---------------
TOTAL COMMERCIAL MORTGAGE BACKED
SECURITIES
(Cost $51,088,775) 50,458,090
---------------
PROJECT LOANS -- 0.3%
Federal Housing Authority, Merrill
Lynch Project, Series 29, Class
1A1
7.43% 06/01/22 442 452,648
Federal Housing Authority, USGI
Project, Series 56
7.46% 01/01/23 1,301 1,335,130
---------------
TOTAL PROJECT LOANS
(Cost $1,782,084) 1,787,778
---------------
ASSET BACKED SECURITIES -- 7.5%
Boston Edison Co., Series 99-1,
Class A4
6.91% 09/15/09 3,591 3,687,760
Capital Auto Receivables Asset Trust,
Series 02-3, Class A3
3.58% 10/16/06 681 680,571
Capital Auto Receivables Asset Trust,
Series 05-1, Class A4
4.05% 07/15/09 5,325 5,281,761
Chase Credit Card Master Trust,
Series 03-6, Class A
3.68%(b) 02/15/11 6,750 6,770,511
Chase Issuance Trust, Series 04-A9,
Class A9
3.22% 06/15/10 2,225 2,170,243
Citibank Credit Card Issuance Trust,
Series 04-A4, Class A4
3.20% 08/24/07 2,700 2,634,876
Green Tree Financial Corp., Series
97-5, Class A7
7.13% 05/15/29 2,102 2,258,447
MBNA Credit Card Master Note
Trust, Series 04-A4, Class A4
2.70%(g) 09/15/09 3,000 2,924,064
MBNA Credit Card Master Notes
Trust, Series 03-A1, Class A1
3.30% 07/15/10 6,700 6,518,250
The Money Store Small Business
Administration Loan Trust, Series
99-1, Class A
3.82%(b) 07/15/25 1,017 1,008,921
Structured Asset Receivables Trust,
Series 03-2
3.40%(b)(f) 01/21/09 2,745 2,744,605
Student Loan Marketing Student
Loan Trust, Series 04-2, Class A2
3.18%(b) 04/25/13 6,505 6,502,494
Student Loan Marketing Student
Loan Trust, Series 05-6, Class A5B
3.67%(b) 07/27/26 5,150 5,150,562
SWB Loan-Backed Certificates,
Series 99-1, Class A
7.38%(f) 05/15/25 877 885,993
---------------
TOTAL ASSET BACKED SECURITIES
(Cost $49,297,517) 49,219,058
---------------
CORPORATE BONDS - 4.1%
Banks - 0.6%
Depfa Bank PLC, Senior Notes
4.25% 08/16/10 3,850 3,786,764
---------------
See accompanying notes to financial statements.
42
BlackRock Funds
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- ---------------
CORPORATE BONDS (Continued)
Finance -- 1.8%
General Electric Capital Corp.,
Unsecured Notes
3.45%(b) 01/15/08 $ 6,650 $ 6,664,364
Private Export Funding Corp., Senior
Unsecured Notes
3.38% 02/15/09 5,250 5,079,107
---------------
11,743,471
---------------
Oil & Gas -- 0.4%
ENSCO Offshore Co.
6.36% 12/01/15 2,433 2,604,999
---------------
Yankee -- 1.3%
International Bank for Reconstruction
& Development (Multiple
Countries), Unsecured Notes
1.00%(h) 02/05/15 4,100 2,971,859
Japan Finance Corp. for Municipal
Enterprises, Unsecured Notes
4.62%(h) 04/21/15 2,800 2,779,350
National L-Bank Landeskreditbank
Baden-Wurttemberg (Germany),
Unsecured Notes
4.25%(h) 09/15/10 2,700 2,658,557
---------------
8,409,766
---------------
TOTAL CORPORATE BONDS
(Cost $26,685,863) 26,545,000
---------------
TAXABLE MUNICIPAL BONDS -- 0.9%
Stanislaus County, California Taxable
Pension Obligation Refunding
Revenue Bonds, Series 95
7.15% 08/15/13 3,200 3,488,160
United States Department of Housing
and Urban Development, Section
108 Government Guaranteed
Participation Certificates, Series
03-A
4.44% 08/01/11 2,099 2,084,708
---------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $5,299,000) 5,572,868
---------------
Number
of Shares
---------
SHORT TERM INVESTMENTS -- 0.0%
Galileo Money Market Fund
(Cost $29,745) 29,745 29,745
---------------
TOTAL INVESTMENTS IN SECURITIES --
119.3%
(Cost $783,581,209(a)) $ 783,434,929
===============
Number of
Contracts
----------
CALL SWAPTIONS WRITTEN -- (0.2)%
Barclays Capital, Strike Price 5.135,
Expires 04/21/08 (970)(i) (465,212)
Citibank, Strike Price 5.67, Expires
01/04/10 (390)(i) (267,652)
Warburg Dillon Read LLC, Strike
Price 5.00, Expires 06/16/10 (1,080)(i) (495,936)
---------------
TOTAL CALL SWAPTIONS WRITTEN
(Premiums received $1,158,410) (1,228,800)
---------------
PUT SWAPTIONS WRITTEN -- (0.1)%
Barclays Capital, Strike Price 5.135,
Expires 04/21/08 (970)(i) (342,313)
Citibank, Strike Price 5.67, Expires
01/04/10 (390)(i) (118,617)
Warburg Dillon Read LLC, Strike
Price 5.00, Expires 06/16/10 (1,080)(i) (546,372)
---------------
TOTAL PUT SWAPTIONS WRITTEN
(Premiums received $1,158,410) (1,007,302)
---------------
LIABILITIES IN EXCESS OF OTHER ASSETS --
(19.0)%
(124,909,194)
---------------
NET ASSETS -- 100.0%
(Applicable to 21,069,314
Institutional shares, 82,642 Service
shares, 33,745,460
Investor A shares, 7,368,723 Investor
B shares and 1,973,889
Investor C shares outstanding) $ 656,289,633
===============
See accompanying notes to financial statements.
43
BlackRock Funds
STATEMENT OF NET ASSETS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO (Concluded)
As of September 30, 2005
Value
-------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($214,980,138/21,069,314) $ 10.20
=======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SERVICE SHARE
($842,456/82,642) $ 10.19
=======
NET ASSET VALUE AND REDEMPTION PRICE PER INVESTOR A SHARE
($345,131,015/33,745,460) $ 10.23
=======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($10.23/0.960) $ 10.66
=======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred
sales charge of 4.5%)
PER INVESTOR B SHARE
($75,181,663/7,368,723) $ 10.20
=======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred
sales charge of 1.0%)
PER INVESTOR C SHARE
($20,154,361/1,973,889) $ 10.21
=======
- ----------
(a) Cost for Federal income tax purposes is $779,842,077.
The gross unrealized appreciation (depreciation) on a
tax basis is as follows:
Gross unrealized appreciation $ 6,944,520
Gross unrealized depreciation (3,351,668)
------------
$ 3,592,852
============
(b) Rates shown are the rates as of September 30, 2005.
(c) Securities, or a portion thereof, subject to financing transactions.
(d) Securities, or a portion thereof, with a market value of $1,797,080 have
been pledged as collateral for swap and swaption contracts.
(e) Rates shown are the effective yields as of September 30, 2005.
(f) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 0.6% of its net assets, with a current market
value of $3,695,854, in securities restricted as to resale.
(g) Securities, or a portion thereof, pledged as collateral with a value of
$2,924,064 on 1,130 short U.S. Treasury Note futures contracts, 521 long
U.S. Treasury Note futures contracts and 39 long Euro-dollar futures
contracts expiring December 2005. The value of such contracts on September
30, 2005 was $187,342,861 with an unrealized loss of $640,008 (including
commissions of $4,057).
(h) Security is a foreign domiciled issuer which is registered with the
Securities and Exchange Commission. (i) Each swaption contract is
equivalent to $10,000 notional amount.
See accompanying notes to financial statements.
44
BlackRock Funds
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
----------- ---------- ------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 35.4%
Federal Home Loan Mortgage Corp.,
Unsecured Notes
2.60% 08/07/06 $ 5,955 $ 5,868,855
3.30% 09/14/07 9,420 9,240,050
3.25% 11/02/07 9,000 8,794,485
3.75% 02/27/09 10,025 9,793,733
5.00% 10/27/14 5,500 5,459,278
Federal National Mortgage
Association, Subordinated Notes
4.62% 05/01/13 1,960 1,927,464
Federal National Mortgage
Association, Unsecured Notes
2.15% 04/13/06 9,875 9,763,590
2.74%(b) 05/05/06 8,030 7,959,135
1.75% 06/16/06 4,175 4,101,971
2.71% 01/30/07 9,625 9,419,525
3.00% 04/19/07 5,600 5,488,325
4.15% 07/13/07 12,015 11,935,425
5.00% 08/02/12 9,930 9,840,332
4.75% 02/21/13 10,740 10,665,819
Small Business Administration
Participation Certificates, Series
92-20H, Class 1
7.40% 08/01/12 647 675,796
Small Business Administration
Participation Certificates, Series
96-20H, Class 1
7.25% 08/01/16 1,857 1,951,197
Small Business Administration,
Series 01-P10, Class B-1
6.34%(b) 08/01/11 2,155 2,266,481
Small Business Investment Cos.
Pass-Through, Series 97-P10D,
Class 1
6.51% 11/10/07 93 95,914
U.S. Treasury Bonds
10.38%(c)(d) 11/15/12 4,545 5,109,930
8.12%(d) 08/15/19 6,475 8,840,143
8.75% 08/15/20 1,760 2,547,257
6.25% 08/15/23 8,215 9,823,020
U.S. Treasury Notes
2.38% 08/15/06 1,550 1,527,598
4.00%(e) 08/07-02/15 33,335 32,776,705
3.38%(e) 10/15/09 26,320 25,506,765
3.50% 12/15/09 4,755 4,625,350
5.75% 08/15/10 12,505 13,336,870
5.00% 02/11-08/11 2,180 2,262,965
4.88% 02/15/12 750 775,283
4.25%(e) 11/14-08/15 56,950 56,560,455
4.12%(e) 05/15/15 40,320 39,625,407
------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost $321,892,748) 318,565,123
------------
MORTGAGE PASS-THROUGHS -- 7.0%
Federal Home Loan Bank
4.12% 02/15/08 4,500 4,470,269
Federal Home Loan Mortgage Corp.
3.00% 04/19/07 7,820 7,663,123
Federal National Mortgage
Association
3.55% 11/16/07 8,985 8,828,966
3.25% 05/16/08 8,594 8,337,546
8.50% 08/01/09 168 169,084
5.00% 03/02/15 4,955 4,860,731
6.00% 05/16-02/17 705 725,374
5.50% 01/01/20 476 483,302
Federal National Mortgage
Association ARM
4.01%(b) 04/01/34 6,704 6,579,474
4.98% 08/01/35 13,650 13,618,007
4.83%(b) 09/01/35 4,550 4,537,351
Government National Mortgage
Association
7.25% 04/15/06 1 1,133
MLCC Mortgage Investors, Inc.,
Series 95-C2 (IO)
1.22%(f) 06/15/21 3,139 118,690
Structured Asset Securities Corp.,
Series 03-AL1, Class A
3.36%(g) 04/25/31 2,796 2,576,967
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $63,406,843) 62,970,017
------------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS -- 0.2%
Federal National Mortgage
Association Grantor Trust, Series
02-T6, Class A1
3.31%
(Cost $1,700,816) 02/25/32 1,836 1,725,739
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 10.0%
Bear Stearns Mortgage Trust, Series
04-12, Class 1A1
4.18%(b) 01/25/35 1,129 1,130,962
Bear Stearns Mortgage Trust, Series
04-13, Class A1
4.20%(b) 11/25/34 7,642 7,677,081
Bear Stearns Mortgage Trust, Series
04-7, Class 4A
3.20%(b) 10/25/34 7,530 7,416,001
Countrywide Alternative Loan Trust,
Series 05-56, Class 1A1
4.69%(b) 11/25/35 9,360 9,453,600
Countrywide Home Loans, Series
04-29, Class 1A1
4.10%(b) 02/25/35 6,721 6,715,588
Credit Suisse First Boston Mortgage
Securities Corp., Series 01-33,
Class 4A1
6.50% 04/25/16 71 71,033
Federal Home Loan Mortgage Corp.,
Series 1361, Class I
6.00% 09/15/07 203 203,916
Federal Home Loan Mortgage Corp.,
Series 96T-2, Class A
7.00% 01/25/21 740 737,976
See accompanying notes to financial statements.
45
BlackRock Funds
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
----------- ---------- ------------
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Federal National Mortgage
Association, Series 89-16, Class B (PO)
10.00%(h) 03/25/19 $ 125 $ 104,307
Federal National Mortgage
Association, Series 05-29, Class AT
4.50% 04/25/35 3,090 3,042,538
Federal National Mortgage
Association, Series 05-29, Class WB
4.75% 04/25/35 3,580 3,576,384
Federal National Mortgage
Association, Series 05-57, Class FG
4.23%(b) 05/25/35 4,942 4,960,040
Federal National Mortgage
Association, Series 05-57, Class PA
5.50% 05/25/27 4,780 4,831,747
Federal National Mortgage
Association, Series 05-62, Class CQ
4.75% 07/25/35 3,791 3,697,666
GSAA Home Equity Trust, Series 04-8,
Class A3A
4.20%(b) 09/25/34 1,281 1,282,936
MortgageIT Trust, Series 04-1, Class A1
4.22%(b) 11/25/34 8,910 8,921,207
Structured Mortgage Loan Trust,
Series 04-13, Class A2
4.13%(b) 09/25/34 4,866 4,866,290
Structured Mortgage Loan Trust,
Series 04-6, Class 4A1
4.85%(b) 06/25/34 10,257 10,025,554
Summit Mortgage Trust, Series 00-1,
Class B1
6.29%(b)(g) 12/28/12 109 108,597
Wells Fargo Mortgage Backed
Securities Trust, Series 04-5,
Class A1
4.53%(b) 06/25/34 10,717 10,622,420
-----------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $89,700,403) 89,445,843
-----------
COMMERCIAL MORTGAGE BACKED SECURITIES -- 8.5%
Banc of America Commercial
Mortgage, Inc., Series 01-1,
Class A2
6.50% 04/15/36 4,950 5,304,425
Bayview Financial Acquisition Trust,
Series 98-1, Class A1
7.01%(g) 05/25/29 368 366,668
Bear Stearns Commercial Mortgage
Securities, Inc., Series 05-PWR9,
Class A4A
4.87% 09/11/42 5,030 5,022,928
Chase Commercial Mortgage
Securities Corp., Series 00-3,
Class A2
7.32% 10/15/32 2,005 2,201,060
Commercial Mortgage Acceptance
Corp., Series 98-C2, Class A2
6.03% 09/15/30 5,223 5,344,208
Credit Suisse First Boston Mortgage
Securities Corp., Series 02-CP5,
Class A2
4.94% 12/15/35 6,185 6,189,114
Federal Home Loan Mortgage Corp.,
Series 2626, Class NA
5.00% 06/15/23 4,490 4,518,686
Federal National Mortgage
Association, Series 05-83, Class LA
5.50% 10/25/35 5,960 6,030,608
First Union National Bank
Commercial Mortgage Trust, Series
00-C2, Class A2
7.20%(b) 10/15/32 4,430 4,857,641
First Union National Bank
Commercial Mortgage Trust, Series
01-C3, Class A3
6.42% 08/15/33 7,025 7,533,422
General Electric Capital Commercial
Mortgage Corp., Series 02-1A,
Class A3
6.27% 12/10/35 4,850 5,189,628
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 97
7.43% 02/21/21 501 513,438
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 97-C1, Class X (IO)
1.53%(f) 07/15/29 16,017 694,986
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 99-C3, Class A2
7.18% 08/15/36 4,472 4,781,789
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 00-C2, Class A2
7.46% 08/16/33 4,690 5,148,433
Lehman Brothers Commercial
Conduit Mortgage Trust, Series
99-C2, Class A1
7.10% 10/15/32 2,815 2,870,711
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 00-C5,
Class A1
6.41% 12/15/19 4,607 4,734,849
NationsLink Funding Corp., Series
99-SL, Class A6
6.61% 11/10/30 3,029 3,046,233
NYC Mortgage Loan Trust, Series
96, Class A1
6.75%(g) 06/25/11 1,736 1,764,556
-----------
TOTAL COMMERCIAL MORTGAGE BACKED
SECURITIES
(Cost $77,103,893) 76,113,383
-----------
PROJECT LOANS -- 0.2%
Federal Housing Authority, USGI
Project, Series 56
7.46%
(Cost $1,287,864) 01/01/23 1,280 1,313,243
-----------
See accompanying notes to financial statements.
46
BlackRock Funds
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
----------- ---------- ------------
CERTIFICATE OF DEPOSIT -- 0.2%
SunTrust Bank, Inc.
4.42%
(Cost $1,375,000) 06/15/09 $ 1,375 $ 1,359,738
------------
ASSET BACKED SECURITIES -- 9.9%
Amresco Independence Funding,
Inc., Series 00-1, Class A
4.65%(b)(g) 01/15/27 1,463 1,462,675
Boston Edison Co., Series 99-1,
Class A4
6.91% 09/15/09 4,414 4,532,442
Chase Issuance Trust, Series 04-A9,
Class A9
3.22% 06/15/10 6,100 5,949,879
Citibank Credit Card Issuance Trust,
Series 04, Class A1
2.55% 01/20/07 7,880 7,692,141
Citibank Credit Card Issuance Trust,
Series 04-A4, Class A4
3.20% 08/24/07 8,375 8,172,995
Countrywide Asset-Backed
Certificates, Series 04-12, Class
2AV3
3.96%(b) 10/25/35 7,290 7,289,902
DaimlerChrysler Auto Trust, Series
04-5, Class A3
3.18% 09/08/08 7,300 7,228,679
Epoch, Series 02, Class 2l
3.49%(b)(g) 05/30/07 4,900 4,949,000
Green Tree Financial Corp., Series
96-7, Class A6
7.65%(c) 10/15/27 1,329 1,401,237
IFC Small Business Administration
Loan-Backed Certificates, Series
97-1, Class A
4.50%(b)(g) 01/15/24 677 676,822
MBNA Credit Card Master Note
Trust, Series 04-A4, Class A4
2.70% 09/15/09 7,900 7,700,035
MBNA Master Credit Card Trust,
Series 96-G, Class A
3.95%(b) 12/15/08 4,415 4,421,310
The Money Store Small Business
Administration Loan Trust, Series
97-2, Class A
4.30%(b) 02/15/29 779 753,466
The Money Store Small Business
Administration Loan Trust, Series
99-1, Class A
3.82%(b) 07/15/25 1,849 1,834,402
PBG Equipment Trust, Series 00-1A,
Class A
6.27%(g) 01/20/12 1,397 1,398,413
PMC Capital Limited Partnership,
Series 98-1, Class A
5.25%(b)(g) 04/01/21 1,024 1,040,839
Structured Asset Receivables Trust,
Series 03-2
3.40%(b)(g) 01/21/09 5,690 5,688,414
Student Loan Marketing Association
Student Loan Trust, Series 05-5,
Class A1
3.46%(b) 01/25/18 7,475 7,466,822
Student Loan Marketing Student
Loan Trust, Series 05-8 Class A4
4.28% 01/25/28 7,375 7,342,734
SWB Loan-Backed Certificates,
Series 99-1, Class A
7.38%(g) 05/15/25 1,868 1,886,309
------------
TOTAL ASSET BACKED SECURITIES
(Cost $89,172,325) 88,888,516
------------
CORPORATE BONDS -- 35.5%
Aerospace -- 0.7%
Lockheed Martin Corp., Debentures
7.65% 05/01/16 1,340 1,622,726
Northrop Grumman Corp., Senior
Unsecured Notes
4.08% 11/16/06 1,445 1,438,021
7.12% 02/15/11 935 1,033,306
Raytheon Co., Senior Notes
6.75% 08/15/07 1,752 1,810,398
------------
5,904,451
------------
Banks -- 11.0%
Banc One Corp., Senior Unsecured
Notes
2.62% 06/30/08 60 57,022
Bank of America Corp., Senior
Unsecured Notes
3.25% 08/15/08 3,100 2,990,291
Bank of America Corp., Subordinated
Notes
7.20% 04/15/06 795 805,542
7.80% 02/15/10 1,115 1,244,448
Bank of New York Co., Inc., Senior
Subordinated Notes
3.80% 02/01/08 1,400 1,375,599
Bank One N.A., Senior Bank Notes
5.50% 03/26/07 1,385 1,404,432
Bank One N.A., Senior Unsecured
Notes
3.70% 01/15/08 2,325 2,279,523
BankBoston N.A., Subordinated Bank
Notes
6.38% 04/15/08 2,575 2,678,950
BankBoston N.A., Subordinated
Notes
7.00% 09/15/07 450 469,544
Barclays Bank PLC, Subordinated
Notes
7.38%(b)(g) 06/29/49 1,500 1,682,698
Citigroup, Inc., Senior Unsecured
Notes
5.75% 05/10/06 2,150 2,167,557
5.00% 03/06/07 2,690 2,708,669
Citigroup, Inc., Subordinated Notes
7.75% 06/15/06 3,480 3,553,390
6.38% 11/15/08 1,710 1,793,643
Citigroup, Inc., Unsecured Notes
4.12% 02/22/10 6,585 6,434,928
Depfa ACS Bank, Senior Notes
3.62% 10/29/08 5,150 5,019,257
Deutsche Bank AG, Deposit Notes
3.84%(b) 03/15/07 1,975 1,966,112
Fleet National Bank, Subordinated
Bank Notes
5.75% 01/15/09 900 927,891
See accompanying notes to financial statements.
47
BlackRock Funds
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
----------- ---------- ------------
CORPORATE BONDS (Continued)
Banks (Continued)
Fleetboston Financial Corp., Senior
Unsecured Notes
3.85% 02/15/08 $ 685 $ 674,831
HBOS Treasury Services PLC,
Unsecured Notes
3.75%(g) 09/30/08 1,360 1,327,746
HSBC Bank USA, Subordinated
Notes
3.87% 06/07/07 10,900 10,795,556
The Huntington National Bank,
Subordinated Bank Notes
2.75% 10/16/06 750 734,858
J.P. Morgan Chase & Co., Senior
Unsecured Notes
5.25% 05/30/07 8,210 8,306,517
J.P. Morgan Chase & Co.,
Subordinated Notes
6.25% 02/15/11 1,500 1,594,708
Sumitomo Mitsui Banking Corp.,
Subordinated Notes
5.62%(g) 12/31/49 1,450 1,445,084
SunTrust Bank, Inc., Senior
Unsecured Notes
3.62% 10/15/07 1,485 1,457,067
4.00% 10/15/08 1,100 1,078,287
Swedish Export Credit Corp.,
Unsecured Notes
3.50% 01/15/08 6,625 6,493,162
U.S. Bank N.A., Senior Bank Notes
2.40% 03/12/07 4,560 4,425,936
4.40% 08/15/08 675 671,371
3.75% 02/06/09 850 826,013
U.S. Bank N.A., Subordinated Notes
6.30% 07/15/08 1,360 1,420,610
U.S. Central Credit Union, Unsecured
Notes
2.75% 05/30/08 1,915 1,825,474
UBS Preferred Funding Trust I,
Capital Securities
8.62%(b) 10/29/49 475 550,270
Wachovia Bank N.A., Senior Bank
Notes
4.38% 08/15/08 850 845,266
Wachovia Corp., Subordinated Notes
5.62% 12/15/08 2,150 2,216,925
Wachovia Corp., Unsecured Notes
4.95% 11/01/06 3,000 3,013,305
Wells Fargo & Co., Senior Unsecured
Notes
5.90% 05/21/06 1,600 1,614,013
5.25% 12/01/07 1,700 1,725,796
4.00% 08/15/08 1,295 1,274,604
4.20% 01/15/10 675 662,384
Wells Fargo & Co., Unsecured Notes
4.62% 08/09/10 3,150 3,133,050
World Savings Bank, Unsecured
Notes
4.12% 03/10/08 1,375 1,358,188
------------
99,030,517
------------
Broadcasting -- 0.4%
Cox Communications, Inc., Senior
Unsecured Notes
7.75% 11/01/10 295 326,438
Cox Communications, Inc., Senior
Unsecured Notes
7.12% 10/01/12 900 979,007
News America, Inc., Unsecured
Notes
5.30% 12/15/14 2,550 2,537,352
------------
3,842,797
------------
Construction -- 0.1%
Lennar Corp., Senior Unsecured
Notes
5.60%(g) 05/31/15 410 401,566
Pulte Homes, Inc., Senior Unsecured
Notes
5.20% 02/15/15 700 662,921
------------
1,064,487
------------
Energy & Utilities -- 1.8%
American Electric Power Co., Senior
Notes
4.71%(b) 08/16/07 1,205 1,203,909
Dominion Resources, Inc., Senior
Unsecured Notes
3.66% 11/15/06 2,250 2,226,346
5.12% 12/15/09 455 458,881
DTE Energy Co., Senior Unsecured
Notes
5.63% 08/16/07 1,475 1,494,960
NiSource Finance Corp., Unsecured
Notes
4.39%(b) 11/23/09 2,450 2,455,635
PECO Energy Co., First Refunding
Mortgages
5.95% 11/01/11 1,900 2,010,377
PSEG Funding Trust, Capital
Security
5.38% 11/16/07 1,450 1,461,301
TXU Corp., Senior Unsecured Notes
4.80% 11/15/09 2,400 2,312,417
Virginia Electric and Power Co.,
Unsecured Notes
5.73% 11/25/08 2,514 2,585,337
------------
16,209,163
------------
Entertainment & Leisure -- 0.6%
Comcast Cable Communications
Corp., Senior Notes
8.38% 11/05-05/07 2,440 2,465,174
Comcast Cable Holdings LLC, Senior
Debentures
7.88% 08/01/13 735 848,315
Time Warner Cos., Inc., Senior
Unsecured Notes
6.75% 04/15/11 1,610 1,729,008
Turner Broadcasting Corp., Senior
Notes
8.38% 07/01/13 300 353,562
------------
5,396,059
------------
Finance -- 7.7%
Archstone-Smith Trust Corp., Senior
Unsecured Notes
5.00% 08/15/07 850 853,969
See accompanying notes to financial statements.
48
BlackRock Funds
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Finance (Continued)
Associates Corp. of North America,
Senior Notes
6.25% 11/01/08 $ 2,000 $ 2,092,328
BAE Systems Holdings, Inc.,
Unsecured Notes
5.20%(g) 08/15/15 1,230 1,211,415
The Bear Stearns Cos., Inc.,
Unsecured Notes
3.25% 03/25/09 3,500 3,338,895
Berkshire Hathaway Finance Corp.,
Senior Unsecured Notes
3.40% 07/02/07 2,400 2,359,032
4.12% 01/15/10 2,565 2,510,648
Cable and Wireless Optus Finance
Ltd., Unsecured Notes
8.00%(g) 06/22/10 1,425 1,620,596
CitiFinancial Credit Co., Unsecured
Notes
6.62% 11/15/06 2,675 2,737,961
General Electric Capital Corp.,
Unsecured Notes
5.38% 03/15/07 950 962,039
3.45%(b) 07/07-01/08 10,785 10,793,184
3.50% 08/15/07 3,820 3,753,303
4.12% 03/08-09/09 8,255 8,098,236
3.60% 10/15/08 5,635 5,478,386
The Goldman Sachs Group, Inc.,
Unsecured Notes
4.75% 07/15/13 2,000 1,954,312
Household Finance Corp., Senior
Unsecured Notes
7.20% 07/15/06 1,975 2,014,686
5.75% 01/30/07 500 507,755
Lehman Brothers Holdings, Inc.,
Senior Notes
6.62% 02/05/06 625 630,031
Lehman Brothers Holdings, Inc.,
Unsecured Notes
4.00% 01/22/08 3,125 3,088,281
Nationwide Building Society,
Unsecured Notes
4.25%(g) 02/01/10 350 342,787
Nuveen Investments, Senior
Unsecured Notes
5.50% 09/15/15 925 912,431
Principal Life Global Funding I,
Unsecured Notes
3.62%(g) 04/30/08 1,085 1,057,517
Prudential Financial, Inc., Senior
Unsecured Notes
3.75% 05/01/08 1,375 1,346,208
Prudential Funding LLC, Senior
Unsecured Notes
6.60%(g) 05/15/08 810 848,127
SP Power Assets Ltd., Unsecured
Notes
3.80%(g) 10/22/08 1,325 1,291,411
Student Loan Marketing Corp.,
Senior Unsecured Notes
3.62% 03/17/08 4,200 4,105,328
Swedbank, Capital Securities
7.50%(b)(g) 09/29/49 2,200 2,562,780
Washington Mutual Finance Corp.,
Senior Unsecured Notes
6.25% 05/15/06 2,750 2,781,045
-------------
69,252,691
-------------
Insurance -- 1.9%
Allstate Financial Global Funding,
Unsecured Notes
5.25%(g) 02/01/07 1,430 1,438,870
ASIF Global Financing, Unsecured
Notes
3.90%(g) 10/22/08 320 311,603
CHUBB Corp., Senior Unsecured
Notes
4.93% 11/16/07 2,925 2,938,478
MassMutual Global Funding II,
Senior Secured Notes
2.55%(g) 07/15/08 2,535 2,394,617
Metlife, Inc., Unsecured Notes
5.00% 06/15/15 1,825 1,797,330
Metropolitan Life Global Funding,
Inc., Unsecured Notes
2.60%(g) 06/19/08 1,540 1,455,654
New York Life Global Funding,
Unsecured Notes
3.88%(g) 01/15/09 2,945 2,873,843
Protective Life Corp., Secured Notes
3.70% 11/24/08 680 660,511
TIAA Global Markets, Senior
Unsecured Notes
3.88%(g) 01/22/08 3,000 2,949,093
-------------
16,819,999
-------------
Medical & Medical Services -- 0.4%
Wellpoint Health Network, Inc.,
Senior Unsecured Notes
6.38% 06/15/06 2,750 2,785,032
WellPoint, Inc., Unsecured Notes
3.50% 09/01/07 630 615,519
-------------
3,400,551
-------------
Motor Vehicles -- 0.3%
DaimlerChrysler N.A. Holding Corp.,
Unsecured Notes
4.88% 06/15/10 2,000 1,962,020
6.50% 11/15/13 475 502,211
General Motors Acceptance Corp.,
Unsecured Notes
5.11%(b) 09/23/08 475 440,110
-------------
2,904,341
-------------
Oil & Gas -- 1.6%
Anadarko Petroleum Corp., Senior
Unsecured Notes
3.25% 05/01/08 1,600 1,545,592
Encana Corp., Unsecured Notes
4.60% 08/15/09 175 174,050
Ocean Energy, Inc., Senior
Unsecured Notes
4.38% 10/01/07 1,660 1,649,974
See accompanying notes to financial statements.
49
BlackRock Funds
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
----------- ---------- -------------
CORPORATE BONDS (Continued)
Oil & Gas (Continued)
Texas Eastern Transmission LLP,
Senior Unsecured Notes
5.25% 07/15/07 $ 1,590 $ 1,602,036
Tosco Corp., Senior Notes
7.62% 05/15/06 2,525 2,570,266
Tosco Corp., Senior Unsecured
Notes
7.25% 01/01/07 805 831,030
Union Pacific Resources, Inc.,
Debentures
7.38% 05/15/06 5,845 5,939,747
-------------
14,312,695
-------------
Pharmaceuticals -- 0.7%
Merck & Co., Inc., Unsecured Notes
4.73%(b)(g) 02/22/06 3,600 3,601,271
2.50% 03/30/07 1,640 1,590,551
Schering-Plough Corp., Senior Notes
5.30%(b) 12/01/13 795 819,744
-------------
6,011,566
-------------
Real Estate -- 0.8%
Avalonbay Communities, Inc., Senior
Unsecured Notes
5.00% 08/01/07 1,380 1,385,713
EOP Operating LP, Unsecured Notes
4.65% 10/01/10 765 753,441
ERP Operating LP, Senior Notes
7.12% 10/15/17 725 824,680
The Rouse Co., Unsecured Notes
3.62% 03/15/09 600 560,847
5.38% 11/26/13 1,405 1,337,682
Simon Property Group, Inc.,
Unsecured Notes
3.75% 01/30/09 2,550 2,461,222
-------------
7,323,585
-------------
Retail Merchandising -- 0.2%
Federated Department Stores, Inc.,
Senior Unsecured Notes
6.62% 09/01/08 820 858,518
May Department Stores Co.,
Debentures
7.45% 10/15/16 860 980,430
-------------
1,838,948
-------------
Telecommunications -- 2.3%
AT&T Broadband Corp., Unsecured
Notes
8.38% 03/15/13 885 1,047,104
BellSouth Corp., Unsecured Notes
4.26%(b)(g) 04/26/06 2,750 2,746,128
Centurytel, Inc., Unsecured Notes
5.00% 02/15/15 625 590,175
Continental Cablevision, Inc., Senior
Notes
8.30% 05/15/06 1,050 1,074,069
Lenfest Communications, Inc., Senior
Notes
7.62% 02/15/08 1,815 1,920,161
Qwest Corp., Unsecured Notes
8.88% 03/15/12 340 370,600
SBC Communications, Inc., Senior
Unsecured Notes
5.88% 02/01/12 130 135,961
SBC Communications, Inc.,
Unsecured Notes
4.39%(g) 06/05/06 1,900 1,897,682
Sprint Capital Corp., Senior
Unsecured Notes
7.62% 01/30/11 1,125 1,258,881
TCI Communications, Inc., Senior
Debentures
8.75% 08/01/15 965 1,198,217
Verizon New Jersey, Inc., Senior
Debentures
5.88% 01/17/12 5,015 5,191,879
Vodafone Group PLC, Senior
Unsecured Notes
3.95% 01/30/08 2,595 2,559,332
Vodafone Group PLC, Unsecured
Notes
5.00% 09/15/15 600 595,439
-------------
20,585,628
-------------
Yankee -- 5.0%
Canadian National Railway Co.,
Senior Unsecured Notes
4.25%(i) 08/01/09 2,075 2,043,854
Eksportfinans ASA (Norway),
Unsecured Notes
4.38%(i) 07/15/09 6,550 6,529,171
Japan Finance Corp. for Municipal
Enterprises, Unsecured Notes
4.62%(i) 04/21/15 2,000 1,985,250
KFW Bankengruppe (Germany),
Senior Unsecured Notes
3.25%(i) 09/21/07 3,400 3,332,248
Landeskreditbank
Baden-Wurttemberg-Forderbank
(Germany), Unsecured Notes
3.42%(i) 07/27/06 19,090 18,957,515
National Westminster Bank (United
Kingdom), Subordinated Notes
7.75%(b)(i) 04/29/49 1,550 1,635,988
Nationwide Building Society (United
Kingdom), Unsecured Notes
2.62%(g)(i) 01/30/07 2,045 1,994,812
Province of Quebec (Canada),
Unsecured Notes
5.75%(i) 02/15/09 1,355 1,405,748
Scottish Power PLC (United
Kingdom), Unsecured Notes
4.90%(i) 03/15/10 2,300 2,298,661
Telecom Italia Capital (Luxembourg),
Senior Unsecured Notes
5.25%(i) 11/15/13 665 660,285
4.95%(g)(i) 09/30/14 625 604,833
Telefonica Europe BV (Netherlands),
Senior Unsecured Notes
7.75%(i) 09/15/10 2,775 3,128,296
See accompanying notes to financial statements.
50
BlackRock Funds
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------ ---------- -------------
CORPORATE BONDS (Continued)
Yankee (Continued)
Tyco International Group SA
(Luxembourg), Senior Unsecured
Notes
5.80%(i) 08/01/06 $ 650 $ 656,118
Vodafone Group PLC (United
Kingdom), Senior Unsecured Notes
7.75%(i) 02/15/10 280 312,317
-------------
45,545,096
-------------
TOTAL CORPORATE BONDS
(Cost $321,962,457) 319,442,574
-------------
TAXABLE MUNICIPAL BONDS -- 1.6%
Connecticut State General
Obligation, Series 04, Class B
5.00% 12/01/15 1,010 1,096,315
Elmhurst, Illinois Sales Tax Revenue
Bonds, Series 98
5.62% 05/15/10 250 251,752
Oregon School Board Taxable
Pension Deferred Interest Bonds,
Series A
1.00% 06/30/07 2,700 2,497,986
Port Authority of New York & New
Jersey Revenue Notes, Series 04,
Class XX
3.30% 09/15/07 4,200 4,104,786
Sales Tax Asset Receivable Corp.
Revenue Bonds, Series 04, Class B
3.83% 10/15/09 1,280 1,243,200
Texas Public Finance Authority
Taxable Revenue Bonds, Series 03
3.12% 06/15/07 2,020 1,975,722
University Maryland System Auxiliary
Facility & Tuition Revenue Bonds,
Series 05, Class A
5.00% 04/01/16 1,315 1,439,728
Wisconsin General Revenue Bonds,
Series 03, Class A
4.80% 05/01/13 1,910 1,908,739
-------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $14,655,796) 14,518,228
-------------
Number
of Shares
----------
SHORT TERM INVESTMENTS -- 0.5%
Galileo Money Market Fund
(Cost $4,182,443) 4,182,443 4,182,443
-------------
TOTAL INVESTMENTS IN SECURITIES -- 109.0%
(Cost $986,440,588(a)) 978,524,847
Number of
Contracts
-----------
CALL SWAPTIONS WRITTEN -- (0.3)%
Barclays Capital,
Strike Price 5.135,
Expires 04/21/08 (1,220)(j) (585,112)
Citibank, Strike Price 5.67, Expires
01/04/10 (1,250)(j) (857,859)
Warburg Dillon Read LLC, Strike
Price 5.00, Expires 06/16/10 (1,410)(j) (647,472)
-------------
TOTAL CALL SWAPTIONS WRITTEN
(Premiums received $1,872,885) (2,090,443)
-------------
PUT SWAPTIONS WRITTEN -- (0.1)%
Barclays Capital, Strike
Price 5.135, Expires 04/21/08 (1,220)(j) (430,538)
Citibank, Strike Price 5.67, Expires
01/04/10 (1,250)(j) (380,183)
Warburg Dillon Read LLC, Strike
Price 5.00, Expires 06/16/10 (1,410)(j) (713,319)
-------------
TOTAL PUT SWAPTIONS WRITTEN
(Premiums received $1,872,885) (1,524,040)
-------------
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (8.6)% (77,231,001)
-------------
NET ASSETS -- 100.0%
(Applicable to 46,709,206 BlackRock
shares, 33,952,927 Institutional
shares, 10,139,795 Service shares,
3,355,099 Investor A shares,
1,136,248 Investor B shares and
986,500 Investor C shares
outstanding) $ 897,679,363
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
BLACKROCK SHARE
($435,528,760/46,709,206) $ 9.32
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($316,522,453/33,952,927) $ 9.32
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($94,557,217/10,139,795) $ 9.33
=============
NET ASSET VALUE AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($31,272,404/3,355,099) $ 9.32
=============
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE
($9.32/0.960) $ 9.71
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($10,594,226/1,136,248) $ 9.32
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR C SHARE
($9,204,303/986,500) $ 9.33
=============
See accompanying notes to financial statements.
51
BlackRock Funds
STATEMENT OF NET ASSETS
INTERMEDIATE BOND PORTFOLIO (Concluded)
As of September 30, 2005
(a) Cost for Federal income tax purposes is $987,186,727. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 2,724,574
Gross unrealized depreciation (11,386,454)
-------------
$ (8,661,880)
=============
(b) Rates shown are the rates as of September 30, 2005.
(c) Securities, or a portion thereof, pledged as collateral with a value of
$3,738,069 on 519 long U.S. Treasury Note futures contracts and 1,101 short
U.S. Treasury Note futures contracts expiring December 2005. The value of
such contracts on September 30, 2005 was $174,701,633 with an unrealized
loss of $418,254 (including commissions of $3,119).
(d) Securities, or a portion thereof, with a market value of $1,185,765 have
been pledged as collateral for swap and swaption contracts.
(e) Securities, or a portion thereof, subject to financing transactions.
(f) Rates shown are the effective yields as of September 30, 2005.
(g) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 6.5% of its net assets, with a current market
value of $57,979,392 in securities restricted as to resale.
(h) Interest rate of underlying collateral.
(i) Security is a foreign domiciled issuer which is registered with the
Securities and Exchange Commission.
(j) Each swaption contract is equivalent to $10,000 notional amount.
See accompanying notes to financial statements.
52
BlackRock Funds
SCHEDULE OF INVESTMENTS
INTERMEDIATE PLUS BOND PORTFOLIO
As of September 30, 2005
Number
of Shares Value
----------- -------------
PREFERRED STOCKS -- 0.1%
Raytheon Co. Trust I
(Cost $42,375) 800 $ 41,397
-------------
Par
Maturity (000) Value
------------- ---------- -------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 21.3%
Federal Home Loan Mortgage Corp.,
Unsecured Notes
3.01% 04/19/07 $ 275 269,524
5.00% 10/27/14 100 99,260
Federal National Mortgage
Association, Unsecured Notes
2.15% 04/13/06 300 296,615
2.74%(b) 05/05/06 225 223,014
1.75% 06/16/06 125 122,813
2.71% 01/30/07 250 244,663
4.75% 02/21/13 200 198,619
5.12% 05/27/15 100 98,842
Small Business Administration
Participation Certificates, Series
96-20E, Class 1
7.60% 05/01/16 115 121,591
U.S. Treasury Bonds
10.38%(c) 11/15/12 205 230,481
8.75% 08/15/20 100 144,730
8.00% 11/15/21 225 311,467
6.25% 08/15/23 555 663,637
U.S. Treasury Notes
3.62% 04/30/07 1,400 1,388,187
4.00% 08/07-02/15 1,790 1,767,271
3.38% 02/15/08 175 171,842
4.25% 08/14-08/15 1,410 1,400,864
-------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost $7,829,650) 7,753,420
-------------
MORTGAGE PASS-THROUGHS -- 23.6%
Federal Home Loan Mortgage Corp.
ARM
3.33%(b) 07/01/34 261 258,677
Federal Home Loan Mortgage Corp.
Gold
4.50% 03/10-10/20 336 330,217
5.00% 06/20-09/35 995 982,878
5.50% 10/01/35 400 400,000
Federal Home Loan Mortgage Corp.
Gold ARM
4.01%(b) 03/01/34 144 141,273
Federal National Mortgage
Association
6.00% 08/16-10/34 647 658,302
5.00% 01/18-10/35 2,603 2,573,295
5.50% 10/18-02/34 633 652,741
4.50% 10/20-10/35 400 389,031
Federal National Mortgage
Association ARM
4.15%(b) 10/01/33 317 315,011
4.31%(b) 12/01/33 209 208,190
4.29%(b) 01/01/34 274 272,520
4.01%(b) 04/01/34 414 406,597
Federal National Mortgage Corp.
4.50% 05/17/20 97 95,158
Government National Mortgage
Association
5.50% 10/13/35 900 899,437
--------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $8,651,026) 8,583,327
--------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 0.4%
Federal Home Loan Mortgage Corp.,
Series 05, Class B1
4.50% 05/01/20 95 93,016
Structured Asset Securities Corp.,
Series 96-CFL, Class X1 (IO)
2.06%(d) 02/25/28 397 35,260
-------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $120,775) 128,276
-------------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 7.2%
Bear Stearns Mortgage Trust, Series
04-13, Class A1
4.20%(b) 11/25/34 217 217,612
Countrywide Alternative Loan Trust,
Series 05-56, Class 1A1
4.69%(b) 11/25/35 290 292,900
Countrywide Home Loans, Series
04-29, Class 1A1
4.10%(b) 02/25/35 163 162,802
Federal Home Loan Mortgage Corp.,
Series 2927, Class BA
5.50% 12/31/49 110 110,656
Federal Home Loan Mortgage Corp.,
Series 2949, Class PA
5.50% 03/15/34 224 226,816
Federal Home Loan Mortgage Corp.,
Series 2996, Class MK
5.50% 06/15/35 99 99,589
Federal National Mortgage
Association, Series 04-25, Class
PA
5.50% 10/25/30 202 204,401
Federal National Mortgage
Association, Series 04-36, Class
BS
5.50% 11/25/30 165 166,203
Federal National Mortgage
Association, Series 05-48, Class
AR
5.50% 02/25/35 108 109,200
Federal National Mortgage
Association, Series 05-57, Class
FG
4.23%(b) 05/25/35 118 118,803
Federal National Mortgage
Association, Series 05-57, Class
PA
5.50% 05/25/27 132 133,685
Goldman Sachs Residential
Mortgage Loan Trust, Series
03-13, Class 1A1
4.51%(b) 10/25/33 190 185,156
See accompanying notes to financial statements.
53
BlackRock Funds
SCHEDULE OF INVESTMENTS
INTERMEDIATE PLUS BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
COLLATERALIZED MORTGAGE
OBLIGATIONS (Continued)
MortgageIT Trust, Series 04-1, Class
A1
4.22%(b) 11/25/34 $ 293 $ 293,220
Structured Mortgage Loan Trust,
Series 04-13, Class A2
4.13%(b) 09/25/34 109 108,693
Wells Fargo Mortgage Backed
Securities Trust, Series 04-5,
Class A1
4.53%(b) 06/25/34 193 191,204
-------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $2,651,944) 2,620,940
-------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 9.2%
Banc of America Commercial
Mortgage, Inc., Series 02-2, Class
A3
5.12% 07/11/43 130 131,306
Banc of America Commercial
Mortgage, Inc., Series 05-4, Class
A5A
4.93% 07/10/45 160 160,809
Bear Stearns Commercial Mortgage
Securities, Inc., Series 00-WF2,
Class A2
7.32% 10/15/32 110 120,678
Bear Stearns Commercial Mortgage
Securities, Inc., Series 05-PWR9,
Class A4A
4.87% 09/11/42 170 169,761
Bear Stearns Commericial Mortgage
Securities, Inc., Series 05-PWR7,
Class A2
4.94% 02/11/41 140 140,815
Chase Commercial Mortgage
Securities Corp., Series 97-1,
Class X (IO)
2.12%(d) 04/19/15 2,478 51,642
Chase Commercial Mortgage
Securities Corp., Series 00-3,
Class A2
7.32% 10/15/32 55 60,378
Chase Manhattan Bank-First Union
National Bank, Series 99-1, Class
A2
7.44% 08/15/31 185 200,806
Citigroup Commercial Mortgage
Trust, Series 05-EMG, Class A2
4.22%(e) 09/20/51 150 146,204
Credit Suisse First Boston Mortgage
Securities Corp., Series 97-C1,
Class AX (IO)
1.72%(d)(e) 06/20/29 2,387 81,749
Credit Suisse First Boston Mortgage
Securities Corp., Series 97-C2,
Class AX (IO)
1.10%(d) 01/17/35 683 14,662
Credit Suisse First Boston Mortgage
Securities Corp., Series 00-C1,
Class A1
7.32% 04/15/42 138 143,614
Donaldson, Lufkin and Jenrette, Inc.
Commerical Mortgage Corp.,
Series 98-CF1, Class A1B
6.41% 02/18/31 191 197,117
Donaldson, Lufkin and Jenrette, Inc.
Commerical Mortgage Corp.,
Series 00-CKP1, Class A1B
7.18% 08/10/10 100 109,212
First Union National Bank
Commercial Mortgage Trust, Series
01-C3, Class A3
6.42% 08/15/33 250 268,093
General Electric Capital Commercial
Mortgage Corp., Series 00-1, Class
A2
6.50% 01/15/33 125 133,686
General Electric Capital Commercial
Mortgage Corp., Series 02-1A,
Class A3
6.27% 12/10/35 170 181,905
General Electric Capital Commercial
Mortgage Corp., Series 05-C1,
Class A3
4.58% 06/10/48 130 128,466
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 97-C1, Class X (IO)
1.53%(d) 07/15/29 1,759 76,340
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 99-C2, Class A2
6.94% 09/15/33 100 106,550
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 00-C2, Class A2
7.46% 08/16/33 115 126,241
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 00-C3,
Class A2
7.95% 05/15/25 140 155,987
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 01-C2,
Class A2
6.65% 11/15/27 150 162,116
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 03-C7,
Class A3
4.56%(b) 09/15/27 110 108,304
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 05-C1,
Class A3
4.54% 12/15/49 150 147,627
Morgan Stanley Capital I, Inc.,
Series 97-HF1, Class X
1.69%(e) 07/15/29 398 6,797
-------------
TOTAL COMMERCIAL MORTGAGE BACKED
SECURITIES
(Cost $3,403,131) 3,330,865
-------------
ASSET BACKED SECURITIES -- 7.4%
Capital Auto Receivables Asset Trust,
Series 04-2, Class A4
3.75% 07/15/09 225 220,417
Chase Issuance Trust, Series 04-A9,
Class A9
3.22% 06/15/10 175 170,693
Citibank Credit Card Issuance Trust,
Series 03-A3, Class A3
3.10% 03/10/10 125 120,899
See accompanying notes to financial statements.
54
BlackRock Funds
SCHEDULE OF INVESTMENTS
INTERMEDIATE PLUS BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
ASSET BACKED SECURITIES (Continued)
Citibank Credit Card Issuance Trust,
Series 04, Class A1
2.55% 01/20/07 $ 225 $ 219,636
DaimlerChrysler Auto Trust, Series
05-B, Class A3
4.04% 09/08/09 225 223,189
Discover Card Master Trust I, Series
01-2, Class A
3.93%(b) 07/15/08 250 250,121
Green Tree Financial Corp., Series
99-2, Class A3
6.08% 12/01/30 71 71,938
Honda Auto Receivables Owner
Trust, Series 05-4, Class A3
4.51% 05/20/09 225 224,813
MBNA Credit Card Master Note
Trust, Series 04-A4, Class A4
2.70% 09/15/09 175 170,570
Nissan Auto Receivables Owner
Trust, Series 03-C, Class A3
2.23% 03/15/07 112 111,152
Nissan Auto Receivables Owner
Trust, Series 05-C, Class A3
4.21% 07/15/09 250 248,461
Residential Asset Mortgage Products,
Inc., Series 05-RS8, Class A1
3.95%(b) 05/25/25 250 250,000
Standard Credit Card Master Trust I,
Series 94-2, Class A
7.25% 04/07/06 235 238,413
Student Loan Marketing Student
Loan Trust, Series 05-6, Class A5B
3.67%(b) 07/27/26 175 175,019
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $2,720,187) 2,695,321
-------------
CORPORATE BONDS -- 16.6%
Aerospace -- 0.3%
BE Aerospace, Inc., Senior Notes
8.50% 10/01/10 5 5,437
Lockheed Martin Tactical Systems,
Inc., Senior Debentures
7.00% 09/15/23 30 34,864
Northrop Grumman Corp., Senior
Unsecured Notes
4.08% 11/16/06 35 34,831
7.12% 02/15/11 20 22,103
Raytheon Co., Senior Unsecured
Notes
4.50% 11/15/07 7 6,969
-------------
104,204
-------------
Banks -- 3.9%
Bank of America Corp., Senior
Unsecured Notes
3.25% 08/15/08 75 72,346
4.50% 08/01/10 25 24,757
Bank of America Corp., Subordinated
Notes
7.80% 02/15/10 5 5,580
Bank of New York Co., Inc., Senior
Notes
3.75% 02/15/08 25 24,531
Bank One N.A., Senior Bank Notes
5.50% 03/26/07 50 50,702
Citigroup, Inc., Senior Unsecured
Notes
6.20% 03/15/09 $ 35 $ 36,689
Citigroup, Inc., Subordinated Notes
6.38% 11/15/08 30 31,467
Citigroup, Inc., Unsecured Notes
4.12% 02/22/10 260 254,075
Depfa ACS Bank, Senior Notes
3.62% 10/29/08 50 48,731
HBOS Treasury Services PLC,
Unsecured Notes
3.50%(e) 11/30/07 30 29,331
HSBC Bank USA, Subordinated
Notes
3.87% 06/07/07 225 222,844
J.P. Morgan Chase & Co., Senior
Unsecured Notes
5.25% 05/30/07 75 75,882
J.P. Morgan Chase & Co.,
Subordinated Notes
7.12% 06/15/09 25 26,956
SunTrust Bank, Inc., Senior
Unsecured Notes
3.62% 10/15/07 70 68,683
4.00% 10/15/08 40 39,210
Swedish Export Credit Corp.,
Unsecured Notes
3.50% 01/15/08 75 73,508
U.S. Bancorp., Senior Unsecured
Notes
3.95% 08/23/07 115 113,729
UBS Preferred Funding Trust I,
Capital Securities
8.62%(b) 10/29/49 10 11,585
Wachovia Corp., Senior Notes
3.50% 08/15/08 15 14,552
Wells Fargo & Co., Senior Unsecured
Notes
5.90% 05/21/06 100 100,876
Wells Fargo & Co., Unsecured Notes
4.62% 08/09/10 100 99,462
-------------
1,425,496
-------------
Broadcasting -- 0.5%
Cablevision Systems Corp., Senior
Unsecured Notes
7.89%(b) 04/01/09 15 15,375
Charter Communications Holdings LLC,
Unsecured Notes
10.25% 09/15/10 45 46,237
Cox Communications, Inc., Senior
Unsecured Notes
7.12% 10/01/12 25 27,195
DirecTV Holdings LLC, Senior
Unsecured Notes
6.38%(e) 06/15/15 10 9,850
News America, Inc., Unsecured Notes
5.30% 12/15/14 75 74,628
-------------
173,285
-------------
See accompanying notes to financial statements.
55
BlackRock Funds
SCHEDULE OF INVESTMENTS
INTERMEDIATE PLUS BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Business Services -- 0.0%
Service Corp. International, Senior
Unsecured Notes
7.70% 04/15/09 $ 5 $ 5,250
-------------
Chemicals -- 0.0%
BCP Crystal U.S. Holdings Corp.,
Senior Subordinated Notes
9.62% 06/15/14 10 11,175
-------------
Computer Software & Services -- 0.0%
Sungard Data Systems, Inc., Senior
Unsecured Notes
9.12%(e) 08/15/13 5 5,181
-------------
Construction -- 0.1%
International Steel Group, Inc.,
Senior Unsecured Notes
6.50% 04/15/14 15 14,813
K. Hovnanian Enterprises, Inc.,
Senior Unsecured Notes
6.25%(e) 01/15/16 35 32,550
Lennar Corp., Senior Unsecured
Notes
5.60%(e) 05/31/15 5 4,897
-------------
52,260
-------------
Containers -- 0.0%
Crown Holdings, Inc., Senior Secured
Notes
9.50% 03/01/11 5 5,475
-------------
Energy & Utilities -- 0.9%
AES Corp., Senior Secured Notes
8.75%(e) 05/15/13 10 10,950
Dominion Resources, Inc., Senior
Unsecured Notes
7.20% 09/15/14 40 44,954
Midwest Generation LLC,
Pass-Through Certificates
8.56% 01/02/16 24 26,019
Midwest Generation LLC, Senior
Secured Notes
8.75% 05/01/34 10 11,137
NiSource Finance Corp., Unsecured
Notes
4.39%(b) 11/23/09 75 75,172
PSEG Funding Trust, Capital
Security
5.38% 11/16/07 50 50,390
Reliant Energy, Inc., Senior Secured
Notes
6.75% 12/15/14 5 4,888
Transcontinental Gas Pipe Line
Corp., Senior Notes
8.88% 07/15/12 5 5,850
TXU Corp., Senior Unsecured Notes
4.80% 11/15/09 100 96,351
-------------
325,711
-------------
Entertainment & Leisure -- 0.4%
Comcast Cable Communications
Corp., Senior Unsecured Notes
6.38% 01/30/06 5 5,032
Comcast Cable Communications,
Inc., Senior Unsecured Notes
6.75% 01/30/11 35 37,634
Comcast Cable Holdings LLC, Senior
Debentures
7.88% 08/01/13 5 5,771
MGM Mirage, Inc., Senior Notes
6.00% 10/01/09 20 19,750
Mohegan Tribal Gaming Authority,
Senior Unsecured Notes
6.12% 02/15/13 10 9,937
Seneca Gaming Corp., Senior
Unsecured Notes
7.25% 05/01/12 15 15,375
Time Warner Cos., Inc., Senior
Unsecured Notes
6.75% 04/15/11 35 37,587
Turner Broadcasting Corp., Senior
Notes
8.38% 07/01/13 15 17,678
-------------
148,764
-------------
Finance -- 3.3%
BAE Systems Holdings, Inc.,
Unsecured Notes
5.20%(e) 08/15/15 40 39,396
The Bear Stearns Cos., Inc.,
Unsecured Notes
3.25% 03/25/09 50 47,698
Berkshire Hathaway Finance Corp.,
Senior Unsecured Notes
4.12% 01/15/10 80 78,305
CCH I LLC
11.00%(e)(f) 10/01/15 26 25,187
Crown European Holdings SA,
Senior Secured Notes
10.88% 03/01/13 10 11,600
General Electric Capital Corp.,
Unsecured Notes
3.50% 08/15/07 50 49,127
3.45%(b) 01/15/08 425 425,918
4.12% 03/08-09/09 250 245,363
3.60% 10/15/08 10 9,722
3.75% 12/15/09 65 62,772
Household Finance Corp., Senior
Notes
6.45% 02/01/09 20 20,945
Morgan Stanley, Senior Unsecured
Notes
3.88% 01/15/09 25 24,369
Morgan Stanley, Unsecured Notes
4.00% 01/15/10 50 48,390
Nationwide Building Society, Senior
Unsecured Notes
3.50%(e) 07/31/07 50 49,058
Principal Life Global Funding I,
Unsecured Notes
3.62%(e) 04/30/08 20 19,493
Prudential Funding LLC, Senior
Unsecured Notes
6.60%(e) 05/15/08 25 26,177
-------------
1,183,520
-------------
See accompanying notes to financial statements.
56
BlackRock Funds
SCHEDULE OF INVESTMENTS
INTERMEDIATE PLUS BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Food & Agriculture -- 0.1%
Smithfield Foods, Inc., Senior
Unsecured Notes
7.00% 08/01/11 $ 25 $ 25,500
-------------
Industrial -- 0.1%
Osprey Trust / Osprey I, Inc., Senior
Secured Notes
0.13%(b)(d)(e)(g)(h) 01/15/49 50 24,000
-------------
Insurance -- 0.9%
Allstate Financial Global Funding,
Unsecured Notes
5.25%(e) 02/01/07 25 25,155
ASIF Global Financing, Unsecured
Notes
3.90%(e) 10/22/08 45 43,819
CHUBB Corp., Senior Unsecured
Notes
4.93% 11/16/07 75 75,346
MassMutual Global Funding II,
Senior Secured Notes
2.55%(e) 07/15/08 35 33,062
Metlife, Inc., Unsecured Notes
5.00% 06/15/15 50 49,242
New York Life Global Funding,
Unsecured Notes
3.88%(e) 01/15/09 45 43,913
TIAA Global Markets, Senior
Unsecured Notes
3.88%(e) 01/22/08 45 44,236
-------------
314,773
-------------
Manufacturing -- 0.1%
Briggs & Stratton Corp., Senior
Unsecured Notes
8.88% 03/15/11 20 22,850
Ispat Inland ULC, Senior Secured
Notes
9.75% 04/01/14 22 25,520
-------------
48,370
-------------
Medical & Medical Services -- 0.1%
Bio-Rad Laboratories, Inc., Senior
Subordinated Notes
6.12% 12/15/14 10 9,725
Wellpoint Health Network, Inc.,
Senior Unsecured Notes
6.38% 06/15/06 25 25,318
-------------
35,043
-------------
Metal & Mining -- 0.0%
TRIMAS Corp., Senior Subordinated
Notes
9.88% 06/15/12 5 4,125
-------------
Motor Vehicles -- 0.1%
Arvinmeritor, Inc., Senior Notes
6.80% 02/15/09 10 9,550
DaimlerChrysler N.A. Holding Corp.,
Notes
4.75% 01/15/08 25 24,912
-------------
34,462
-------------
Oil & Gas -- 0.6%
Anadarko Petroleum Corp., Senior
Unsecured Notes
3.25% 05/01/08 50 48,300
ANR Pipeline Co., Senior Debentures
9.62% 11/01/21 5 6,175
7.38% 02/15/24 5 5,155
Chesapeake Energy Corp., Senior
Unsecured Notes
6.25% 01/15/18 30 29,400
Devon Financing Corp., Senior
Unsecured Notes
6.88% 09/30/11 35 38,473
Dynegy Holdings, Inc., Secured
Notes
10.12%(e) 07/15/13 15 16,725
Encana Corp.(Canada), Bonds
6.30% 11/01/11 25 26,767
KCS Energy, Inc., Senior Unsecured
Notes
7.12%(e) 04/01/12 5 5,125
Northwest Pipeline Corp., Senior
Unsecured Notes
8.12% 03/01/10 15 16,012
The Williams Cos., Inc., Senior
Unsecured Notes
7.12% 09/01/11 10 10,425
-------------
202,557
-------------
Paper & Forest Products -- 0.0%
Bowater Canada Finance Corp.,
Senior Unsecured Notes
7.95% 11/15/11 5 5,038
Georgia-Pacific Corp., Senior
Unsecured Notes
8.00% 01/15/24 5 5,506
-------------
10,544
-------------
Pharmaceuticals -- 0.8%
Merck & Co., Inc., Senior Unsecured
Notes
5.25% 07/01/06 25 25,104
Merck & Co., Inc., Unsecured Notes
4.73%(b)(e) 02/22/06 250 250,089
2.50% 03/30/07 25 24,246
-------------
299,439
-------------
Railroad & Shipping -- 0.0%
Burlington Northern Santa Fe Corp.,
Debentures
7.29% 06/01/36 10 12,306
-------------
Real Estate -- 0.2%
AMR Real Estate, Senior Unsecured
Notes
8.12% 06/01/12 5 5,275
The Rouse Co., Unsecured Notes
3.62% 03/15/09 40 37,390
5.38% 11/26/13 40 38,083
-------------
80,748
-------------
Retail Merchandising -- 0.1%
Federated Department Stores, Inc.,
Senior Unsecured Notes
6.30% 04/01/09 10 10,424
May Department Stores Co.,
Debentures
7.45% 10/15/16 10 11,400
See accompanying notes to financial statements.
57
BlackRock Funds
SCHEDULE OF INVESTMENTS
INTERMEDIATE PLUS BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Retail Merchandising (Continued)
Movie Gallery, Inc., Senior
Unsecured Notes
11.00% 05/01/12 $ 5 $ 4,463
-------------
26,287
-------------
Semiconductors & Related Devices -- 0.0%
Freescale Semiconductor, Inc.,
Senior Unsecured Notes
6.35%(b) 07/15/09 5 5,138
Magnachip Semiconductor, Secured
Notes
7.12%(b) 12/15/11 10 9,950
-------------
15,088
-------------
Telecommunications -- 1.0%
AT&T Broadband Corp., Unsecured
Notes
8.38% 03/15/13 140 165,644
Cincinnati Bell, Inc., Senior
Unsecured Notes
7.25% 07/15/13 15 15,937
Intelsat Bermuda Ltd., Senior
Unsecured Notes
8.70%(b)(e) 01/15/12 10 10,200
L-3 Communications Corp., Senior
Subordinated Notes
6.38%(e) 10/15/15 5 5,037
Qwest Corp., Unsecured Notes
7.12%(b)(e) 06/15/13 15 15,600
Rogers Wireless, Inc., Senior
Secured Notes
7.50% 03/15/15 25 26,938
Verizon Maryland, Inc., Senior
Debentures
6.12% 03/01/12 30 31,364
Verizon New Jersey, Inc., Senior
Debentures
5.88% 01/17/12 70 72,469
-------------
343,189
-------------
Transportation -- 0.2%
Overseas Shipholding Group, Inc.,
Senior Unsecured Notes
7.50% 02/15/24 10 9,975
Union Pacific Corp., Senior Notes
6.62% 02/01/08 50 52,075
-------------
62,050
-------------
Waste Management -- 0.1%
Allied Waste N.A., Inc., Senior Notes
8.88% 04/01/08 15 15,638
Allied Waste N.A., Inc., Senior
Secured Notes
8.50% 12/01/08 25 26,062
-------------
41,700
-------------
Yankee -- 2.8%
Abitibi-Consolidated, Inc. (Canada),
Senior Unsecured Notes
8.38%(i) 04/01/15 5 4,925
Canadian National Railway Co.,
Senior Unsecured Notes
4.25%(i) 08/01/09 40 39,400
Eksportfinans ASA (Norway),
Unsecured Notes
4.38%(i) 07/15/09 20 19,936
Japan Finance Corp. for Municipal
Enterprises, Unsecured Notes
4.62%(i) 04/21/15 100 99,263
Landeskreditbank
Baden-Wurttemberg-Forderbank
(Germany), Unsecured Notes
3.42%(i) 07/27/06 575 571,010
Omi Corp. (Mali), Senior Notes
7.62%(i) 12/01/13 5 5,100
Scottish Power PLC (United
Kingdom), Unsecured Notes
4.90%(i) 03/15/10 25 24,985
Telecom Italia Capital (Luxembourg),
Senior Unsecured Notes
5.25%(i) 11/15/13 25 24,823
4.95%(e)(i) 09/30/14 40 38,709
Telefonica Europe BV (Netherlands),
Senior Unsecured Notes
7.75%(i) 09/15/10 115 129,641
Tyco International Group SA
(Luxembourg), Senior Unsecured
Notes
5.80%(i) 08/01/06 30 30,282
Vodafone Group PLC (United
Kingdom), Senior Unsecured Notes
7.75%(i) 02/15/10 35 39,040
-------------
1,027,114
-------------
TOTAL CORPORATE BONDS
(Cost $6,104,248)
6,047,616
-------------
FOREIGN BONDS -- 1.9%
Bundesrepublic Deutschland
(Germany) (EUR)
4.75% 07/04/34 50 72,643
4.00% 01/04/37 125 162,181
Government of New Zealand (NZD)
6.00% 11/15/11 145 101,229
6.50% 04/15/13 215 154,792
Province of Manitoba (NZD)
6.38% 09/01/15 30 20,508
Province of Ontario, Unsecured
Notes (NZD)
6.25% 06/16/15 120 81,835
Republic of Italy (USD)
4.38% 10/25/06 80 80,005
-------------
TOTAL FOREIGN BONDS
(Cost $679,337)
673,193
-------------
TAXABLE MUNICIPAL BONDS -- 0.8%
Connecticut State General
Obligation, Series 04, Class B
5.00% 12/01/15 30 32,564
Port Authority of New York & New
Jersey Revenue Notes, Series 04,
Class XX
3.30% 09/15/07 125 122,166
See accompanying notes to financial statements.
58
BlackRock Funds
SCHEDULE OF INVESTMENTS
INTERMEDIATE PLUS BOND PORTFOLIO (Concluded)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
TAXABLE MUNICIPAL BONDS (Continued)
Sales Tax Asset Receivable Corp.
Revenue Bonds, Series 04, Class B
3.60% 10/15/08 $ 35 $ 34,069
University Maryland System Auxiliary
Facility & Tuition Revenue Bonds,
Series 05, Class A
5.00% 04/01/16 35 38,320
Wisconsin General Revenue Bonds,
Series 03, Class A
4.80% 05/01/13 50 49,967
-------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $282,941) 277,086
-------------
Par/Shares
(000)
----------
SHORT TERM INVESTMENTS - 11.5%
U.S. Treasury Bills
3.15% 11/17/05 3,500 3,485,606
Galileo Money Market Fund 678 678,062
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $4,163,668) 4,163,668
-------------
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $36,649,282(a)) $ 36,315,109
=============
Number of
Contracts
----------
CALL SWAPTIONS WRITTEN -- (0.2)%
Barclays Capital, Strike Price 5.135,
Expires 04/21/08 (30)(j) (14,388)
Citibank, Strike Price 5.67, Expires
01/04/10 (40)(j) (27,452)
Warburg Dillon Read LLC, Strike
Price 5.00, Expires
06/16/10 (40)(j) (18,368)
-------------
TOTAL CALL SWAPTIONS WRITTEN
(Premiums received $53,450) (60,208)
-------------
PUT SWAPTIONS WRITTEN -- (0.1)%
Barclays Capital, Strike Price 5.135,
Expires 04/21/08 (30)(j) (10,587)
Citibank, Strike Price 5.67, Expires
01/04/10 (40)(j) (12,166)
Warburg Dillon Read LLC, Strike Price 5.00,
Expires 06/16/10 (40)(j) (20,236)
-------------
TOTAL PUT SWAPTIONS WRITTEN
(Premiums received $53,450) (42,989)
-------------
- ----------
(a) Cost for Federal income tax purposes is $36,674,047. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 71,663
Gross unrealized depreciation (430,601)
---------
$(358,938)
=========
(b) Rates shown are the rates as of September 30, 2005.
(c) Securities, or a portion thereof, pledged as collateral with a value of
$112,430 on 4 long U.S. Treasury Note futures contracts, 27 short U.S.
Treasury Note futures contacts, 7 short Euro-Bobl futures contracts and 3
long Euro-dollar futures contracts expiring December 2005. The value of
such contracts on September 30, 2005 was $5,099,881 with an unrealized gain
of $14,470 (including commissions of $96).
(d) Rates shown are the effective yields as of September 30, 2005.
(e) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 3.4% of its net assets, with a market value of
$1,041,677 in securities restricted as to resale.
(f) Security valued at fair value as determined in good faith by or under the
direction of the Trustees. As of September 30, 2005, this security had a
total market value of $25,187 which represents less than 0.08% of net
assets.
(g) Non-income producing security.
(h) Security in default.
(i) Security is a foreign domiciled issuer which is registered with the
Securities and Exchange Commission.
(j) Each swaption contract is equivalent to $10,000 notional amount.
See accompanying notes to financial statements.
59
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
INTERMEDIATE PLUS BOND PORTFOLIO
September 30, 2005
ASSETS
Investments at value (Cost $36,649,282)............................................ $ 36,315,109
Cash denominated in foreign currencies (Cost $243,576)............................. 241,703
Interest receivable ............................................................... 237,116
Principal receivable .............................................................. 12,985
Investments sold receivable ....................................................... 9,235,935
Receivable from affiliate ......................................................... 10,549
Receivable from advisor ........................................................... 3,115
Prepaid expenses .................................................................. 10,923
Unrealized appreciation on forward foreign currency contracts ..................... 2,303
Unrealized appreciation on interest rate swaps .................................... 1,800
Futures margin receivable ......................................................... 6,142
-------------
TOTAL ASSETS ................................................................... 46,077,680
-------------
LIABILITIES
Investments purchased payable ..................................................... 14,899,174
Distributions payable ............................................................. 28,221
Transfer agent fees payable ....................................................... 1,263
Other accrued expenses payable .................................................... 35,263
Swaptions written, at fair value (Premiums received $106,900)...................... 103,197
Futures margin payable ............................................................ 984
Unrealized depreciation on forward foreign currency contracts ..................... 4,914
Unrealized depreciation on interest rate swaps .................................... 23,701
-------------
TOTAL LIABILITIES .............................................................. 15,096,717
-------------
NET ASSETS (Applicable to 3,067,213 BlackRock shares, 81,143 Institutional shares,
10 Service shares, 1,974 Investor A shares, 198 Investor B shares and
10 Investor C shares outstanding) ................................................. $ 30,980,963
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER BLACKROCK SHARE ($30,133,434/3,067,213)........................................ $ 9.82
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($825,559/81,143).......................................... $ 10.17
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($102/10)(a)..................................................... $ 10.19
=============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($19,784/1,974)............................................... $ 10.02
=============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($10.02/0.950).......................... $ 10.55
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($1,982/198).................................................. $ 10.01
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($101/10)(b).................................................. $ 10.13
=============
- ----------
(a) Exact net assets and shares outstanding at September 30, 2005 were $101.98
and 10.009, respectively.
(b) Exact net assets and shares outstanding at September 30, 2005 were $101.36
and 10.009, respectively.
See accompanying notes to financial statements.
60
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE BOND TOTAL RETURN PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------- -------------
PREFERRED STOCKS -- 0.0%
Centaur Funding Corp.(b)
(Cost $216,892) 205 $ 271,740
-------------
Par
Maturity (000) Value
------------- ---------- -------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 23 1%
Federal Home Loan Mortgage Corp.,
Unsecured Notes
3.35% 11/09/07 $ 6,425 6,298,183
4.62% 05/28/13 7,375 7,207,337
Federal National Mortgage Association,
Unsecured Notes
2.35% 04/06-04/07 9,135 8,962,613
3.02% 06/01/06 60,450 59,878,989
1.75% 06/16/06 4,175 4,101,971
4.00% 10/16/06 26,225 26,118,999
2.71% 01/30/07 14,300 13,994,724
5.12% 05/27/15 11,275 11,144,402
Overseas Private Investment Co.
4.09% 05/29/12 329 304,678
4.30% 05/29/12 919 869,413
4.64% 05/29/12 686 659,369
4.68% 05/29/12 387 365,453
4.87% 05/29/12 2,925 2,844,240
5.40% 05/29/12 3,655 3,680,498
5.46% 05/29/12 419 430,517
5.79% 05/29/12 741 763,091
5.88%(c) 05/29/12 395 398,179
5.94% 05/29/12 1,408 1,456,496
5.95% 05/29/12 401 413,059
6.10% 05/29/12 473 491,682
6.81% 05/29/12 572 601,909
6.89% 05/29/12 4,567 4,827,787
6.91% 05/29/12 1,535 1,605,551
7.35% 05/29/12 413 438,557
Resolution Funding Corp.
Strip Bonds
6.29%(d) 07/15/18 2,850 1,552,922
6.30%(d) 10/15/18 2,850 1,532,639
Small Business Administration
Participation Certificates,
Series 92-20H, Class 1
7.40% 08/01/12 39 40,548
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 1,157 1,212,214
Small Business Administration
Participation Certificates,
Series 97-20B, Class 1
7.10% 02/01/17 1,200 1,260,799
Small Business Investment Cos.
Pass-Through,
Series 97-P10C, Class 1
6.85% 08/01/07 1,310 1,356,064
Small Business Investment Cos.
Pass-Through,
Series 97-P10D, Class 1
6.51% 11/10/07 87 89,520
Small Business Investment Cos.
Pass-Through,
Series 03-10A, Class 1
4.63% 03/10/13 8,514 8,513,642
U.S. Treasury Bonds
8.75% 05/17-08/20 4,570 6,512,205
8.12%(e) 08/15/19 46,135 62,986,870
8.50%(e)(f) 02/15/20 44,990 63,529,029
8.00% 11/15/21 8,320 11,517,351
6.25% 08/15/23 30,790 36,816,896
6.00%(e) 02/15/26 33,678 39,718,991
6.75%(e)(f) 08/15/26 30,565 39,174,549
6.12% 11/15/27 45 54,297
5.38% 02/15/31 1,000 1,120,312
U.S. Treasury Notes
4.62% 05/15/06 405 406,408
7.00% 07/15/06 7,370 7,531,219
4.00% 08/07-02/15 107,730 106,997,609
6.00% 08/15/09 2,300 2,445,997
3.62% 01/15/10 465 454,265
3.88% 07/10-09/10 24,465 24,113,554
4.12% 08/15/10 1,145 1,139,857
5.00% 02/15/11 320 331,788
4.88% 02/15/12 2,360 2,439,558
4.25% 08/13-08/15 69,165 68,732,814
4.75% 05/15/14 30,810 31,741,510
-------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost $676,013,109)
681,181,124
-------------
MORTGAGE PASS-THROUGHS -- 22.6%
Federal Home Loan Mortgage Corp.
Gold
4.00% 07/10-05/19 8,616 8,452,095
5.50% 03/11-10/35 49,992 50,273,240
6.00% 10/11-06/34 21,420 21,979,822
6.50% 06/13-10/34 2,430 2,503,192
4.50% 04/18-08/20 38,181 37,504,676
5.00% 04/18-09/35 117,914 116,971,402
8.00% 11/22-10/25 22 23,077
7.00% 03/25-05/31 251 262,440
7.50% 07/26-03/32 271 287,263
Federal National Mortgage
Association
6.50% 06/08-08/35 96,346 99,163,608
7.00% 11/08-08/32 9,720 10,162,185
5.50% 06/11-07/35 84,641 85,733,786
6.00% 09/11-11/34 35,161 35,759,432
4.00% 06/14-03/20 124 119,524
8.00% 11/01/15 8 8,809
4.50% 01/18-10/35 31,993 31,146,384
5.00% 01/18-08/35 135,705 133,737,533
7.50% 09/01/22 2 2,570
Federal National Mortgage Association
ARM
6.43%(g) 01/01/31 5,847 5,936,172
4.83%(g) 09/01/35 16,546 16,500,499
See accompanying notes to financial statements.
61
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE BOND TOTAL RETURN PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
MORTGAGE PASS-THROUGHS (Continued)
Government National Mortgage
Association
7.00% 03/13-02/33 $ 4,230 $ 4,446,211
6.00% 11/14-09/34 3,078 3,151,150
9.00% 07/15/18 6 6,305
6.50% 03/24-04/32 1,443 1,504,556
7.50% 11/15/29 4 4,192
5.50% 03/32-11/34 20 32,133
MLCC Mortgage Investors, Inc.,
Series 95-C2 (IO)
1.22%(d) 06/15/21 5,068 191,624
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $669,754,852) 665,863,880
-------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 0.0% Structured
Asset Securities Corp.,
Series 96-CFL, Class X1 (IO)
2.06%(d)
(Cost $698,062) 02/25/28 7,051 625,866
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 8.3%
Banc of America Alternative Loan
Trust, Series 04-6, Class 4A1
5.00% 07/25/19 8,427 8,204,486
Countrywide Alternative Loan Trust,
Series 04-27CB, Class A1
6.00% 12/25/34 14,271 14,299,892
Federal Home Loan Mortgage Corp.,
Series 1361, Class I
6.00% 09/15/07 375 376,461
Federal Home Loan Mortgage Corp.,
Series 1591, Class PK
6.35% 10/15/23 8,496 8,713,758
Federal Home Loan Mortgage Corp.,
Series 2529, Class MB
5.00% 11/15/17 8,292 8,282,619
Federal Home Loan Mortgage Corp.,
Series 2594, Class TV
5.50% 03/15/14 7,027 7,162,744
Federal Home Loan Mortgage Corp.,
Series 2864, Class NA
5.50% 01/15/31 13,530 13,657,182
Federal Home Loan Mortgage Corp.,
Series 2922, Class GA
5.50% 05/15/34 18,730 18,826,352
Federal Home Loan Mortgage Corp.,
Series 2996, Class MK
5.50% 06/15/35 11,136 11,214,548
Federal National Mortgage
Association, Series 96-48, Class Z
7.00% 11/25/26 4,262 4,436,576
Federal National Mortgage
Association, Series 03-16, Class
BC
5.00% 03/25/18 3,860 3,841,351
Federal National Mortgage
Association, Series 03-87, Class
TJ
4.50% 09/25/18 9,907 9,679,238
Federal National Mortgage
Association, Series 04-28, Class
PB
6.00% 08/25/28 14,121 14,295,718
Federal National Mortgage
Association, Series 04-88, Class
HA
6.50% 07/25/34 11,223 11,644,529
Federal National Mortgage
Association, Series 04-99, Class
AO
5.50% 01/25/34 13,667 13,763,318
Federal National Mortgage
Association, Series 05-3, Class AP
5.50% 02/25/35 10,665 10,737,202
Federal National Mortgage
Association, Series 05-57, Class
EG
4.13%(g) 03/25/35 13,747 13,754,618
Federal National Mortgage
Association, Series 05-57, Class
PA
5.50% 05/25/27 21,840 22,076,118
Federal National Mortgage
Association, Series 05-70, Class
NA
5.50% 08/25/35 1,156 1,172,457
Goldman Sachs Residential
Mortgage Loan Trust, Series
03-10, Class 2A1
4.48%(g) 10/25/33 7,879 7,552,228
Goldman Sachs Residential
Mortgage Loan Trust, Series
03-13, Class 1A1
4.51%(g) 10/25/33 15,877 15,442,007
Salomon Brothers Mortgage
Securities VI, Series 87-1 (IO)
11.00%(d) 02/17/17 215 52,319
Salomon Brothers Mortgage
Securities VI, Series 87-1 (PO)
11.50%(h) 02/17/17 224 207,536
Salomon Brothers Mortgage
Securities VI, Series 87-2 (IO)
11.00%(d) 03/06/17 160 41,599
Salomon Brothers Mortgage
Securities VI, Series 87-2 (PO)
11.50%(h) 03/06/17 160 142,480
Salomon Brothers Mortgage
Securities, Series 87-3, Class A
(PO)
13.00%(h) 10/23/17 94 86,011
Summit Mortgage Trust, Series 00-1,
Class B1
6.29%(b)(g) 12/28/12 185 185,361
Wells Fargo Mortgage Backed
Securities, Series 04-K, Class 1A2
4.48%(g) 07/25/34 26,412 25,697,670
-------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $249,551,955)
245,546,378
-------------
COMMERCIAL MORTGAGE BACKED SECURITIES -- 8.6%
Banc of America Commercial
Mortgage, Inc., Series 01-1, Class
A2
6.50% 04/15/36 13,750 14,734,515
Banc of America Commercial
Mortgage, Inc., Series 05-1, Class
A4
5.03%(g) 11/10/42 13,880 13,878,751
Banc of America Commercial
Mortgage, Inc., Series 05-4, Class
A5A
4.93% 07/10/45 13,781 13,850,689
See accompanying notes to financial statements.
62
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE BOND TOTAL RETURN PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
COMMERCIAL MORTGAGE BACKED SECURITIES (Continued)
Bear Stearns Commercial Mortgage
Securities, Inc., Series 04-PWR6,
Class A6
4.82% 11/11/41 $ 14,200 $ 14,070,209
Bear Stearns Commercial Mortgage
Securities, Inc.,
Series 05-PWR9,
Class A4A
4.87% 09/11/42 14,730 14,709,290
Chase Commercial Mortgage Securities Corp.,
Series 97-1,
Class X (IO)
2.12%(d) 04/19/15 26,322 548,493
Chase Commercial Mortgage
Securities Corp., Series 99-2,
Class A2
7.20% 01/15/32 10,105 10,959,712
Chase Commercial Mortgage
Securities Corp., Series 00-3,
Class A2
7.32% 10/15/32 5,755 6,317,757
Commercial Mortgage Acceptance
Corp., Series 98-C2, Class A2
6.03% 09/15/30 14,674 15,013,828
Credit Suisse First Boston Mortgage
Securities Corp., Series 97-C1,
Class AX (IO)
1.72%(b)(d) 06/20/29 39,352 1,347,795
Credit Suisse First Boston Mortgage
Securities Corp., Series 97-C2,
Class AX (IO)
1.10%(d) 01/17/35 13,179 282,880
First Union National Bank
Commercial Mortgage Trust, Series
00-C2, Class A2
7.20% 10/15/32 10,000 10,965,330
First Union-Lehman Brothers
Commercial Mortgage Trust, Series
97-C1, Class D
7.50% 04/18/29 50 52,148
First Union-Lehman Brothers-Bank of America
Commercial Mortgage Trust,
Series 98-C2, Class C3
6.56% 11/18/35 10,605 11,002,816
General Electric Capital Commercial
Mortgage Corp., Series 02-1A,
Class A3
6.27% 12/10/35 14,170 15,162,272
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 97-C1, Class X (IO)
1.53%(d) 07/15/29 35,669 1,547,695
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 99-C3, Class A2
7.18% 08/15/36 10,330 11,045,195
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 00-C2, Class A2
7.46% 08/16/33 11,470 12,591,157
General Motors Acceptance Corp.,
Commercial Mortgage Securities,
Inc., Series 03-C3, Class A3
4.65% 04/10/40 1,840 1,817,147
Goldman Sachs Mortgage Securities Corp.
II, Series 98-C1, Class A2
6.62% 10/18/30 30 31,278
Goldman Sachs Mortgage Securities
Corp. II, Series 98-C1, Class A3
6.14% 10/18/30 6,349 6,552,346
Goldman Sachs Mortgage Securities Corp. II,
Series 04-GG2, Class A6
5.40% 08/10/38 640 657,448
Homebanc Mortgage Trust, Series
05-4, Class A1
4.10%(g) 10/25/35 12,735 12,769,175
J.P. Morgan Chase Commercial
Mortgage Securities Corp., Series
01-C1, Class A3
5.87% 10/12/35 14,370 15,050,598
Lehman Brothers Commercial
Conduit Mortgage Trust, Series
98-C4, Class X (IO)
5.00%(d) 09/15/23 14,319 280,377
Lehman Brothers Commercial
Conduit Mortgage Trust, Series
99-C2, Class A1
7.10% 10/15/32 703 716,540
Lehman Brothers Commercial
Conduit Mortgage Trust, Series
99-C2, Class A2
7.32% 10/15/32 85 92,020
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 00-C5,
Class A1
6.41% 12/15/19 9,485 9,746,897
Merrill Lynch Mortgage Investors,
Inc., Series 03-KEY1, Class A4
5.24% 11/12/35 7,100 7,202,960
Morgan Stanley Capital Investments,
Series 99-FNV1, Class A2
6.53% 03/15/31 10,415 10,895,942
Residential Asset Mortgage Products,
Inc., Series 04-RS7, Class AI3
4.45% 07/25/28 350 347,900
Wachovia Bank Commercial
Mortgage Trust, Series 03, Class
C6
5.12% 08/15/35 18,000 18,161,397
-------------
TOTAL COMMERCIAL MORTGAGE BACKED
SECURITIES
(Cost $256,789,352) 252,402,557
-------------
CERTIFICATE OF DEPOSIT -- 0.1%
SunTrust Bank, Inc.
4.42%
(Cost $3,795,000) 06/15/09 3,795 3,752,875
-------------
ASSET BACKED SECURITIES -- 9.1%
Bank One Issuance Trust, Series
03-A3, Class A3
3.88%(g) 12/15/10 24,025 24,086,401
Capital Auto Receivables Asset Trust,
Series 05-1, Class A4
4.05% 07/15/09 19,850 19,688,818
Chase Issuance Trust, Series 04-A9,
Class A9
3.22% 06/15/10 18,875 18,410,486
Citibank Credit Card Issuance Trust,
Series 03-A6, Class A6
2.90% 05/17/10 17,060 16,374,939
See accompanying notes to financial statements.
63
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE BOND TOTAL RETURN PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
-------------- ---------- -------------
ASSET BACKED SECURITIES (Continued)
Citibank Credit Card Issuance Trust,
Series 04, Class A1
2.55% 01/20/07 $ 21,980 $ 21,455,997
Citibank Credit Card Issuance Trust,
Series 04-A4, Class A4
3.20% 08/24/07 23,700 23,128,356
Countrywide Asset-Backed
Certificates, Series 04-12, Class
2A1
3.95%(g) 01/25/29 20,139 20,139,000
Countrywide Asset-Backed
Certificates, Series 04-14, Class
A4
4.11%(g) 06/25/35 14,283 14,319,166
Greenwich Capital Commercial
Funding Corp., Series 04-GG1A,
Class A4
4.76% 06/10/36 5,255 5,237,553
MBNA Credit Card Master Note
Trust, Series 03, Class A7
2.65% 11/15/10 20,000 19,044,938
MBNA Credit Card Master Note
Trust, Series 04-A4, Class A4
2.70% 09/15/09 21,400 20,858,323
Structured Asset Receivables Trust,
Series 03-2
3.40%(b)(g) 01/21/09 14,214 14,209,968
Structured Mortgage Loan Trust,
Series 05-19XS, Class 1A1
4.15%(g) 10/25/35 16,675 16,674,758
Student Loan Marketing Association
Student Loan Trust, Series 99-3,
Class A2
3.32%(g) 07/25/12 12,221 12,251,887
Student Loan Marketing Association
Student Loan Trust, Series 05-5,
Class A1
3.46%(g) 01/25/18 21,950 21,925,987
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $271,300,022) 267,806,577
-------------
CORPORATE BONDS -- 19.8%
Aerospace -- 0.4%
Lockheed Martin Corp., Senior
Debentures
8.50% 12/01/29 3,205 4,413,333
Northrop Grumman Corp., Senior
Debentures
7.75% 03/15/26 1,100 1,373,306
Northrop Grumman Corp., Senior
Unsecured Notes
4.08% 11/16/06 3,860 3,841,356
7.12% 02/15/11 1,710 1,889,789
Raytheon Co., Senior Notes
6.15% 11/01/08 18 18,715
-------------
11,536,499
-------------
Banks -- 6.8%
Banc One Corp., Senior Unsecured
Notes
2.62% 06/30/08 2,836 2,695,229
Bank of America Corp., Senior
Unsecured Notes
3.88% 01/15/08 2,275 2,241,562
Bank of America Corp., Senior
Unsecured Notes
3.25% 08/15/08 1,300 1,253,993
4.50% 08/01/10 6,000 5,941,800
Bank of America Corp., Subordinated
Notes
6.25% 04/01/08 1,385 1,435,852
Bank of New York Co., Inc., Senior
Subordinated Notes
3.80% 02/01/08 3,100 3,045,970
Bank One Texas N.A., Subordinated
Bank Notes
6.25% 02/15/08 3,225 3,344,193
BankBoston N.A., Subordinated Bank
Notes
6.38% 03/08-04/08 2,275 2,363,167
Barclays Bank PLC
6.28% 12/15/49 1,830 1,802,550
Citigroup Global Markets Holdings,
Inc., Senior Unsecured Notes
6.50% 02/15/08 2,880 2,998,434
Citigroup, Inc., Senior Unsecured
Notes
5.75% 05/10/06 4,095 4,128,440
5.50% 08/09/06 2,500 2,522,515
5.00% 03/06/07 4,165 4,193,905
3.50% 02/01/08 16,620 16,220,289
6.20% 03/15/09 1,700 1,782,017
Citigroup, Inc., Subordinated Notes
7.75% 06/15/06 675 689,235
6.38% 11/15/08 1,010 1,059,403
Citigroup, Inc., Unsecured Notes
3.62% 02/09/09 1,080 1,047,146
4.12% 02/22/10 14,650 14,316,127
4.62% 08/03/10 3,085 3,065,497
5.85% 12/11/34 1,700 1,778,193
Depfa ACS Bank, Senior Notes
3.62% 10/29/08 8,000 7,796,904
Deutsche Bank AG, Deposit Notes
3.84%(g) 03/15/07 5,500 5,475,250
Export-Import Bank Korea,
Unsecured Notes
4.12%(b) 02/10/09 135 131,986
Fleet National Bank, Subordinated
Bank Notes
5.75% 01/15/09 1,590 1,639,274
FleetBoston Financial Corp., Senior
Unsecured Notes
4.20% 11/30/07 3,310 3,279,217
HBOS Treasury Services PLC,
Senior Unsecured Notes
3.60%(b) 08/15/07 2,750 2,701,465
HBOS Treasury Services PLC,
Unsecured Notes
3.50%(b) 11/30/07 5,450 5,328,547
HSBC Bank USA, Subordinated
Notes
3.87% 06/07/07 22,275 22,061,561
The Huntington National Bank,
Subordinated Bank Notes
2.75% 10/16/06 1,685 1,650,980
See accompanying notes to financial statements.
64
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE BOND TOTAL RETURN PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Banks (Continued)
J.P. Morgan Chase & Co., Senior
Unsecured Notes
5.35% 03/01/07 $ 4,902 $ 4,950,824
5.25% 05/30/07 450 455,290
4.00% 02/01/08 1,915 1,889,732
3.62% 05/01/08 2,509 2,449,732
Korea Development Bank, Notes
4.25% 11/13/07 70 69,310
National City Bank Indiana,
Unsecured Notes
3.30% 05/15/07 1,000 979,599
National City Bank, Unsecured Notes
3.38% 10/15/07 4,235 4,162,895
The Royal Bank of Scotland Capital
Trust
4.71%(g) 12/29/49 1,395 1,345,857
6.80% 12/31/49 3,000 3,067,722
SunTrust Bank, Inc., Senior
Unsecured Notes
3.62% 10/15/07 2,855 2,801,297
4.00% 10/15/08 3,000 2,940,783
Swedish Export Credit Corp.,
Unsecured Notes
2.88% 01/26/07 2,700 2,653,317
U.S. Bancorp., Senior Unsecured
Notes
3.95% 08/23/07 1,315 1,300,469
U.S. Bank N.A., Senior Bank Notes
2.40% 03/12/07 6,500 6,308,900
4.40% 08/15/08 7,450 7,409,941
UBS Preferred Funding Trust I,
Capital Securities
8.62%(g) 10/29/49 1,390 1,610,265
Wachovia Bank N.A., Senior Bank
Notes
4.38% 08/15/08 7,550 7,507,954
Wachovia Corp., Senior Notes
3.50% 08/15/08 1,945 1,886,862
Wells Fargo & Co., Senior Unsecured
Notes
4.00% 08/15/08 4,190 4,124,008
4.20% 01/15/10 3,970 3,895,801
Wells Fargo & Co., Unsecured Notes
4.62% 08/09/10 6,735 6,698,759
World Savings Bank, Unsecured
Notes
4.12% 03/10/08 3,675 3,630,065
-------------
200,130,083
-------------
Broadcasting -- 0.3%
News America, Inc., Senior
Debentures
7.75% 01/24-12/45 1,395 1,603,223
7.12% 04/08/28 1,175 1,280,040
7.28% 06/30/28 300 332,604
7.62% 11/30/28 2,010 2,310,795
8.45% 08/01/34 840 1,054,682
6.75% 01/09/38 30 32,651
8.25% 10/17/49 45 54,412
7.90% 12/01/49 120 138,941
News America, Inc., Senior
Unsecured Notes
6.20% 12/15/34 850 851,284
-------------
7,658,632
-------------
CORPORATE BONDS (Continued)
Construction -- 0.0%
Lennar Corp., Senior Unsecured
Notes
5.60%(b) 05/31/15 1,310 1,283,054
-------------
Energy & Utilities -- 0.5%
Centerpoint Eneregy Resources
Corp., Unsecured Notes
7.88% 04/01/13 205 236,486
Detroit Edison Co., Senior Notes
6.35% 10/15/32 5 5,395
Detroit Edison Co., Senior Secured
Notes
6.12% 10/01/10 210 221,304
Dominion Resources, Inc., Senior
Unsecured Notes
6.25% 06/30/12 60 63,613
FirstEnergy Corp., Senior Unsecured
Notes
5.50% 11/15/06 415 418,508
6.45% 11/15/11 185 196,883
7.38% 11/15/31 330 388,476
Florida Power & Light Co.,
First Mortgage Bonds
5.90% 03/01/33 550 569,094
4.95% 06/01/35 2,200 2,038,957
Korea Electric Power Corp., Notes
5.12%(b) 04/23/34 75 74,471
Niagara Mohawk Power Corp.,
Senior Notes
7.62% 10/01/05 378 378,049
Pennsylvania Electric Co.,
Senior Unsecured Notes
5.12% 04/01/14 1,525 1,514,331
Scottish Power PLC, Unsecured
Notes
5.38% 03/15/15 2,150 2,168,464
Tenaska Alabama II Partners LP,
Senior Secured Notes
6.12%(b) 03/30/23 136 139,748
TXU Corp., Senior Unsecured Notes
4.80% 11/15/09 6,000 5,781,042
-------------
14,194,821
-------------
Entertainment & Leisure -- 0.7%
Comcast Cable Communications
Corp., Senior Notes
8.38% 11/01/05 160 160,491
Comcast Cable Communications
Corp., Senior Unsecured Notes
6.38% 01/30/06 95 95,603
7.05% 03/15/33 1,235 1,374,492
Comcast Cable Holdings LLC, Senior
Debentures
9.80% 02/01/12 260 319,761
7.88% 08/13-02/26 5,005 5,960,689
Comcast Corp., Unsecured Notes
5.65% 06/15/35 1,870 1,748,001
Mashantucket West Pequot, Notes
5.91%(b) 09/01/21 1,060 1,066,127
Time Warner Cos., Inc., Debentures
6.95% 01/15/28 8,720 9,448,687
Time Warner Cos., Inc., Senior
Debentures
9.12% 01/15/13 605 738,734
8.05% 01/15/16 70 82,187
See accompanying notes to financial statements.
65
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE BOND TOTAL RETURN PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Entertainment & Leisure (Continued)
Time Warner Cos., Inc., Senior
Unsecured Notes
6.75% 04/15/11 $ 1,080 $ 1,159,831
-------------
22,154,603
-------------
Finance -- 4.6%
BAE Systems Holdings, Inc.,
Unsecured Notes
5.20%(b) 08/15/15 4,260 4,195,631
BankBoston Capital Trust I, Capital
Securities
8.25% 12/15/26 75 80,615
Berkshire Hathaway Finance Corp.,
Senior Unsecured Notes
3.40% 07/02/07 8,030 7,892,928
4.12% 01/15/10 895 876,035
Berkshire Hathaway Finance Corp.,
Unsecured Notes
4.75%(b) 05/15/12 4,000 3,973,115
Eksportfinans ASA, Unsecured Notes
3.38% 01/15/08 12,900 12,607,879
General Electric Capital Corp.,
Unsecured Notes
5.38% 03/15/07 6,490 6,572,248
3.45%(g) 07/07-01/08 41,180 41,233,721
4.12% 03/08-09/09 21,780 21,370,393
3.60% 10/15/08 1,425 1,385,395
Golden West Financial Corp., Senior
Unsecured Notes
4.12% 08/15/07 160 158,848
HSBC Finance Corp., Senior
Unsecured Notes
7.88% 03/01/07 2,200 2,296,954
4.75% 05/15/09 2,780 2,772,291
Lehman Brothers Holdings, Inc.,
Senior Unsecured Notes
7.88% 08/15/10 2,307 2,611,709
Morgan Stanley, Senior Unsecured
Notes
5.80% 04/01/07 2,000 2,035,980
Nationwide Building Society, Senior
Unsecured Notes
3.50%(b) 07/31/07 7,250 7,113,337
Nationwide Building Society,
Unsecured Notes
4.25%(b) 02/01/10 2,100 2,056,720
NB Capital Trust IV, Capital
Securities
8.25% 04/15/27 125 135,137
Platinum Underwriters Finance, Inc.,
Senior Unsecured Notes
7.50%(b) 06/01/17 2,800 2,782,377
Pricoa Global Funding I, Senior
Secured Notes
4.35%(b) 06/15/08 2,735 2,709,094
Qwest Capital Funding, Inc., Senior
Notes
6.38% 07/15/08 3,350 3,249,500
SP Powerassets Ltd., Unsecured
Notes
5.00%(b) 10/22/13 300 302,406
Swedbank, Capital Securities
7.50%(b)(g) 09/29/49 2,800 3,261,720
Telecom Polska SA Eurofinance BV,
Senior Notes
7.75%(b) 12/10/08 110 119,006
USAA Capital Corp., Senior
Unsecured Notes
4.00%(b) 12/10/07 3,065 3,028,012
-------------
134,821,051
-------------
Industrial -- 0.0%
Osprey Trust / Osprey I, Inc., Senior
Secured Notes
7.63%(b)(d)(g)(i)(j) 01/15/49 2,375 1,140,000
-------------
Insurance -- 1.2%
Allstate Financial Global Funding
LLC, Senior Unsecured Notes
6.15%(b) 02/01/06 4,400 4,425,718
Liberty Mutual Group, Inc.,
Unsecured Notes
6.50%(b) 03/15/35 1,875 1,721,704
Marsh & McLennan Cos., Inc., Senior
Unsecured Notes
5.75% 09/15/15 1,910 1,891,721
MassMutual Global Funding II,
Senior Secured Notes
2.55%(b) 07/15/08 3,740 3,532,886
MetLife, Inc., Senior Unsecured
Notes
6.38% 06/15/34 900 979,201
5.70% 06/15/35 2,025 2,007,747
Monumental Global Funding II,
Senior Unsecured Notes
5.20%(b) 01/30/07 2,650 2,666,014
Monumental Global Funding II,
Unsecured Notes
3.85%(b) 03/03/08 210 206,095
New York Life Global Funding,
Unsecured Notes
3.88%(b) 01/15/09 2,000 1,951,676
Protective Life Corp., Secured Notes
3.70% 11/24/08 1,885 1,830,976
Prudential Financial, Inc., Unsecured
Notes
5.40% 06/13/35 2,500 2,369,049
Sun Life of Canada Capital Trust,
Capital Securities
8.53%(b) 05/29/49 2,880 3,114,000
TIAA Global Markets, Senior
Unsecured Notes
3.88%(b) 01/22/08 5,965 5,863,780
Wellpoint, Inc., Unsecured Notes
5.95% 12/15/34 2,890 3,012,998
XL Capital Ltd. (Kyrgyzstan), Senior
Unsecured Notes
6.38% 11/15/24 740 756,828
-------------
36,330,393
-------------
Manufacturing -- 0.1%
Belvoir Land LLC Revenue Bonds,
Unsecured Notes
5.27%(b) 12/15/47 2,000 1,918,320
See accompanying notes to financial statements.
66
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE BOND TOTAL RETURN PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Manufacturing (Continued)
ITT Industries, Inc., Debentures
7.40% 11/15/25 $ 125 $ 149,052
-------------
2,067,372
-------------
Motor Vehicles -- 0.1%
DaimlerChrysler AG, Senior
Debentures
7.45% 03/01/27 1,425 1,550,598
DaimlerChrysler N.A. Holding Corp.,
Unsecured Notes
4.05% 06/04/08 205 199,071
General Motors Acceptance Corp.,
Debentures
6.51%(d) 12/01/12 1,630 834,350
-------------
2,584,019
-------------
Oil & Gas -- 0.6%
Anadarko Finance Co., Senior
Unsecured Notes
7.50% 05/01/31 980 1,206,487
Atlantic Richfield Co., Debentures
9.12%(f) 03/01/11 4,960 5,972,832
Consolidated Natural Gas Co.,
Debentures
6.80% 12/15/27 2,500 2,820,052
Consolidated Natural Gas Co.,
Senior Unsecured Notes
5.38% 11/01/06 2,405 2,423,543
Devon Financing Corp., Senior
Unsecured Notes
6.88% 09/30/11 110 120,914
7.88% 09/30/31 2,335 2,940,421
Halliburton Co., Debentures
7.60% 08/15/46 1,429 1,717,234
Pemex Project Funding Master Trust
9.50%(b) 09/15/27 45 59,107
Petro-Canada, Senior Unsecured
Notes
5.95% 05/15/35 1,820 1,827,439
-------------
19,088,029
-------------
Pharmaceuticals -- 0.1%
Bristol-Myers Squibb Co., Senior
Debentures
6.88% 08/01/97 1,679 1,932,180
Merck & Co., Inc., Senior Debentures
6.40% 03/01/28 1,000 1,079,577
-------------
3,011,757
-------------
Real Estate -- 0.3%
Avalonbay Communities, Inc.,
Unsecured Notes
4.95% 03/15/13 2,300 2,258,759
Camden Property Trust, Unsecured
Notes
4.70% 07/15/09 1,400 1,382,024
EOP Operating LP, Unsecured Notes
4.65% 10/01/10 665 654,952
Pulte Homes, Inc., Senior Unsecured
Notes
6.00% 02/15/35 1,040 943,242
The Rouse Co., Unsecured Notes
3.62% 03/15/09 1,455 1,360,052
5.38% 11/26/13 1,685 1,604,267
-------------
8,203,296
-------------
Retail Merchandising -- 0.1%
Federated Department Stores, Senior
Debentures
6.79% 07/15/27 590 629,748
May Department Stores Co.,
Debentures
7.88% 03/01/30 375 447,023
6.70% 07/15/34 1,000 1,047,231
May Department Stores Co., Senior
Debentures
8.12% 08/15/35 1,150 1,296,150
May Department Stores Co.,
Unsecured Notes
4.80% 07/15/09 50 49,802
-------------
3,469,954
-------------
Telecommunications -- 1.5%
BellSouth Corp., Unsecured Notes
4.26%(b)(g) 04/26/06 13,325 13,306,238
Continental Cablevision, Inc., Senior
Notes
8.30%(f) 05/15/06 5,655 5,784,630
Deutsche Telekom International
Finance BV (Netherlands), Senior
Unsecured Notes
8.75% 06/15/30 1,285 1,658,959
GTE Corp., Debentures
6.94% 04/15/28 475 519,248
New England Telephone & Telegraph
Co., Debentures
7.88% 11/15/29 1,355 1,576,683
SBC Communications, Inc.,
Unsecured Notes
4.39%(b) 06/05/06 11,500 11,485,970
6.45% 06/15/34 1,625 1,715,188
6.15% 09/15/34 265 271,190
Sprint Capital Corp., Senior Notes
6.12% 11/15/08 70 72,690
6.88% 11/15/28 1,055 1,165,433
Sprint Capital Corp., Senior
Unsecured Notes
8.38% 03/15/12 55 64,726
8.75% 03/15/32 2,740 3,674,143
Verizon Global Funding Corp., Senior
Unsecured Notes
7.75% 12/01/30 75 91,371
Verizon Global Funding Corp.,
Unsecured Notes
5.85% 09/15/35 1,600 1,573,515
Verizon Maryland, Inc., Debentures
5.12% 06/15/33 650 562,695
Vodafone Group PLC, Unsecured
Notes
5.00% 09/15/15 1,625 1,612,647
-------------
45,135,326
-------------
See accompanying notes to financial statements.
67
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE BOND TOTAL RETURN PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Transportation -- 0.1%
Canadian National Railway Co.,
Senior Unsecured Notes
6.25% 08/01/34 $ 600 $ 662,802
Union Pacific Corp., Senior
Unsecured Notes
6.25% 05/01/34 1,825 1,979,262
-------------
2,642,064
-------------
Yankee -- 2.4%
AID-Israel, Unsecured Notes
5.50%(k) 04/24-09/33 12,210 13,102,786
Canadian Pacific Railroad Co.,
Senior Unsecured Notes
6.25%(k) 10/15/11 1,900 2,029,586
Encana Corp. (Canada)
6.50%(k) 08/15/34 50 56,246
France Telecom, Senior Unsecured
Notes
7.45%(k) 03/01/06 60 60,696
8.00%(k) 03/01/11 600 681,281
8.50%(g)(k) 03/01/31 195 261,330
Japan Finance Corp. for Municipal
Enterprises, Unsecured Notes
4.62%(k) 04/21/15 10,500 10,422,562
National L-Bank Landeskreditbank
Baden-Wurttemberg (Germany),
Unsecured Notes
4.25%(k) 09/15/10 10,575 10,412,674
Pemex Finance Ltd. (Luxembourg),
Senior Unsecured Notes
9.03%(k) 02/15/11 1,700 1,881,543
Russia Federation, Unsecured Notes
12.75%(b)(k)(l) 06/24/28 275 517,687
Scottish Power PLC (United
Kingdom), Unsecured Notes
4.90%(k) 03/15/10 3,200 3,198,138
Sumitomo Mitsui Banking Corp.
(Japan), Unsecured Notes
5.62%(b)(g)(k) 12/31/49 3,300 3,288,813
Suncor Energy, Inc. (Canada)
5.95%(k) 12/01/34 285 302,653
Teck Cominco Ltd. (Canada), Senior
Unsecured Notes
6.12%(k) 10/01/35 1,900 1,863,191
Telecom Italia Capital (Luxembourg),
Senior Unsecured Notes
5.25%(k) 11/15/13 285 282,979
4.95%(b)(k) 09/30/14 960 929,023
Telecom Italia Capital (Luxembourg),
Unsecured Notes
6.00%(b)(k) 09/30/34 3,010 2,949,631
Telefonica Europe BV (Netherlands),
Senior Unsecured Notes
7.75%(k) 09/15/10 2,075 2,339,177
United Mexican States (Mexico),
Senior Unsecured Notes
8.00%(k) 09/24/22 4,235 5,145,525
United Mexican States, Bonds
8.12%(k) 12/30/19 2,975 3,619,088
United Mexican States, Senior
Unsecured Notes
8.30%(k) 08/15/31 295 368,750
Vodafone Group PLC (United
Kingdom), Senior Unsecured Notes
7.75%(k) 02/15/10 5,875 6,553,087
-------------
70,266,446
-------------
TOTAL CORPORATE BONDS
(Cost $586,096,505)
585,717,399
-------------
FOREIGN BONDS -- 1.5%
Bundesrepublic Deutschland
(Germany) (EUR)
4.75% 07/04/34 5,100 7,409,613
4.00% 01/04/37 13,550 17,580,383
General Electric Capital Corp., Senior
Unsubordinated Notes (NZD)
6.50% 09/28/15 1,075 726,939
Government of New Zealand (NZD)
6.00% 11/15/11 390 272,272
6.50% 04/15/13 13,335 9,600,680
Province of Manitoba (NZD)
6.38% 09/01/15 2,590 1,770,562
Province of Ontario, Unsecured
Notes (NZD)
6.25% 06/16/15 11,640 7,937,990
-------------
TOTAL FOREIGN BONDS
(Cost $45,541,477)
45,298,439
-------------
TAXABLE MUNICIPAL BONDS -- 0.4%
Connecticut State General
Obligation, Series 04, Class B
5.00% 12/01/15 2,945 3,196,680
Fort Irwin Land LLC Military Housing
Revenue Bonds, Class II, Series A
5.30%(b) 12/15/35 3,415 3,314,087
University Maryland System Auxiliary
Facility & Tuition Revenue Bonds,
Series 05, Class A
5.00% 04/01/16 3,825 4,187,801
-------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $10,994,440) 10,698,568
-------------
See accompanying notes to financial statements.
68
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE BOND TOTAL RETURN PORTFOLIO (Concluded)
As of September 30, 2005
Par/Shares
Maturity (000) Value
------------- ---------- -------------
SHORT TERM INVESTMENTS -- 6.5%
Federal Home Loan Bank, Discount
Notes
3.67%(m) 10/26/05 $ 75,000 $ 74,808,854
3.67%(m) 10/27/05 5,850 5,834,494
3.70%(m) 11/04/05 1,784 1,777,766
3.66%(m) 11/10/05 370 368,493
3.69%(m) 11/10/05 917 913,240
Federal National Mortgage
Association, Discount Notes
3.50%(m) 10/03/05 64,400 64,387,478
3.65%(m) 10/11/05 500 499,493
3.69%(m) 11/09/05 1,900 1,892,405
Federal Home Loan Bank, Discount
Notes
3.18%(m) 10/03/05 33,500 33,494,082
Galileo Money Market Fund 8,544 8,544,451
Institutional Money Market Trust(n)(o) 144 143,810
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $192,664,566) 192,664,566
-------------
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $2,963,416,232(a)) $2,951,829,969
==============
Number of
Contracts
----------
CALL SWAPTIONS WRITTEN -- (0.3)%
Barclays Capital, Strike Price 5.135,
Expires 04/21/08 (3,420)(p) (1,640,232)
Citibank, Strike Price 5.67, Expires
01/04/10 (3,270)(p) (2,244,160)
Deutsche Bank, Strike Price 5.015,
Expires 01/29/07 (2,992)(p) (1,110,744)
Union Bank, Strike Price 4.725,
Expires 06/13/07 (8,800)(p) (2,582,800)
-------------
TOTAL CALL SWAPTIONS WRITTEN
(Premiums received $7,736,873) (7,577,936)
-------------
PUT SWAPTIONS WRITTEN -- (0.3)%
Barclays Capital, Strike Price 5.135,
Expires 04/21/08 (3,420)(p) (1,206,918)
Citibank, Strike Price 5.67,
Expires 01/04/10 (3,270)(p) (994,560)
Deutsche Bank, Strike Price 5.015,
Expires 01/29/07 (2,992)(p) (802,021)
Union Bank, Strike Price 4.725,
Expires 06/13/07 (8,800)(p) (3,666,080)
-------------
TOTAL PUT SWAPTIONS WRITTEN
(Premiums received $7,736,873) (6,669,579)
-------------
- ----------
(a) Cost for Federal Income tax purposes is $2,965,610,378. The gross
unrealized appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 18,980,891
Gross unrealized depreciation (32,761,300)
-------------
$ (13,780,409)
=============
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 4.5% of its net assets, with a current market
value of $118,672,429, in securities restricted as to resale.
(c) Securities valued at fair value as determined in good faith by or under the
direction of the Trustees. These securities had a total market value of
$398,179 which represents 0.01% of net assets.
(d) Rates shown are the effective yields as of September 30, 2005.
(e) Securities, or a portion thereof, with a market value of $14,090,515 have
been pledged as collateral for swap and swaption contracts.
(f) Securities, or a portion thereof, pledged as collateral with a value of
$9,214,164 on 3,783 short U.S. Treasury Note futures contracts, 452 long
U.S. Treasury Note futures contracts, 291 long U.S. Treasury Bond futures
contracts and 658 short Euro-Bobl futures contracts expiring December 2005.
The value of such contracts on September 30, 2005 was $577,645,422, with an
unrealized gain of $1,022,469 (including commissions of $11,557).
(g) Rates shown are the rates as of September 30, 2005.
(h) Interest rate of underlying collateral.
(i) Security in default.
(j) Non-income producing security.
(k) Security is a foreign domiciled issuer which is registered with the
Securities and Exchange Commission.
(l) Total or partial securities on loan.
(m) The rate shown is the effective yield on the discount notes at the time of
purchase.
(n) Securities purchased with the cash proceeds from securities loaned.
(o) Represents an investment in an affiliated security.
(p) Each swaption contract is equivalent to $10,000 notional amount.
See accompanying notes to financial statements.
69
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
CORE BOND TOTAL RETURN PORTFOLIO
September 30, 2005
ASSETS
Investments at value (Cost $2,963,416,232) $ 2,951,829,969
Cash denominated in foreign currencies (Cost $26,420,604) 26,409,951
Interest receivable 18,571,797
Investments sold receivable 487,631,833
Capital shares sold receivable 4,141,307
Prepaid expenses 87,857
Unrealized appreciation on forward foreign currency contracts 217,245
Unrealized appreciation on interest rate swaps 2,752,191
Futures margin receivable 775,100
----------------
TOTAL ASSETS 3,492,417,250
----------------
LIABILITIES
Payable upon return of securities loaned 143,810
Investments purchased payable 807,433,506
Capital shares redeemed payable 2,678,791
Distributions payable 3,892,388
Advisory fees payable 427,573
Administrative fees payable 284,908
Transfer agent fees payable 124,381
Other accrued expenses payable 535,367
Swaptions written, at fair value (premiums received $15,473,746) 14,247,515
Futures margin payable 15,863
Futures sold payable 566
Unrealized depreciation on forward foreign currency contracts 387,117
Unrealized depreciation on interest rate swaps 7,945,175
----------------
TOTAL LIABILITIES 838,116,960
----------------
NET ASSETS (Applicable to 160,148,945 BlackRock
shares, 63,910,952 Institutional shares, 16,448,667 Service
shares, 22,247,170 Investor A shares, 5,132,830
Investor B shares and 7,682,198 Investor C shares outstanding) $ 2,654,300,290
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER BLACKROCK SHARE ($1,543,861,060/160,148,945) $ 9.64
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($614,700,225/63,910,952) $ 9.62
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($158,199,685/16,448,667) $ 9.62
================
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($214,196,061/22,247,170) $ 9.63
================
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($9.63/0.960) $ 10.03
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($49,389,304/5,132,830) $ 9.62
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($73,953,955/7,682,198) $ 9.63
================
See accompanying notes to financial statements.
70
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE PLUS TOTAL RETURN PORTFOLIO
As of September 30, 2005
Number
of Shares Value
---------- ------------
PREFERRED STOCKS -- 0.1%
Raytheon Co.Trust I
(Cost $469,966) 8,950 $ 463,127
-------------
Par
Maturity (000) Value
------------- ---------- -------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 19.5%
Federal National Mortgage
Association, Notes
3.12% 03/16/09 $ 1,800 1,718,365
Federal National Mortgage
Association, Unsecured Notes
2.35% 04/06-04/07 3,335 3,247,242
3.02% 06/01/06 9,000 8,914,986
1.75% 06/16/06 185 181,764
4.00% 10/06-01/09 7,245 7,171,716
4.75% 02/21/13 1,430 1,420,123
5.12% 05/27/15 1,350 1,334,363
Resolution Funding Corp. Strip
Bonds
6.29%(b) 07/15/18 100 54,488
6.30%(b) 10/15/18 100 53,777
Small Business Administration
Participation Certificates, Series
02-P10B, Class 1
5.20% 08/01/12 527 536,949
Small Business Administration
Participation Certificates, Series
04-P10A, Class 1
4.50% 02/01/14 1,426 1,419,155
U.S. Treasury Bonds
8.12%(c) 08/15/19 5,335 7,283,731
8.50% 02/15/20 2,650 3,741,985
8.75% 08/15/20 3,135 4,537,301
8.00% 11/15/21 1,255 1,737,293
6.25%(c) 08/15/23 6,530 7,808,195
6.00%(c) 02/15/26 5,400 6,368,625
6.75% 08/15/26 1,145 1,467,524
6.12%(c) 11/15/27 440 530,905
5.38% 02/15/31 200 224,062
U.S. Treasury Notes
4.00% 08/07-09/07 6,500 6,478,001
3.88% 09/15/10 810 798,546
4.25% 08/15/15 6,345 6,305,344
-------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost $73,183,179) 73,334,440
-------------
MORTGAGE PASS-THROUGHS -- 24.6%
Federal Home Loan Mortgage Corp.
Gold
4.00% 05/10-05/19 797 781,535
6.00% 05/13-08/17 715 735,045
5.50% 08/17-10/35 3,692 3,697,440
5.00% 10/18-09/35 12,686 12,577,508
4.50% 10/18-08/20 5,281 5,184,238
6.50% 04/31-12/34 1,382 1,421,824
Federal National Mortgage
Association
6.00% 04/09-04/35 3,728 3,792,930
5.50% 07/14-08/35 19,456 19,699,657
6.50% 03/16-08/34 13,709 14,109,121
5.00% 09/17-07/35 18,676 18,425,365
4.50% 10/18-10/35 5,369 5,243,344
4.00% 05/01/20 34 32,560
7.00% 03/31-07/34 602 629,997
Federal National Mortgage
Association ARM
4.58%(d) 01/01/35 2,905 2,900,524
Government National Mortgage
Association
6.00% 11/28-10/33 38 39,653
6.50% 04/15/31 233 243,121
7.00% 06/31-09/31 306 321,824
5.50% 11/33-10/34 23 24,272
Government National Mortgage
Association 1 Year CMT
3.75%(d) 05/20/34 2,491 2,458,347
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $92,840,286) 92,318,305
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 10.0%
Bank of America Alternative Loan
Trust, Series 04-7, Class 4A1
5.00% 08/25/19 959 935,008
Countrywide Alternative Loan Trust,
Series 04-18CB, Class 2A5
4.09%(d) 09/25/34 1,532 1,534,439
Countrywide Alternative Loan Trust,
Series 04-27CB, Class A1
6.00% 12/25/34 1,765 1,768,745
Countrywide Home Loans, Series
04-29, Class 1A1
4.10%(d) 02/25/35 1,660 1,658,547
Federal Home Loan Mortgage Corp.,
Series 2825, Class VP
5.50% 06/15/15 1,360 1,384,998
Federal Home Loan Mortgage Corp.,
Series 2877, Class PA
5.50% 07/15/33 1,249 1,260,219
Federal Home Loan Mortgage Corp.,
Series 2922, Class GA
5.50% 05/15/34 2,768 2,782,123
Federal Home Loan Mortgage Corp.,
Series 2927, Class BA
5.50% 12/31/49 1,809 1,820,794
Federal National Mortgage
Association, Series 99-7, Class AB
6.00% 03/25/29 871 868,947
Federal National Mortgage
Association, Series 02-73, Class
AN
5.00% 11/25/17 1,800 1,797,176
See accompanying notes to financial statements.
71
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE PLUS TOTAL RETURN PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Federal National Mortgage
Association, Series 03-35, Class
TE
5.00% 05/25/18 $ 1,680 $ 1,676,433
Federal National Mortgage
Association, Series 03-46, Class
PT
3.00% 08/25/22 1,775 1,730,745
Federal National Mortgage
Association, Series 04-29, Class
HC
7.50% 07/25/30 1,609 1,713,846
Federal National Mortgage
Association, Series 04-60, Class
LB
5.00% 04/25/34 2,211 2,194,625
Federal National Mortgage
Association, Series 04-99, Class
AO
5.50% 01/25/34 1,659 1,670,421
Federal National Mortgage
Association, Series 05-15, Class
PL
5.50% 01/25/35 1,980 1,992,756
Federal National Mortgage
Association, Series 05-57, Class
EG
4.13%(d) 03/25/35 1,571 1,571,539
Federal National Mortgage
Association, Series 05-57, Class
PA
5.50% 05/25/27 1,067 1,079,026
Federal National Mortgage
Association, Series 05-70, Class
NA
5.50% 08/25/35 731 741,554
Federal National Mortgage
Association, Series 05-80, Class
PB
5.50% 04/25/30 1,919 1,944,437
Harborview Mortgage Loan Trust,
Series 05-10, Class 2A1A
3.98%(d) 11/19/35 2,223 2,222,950
Indymac Index Mortage Loan Trust,
Series 05-AR18, Class 2A1B
4.48%(d) 10/25/35 3,125 3,161,133
-------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $37,963,995) 37,510,461
-------------
COMMERCIAL MORTGAGE BACKED SECURITIES -- 8.9%
Banc of America Commercial
Mortgage, Inc., Series 01-1, Class
A2
6.50% 04/15/36 2,030 2,175,350
Bear Stearns Commercial Mortgage
Securities, Inc., Series 00-WF2,
Class A2
7.32% 10/15/32 1,400 1,535,906
Bear Stearns Commercial Mortgage
Securities, Inc., Series 05-PWR9,
Class A4A
4.87% 09/11/42 1,800 1,797,469
Chase Commercial Mortgage
Securities Corp., Series 99-2,
Class A2
7.20% 01/15/32 285 309,106
Chase Commercial Mortgage
Securities Corp., Series 00-1,
Class A2
7.76% 04/15/32 536 578,239
Commercial Mortgage Acceptance
Corp., Series 98-C2, Class A2
6.03% 09/15/30 2,149 2,198,453
Credit Suisse First Boston Mortgage
Securities Corp., Series 01-CK6,
Class A3
6.39% 10/15/11 325 348,822
General Electric Capital Commercial
Mortgage Corp., Series 01-3, Class
A2
6.07% 06/10/38 1,670 1,771,492
General Electric Capital Commercial
Mortgage Corp., Series 02-1A,
Class A3
6.27% 12/10/35 1,730 1,851,146
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 99-C3, Class A2
7.18% 08/15/36 1,498 1,601,622
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 00-C1, Class A2
7.72% 03/15/33 1,490 1,637,803
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 00-C2, Class A2
7.46% 08/16/33 1,390 1,525,868
Goldman Sachs Mortgage Securities
Corp. II, Series 99-C1, Class A2
6.11%(d) 11/18/30 1,765 1,821,161
Goldman Sachs Mortgage Securities
Corp. II, Series 03-C1, Class X2
(IO)
0.97%(b)(e) 01/10/40 22,541 608,994
Goldman Sachs Mortgage Securities
Corp. II, Series 04-GG2, Class A4
4.96% 08/10/38 1,625 1,636,034
Greenwich Capital Commercial
Funding Corp., Series 05-GG3,
Class A3
4.57% 08/10/42 2,445 2,412,824
J.P. Morgan Chase Commercial
Mortgage Securities Corp., Series
01-CIB2, Class A3
6.43% 04/15/35 820 877,805
J.P. Morgan Chase Commercial
Mortgage Securities Corp., Series
01-CIBC, Class A3
6.26% 03/15/33 1,150 1,222,972
Lehman Brothers Commercial
Conduit Mortgage Trust, Series
98-C4, Class A1B
6.21% 10/15/35 900 932,291
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 00-C4,
Class A2
7.37% 08/15/26 1,245 1,368,796
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 02-C7,
Class A2
3.90% 12/15/26 510 501,398
See accompanying notes to financial statements.
72
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE PLUS TOTAL RETURN PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
COMMERCIAL MORTGAGE BACKED SECURITIES
(Continued)
Morgan Stanley Capital Investments,
Series 98-HF2, Class A2
6.48% 11/15/30 $ 341 $ 354,459
Morgan Stanley Capital Investments,
Series 99-FNV1, Class A2
6.53% 03/15/31 500 523,089
Salomon Brothers Mortgage
Securities VII, Series 00-C3, Class A2
6.59% 12/18/33 1,650 1,761,024
Salomon Brothers Mortgage
Securities VII, Series 01-C2, Class A3
6.50% 10/13/11 1,960 2,110,661
-------------
TOTAL COMMERCIAL MORTGAGE BACKED
SECURITIES
(Cost $34,045,233) 33,462,784
-------------
CERTIFICATE OF DEPOSIT -- 0.1%
SunTrust Bank, Inc.
4.42%
(Cost $430,000) 06/15/09 430 425,227
-------------
ASSET BACKED SECURITIES -- 8.4%
American Express Credit Account
Master Trust, Series 05-3, Class A
3.77%(d) 01/18/11 2,675 2,678,424
Asset Securitization Corp., Series
97-D5, Class A1C
6.75% 02/14/43 945 979,029
Capital Auto Receivables Asset Trust,
Series 05-1, Class A4
4.05% 07/15/09 2,650 2,628,482
Chase Issuance Trust, Series 04-A9,
Class A9
3.22% 06/15/10 2,275 2,219,012
Citibank Credit Card Issuance Trust,
Series 03-A3, Class A3
3.10% 03/10/10 1,125 1,088,087
Citibank Credit Card Issuance Trust,
Series 03-A6, Class A6
2.90% 05/17/10 1,805 1,732,518
Citibank Credit Card Issuance Trust,
Series 04, Class A1
2.55% 01/20/07 3,270 3,192,043
Countrywide Asset-Backed
Certificates, Series 04-13, Class
AV4
4.12%(d) 06/25/35 2,050 2,055,253
MBNA Credit Card Master Note
Trust, Series 03, Class A7
2.65% 11/15/10 3,250 3,094,802
MBNA Credit Card Master Note
Trust, Series 03-A6, Class A6
2.75% 10/15/10 1,500 1,434,247
MBNA Credit Card Master Note
Trust, Series 04-A4, Class A4
2.70% 09/15/09 2,620 2,553,683
Structured Asset Receivables Trust,
Series 03-2
3.40%(d)(e) 01/21/09 1,395 1,394,436
Structured Asset Securities Corp.,
Series 03-AL2, Class A
3.36%(e) 01/25/31 810 739,641
Student Loan Marketing Student
Loan Trust, Series 04-5, Class A2
3.68%(d) 04/25/14 2,780 2,781,777
Student Loan Marketing Student
Loan Trust, Series 05-6, Class A5B
3.67%(d) 07/27/26 2,800 2,800,306
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $31,912,931) 31,371,740
-------------
CORPORATE BONDS -- 19.5%
Aerospace -- 0.4%
BE Aerospace, Inc., Senior Notes
8.50% 10/01/10 110 119,625
Lockheed Martin Corp., Senior
Debentures
8.50% 12/01/29 370 509,495
Northrop Grumman Corp.,
Debentures
7.88% 03/01/26 105 132,633
Northrop Grumman Corp., Senior
Debentures
7.75% 02/15/31 215 277,664
Northrop Grumman Corp., Senior
Unsecured Notes
4.08% 11/16/06 495 492,609
-------------
1,532,026
-------------
Banks -- 6.3%
Banc One Corp., Senior Unsecured
Notes
2.62% 06/30/08 220 209,080
Bank of America Corp., Senior
Unsecured Notes
3.88% 01/15/08 210 206,913
3.25% 08/15/08 460 443,721
3.38%(f) 02/17/09 565 542,979
4.50% 08/01/10 855 846,707
Bank of America Corp., Subordinated
Notes
7.80% 02/15/10 75 83,707
Bank of New York Co., Inc., Senior
Subordinated Notes
3.80% 02/01/08 400 393,028
Barclays Bank PLC
6.28% 12/15/49 200 197,000
Citigroup, Inc., Senior Unsecured
Notes
5.75% 05/10/06 2,000 2,016,332
4.25% 07/29/09 1,945 1,916,914
Citigroup, Inc., Unsecured Notes
3.62% 02/09/09 75 72,719
4.12% 02/22/10 2,475 2,418,595
5.85% 12/11/34 150 156,899
Depfa ACS Bank, Senior Notes
3.62% 10/29/08 850 828,421
Deutsche Bank AG, Deposit Notes
3.84%(d) 03/15/07 800 796,400
HBOS Treasury Services PLC,
Unsecured Notes
3.50%(e) 11/30/07 350 342,200
3.75%(e) 09/30/08 505 493,023
HSBC Bank USA, Senior Bank Notes
3.88% 09/15/09 340 330,290
HSBC Bank USA, Subordinated
Notes
3.87% 06/07/07 2,275 2,253,201
4.62% 04/01/14 415 403,559
See accompanying notes to financial statements.
73
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE PLUS TOTAL RETURN PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Banks (Continued)
J.P. Morgan Chase & Co., Senior
Unsecured Notes
5.25% 05/30/07 $ 75 $ 75,882
J.P. Morgan Chase & Co.,
Subordinated Notes
5.75% 10/15/08 375 385,321
7.12% 06/15/09 100 107,826
National City Bank, Unsecured Notes
3.38% 10/15/07 455 447,253
The Royal Bank of Scotland Capital
Trust
4.71%(d) 12/29/49 200 192,954
SunTrust Bank, Inc., Senior
Unsecured Notes
3.62% 10/15/07 665 652,491
4.00% 10/15/08 325 318,585
Swedish Export Credit Corp.,
Unsecured Notes
2.88% 01/26/07 375 368,516
U.S. Bancorp., Senior Unsecured
Notes
3.95% 08/23/07 115 113,729
U.S. Bank N.A., Senior Bank Notes
2.40% 03/12/07 715 693,979
4.40% 08/15/08 1,225 1,218,413
UBS Preferred Funding Trust I,
Capital Securities
8.62%(d) 10/29/49 40 46,339
VTB Capital SA, Senior Notes
6.25%(e) 07/02/35 625 650,781
Wachovia Bank N.A., Senior Bank
Notes
4.38% 08/15/08 950 944,709
Wachovia Corp., Subordinated Notes
6.30% 04/15/28 440 458,407
Wells Fargo & Co., Senior Unsecured
Notes
4.00% 08/15/08 1,155 1,136,809
4.20% 01/15/10 600 588,786
Wells Fargo & Co., Unsecured Notes
4.62% 08/09/10 255 253,628
-------------
23,606,096
-------------
Broadcasting -- 0.3%
Charter Communications Holdings
LLC, Unsecured Notes
10.25% 09/15/10 30 30,825
DirecTV Holdings LLC, Senior
Unsecured Notes
6.38%(e) 06/15/15 80 78,800
News America, Inc., Senior
Debentures
7.12% 04/08/28 125 136,174
7.30% 04/30/28 150 166,518
7.28% 06/30/28 125 138,585
7.62% 11/30/28 140 160,951
News America, Inc., Senior
Unsecured Notes
6.20% 12/15/34 325 325,491
-------------
1,037,344
-------------
Business Services -- 0.0%
Service Corp. International, Senior
Unsecured Notes
7.70% 04/15/09 110 115,500
-------------
Chemicals -- 0.0%
BCP Crystal U.S. Holdings Corp.,
Senior Subordinated Notes
9.62% 06/15/14 55 61,462
-------------
Computer Software & Services -- 0.0%
Sungard Data Systems, Inc., Senior
Unsecured Notes
9.12%(e) 08/15/13 65 67,356
-------------
Construction -- 0.2%
D.R. Horton, Inc., Senior Unsecured
Notes
8.50% 04/15/12 25 26,625
International Steel Group, Inc.,
Senior Unsecured Notes
6.50% 04/15/14 20 19,750
K. Hovnanian Enterprises, Inc.,
Senior Unsecured Notes
6.25%(e) 01/15/16 680 632,400
Lennar Corp., Senior Unsecured
Notes
5.60%(e) 05/31/15 75 73,457
-------------
752,232
-------------
Containers -- 0.0%
Crown Holdings, Inc., Senior Secured
Notes
9.50% 03/01/11 35 38,325
-------------
Energy & Utilities - 0.8%
AES Ironwood LLC, Senior Secured
Notes
8.86% 11/30/25 94 107,216
Centerpoint Energy, Inc., Senior
Unsecured Notes
7.25% 09/01/10 480 521,143
Chesapeake Energy Corp., Senior
Unsecured Notes
6.25% 01/15/18 230 225,400
FirstEnergy Corp., Senior Unsecured
Notes
7.38% 11/15/31 150 176,580
Midwest Generation LLC,
Pass-Through Certificates
8.56% 01/02/16 132 145,706
Midwest Generation LLC, Senior
Secured Notes
8.75% 05/01/34 45 50,119
Northwest Pipeline Corp., Senior
Unsecured Notes
8.12% 03/01/10 175 186,812
Orion Power Holdings, Inc., Senior
Unsecured Notes
12.00% 05/01/10 120 144,300
Progress Energy, Inc., Senior
Unsecured Notes
7.75% 03/01/31 360 429,858
See accompanying notes to financial statements.
74
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE PLUS TOTAL RETURN PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Energy & Utilities (Continued)
Reliant Energy, Inc., Senior Secured
Notes
9.25% 07/15/10 $ 10 $ 10,850
6.75% 12/15/14 5 4,888
Tenaska Alabama Partners LP,
Senior Secured Notes
7.00%(e) 06/30/21 100 102,107
Transcontinental Gas Pipe Line
Corp., Senior Notes
8.88% 07/15/12 180 210,600
TXU Corp., Senior Unsecured Notes
6.50% 11/15/24 400 374,712
TXU Corp., Senior Unsecured Notes
4.80% 11/15/09 300 289,052
-------------
2,979,343
-------------
Entertainment & Leisure -- 0.7%
Comcast Cable Communications
Corp., Senior Unsecured Notes
7.05% 03/15/33 190 211,460
Comcast Cable Holdings LLC, Senior
Debentures
7.88% 08/13-02/26 290 340,204
Comcast Corp., Unsecured Notes
5.65% 06/15/35 25 23,369
K2, Inc., Senior Unsecured Notes
7.38% 07/01/14 80 80,000
Mashantucket West Pequot, Notes
5.91%(e) 09/01/21 100 100,578
MGM Mirage, Inc., Senior Notes
6.00% 10/01/09 230 227,125
Mohegan Tribal Gaming Authority,
Senior Unsecured Notes
6.12% 02/15/13 70 69,562
Time Warner Cos., Inc., Senior
Debentures
7.57% 02/01/24 720 821,958
7.62% 04/15/31 100 117,153
7.70% 05/01/32 285 337,808
Time Warner Cos., Inc., Senior
Unsecured Notes
6.75% 04/15/11 200 214,784
Wynn Las Vegas LLC, First Mortgage
Notes
6.62% 12/01/14 35 33,338
-------------
2,577,339
-------------
Finance -- 4.6%
Associates Corp. of North America,
Senior Notes
6.25% 11/01/08 275 287,695
BAE Systems Holdings, Inc.,
Unsecured Notes
5.20%(e) 08/15/15 575 566,312
Berkshire Hathaway Finance Corp.,
Senior Unsecured Notes
3.40% 07/02/07 410 403,001
3.38% 10/15/08 500 482,672
4.12% 01/15/10 620 606,862
California Preferred Fund Trust,
Notes
7.00% 12/31/49 200 208,000
Crown European Holdings SA,
Senior Secured Notes
10.88% 03/01/13 130 150,800
Eksportfinans ASA, Unsecured Notes
3.38% 01/15/08 1,555 1,519,787
General Electric Capital Corp., Senior
Unsecured Notes
6.50% 12/10/07 200 207,857
General Electric Capital Corp.,
Unsecured Notes
3.45%(d) 07/07-01/08 5,495 5,502,249
4.12% 03/08-09/09 3,440 3,373,793
Household Finance Corp., Senior
Unsecured Notes
7.20% 07/15/06 50 51,005
HSBC Finance Corp., Senior
Unsecured Notes
4.75% 05/15/09 340 339,057
Lehman Brothers Holdings, Inc.,
Senior Notes
6.62% 02/05/06 851 857,851
Morgan Stanley, Senior Unsecured
Notes
5.80% 04/01/07 700 712,593
Nationwide Building Society, Senior
Unsecured Notes
3.50%(e) 07/31/07 850 833,977
Nationwide Building Society,
Unsecured Notes
4.25%(e) 02/01/10 70 68,557
Student Loan Marketing Corp.,
Senior Unsecured Notes
5.62% 04/10/07 570 578,779
USAA Capital Corp., Senior
Unsecured Notes
4.00%(e) 12/10/07 370 365,535
-------------
17,116,382
-------------
Food & Agriculture -- 0.0%
Smithfield Foods, Inc., Senior
Unsecured Notes
7.00% 08/01/11 100 102,000
-------------
Insurance -- 0.8%
Allstate Financial Global Funding
LLC, Senior Unsecured Notes
6.15%(e) 02/01/06 500 502,923
American General Corp., Senior
Unsecured Notes
7.50%(f) 08/11/10 150 166,093
Liberty Mutual Group, Inc.,
Unsecured Notes
6.50%(e) 03/15/35 390 358,114
Marsh & McLennan Cos., Inc., Senior
Unsecured Notes
5.75% 09/15/15 230 227,799
MetLife, Inc., Senior Unsecured
Notes
5.70% 06/15/35 350 347,018
New York Life Insurance Co.,
Unsecured Notes
5.88%(e) 05/15/33 100 103,998
See accompanying notes to financial statements.
75
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE PLUS TOTAL RETURN PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Insurance (Continued)
Protective Life Corp., Secured Notes
3.70% 11/24/08 $ 330 $ 320,542
TIAA Global Markets, Senior
Unsecured Notes
3.88%(e) 01/22/08 465 457,110
Wellpoint, Inc., Unsecured Notes
5.95% 12/15/34 345 359,683
XL Capital Ltd. (Kyrgyzstan), Senior
Unsecured Notes
6.38% 11/15/24 155 158,525
-------------
3,001,805
-------------
Manufacturing -- 0.2%
Belvoir Land LLC Revenue Bonds,
Unsecured Notes
5.27%(e) 12/15/47 325 311,727
Briggs & Stratton Corp., Senior
Unsecured Notes
8.88% 03/15/11 50 57,125
Ispat Inland ULC, Senior Secured
Notes
9.75% 04/01/14 415 481,400
Navistar International Corp., Senior
Unsecured Notes
6.25% 03/01/12 25 23,750
-------------
874,002
-------------
Medical & Medical Services -- 0.1%
Bio-Rad Laboratories, Inc., Senior
Subordinated Notes
7.50% 08/15/13 40 42,300
Bio-Rad Laboratories, Inc., Senior
Subordinated Notes
6.12% 12/15/14 100 97,250
HCA, Inc., Unsecured Notes
5.50% 12/01/09 85 83,373
-------------
222,923
-------------
Metal & Mining -- 0.0%
TRIMAS Corp., Senior Subordinated
Notes
9.88% 06/15/12 70 57,750
-------------
Motor Vehicles -- 0.1%
DaimlerChrysler AG, Senior
Debentures
7.45% 03/01/27 135 146,899
DaimlerChrysler N.A. Holding Corp.,
Unsecured Notes
4.05% 06/04/08 65 63,120
-------------
210,019
-------------
Oil & Gas -- 0.7%
Anadarko Finance Co., Senior
Unsecured Notes
7.50% 05/01/31 185 227,755
ANR Pipeline Co., Senior Debentures
9.62% 11/01/21 10 12,350
7.38% 02/15/24 5 5,155
Consolidated Natural Gas, Inc.,
Senior Debentures
5.00% 03/01/14 235 231,853
Consolidated Natural Gas, Inc.,
Senior Unsecured Notes
6.25% 11/01/11 150 159,402
Devon Financing Corp., Senior
Unsecured Notes
7.88% 09/30/31 375 472,230
Dynegy Holdings, Inc., Secured
Notes
10.12%(e) 07/15/13 205 228,575
El Paso Natural Gas Co., Debentures
8.62% 01/15/22 130 148,670
El Paso Natural Gas Co., Senior
Notes
7.62% 08/01/10 5 5,199
El Paso Natural Gas Co., Senior
Unsecured Notes
8.38% 06/15/32 5 5,719
Enterprise Products Operating LP,
Senior Unsecured Notes
4.00% 10/15/07 225 220,815
4.95% 06/01/10 450 442,274
KCS Energy, Inc., Senior Unsecured
Notes
7.12%(e) 04/01/12 35 35,875
Petro-Canada, Senior Unsecured
Notes
5.95% 05/15/35 235 235,961
Phillips Petroleum Co., Senior
Debentures
7.00% 03/30/29 80 96,316
The Williams Cos., Inc., Senior
Unsecured Notes
7.62% 07/15/19 70 75,950
7.75% 06/15/31 25 27,063
-------------
2,631,162
-------------
Paper & Forest Products -- 0.0%
Georgia-Pacific Corp., Senior
Unsecured Notes
8.00% 01/15/24 30 33,038
-------------
Pharmaceuticals -- 0.1%
Bristol-Myers Squibb Co., Senior
Debentures
6.88% 08/01/97 195 224,404
-------------
Railroad & Shipping -- 0.1%
Union Pacific Corp., Senior
Debentures
7.12% 02/01/28 225 264,762
-------------
Real Estate -- 0.5%
AMR Real Estate, Senior Unsecured
Notes
8.12% 06/01/12 75 79,125
7.12%(e) 02/15/13 40 40,000
Avalonbay Communities, Inc., Senior
Unsecured Notes
6.62% 09/15/11 180 194,131
Camden Property Trust, Unsecured
Notes
4.70% 07/15/09 380 375,121
See accompanying notes to financial statements.
76
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE PLUS TOTAL RETURN PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Real Estate (Continued)
EOP Operating LP, Unsecured Notes
4.65% 10/01/10 $ 160 $ 157,582
ERP Operating LP, Senior Notes
6.58% 04/13/15 240 262,468
Pulte Homes, Inc., Senior Unsecured
Notes
6.00% 02/15/35 85 77,092
The Rouse Co., Unsecured Notes
5.38% 11/26/13 825 785,472
-------------
1,970,991
-------------
Retail Merchandising -- 0.2%
Delhaize America, Inc., Senior
Debentures
9.00% 04/15/31 105 121,206
Federated Department Stores, Senior
Debentures
6.79% 07/15/27 240 256,169
May Department Stores Co.,
Debentures
6.70% 07/15/34 125 130,904
Movie Gallery, Inc., Senior
Unsecured Notes
11.00% 05/01/12 85 85,212
-------------
593,491
-------------
Semiconductors & Related Devices -- 0.0%
Freescale Semiconductor, Inc.,
Senior Unsecured Notes
6.35%(d) 07/15/09 50 51,375
Magnachip Semiconductor, Secured
Notes
7.12%(d) 12/15/11 140 139,300
-------------
190,675
-------------
Telecommunications -- 2.0%
AT&T Broadband Corp., Unsecured
Notes
8.38% 03/15/13 625 739,480
BellSouth Corp., Unsecured Notes
4.26%(d)(e) 04/26/06 1,550 1,547,818
Cincinnati Bell, Inc., Senior
Unsecured Notes
7.25% 07/15/13 200 212,500
Continental Cablevision, Inc., Senior
Notes
8.30% 05/15/06 400 409,169
Deutsche Telekom International
Finance BV (Netherlands), Senior
Unsecured Notes
8.75% 06/15/30 30 38,731
GTE Corp., Debentures
6.94% 04/15/28 75 81,987
Intelsat Bermuda Ltd., Senior
Unsecured Notes
8.70%(d)(e) 01/15/12 90 91,800
L-3 Communications Corp., Senior
Subordinated Notes
6.38%(e) 10/15/15 50 50,375
New Jersey Bell Telephone,
Debentures
7.85% 11/15/29 35 41,581
Qwest Corp., Unsecured Notes
7.88% 09/01/11 130 135,850
7.12%(d)(e) 06/15/13 135 140,400
Rogers Wireless, Inc., Senior
Secured Notes
7.50% 03/15/15 125 134,687
SBC Communications, Inc.,
Unsecured Notes
4.39%(e) 06/05/06 1,500 1,498,170
6.45% 06/15/34 230 242,765
6.15% 09/15/34 25 25,584
Sprint Capital Corp., Senior
Unsecured Notes
8.75% 03/15/32 350 469,325
TCI Communications, Inc., Senior
Debentures
8.75% 08/01/15 360 447,003
Verizon Global Funding Corp., Senior
Unsecured Notes
7.75% 12/01/30 260 316,752
Verizon Global Funding Corp.,
Unsecured Notes
5.85% 09/15/35 25 24,586
Verizon Maryland, Inc., Debentures
5.12% 06/15/33 95 82,240
Vodafone Group PLC, Unsecured
Notes
5.00% 12/13-09/15 625 622,906
-------------
7,353,709
-------------
Transportation -- 0.0%
Overseas Shipholding Group, Inc.,
Senior Unsecured Notes
7.50% 02/15/24 115 114,712
-------------
Yankee -- 1.4%
Abitibi-Consolidated, Inc. (Canada),
Senior Unsecured Notes
8.38%(g) 04/01/15 50 49,250
AID-Israel, Unsecured Notes
5.50%(g) 09/23-04/24 1,475 1,584,845
Encana Corp. (Canada)
6.50%(g) 08/15/34 140 157,489
France Telecom, Senior Unsecured
Notes
8.50%(d)(g) 03/01/31 55 73,709
Japan Finance Corp. for Municipal
Enterprises, Unsecured Notes
4.62%(g) 04/21/15 800 794,100
Omi Corp. (Mali), Senior Notes
7.62%(g) 12/01/13 50 51,000
Sumitomo Mitsui Banking Corp.
(Japan), Unsecured Notes
5.62%(d)(e)(g) 12/31/49 450 448,474
Teck Cominco Ltd. (Canada), Senior
Unsecured Notes
6.12%(g) 10/01/35 225 220,641
Telecom Italia Capital (Luxembourg),
Unsecured Notes
6.00%(e)(g) 09/30/34 540 529,170
See accompanying notes to financial statements.
77
BlackRock Funds
SCHEDULE OF INVESTMENTS
CORE PLUS TOTAL RETURN PORTFOLIO (Concluded)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Yankee (Continued)
Telefonica Europe BV (Netherlands),
Senior Unsecured Notes
7.75%(g) 09/15/10 $ 160 $ 180,370
United Mexican States (Mexico),
Senior Unsecured Notes
8.00%(g) 09/24/22 605 735,075
United Mexican States, Bonds
8.12%(g) 12/30/19 460 559,590
-------------
5,383,713
-------------
TOTAL CORPORATE BONDS
(Cost $73,217,672) 73,112,561
-------------
FOREIGN BONDS -- 1.7%
Bundesrepublic Deutschland
(Germany) (EUR)
4.75% 07/04/34 475 690,111
4.00% 01/04/37 1,925 2,497,582
General Electric Capital Corp., Senior
Unsubordinated Notes (NZD)
6.50% 09/28/15 260 175,818
Mexican Fixed Rate Bonds (MXP)
12/24/08-
8.00% 12/07/23 5,090 459,383
12/24/09-
9.00% 12/20/12 9,823 934,747
9.50% 12/18/14 1,000 100,140
Province of Manitoba (NZD)
6.38% 09/01/15 635 434,095
Province of Ontario, Unsecured
Notes (NZD)
6.25% 06/16/15 1,480 1,009,298
-------------
TOTAL FOREIGN BONDS
(Cost $6,225,153) 6,301,174
-------------
TAXABLE MUNICIPAL BONDS -- 0.4%
Connecticut State General
Obligation, Series 04, Class B
5.00% 12/01/15 380 412,475
Fort Irwin Land California LLC
Revenue Bonds, Series 05
5.40%(e) 12/15/47 600 584,976
University Maryland System Auxiliary
Facility & Tuition Revenue Bonds,
Series 05, Class A
5.00% 04/01/16 500 547,425
-------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $1,585,090) 1,544,876
-------------
Par/Shares
(000)
----------
SHORT TERM INVESTMENTS -- 6.8%
Federal Home Loan Bank, Discount
Notes
3.18%(h) 10/03/05 8,600 8,598,481
Federal National Mortgage
Association, Discount Notes
3.50%(h) 10/03/05 9,400 9,398,172
Galileo Money Market Fund 7,558 7,558,068
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $25,554,721) 25,554,721
-------------
Value
-------------
TOTAL INVESTMENTS IN SECURITIES -- 100.0%
(Cost $377,428,226(a)) $ 375,399,416
=============
Number of
Contracts
----------
CALL SWAPTIONS WRITTEN -- (0.3)%
Barclays Capital, Strike Price 5.135,
Expires 04/21/08 (500)(i) (239,800)
Citibank, Strike Price 5.67, Expires
01/04/10 (370)(i) (253,926)
Deutsche Bank, Strike
Price 5.015,
Expires 01/29/07 (442)(i) (163,929)
Union Bank, Strike
Price 4.725,
Expires 06/13/07 (1,130)(i) (331,655)
-------------
TOTAL CALL SWAPTIONS WRITTEN
(Premiums received $1,016,338) (989,310)
-------------
PUT SWAPTIONS WRITTEN -- (0.3)%
Barclays Capital, Strike Price 5.135,
Expires 04/21/08 (500)(i) (176,450)
Citibank, Strike Price 5.67, Expires
01/04/10 (370)(i) (112,534)
Deutsche Bank, Strike Price 5.015,
Expires 01/29/07 (442)(i) (118,366)
Union Bank, Strike Price 4.725,
Expires 06/13/07 (1,130)(i) (470,758)
-------------
TOTAL PUT SWAPTIONS WRITTEN
(Premiums received $1,016,338) (878,108)
-------------
- ----------
(a) Cost for Federal income tax purposes is $377,580,438.
The gross unrealized appreciation (depreciation) on a
tax basis is as follows:
Gross unrealized appreciation $ 2,440,257
Gross unrealized depreciation (4,621,279)
-------------
$ (2,181,022)
=============
(b) Rates shown are the effective yields as of September 30, 2005.
(c) Securities, or a portion thereof, with a market value of $3,049,411 have
been pledged as collateral for swap and swaption contracts.
(d) Rates shown are the rates as of September 30, 2005.
(e) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 4.3% of its net assets, with a current market
value of $14,047,660 in securities restricted as to resale.
(f) Securities, or a portion thereof, pledged as collateral with a value of
$709,072 on 22 long U.S. Treasury Bond futures contracts, 52 long U.S.
Treasury Note futures contracts, 430 short U.S. Treasury Note futures
contacts and 87 short Euro-Bobl futures contracts expiring December 2005.
The value of such contracts on September 30, 2005 was $66,632,724 with an
unrealized gain of $214,639 (including commissions of $1,324).
(g) Security is a foreign domiciled issuer which is registered with the
Securities and Exchange Commission.
(h) The rate shown is the effective yield on the discount notes at the time of
purchase.
(i) Each swaption contract is equivalent to $10,000 notional amount.
See accompanying notes to financial statements.
78
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
CORE PLUS TOTAL RETURN PORTFOLIO
September 30, 2005
ASSETS
Investments at value (Cost $377,428,226) ................................ $ 375,399,416
Cash denominated in foreign currencies (Cost $3,267,062) ................ 3,265,430
Interest receivable ..................................................... 2,398,158
Interest receivable on interest rate swaps .............................. 21,263
Investments sold receivable ............................................. 40,042,985
Capital shares sold receivable .......................................... 595,996
Prepaid expenses ........................................................ 16,943
Unrealized appreciation on forward foreign currency contracts ........... 44,944
Unrealized appreciation on interest rate swaps .......................... 340,915
Futures margin receivable ............................................... 84,803
--------------
TOTAL ASSETS ......................................................... 422,210,853
--------------
LIABILITIES
Investments purchased payable ........................................... 91,939,304
Capital shares redeemed payable ......................................... 697,991
Distributions payable ................................................... 177,302
Advisory fees payable ................................................... 43,978
Administrative fees payable ............................................. 22,817
Transfer agent fees payable ............................................. 16,219
Other accrued expenses payable .......................................... 63,165
Swaptions written, at fair value (premiums received $2,032,676) ......... 1,867,418
Futures margin payable .................................................. 2,235
Unrealized depreciation on forward foreign currency contracts ........... 41,666
Unrealized depreciation on interest rate swaps .......................... 1,028,189
--------------
TOTAL LIABILITIES .................................................... 95,900,284
--------------
NET ASSETS (Applicable to 31,746,942 BlackRock shares, 12 Institutional
shares,12 Service shares, 8,528 Investor A shares, 13,318 Investor B
shares and 5,119 Investor C shares outstanding) ......................... $ 326,310,569
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER BLACKROCK SHARE ($326,033,329/31,746,942) ........................... $ 10.27
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($119/12)(a) .................................... $ 10.21
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($120/12)(b) .......................................... $ 10.33
==============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($87,665/8,528) .................................... $ 10.28
==============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($10.28/0.960) ............... $ 10.71
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($136,800/13,318) .................................. $ 10.27
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($52,537/5,119) .................................... $ 10.26
==============
- ---------
(a) Exact net assets and shares outstanding at September 30, 2005 were $118.50
and 11.604, respectively.
(b) Exact net assets and shares outstanding at September 30, 2005 were $119.78
and 11.593, respectively.
See accompanying notes to financial statements.
79
BlackRock Funds
SCHEDULE OF INVESTMENTS
GOVERNMENT INCOME PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 25.3%
Small Business Administration
Participation Certificates, Series
96-20J, Class 1
7.20% 10/01/16 $ 142 $ 149,043
Small Business Administration
Participation Certificates, Series
98-20J, Class 1
5.50% 10/01/18 124 127,004
Small Business Investment Cos.
Pass-Through, Series 03-10A,
Class 1
4.63% 03/10/13 1,062 1,061,701
U.S. Treasury Bonds
8.00%(b) 11/15/21 2,820 3,903,718
6.50% 11/15/26 735 919,095
5.38% 02/15/31 4,000 4,481,248
U.S. Treasury Notes
3.50% 12/15/09 2,475 2,407,517
4.25% 11/14-08/15 154,105 153,044,047
-------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost $167,690,234) 166,093,373
-------------
MORTGAGE PASS-THROUGHS -- 50.9%
Federal Home Loan Mortgage Corp.
Gold
5.50% 10/13-10/35 653 661,272
6.00% 10/13-10/33 2,251 2,312,916
5.00% 04/18-08/35 31,286 30,718,554
4.50% 05/18-10/35 1,552 1,529,397
8.00% 01/25-11/26 152 162,310
7.50% 11/01/25 1 1,432
6.50% 03/29-10/34 541 556,822
7.00% 09/31-04/32 169 176,329
Federal National Mortgage
Association
7.00% 08/09-12/11 29 29,959
6.00% 11/09-05/35 6,436 6,559,542
4.00% 05/10-10/20 16,661 16,105,959
6.50% 01/13-04/35 9,796 10,106,399
5.50%(b) 12/13-08/35 153,064 153,215,709
8.00% 08/01/14 14 14,028
5.00% 02/18-09/35 88,466 86,782,383
4.50% 04/18-10/35 24,348 23,708,659
7.50% 06/24-04/26 49 52,412
Government National Mortgage
Association
8.00% 04/20/13 80 85,630
6.00% 01/14-06/14 272 281,317
5.50% 03/14-08/33 560 571,886
7.00% 10/27-06/28 329 346,431
7.50% 11/15/27 1 582
6.50% 10/15/34 84 87,293
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $336,859,210) 334,067,221
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.3%
Federal National Mortgage
Association, Series 03-130, Class
SP (IO)
3.17%(c) 08/25/28 7,268 191,229
Goldman Sachs Residential
Mortgage Loan Trust, Series
03-13, Class 1A1
4.51%(d) 10/25/33 1,828 1,777,497
Salomon Brothers Mortgage
Securities VI, Series 87-1 (IO)
11.00%(c) 02/17/17 38 9,194
Salomon Brothers Mortgage
Securities VI, Series 87-1 (PO)
11.50%(e) 02/17/17 38 34,933
-------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $2,234,906) 2,012,853
-------------
COMMERCIAL MORTGAGE BACKED SECURITIES -- 0.1%
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 99-C3, Class A2
7.18%
(Cost $1,070,138) 08/15/36 976 1,043,132
-------------
PROJECT LOANS -- 0.0%
Federal Housing Authority
7.43%
(Cost $2,905) 09/01/22 3 2,871
-------------
ASSET BACKED SECURITIES -- 0.2%
The Money Store Small Business
Administration Loan Trust, Series
99-1, Class A
3.82%(d) 07/15/25 92 91,720
Structured Asset Receivables Trust,
Series 03-2
3.40%(d)(f) 01/21/09 1,351 1,350,168
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $1,439,880) 1,441,888
-------------
Par/Shares
(000)
----------
SHORT TERM INVESTMENTS -- 23.2%
Federal Home Loan Bank, Discount
Notes
3.18%(g) 10/03/05 35,100 35,093,799
3.67%(g) 10/26/05 50,000 49,872,569
Federal National Mortgage
Association, Discount Notes
3.50%(g) 10/03/05 59,900 59,888,353
Galileo Money Market Fund 7,259 7,259,052
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $152,113,773) 152,113,773
-------------
TOTAL INVESTMENTS IN SECURITIES -- 100.0%
(Cost $661,411,046(a)) $ 656,775,111
=============
See accompanying notes to financial statements.
80
BlackRock Funds
SCHEDULE OF INVESTMENTS
GOVERNMENT INCOME PORTFOLIO (Concluded)
As of September 30, 2005
Number of
Contracts Value
---------- -----------
CALL OPTIONS PURCHASED -- 0.0%
Euro Dollar 1 year Mid-Curve futures,
Strike Price 96.0, Expires 12/19/05
(Cost $41,578) 251 $ 10,981
-----------
CALL SWAPTIONS WRITTEN -- 0.0%
Barclays Capital, Strike Price 5.135,
Expires 04/21/08
(Premiums received $266,570) (610)(h) (292,556)
-----------
PUT OPTIONS PURCHASED -- 0.0%
Euro Dollar 1 year Mid-Curve futures,
Strike Price 95.25, Expires
12/19/05
(Cost $41,578) 251 67,456
-----------
PUT SWAPTIONS WRITTEN -- 0.0%
Barclays Capital, Strike Price 5.135,
Expires 04/21/08
(Premiums received $266,570) (610)(h) (215,269)
-----------
- ----------
(a) Cost for Federal income tax purposes is $662,252,580. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 731,405
Gross unrealized depreciation (6,208,874)
-----------
$(5,477,469)
===========
(b) Securities, or a portion thereof, pledged as collateral with a value of
$3,143,552 on 974 long U.S. Treasury Note futures contracts and 1,116 short
U.S. Treasury Note futures contracts expiring December 2005. The value of
such contracts on September 30, 2005 was $268,704,350 with an unrealized
loss of $1,019,247 (including commissions of $4,540).
(c) Rates shown are the effective yields as of September 30, 2005.
(d) Rates shown are the rates as of September 30, 2005.
(e) Interest rate of underlying collateral.
(f) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 0.2% of its net assets, with a current market
value of $1,350,168, in securities restricted as to resale.
(g) The rate shown is the effective yield on the discount notes at the time of
purchase.
(h) Each swaption contract is equivalent to $10,000 notional amount.
See accompanying notes to financial statements.
81
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
GOVERNMENT INCOME PORTFOLIO
September 30, 2005
ASSETS
Investments at value (Cost $661,411,046).......................$ 656,775,111
Option purchased at value (premiums paid $83,156).............. 78,437
Collateral received for swap contracts ........................ 1,259,139
Interest receivable ........................................... 3,564,235
Investments sold receivable ................................... 360,088,832
Capital shares sold receivable ................................ 2,047,103
Prepaid expenses .............................................. 33,592
Unrealized appreciation on interest rate swaps ................ 845,105
Futures margin receivable ..................................... 146,173
---------------
TOTAL ASSETS ................................................ 1,024,837,727
---------------
LIABILITIES
Payable upon termination of swap contracts .................... 1,259,139
Investments purchased payable ................................. 476,437,752
Capital shares redeemed payable ............................... 1,419,209
Distributions payable ......................................... 326,765
Advisory fees payable ......................................... 43,784
Administrative fees payable ................................... 101,024
Transfer agent fees payable ................................... 29,628
Other accrued expenses payable ................................ 242,131
Swaptions written, at fair value (Premiums received $533,140).. 507,825
Futures margin payable ........................................ 163,960
Unrealized depreciation on interest rate swaps ................ 481,507
---------------
TOTAL LIABILITIES ........................................... 481,012,724
---------------
NET ASSETS (Applicable to 840,037 BlackRock shares,
19,539,261 Service shares, 22,678,236 Investor A shares,
3,894,376 Investor B shares and 2,923,930 Investor
C shares outstanding) .........................................$ 543,825,003
===============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER BLACKROCK SHARE ($9,164,334/840,037).......................$ 10.91
===============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($212,962,549/19,539,261)....................$ 10.90
===============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($247,379,845/22,678,236).................$ 10.91
===============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($10.91/0.955).......$ 11.42
===============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales
charge of 4.5%)
PER INVESTOR B SHARE ($42,478,732/3,894,376)...................$ 10.91
===============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales
charge of 1.0%)
PER INVESTOR C SHARE ($31,839,543/2,923,930)...................$ 10.89
===============
See accompanying notes to financial statements.
82
BlackRock Funds
STATEMENT OF NET ASSETS
INFLATION PROTECTED BOND PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 82.1%
Federal National Mortgage
Association, Unsecured Notes
2.35% 04/29/06 $ 800 $ 791,416
U.S. Treasury Inflation Protected
Bonds
1.88% 07/15/15 170 172,313
2.38% 01/15/25 3,590 3,982,041
3.62%(b) 04/15/28 1,765 2,790,377
3.88% 04/15/29 2,430 3,954,507
U.S. Treasury Inflation Protected
Notes
3.88% 01/15/09 1,180 1,525,463
4.25% 01/15/10 1,155 1,500,694
0.88% 04/15/10 1,750 1,759,180
3.50% 01/15/11 945 1,168,684
3.38% 01/15/12 480 585,054
3.00% 07/15/12 2,975 3,518,864
1.88% 07/15/13 2,425 2,615,045
2.00% 01/14-07/14 5,325 5,714,497
1.62% 01/15/15 1,495 1,511,962
U.S. Treasury Notes
4.25% 08/15/15 75 74,531
-------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost $31,488,177) 31,664,628
-------------
MORTGAGE PASS-THROUGHS -- 3.7%
Federal National Mortgage
Association ARM
4.42%(c) 06/01/34 516 512,608
4.64%(c) 02/01/35 902 899,089
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $1,424,067) 1,411,697
-------------
CORPORATE BONDS -- 0.2%
Yankee -- 0.2%
Abitibi-Consolidated, Inc. (Canada),
Senior Unsecured Notes
8.38%(d) 04/01/15 5 4,925
United Mexican States, Senior
Unsecured Notes
6.62%(d) 03/03/15 25 27,200
6.75%(d) 09/27/34 50 53,250
-------------
85,375
-------------
TOTAL CORPORATE BONDS
(Cost $83,342) 85,375
-------------
FOREIGN BONDS -- 4.1%
Bundesrepublic Deutschland
(Germany) (EUR)
4.75% 07/04/34 100 145,286
4.00% 01/04/37 175 227,053
Canada Government Real Return
(CND)
3.00% 12/01/36 440 519,572
Government of Canada Bonds (CND)
4.50% 06/01/15 360 323,212
Government of France, Treasury
Inflation Protected Notes (EUR)
2.25% 07/25/20 175 250,218
FOREIGN BONDS (Continued)
Republic of Argentina, Treasury
Inflation Protected Notes (ARA)
4.67% 12/31/38 600 100,678
-------------
TOTAL FOREIGN BONDS
(Cost $1,475,347)
1,566,019
-------------
Par/Shares
(000)
----------
SHORT TERM INVESTMENTS -- 7.3%
U.S. Treasury Bills
3.15% 11/17/05 2,000 1,991,775
Galileo Money Market Fund 840 839,968
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $2,832,093) 2,831,743
-------------
TOTAL INVESTMENTS IN SECURITIES -- 97.4%
(Cost $37,303,026(a)) 37,559,462
Number of
Contracts
----------
CALL OPTIONS PURCHASED -- 0.0%
Euro Dollar 1 year Mid-Curve futures,
Strike Price 96.0, Expires 12/19/05
(Cost $3,313) 20 875
-------------
CALL OPTIONS WRITTEN -- (0.0)%
March 10 year U.S. Treasury Notes
futures, Strike Price 112.0, Expires
02/24/06
(Premiums received $10,242) (14) (8,094)
-------------
CALL SWAPTIONS WRITTEN -- (0.2)%
Deutsche Bank, Strike Price 4.575,
Expires 01/11/07 (130)(e) (27,326)
Union Bank, Strike Price 4.725,
Expires 06/13/07 (140)(e) (41,090)
-------------
TOTAL CALL SWAPTIONS WRITTEN
(Premiums received $82,080) (68,416)
-------------
PUT OPTIONS PURCHASED -- 0.1%
December 90 Day Euro Dollar
futures, Strike Price 95.75, Expires
12/19/05 41 17,681
December 90 Day Euro Dollar
futures, Strike Price 96.0, Expires
12/19/05 21 20,606
Euro Dollar 1 year Mid-Curve futures,
Strike Price 95.25, Expires
12/19/05 20 5,375
December 10 year U.S. Treasury
Notes futures, Strike Price 108.0,
Expires 11/22/05 (14) (10,062)
-------------
TOTAL PUT OPTIONS PURCHASED
(Cost $6,391) 33,600
-------------
See accompanying notes to financial statements.
83
BlackRock Funds
STATEMENT OF NET ASSETS
INFLATION PROTECTED BOND PORTFOLIO (Concluded)
As of September 30, 2005
Number of
Contracts Value
---------- ------------
PUT OPTIONS WRITTEN -- (0.1)%
December 10 year U.S. Treasury
Notes futures, Strike Price 110.0,
Expires 11/22/05 (7) $ (6,016)
December 90 Day Euro Dollar
futures, Strike Price 95.875,
Expires 12/19/05 (42) (28,875)
March 10 year U.S. Treasury Notes
futures, Strike Price 108.0, Expires
02/24/06 14 3,062
-------------
TOTAL PUT OPTIONS WRITTEN
(Premiums received $10,353) (31,829)
-------------
PUT SWAPTIONS WRITTEN -- (0.2)%
Deutsche Bank, Strike Price 5.15,
Expires 01/11/07 (130)(e) (28,769)
Union Bank, Strike Price 4.725,
Expires 06/13/07 (140)(e) (58,324)
-------------
TOTAL PUT SWAPTIONS WRITTEN
(Premiums received $104,765) (87,093)
-------------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 3.0% 1,154,248
-------------
NET ASSETS -- 100.0%
(Applicable to 2,219,875 BlackRock shares, 549,339
Institutional shares, 155 Service shares, 381,548
Investor A shares, 195,112 Investor B shares and
356,025 Investor C shares outstanding) $ 38,552,753
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
BLACKROCK SHARE
($22,974,687/2,219,875) $ 10.35
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($5,787,700/549,339) $ 10.54
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($1,634/155)(f) $ 10.56
=============
NET ASSET VALUE AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($3,994,180/381,548) $ 10.47
=============
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE
($10.47/0.970) $ 10.79
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($2,045,339/195,112) $ 10.48
=============
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR C SHARE
($3,749,213/356,025) $ 10.53
=============
- ----------
(a) Cost for Federal Income tax purposes is $37,418,037. The gross
unrealized appreciation (depreciation) on a tax basis is as
follows:
Gross unrealized appreciation $ 891,098
Gross unrealized depreciation (749,673)
-------------
$ 141,425
=============
(b) Securities, or a portion thereof, pledged as collateral with a value of
$261,680 on 8 short Canadian Government Bond futures contracts, 51 short
U.S. Treasury Note futures contracts, 11 short Euro-Bobl futures contracts,
2 short Euro-Bund contracts and 10 short U.S. Treasury Bond futures
contracts expiring December 2005. The value of such contracts on September
30, 2005 was $9,245,685, with an unrealized gain of $63,191 (including
commissions of $186).
(c) Rates shown are the rates as of September 30, 2005.
(d) Security is a foreign domiciled issuer which is registered with the
Securities and Exchange Commission.
(e) Each swaption contract is equivalent to $10,000 notional amount.
(f) Exact net assets and shares outstanding at September 30, 2005 were
$1,634.48 and 154.776, respectively.
See accompanying notes to financial statements.
84
BlackRock Funds
SCHEDULE OF INVESTMENTS
GNMA PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.5%
U.S. Treasury Bonds
6.50%
(Cost $1,341,816) 11/15/2026 $ 1,130 $ 1,413,030
-------------
MORTGAGE PASS-THROUGHS -- 75.2%
Federal Home Loan Mortgage Corp.
Gold
5.50% 06/13-02/18 639 648,817
6.00% 11/13-10/33 356 365,866
6.50% 12/13-08/30 432 435,715
8.00% 07/01/17 52 55,108
9.00% 12/01/19 1 872
7.50% 09/26-03/27 10 10,924
4.50% 04/28-09/35 0 2,071
5.00% 09/01/33 78 76,394
Federal National Mortgage
Association
6.50% 02/13-04/35 306 323,904
5.50% 12/13-07/35 15,608 15,629,322
8.00% 08/01/14 106 107,546
6.00% 04/16-01/35 909 924,827
4.00% 07/01/18 149 143,567
4.50% 08/18-06/34 2,830 2,771,740
8.50% 10/01/24 5 5,424
5.00% 07/01/35 99 97,377
Government National Mortgage
Association
8.00%(b) 12/07-08/24 527 562,701
5.50% 11/08-10/34 88,006 88,857,086
6.50% 03/16-11/34 24,405 25,309,495
7.00%(b) 09/17-05/32 2,113 2,224,867
9.00% 05/18-07/21 263 287,959
10.00% 12/15/20 3 3,710
7.50% 10/25-11/29 490 520,092
5.00% 10/27-09/35 28,718 28,385,875
6.00% 01/28-05/35 39,706 40,595,209
4.50% 12/34-01/35 5,554 5,346,800
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $215,117,218) 213,693,268
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.3%
Federal National Mortgage
Association, Series 03-130, Class
SP (IO)
3.17%(c) 08/25/28 8,231 216,545
Goldman Sachs Residential
Mortgage Loan Trust, Series
03-13, Class 1A1
4.51%(d) 10/25/33 3,655 3,554,995
-------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $3,980,039) 3,771,540
-------------
COMMERCIAL MORTGAGE BACKED SECURITIES -- 0.5%
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 99-C3, Class A2
7.18%
(Cost $1,355,946) 08/15/36 1,243 1,329,300
-------------
PROJECT LOANS -- 0.0%
Federal Housing Authority
7.43%
(Cost $15,001) 09/01/22 15 15,069
-------------
ASSET BACKED SECURITIES -- 0.7%
The Money Store Small Business
Administration Loan Trust, Series
99-1, Class A
3.82%(d) 07/15/25 277 275,160
Structured Asset Receivables Trust,
Series 03-2
3.40%(d)(e) 01/21/09 1,727 1,726,445
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $2,000,269)
2,001,605
-------------
Par/Shares
(000)
----------
SHORT TERM INVESTMENTS -- 21.8%
Federal Home Loan Bank, Discount
Notes
3.18%(f) 10/03/05 1,100 1,099,806
Federal National Mortgage
Association, Discount Notes
3.50%(f) 10/03/05 53,900 53,889,519
Galileo Money Market Fund 7,027 7,026,909
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $62,016,234) 62,016,234
-------------
TOTAL INVESTMENTS IN SECURITIES -- 100.0%
(Cost $285,826,523(a)) $ 284,240,046
=============
Number of
Contracts
----------
CALL OPTIONS PURCHASED -- 0.0%
Euro Dollar 1 year Mid-Curve futures,
Strike Price 96.0, Expires 12/19/05
(Cost $15,737) 95 4,157
-------------
CALL SWAPTIONS WRITTEN -- (0.1)%
Barclays Capital, Strike Price 5.135,
Expires 04/21/08
(Premiums received $131,100) (300)(g) (143,880)
-------------
PUT OPTIONS PURCHASED -- 0.0%
Euro Dollar 1 year Mid-Curve futures,
Strike Price 95.25, Expires
12/19/05
(Cost $15,737) 95 25,531
-------------
PUT SWAPTIONS WRITTEN -- 0.0%
Barclays Capital, Strike Price 5.135,
Expires 04/21/08
(Premiums received $131,100) (300)(g) (105,870)
-------------
See accompanying notes to financial statements.
85
BlackRock Funds
SCHEDULE OF INVESTMENTS
GNMA PORTFOLIO (Concluded)
As of September 30, 2005
- ----------
(a) Cost for Federal Income tax purposes is $285,866,109. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 649,986
Gross unrealized depreciation (2,276,049)
-------------
$ (1,626,063)
=============
(b) Securities, or a portion thereof, pledged as collateral with a value of
$403,793 on 179 short U.S. Treasury Note futures contracts, 122 short
Interest Rate Swap futures contracts and 145 long U.S. Treasury Bond
futures contracts expiring December 2005. The value of such contracts on
September 30, 2005 was $63,661,063, with an unrealized gain of $138,268
(including commissions of $981).
(c) Rates shown are the effective yields as of September 30, 2005.
(d) Rates shown are the rates as of September 30, 2005.
(e) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 0.9% of its net assets, with a current market
value of $1,726,445, in securities restricted as to resale.
(f) The rate shown is the effective yield on the discount notes at the time of
purchase.
(g) Each swaption contract is equivalent to $10,000 notional amount.
See accompanying notes to financial statements.
86
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
GNMA PORTFOLIO
September 30, 2005
ASSETS
Investments at value (Cost $285,826,523) .................... $ 284,240,046
Option purchased at value (premiums paid $31,474) ........... 29,688
Interest receivable ......................................... 953,012
Investments sold receivable ................................. 51,674,301
Capital shares sold receivable .............................. 223,824
Prepaid expenses ............................................ 28,386
Unrealized appreciation on interest rate swaps .............. 296,610
Futures margin receivable ................................... 36,262
---------------
TOTAL ASSETS ............................................. 337,482,129
---------------
LIABILITIES
Investments purchased payable ............................... 132,862,695
Capital shares redeemed payable ............................. 803,558
Distributions payable ....................................... 527,603
Advisory fees payable ....................................... 4,490
Administrative fees payable ................................. 36,651
Transfer agent fees payable ................................. 13,576
Other accrued expenses payable .............................. 115,191
Swaptions written, at fair value (premiums received $262,200) 249,750
Unrealized depreciation on interest rate swaps .............. 481,769
---------------
TOTAL LIABILITIES ........................................ 135,095,283
---------------
NET ASSETS (Applicable to 1,126,429 BlackRock shares,
12,535,727 Institutional shares, 838,920 Service shares,
1,569,894 Investor A shares, 2,038,993 Investor B shares and
2,752,856 Investor C shares outstanding) .................... $ 202,386,846
===============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER BLACKROCK SHARE ($10,915,055/1,126,429) ................. $ 9.69
===============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($121,571,303/12,535,727) ........... $ 9.70
===============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($8,129,079/838,920) ...................... $ 9.69
===============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($15,288,164/1,569,894) ................ $ 9.74
===============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($9.74/0.960) .... $ 10.15
===============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE (subject to a
maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($19,792,149/2,038,993) ................ $ 9.71
===============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE (subject to a
maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($26,691,096/2,752,856) ................ $ 9.70
===============
See accompanying notes to financial statements
87
BlackRock Funds
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 26.3%
Federal National Mortgage
Association, Unsecured Notes
2.35% 04/06-04/07 $ 9,980 $ 9,725,858
1.75% 06/16/06 2,120 2,082,917
4.00% 10/06-01/09 13,870 13,730,664
4.75% 02/21/13 2,990 2,969,348
Overseas Private Investment Co.
4.09% 05/29/12 464 429,319
4.30% 05/29/12 1,295 1,225,082
4.64% 05/29/12 966 929,111
4.68% 05/29/12 546 514,956
4.87% 05/29/12 4,122 4,007,793
5.40% 05/29/12 5,150 5,186,156
5.46% 05/29/12 590 606,638
5.79% 05/29/12 1,044 1,075,265
5.88%(b) 05/29/12 556 561,070
5.94% 05/29/12 1,984 2,052,335
5.95% 05/29/12 565 582,037
6.10% 05/29/12 667 692,825
6.81% 05/29/12 807 848,145
6.89% 05/29/12 6,436 6,802,791
6.91% 05/29/12 2,163 2,262,367
7.35% 05/29/12 582 617,967
Resolution Funding Corp. Strip
Bonds
6.29%(c) 07/15/18 1,725 939,927
6.30%(c) 10/15/18 1,725 927,650
Small Business Administration
Participation Certificates, Series
96-20B, Class 1
6.38% 02/01/16 2,055 2,125,031
Small Business Administration
Participation Certificates, Series
96-20K, Class 1
6.95% 11/01/16 3,595 3,757,270
Small Business Administration
Participation Certificates, Series
97, Class A
4.35%(d)(e) 08/15/22 751 714,597
Small Business Administration
Participation Certificates, Series
97-20B, Class 1
7.10% 02/01/17 2,609 2,741,603
Small Business Administration
Participation Certificates, Series
97-20G, Class 1
6.85% 07/01/17 4,869 5,099,440
U.S. Treasury Bonds
8.12%(f) 08/15/19 28,480 38,882,975
8.50% 02/15/20 4,175 5,895,392
8.75% 08/15/20 1,175 1,700,583
8.00% 11/15/21 6,380 8,831,815
6.25% 08/15/23 6,665 7,969,620
6.00%(f) 02/15/26 8,820 10,402,088
6.75% 08/15/26 3,280 4,203,910
5.38% 02/15/31 465 520,945
U.S. Treasury Notes
4.00% 08/07-02/15 47,340 46,664,797
4.75% 05/15/14 295 303,919
4.25%(g) 11/14-08/15 8,985 8,921,871
-------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost $204,096,851) 207,506,077
-------------
MORTGAGE PASS-THROUGHS -- 24.8%
Federal Home Loan Mortgage Corp.
3.00% 04/19/07 5,900 5,781,640
5.00% 07/01/20 199 198,817
5.50% 08/35-10/35 3,180 3,256,774
Federal Home Loan Mortgage Corp.
Gold
6.50% 03/09-12/30 1,029 1,062,433
4.00% 05/01/10 2,095 2,056,274
6.00% 11/14-11/34 6,298 6,425,934
5.50% 10/17-10/35 8,383 8,399,177
4.50% 10/18-08/20 8,406 8,256,547
5.00% 10/18-09/35 23,895 23,663,224
7.50% 11/25-10/27 32 34,116
7.00% 04/29-04/32 77 80,459
Federal Home Loan Mortgage Corp.,
ARM
4.37%(d) 01/01/35 8,902 8,844,811
Federal National Mortgage
Association
7.00% 06/06-09/34 2,463 2,579,280
6.00% 01/09-10/33 5,821 5,921,938
6.50% 02/11-10/33 24,392 25,119,840
5.50% 09/13-09/35 22,664 22,923,441
5.00% 01/18-09/35 45,853 45,299,001
4.50% 10/18-10/35 16,482 16,068,035
4.30%(d) 12/01/34 7,548 7,500,239
Government National Mortgage
Association
9.50% 09/16-11/16 20 21,573
9.00% 03/15/18 13 14,658
6.50% 12/23-10/34 1,078 1,123,216
6.00% 11/28-10/33 625 640,587
5.50% 11/33-12/34 64 66,780
MLCC Mortgage Investors, Inc.,
Series 95-C2 (IO)
1.22%(c) 06/15/21 7,452 281,762
-------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $196,277,418) 195,620,556
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 4.8%
Banc of America Alternative Loan
Trust, Series 04-11, Class 2CB1
6.00% 12/25/34 3,384 3,374,396
Countrywide Alternative Loan Trust,
Series 05-56, Class 1A1
4.69%(d) 11/25/35 6,540 6,605,400
Federal Home Loan Mortgage Corp.,
Series 2587, Class WX
5.00% 03/15/18 2,370 2,360,654
Federal Home Loan Mortgage Corp.,
Series 2825, Class VP
5.50% 06/15/15 3,470 3,532,681
Federal Home Loan Mortgage Corp.,
Series 2933, Class HD
5.50% 02/15/35 3,565 3,593,288
Federal National Mortgage
Association, Series 03-118, Class
FD
4.23%(d) 12/25/33 4,039 4,072,257
Federal National Mortgage
Association, Series 04-82, Class
HJ
5.50% 09/25/32 7,400 7,449,358
See accompanying notes to financial statements.
88
BlackRock Funds
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Federal National Mortgage
Association, Series 05-48, Class
AR
5.50% 02/25/35 $ 3,085 $ 3,107,228
Federal National Mortgage
Association, Series 05-57, Class
PA
5.50% 05/25/27 3,798 3,838,661
Summit Mortgage Trust, Series 00-1,
Class B1
6.29%(d)(e) 12/28/12 142 141,644
-------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $38,694,211) 38,075,567
-------------
COMMERCIAL MORTGAGE BACKED SECURITIES -- 10.5%
Banc of America Commercial
Mortgage, Inc., Series 01-1, Class
A2
6.50% 04/15/36 4,030 4,318,552
Bear Stearns Commercial Mortgage
Securities, Inc., Series 00-WF2,
Class A2
7.32% 10/15/32 4,590 5,035,579
Bear Stearns Commercial Mortgage
Securities, Inc., Series 04-PWR6,
Class A6
4.82% 11/11/41 4,155 4,117,023
Bear Stearns Commercial Mortgage
Securities, Inc., Series 05-PWR9,
Class A4A
4.87% 09/11/42 3,940 3,934,460
Commercial Mortgage Acceptance
Corp., Series 98-C2, Class A2
6.03% 09/15/30 4,262 4,361,160
Credit Suisse First Boston Mortgage
Securities Corp., Series 02-CP5,
Class A2
4.94% 12/15/35 4,865 4,868,236
Donaldson, Lufkin and Jenrette, Inc.
Commerical Mortgage Corp.,
Series 98-CF1, Class A1B
6.41% 02/18/31 7,413 7,638,271
General Electric Capital Commercial
Mortgage Corp., Series 02-1A,
Class A3
6.27% 12/10/35 3,800 4,066,100
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 99-C3, Class A2
7.18% 08/15/36 3,773 4,034,057
Goldman Sachs Mortgage Securities
Corp. II, Series 98-C1, Class A3
6.14% 10/18/30 5,115 5,278,598
Goldman Sachs Mortgage Securities
Corp. II, Series 04-GG2, Class A4
4.96% 08/10/38 3,500 3,523,765
J.P. Morgan Chase Commercial
Mortgage Securities Corp., Series
01-C1, Class A3
5.87% 10/12/35 3,840 4,021,872
J.P. Morgan Chase Commercial
Mortgage Securities Corp., Series
01-CIB2, Class A3
6.43% 04/15/35 3,320 3,554,041
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 00-C4,
Class A2
7.37% 08/15/26 5,680 6,244,786
Lehman Brothers-UBS Commerical
Mortgage Trust, Series 03-C7,
Class A2
4.06%(d) 09/15/27 2,480 2,421,561
Morgan Stanley Capital Investments,
Series 98-HF2, Class A2
6.48% 11/15/30 4,345 4,510,852
Salomon Brothers Mortgage
Securities VII, Series 00-C1, Class
A2
7.52% 12/18/09 5,565 6,006,917
USGI, Series 87
7.43% 12/01/22 113 115,799
Wachovia Bank Commercial
Mortgage Trust, Series 03, Class
C6
5.12% 08/15/35 4,470 4,510,080
-------------
TOTAL COMMERCIAL MORTGAGE BACKED
SECURITIES
(Cost $84,269,505) 82,561,709
-------------
PROJECT LOANS -- 2.3%
Whittier Rehab at Haverhill Project
Loan
7.60% 12/01/39 10,845 11,321,680
Whittier Rehab at Westborough
Project Loan
8.12% 02/28/37 6,924 7,193,048
-------------
TOTAL PROJECT LOANS
(Cost $17,507,908) 18,514,728
-------------
CERTIFICATE OF DEPOSIT -- 0.2%
SunTrust Bank, Inc.
4.42%
(Cost $1,260,000) 06/15/09 1,260 1,246,014
-------------
ASSET BACKED SECURITIES -- 8.5%
American Express Credit Account
Master Trust, Series 05-3, Class A
3.77%(d) 01/18/11 5,525 5,532,072
American Express Credit Account
Master Trust, Series 05-5, Class A
3.81%(d) 02/15/13 5,350 5,348,850
Chase Issuance Trust, Series 04-A9,
Class A9
3.22% 06/15/10 5,675 5,535,338
Citibank Credit Card Issuance Trust,
Series 00, Class A3
6.88% 11/16/09 6,275 6,573,249
Citibank Credit Card Issuance Trust,
Series 04, Class A1
2.55% 01/20/07 9,150 8,931,864
Countrywide Asset-Backed
Certificates, Series 04-14, Class
A4
4.11%(d) 06/25/35 4,191 4,201,763
Ford Credit Auto Owner Trust, Series
05-A, Class A3
3.48% 11/15/08 7,450 7,366,858
See accompanying notes to financial statements.
89
BlackRock Funds
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
ASSET BACKED SECURITIES (Continued)
Ford Credit Auto Owner Trust, Series
05-C, Class A3
4.30% 08/15/09 $ 5,325 $ 5,324,883
Green Tree Financial Corp., Series
96-7, Class A6
7.65% 10/15/27 4,138 4,362,942
MBNA Credit Card Master Note
Trust, Series 04-A4, Class A4
2.70% 09/15/09 7,200 7,017,754
Railcar Leasing LLC, Series 97-1,
Class A1
6.75%(e) 07/15/06 1,597 1,607,337
Small Business Administration
Participation Certificates, Series
97-20F, Class 1
7.20% 06/01/17 748 787,001
Structured Asset Receivables Trust,
Series 03-2
3.40%(d)(e) 01/21/09 4,074 4,072,639
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $67,194,149) 66,662,550
-------------
CORPORATE BONDS -- 20.5%
Aerospace -- 0.5%
Lockheed Martin Corp., Senior
Debentures
8.50% 12/01/29 985 1,356,359
Northrop Grumman Corp., Senior
Unsecured Notes
4.08% 11/16/06 1,205 1,199,180
7.12% 02/15/11 915 1,011,203
Raytheon Co., Senior Unsecured
Notes
4.50% 11/15/07 383 381,296
-------------
3,948,038
-------------
Banks -- 6.7%
Banc One Corp., Senior Unsecured
Notes
2.62% 06/30/08 835 793,553
Bank of America Corp., Senior
Unsecured Notes
3.38% 02/17/09 1,350 1,297,384
4.50% 08/01/10 130 128,739
Bank of America Corp., Subordinated
Notes
7.80%(h) 02/15/10 1,190 1,328,156
Bank of New York Co., Inc., Senior
Notes
3.75% 02/15/08 1,350 1,324,682
BankBoston N.A., Subordinated
Notes
7.00% 09/15/07 1,500 1,565,145
Citigroup, Inc., Senior Unsecured
Notes
6.20% 03/15/09 1,200 1,257,894
Citigroup, Inc., Subordinated Notes
6.00% 10/31/33 685 726,566
Citigroup, Inc., Unsecured Notes
3.62% 02/09/09 3,655 3,543,815
4.12% 02/22/10 3,900 3,811,119
Depfa Bank PLC, Senior Notes
4.25% 08/16/10 3,900 3,835,943
Deutsche Bank AG, Deposit Notes
3.84%(d) 03/15/07 1,600 1,592,800
HBOS Treasury Services PLC,
Senior Unsecured Notes
3.60%(e) 08/15/07 855 839,910
HBOS Treasury Services PLC,
Unsecured Notes
3.50%(e) 11/30/07 1,630 1,593,676
HSBC Bank USA, Subordinated
Notes
3.87% 06/07/07 5,575 5,521,580
The Huntington National Bank,
Subordinated Bank Notes
2.75% 10/16/06 480 470,309
J.P. Morgan Chase & Co., Senior
Unsecured Notes
5.25% 05/30/07 3,380 3,419,735
Lloyds TSB Bank PLC, Subordinated
Notes
6.90% 11/29/49 2,000 2,062,698
National City Bank, Unsecured Notes
3.38% 10/15/07 185 181,850
The Royal Bank of Scotland Capital
Trust
4.71%(d) 12/29/49 600 578,863
6.80% 12/31/49 1,000 1,022,574
Sumitomo Mitsui Banking Corp.,
Subordinated Notes
5.62%(d)(e) 12/31/49 875 872,034
SunTrust Bank, Inc., Senior
Unsecured Notes
3.62% 10/15/07 1,540 1,511,033
Swedish Export Credit Corp.,
Unsecured Notes
2.88% 01/26/07 1,550 1,523,201
U.S. Bancorp., Senior Unsecured
Notes
3.95% 08/23/07 335 331,298
U.S. Bank N.A., Senior Bank Notes
2.87% 02/01/07 1,040 1,015,362
2.40% 03/12/07 1,580 1,533,548
U.S. Bank N.A., Subordinated Notes
6.50% 02/01/08 2,420 2,518,436
Wachovia Bank N.A., Senior Bank
Notes
4.38% 08/15/08 1,625 1,615,950
Wachovia Corp., Senior Notes
3.50% 08/15/08 1,165 1,130,177
Wells Fargo & Co., Senior Unsecured
Notes
4.00% 08/15/08 1,105 1,087,596
4.20% 01/15/10 580 569,160
Wells Fargo & Co., Unsecured Notes
4.62% 08/09/10 2,115 2,103,619
-------------
52,708,405
-------------
Broadcasting -- 0.2%
News America, Inc., Senior
Debentures
7.12% 04/08/28 300 326,819
7.62% 11/30/28 1,150 1,322,096
News America, Inc., Senior
Unsecured Notes
6.20% 12/15/34 275 275,415
-------------
1,924,330
-------------
See accompanying notes to financial statements.
90
BlackRock Funds
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Energy & Utilities -- 0.4%
Dominion Resources, Inc.,
Unsecured Notes
5.95% 06/15/35 $ 250 $ 244,222
FirstEnergy Corp.,
Senior Unsecured Notes
7.38% 11/15/31 305 359,046
Florida Power & Light Co.,
First Mortgage Bonds
5.90% 03/01/33 175 181,076
4.95% 06/01/35 600 556,079
Florida Power Corp.,
First Mortgage Bonds
6.65% 07/15/11 960 1,041,492
TXU Corp.,
Senior Unsecured Notes
6.50% 11/15/24 1,000 936,779
-------------
3,318,694
-------------
Entertainment & Leisure -- 0.6%
Comcast Cable Communications Corp.,
Senior Unsecured Notes
6.38% 01/30/06 413 415,623
Comcast Cable Holdings LLC,
Senior Debentures
7.88% 02/15/26 1,040 1,241,154
Comcast Corp.,
Unsecured Notes
5.65% 06/15/35 265 247,711
TCI Communications, Inc.,
Senior Notes
7.12% 02/15/28 620 695,324
Time Warner Cos., Inc.,
Senior Debentures
9.15% 02/01/23 535 692,295
7.57% 02/01/24 750 856,207
7.70% 05/01/32 760 900,820
-------------
5,049,134
-------------
Finance -- 4.9%
Associates Corp. of North America,
Senior Notes
6.25%(h) 11/01/08 690 721,854
BAE Systems Holdings, Inc.,
Unsecured Notes
5.20%(e) 08/15/15 1,160 1,142,472
The Bear Stearns Cos., Inc.,
Unsecured Notes
2.88% 07/02/08 1,000 952,949
Berkshire Hathaway Finance Corp.,
Senior Unsecured Notes
3.38% 10/15/08 1,925 1,858,287
4.12% 01/15/10 1,260 1,233,301
California Preferred Fund Trust,
Notes
7.00% 12/31/49 800 832,000
Eksportfinans ASA,
Unsecured Notes
3.38% 01/15/08 3,770 3,684,628
General Electric Capital Corp.,
Unsecured Notes
3.45%(d) 01/15/08 10,250 10,272,140
4.12% 03/08-09/09 10,160 9,991,074
Household Finance Corp.,
Senior Unsecured Notes
6.50% 11/15/08 1,615 1,695,878
Lehman Brothers Holdings, Inc.,
Senior Unsecured Notes
7.00% 02/01/08 345 362,177
Nationwide Building Society,
Senior Unsecured Notes
3.50%(e) 07/31/07 1,725 1,692,484
Nationwide Building Society,
Unsecured Notes
4.25%(e) 02/01/10 90 88,145
Student Loan Marketing Corp.,
Senior Unsecured Notes
3.62% 03/17/08 3,155 3,083,883
USAA Capital Corp.,
Senior Unsecured Notes
4.00%(e) 12/10/07 920 908,897
-------------
38,520,169
-------------
Insurance -- 1.8%
Allstate Financial Global Funding,
Unsecured Notes
5.25%(e) 02/01/07 1,150 1,157,134
ASIF Global Financing,
Unsecured Notes
3.90%(e) 10/22/08 285 277,522
Liberty Mutual Group, Inc.,
Unsecured Notes
6.50%(e) 03/15/35 530 486,668
Marsh & McLennan Cos., Inc.,
Senior Unsecured Notes
5.75% 09/15/15 510 505,119
MetLife, Inc.,
Senior Unsecured Notes
6.38% 06/15/34 350 380,800
5.70% 06/15/35 500 495,740
Monumental Global Funding II,
Unsecured Notes
2.80%(e) 07/15/08 2,480 2,382,715
New York Life Global Funding,
Unsecured Notes
3.88%(e) 01/15/09 775 756,274
Protective Life Corp.,
Secured Notes
3.70% 11/24/08 990 961,627
Prudential Financial, Inc.,
Unsecured Notes
5.40% 06/13/35 650 615,953
Sun Life of Canada Capital Trust,
Capital Securities
8.53%(e) 05/29/49 1,720 1,859,750
TIAA Global Markets,
Senior Unsecured Notes
4.12%(e) 11/15/07 1,850 1,830,242
3.88%(e) 01/22/08 1,165 1,145,231
Wellpoint, Inc.,
Unsecured Notes
5.95% 12/15/34 675 703,728
XL Capital Ltd. (Kyrgyzstan),
Senior Unsecured Notes
6.38% 11/15/24 260 265,912
-------------
13,824,415
-------------
Manufacturing -- 0.1%
Belvoir Land LLC Class II,
Unsecured Notes
5.40%(e) 12/15/47 1,175 1,136,613
-------------
Medical & Medical Services -- 0.1%
Wellpoint Health Network, Inc.,
Senior Unsecured Notes
6.38% 06/15/06 700 708,917
-------------
See accompanying notes to financial statements.
91
BlackRock Funds
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Metal & Mining -- 0.1%
Noranda, Inc.,
Unsecured Notes
5.50% 06/15/17 $ 475 $ 457,880
-------------
Motor Vehicles -- 0.1%
DaimlerChrysler AG,
Senior Debentures
7.45% 03/01/27 870 946,681
DaimlerChrysler N.A. Holding Corp.,
Unsecured Notes
4.05% 06/04/08 150 145,662
General Motors Acceptance Corp.,
Unsecured Notes
5.11%(d) 09/23/08 75 69,491
-------------
1,161,834
-------------
Oil & Gas -- 0.7%
Anadarko Finance Co.,
Senior Unsecured Notes
7.50% 05/01/31 310 381,644
Consolidated Natural Gas Co.,
Senior Unsecured Notes
5.38% 11/01/06 1,850 1,864,263
Devon Energy Corp.,
Senior Debentures
7.95% 04/15/32 575 732,970
Devon Financing Corp.,
Senior Unsecured Notes
7.88% 09/30/31 60 75,557
Petro-Canada,
Senior Unsecured Notes
5.95% 05/15/35 515 517,105
Texaco Capital, Inc.,
Debentures
8.88% 09/01/21 1,350 1,880,822
-------------
5,452,361
-------------
Real Estate -- 0.4%
EOP Operating LP,
Senior Notes
7.25% 06/15/28 230 259,482
EOP Operating LP,
Unsecured Notes
4.65% 10/01/10 255 251,147
ERP Operating LP,
Senior Notes
7.12% 10/15/17 495 563,057
Pulte Homes, Inc.,
Senior Unsecured Notes
6.00% 02/15/35 280 253,950
The Rouse Co.,
Unsecured Notes
3.62% 03/15/09 1,615 1,509,612
-------------
2,837,248
-------------
Retail Merchandising -- 0.2%
Federated Department Stores,
Senior Debentures
6.79% 07/15/27 320 341,558
May Department Stores Co.,
Debentures
7.88% 03/01/30 220 262,254
May Department Stores Co.,
Unsecured Notes
5.75% 07/15/14 655 664,851
-------------
1,268,663
-------------
Telecommunications -- 1.5%
AT&T Broadband Corp.,
Unsecured Notes
8.38% 03/15/13 700 828,218
BellSouth Telecommunications,
Debentures
6.40%(c) 12/15/35 900 473,748
Continental Cablevision, Inc.,
Senior Notes
8.30% 05/15/06 2,640 2,700,517
Deutsche Telekom International
Finance BV (Netherlands),
Senior Unsecured Notes
8.75% 06/15/30 590 761,701
GTE Corp.,
Debentures
6.94% 04/15/28 150 163,973
New England Telephone & Telegraph Co.,
Debentures
7.88% 11/15/29 200 232,721
SBC Communications, Inc.,
Unsecured Notes
4.39%(e) 06/05/06 3,000 2,996,340
6.45% 06/15/34 435 459,143
6.15% 09/15/34 70 71,635
Sprint Capital Corp.,
Senior Unsecured Notes
8.75% 03/15/32 1,035 1,387,860
Verizon Global Funding Corp.,
Senior Unsecured Notes
7.75% 12/01/30 80 97,462
Verizon Global Funding Corp.,
Unsecured Notes
5.85% 09/15/35 675 663,827
Vodafone Group PLC,
Senior Unsecured Notes
7.88% 02/15/30 660 840,581
Vodafone Group PLC,
Unsecured Notes
5.00% 12/16/13 90 90,185
-------------
11,767,911
-------------
Yankee -- 2.2%
AID-Israel,
Unsecured Notes
5.50%(i) 09/18/23 5,000 5,392,900
Japan Finance Corp. for Municipal
Enterprises,
Unsecured Notes
4.62%(i) 04/21/15 1,600 1,588,200
National L-Bank Landeskreditbank
Baden-Wurttemberg (Germany),
Unsecured Notes
4.25%(i) 09/15/10 2,800 2,757,020
Pemex Finance Ltd. (Luxembourg),
Senior Unsecured Notes
9.03%(i) 02/15/11 3,505 3,879,299
Province of Quebec (Canada),
Debentures
6.12%(i) 01/22/11 710 759,507
Suncor Energy, Inc. (Canada)
5.95%(i) 12/01/34 70 74,336
Teck Cominco Ltd. (Canada),
Senior Unsecured Notes
6.12%(i) 10/01/35 475 465,798
Telecom Italia Capital (Luxembourg),
Senior Unsecured Notes
4.95%(e)(i) 09/30/14 615 595,155
Telecom Italia Capital (Luxembourg),
Unsecured Notes
6.00%(e)(i) 09/30/34 760 744,757
See accompanying notes to financial statements.
92
BlackRock Funds
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (Concluded)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Yankee (Continued)
Telefonica Europe BV (Netherlands),
Senior Unsecured Notes
7.75%(i) 09/15/10 $ 475 $ 535,474
United Mexican States,
Senior Unsecured Notes
6.75%(i) 09/27/34 725 772,125
-------------
17,564,571
-------------
TOTAL CORPORATE BONDS
(Cost $161,407,544) 161,649,183
-------------
FOREIGN BONDS -- 0.8%
Bundesrepublic Deutschland
(Germany) (EUR)
4.75% 07/04/34 925 1,343,900
4.00% 01/04/37 3,825 4,962,728
-------------
TOTAL FOREIGN BONDS
(Cost $6,225,506) 6,306,628
-------------
TAXABLE MUNICIPAL BONDS -- 1.3%
Connecticut State General Obligation,
Series 04, Class B
5.00% 12/01/15 780 846,659
Los Angeles County Pension
Obligation Revenue Bonds,
Series 95, Class D
6.97% 06/30/08 7,355 7,797,624
Ohana Military Communities LLC,
Military Housing Revenue Bonds
(Navy Hawaii Housing Privatization
Project) Series 04-A, Class 1
6.19% 04/01/49 750 818,287
University Maryland System Auxiliary
Facility & Tuition Revenue Bonds,
Series 05, Class A
5.00% 04/01/16 1,015 1,111,273
-------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $10,114,904) 10,573,843
-------------
Number
of Shares
----------
SHORT TERM INVESTMENTS -- 0.0%
Galileo Money Market Fund
(Cost $118,039) 118,039 118,039
-------------
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $787,166,035(a)) $ 788,834,894
=============
Number of
Contracts Value
---------- -------------
CALL SWAPTIONS WRITTEN -- (0.3)%
Barclays Capital, Strike Price 5.135,
Expires 04/21/08 (960)(j)$ (460,416)
Citibank, Strike Price 5.67, Expires
01/04/10 (1,000)(j) (686,287)
Deutsche Bank, Strike Price 5.015,
Expires 01/29/07 (877)(j) (325,630)
Union Bank, Strike Price 4.725,
Expires 06/13/07 (2,330)(j) (683,855)
-------------
TOTAL CALL SWAPTIONS WRITTEN (2,156,188)
(Premiums received $2,173,739)
-------------
PUT SWAPTIONS WRITTEN -- (0.3)%
Barclays Capital, Strike Price 5.135,
Expires 04/21/08 (960)(j) (338,784)
Citibank, Strike Price 5.67, Expires
01/04/10 (1,000)(j) (304,147)
Deutsche Bank, Strike Price 5.015,
Expires 01/29/07 (877)(j) (235,124)
Union Bank, Strike Price 4.725,
Expires 06/13/07 (2,330)(j) (970,678)
-------------
TOTAL PUT SWAPTIONS WRITTEN
(Premiums received $2,173,739) (1,848,733)
-------------
- ----------
(a) Cost for Federal income tax purposes is $788,534,763.
The gross unrealized appreciation (depreciation) on a tax
basis is as follows:
Gross unrealized appreciation $ 9,341,365
Gross unrealized depreciation (9,041,234)
-------------
$ 300,131
-------------
(b) Securities valued at fair value as determined in good faith by or under the
direction of the Trustees. These securities had a total market value of
$561,070 which represents 0.008% of net assets.
(c) Rates shown are the effective yields as of September 30, 2005.
(d) Rates shown are the rates as of September 30, 2005.
(e) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 4.1% of its net assets, with a current market
value of $29,042,236, in securities restricted as to resale.
(f) Securities, or a portion thereof, with a market value of $2,157,014 have
been pledged as collateral for swap and swaption contracts.
(g) Securities, or a portion thereof, subject to financing transactions.
(h) Securities, or a portion thereof, pledged as collateral with a value of
$2,050,009 on 133 long U.S. Treasury Note futures contracts, 1,330 short
U.S. Treasury Note futures contracts, 169 short Euro Bobl futures contracts
expiring December 2005. The value of such contracts on September 30, 2005
was $180,185,560, with an unrealized gain of $296,054 (including
commissions of $3,020).
(i) Security is a foreign domiciled issuer which is registered with the
Securities and Exchange Commission.
(j) Each swaption contract is equivalent to $10,000 notional amount.
See accompanying notes to financial statements.
93
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
MANAGED INCOME PORTFOLIO
September 30, 2005
ASSETS
Investments at value (Cost $787,166,035)...................................... $ 788,834,894
Cash denominated in foreign currencies (Cost $6,765,559)...................... 6,760,530
Interest receivable .......................................................... 5,568,429
Principal receivable ......................................................... 135,493
Interest receivable on interest rate swaps ................................... 86,995
Investments sold receivable .................................................. 84,359,081
Capital shares sold receivable ............................................... 768,144
Prepaid expenses ............................................................. 36,671
Unrealized appreciation on forward foreign currency contracts 20,959
Unrealized appreciation on interest rate swaps ............................... 2,120,981
Futures margin receivable .................................................... 292,967
-------------
TOTAL ASSETS .............................................................. 888,985,144
-------------
LIABILITIES
Investments purchased payable ................................................ 171,736,587
Capital shares redeemed payable .............................................. 311,973
Distributions payable ........................................................ 2,357,774
Advisory fees payable ........................................................ 258,755
Administrative fees payable .................................................. 55,560
Transfer agent fees payable .................................................. 36,756
Other accrued expenses payable ............................................... 137,209
Payable on closing swap ...................................................... 923,000
Payable for financing transactions ........................................... 706,852
Swaptions written, at fair value (Premiums received $4,347,478) 4,004,921
Futures margin payable ....................................................... 4,074
Futures sold payable ......................................................... 10
Unrealized depreciation on forward foreign currency contracts 1,112
Unrealized depreciation on interest rate swaps ............................... 2,778,661
--------------
TOTAL LIABILITIES ......................................................... 183,313,244
--------------
NET ASSETS (Applicable to 57,534,556 Institutional shares, 7,971,982
Service shares, 2,886,585 Investor A shares, 649,067 Investor B shares
and
116,572 Investor C shares outstanding) ........................................ $ 705,671,900
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($587,061,246/57,534,556)............................. $ 10.20
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($81,337,118/7,971,982)..................................... $ 10.20
==============
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($29,462,396/2,886,585).................................. $ 10.21
==============
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($10.21/0.955)..................... $ 10.69
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($6,624,518/649,067)..................................... $ 10.21
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($1,186,622/116,572)..................................... $ 10.18
==============
See accompanying notes to financial statements.
94
BlackRock Funds
STATEMENT OF NET ASSETS
INTERNATIONAL BOND PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
FOREIGN BONDS -- 65.6%
Australia - 0.1%
QBE Insurance Group Ltd., Senior
Unsecured Bonds (GBP)
5.62% 09/28/09 $ 620 $ 1,120,499
-------------
Austria -- 1.6%
Bank Austria Creditanstalt,
Senior Unsecured Notes (GBP)
5.62% 07/12/11 3,490 6,461,588
Republic of Austria (EUR)
3.90% 10/20/05 5,850 7,058,044
-------------
13,519,632
-------------
Belgium -- 0.6%
Kingdom of Belgium (EUR)
3.75%(b) 03/28/09 4,250 5,324,349
-------------
Canada -- 5.9%
Government of Canada Bonds (CND)
5.25% 06/01/12 30,000 28,072,979
4.50% 06/01/15 13,490 12,111,477
Province of Manitoba (NZD)
6.38% 09/01/15 11,780 8,052,983
Province of Ontario, Unsecured
Notes (NZD)
6.25% 06/16/15 1,050 716,056
-------------
48,953,495
-------------
Finland -- 2.3%
Finnish Government Bonds (EUR)
3.00% 07/04/08 4,300 5,258,160
4.25% 07/04/15 10,385 13,718,122
-------------
18,976,282
-------------
France -- 2.5%
France Government Bonds (EUR)
5.75% 10/25/32 1,500 2,473,427
French Treasury Notes (EUR)
3.00% 07/08-01/10 11,050 13,504,639
Government of France, Treasury
Inflation Protected Notes (EUR)
2.25% 07/25/20 2,650 3,789,014
Reseau Ferre de France,
Unsecured Notes (GBP)
5.25% 12/07/28 435 837,448
-------------
20,604,528
-------------
Germany -- 21.3%
Bundesobligation (EUR)
3.50% 10/09/09 26,350 32,814,316
Bundesrepublic Deutschland (EUR)
4.25% 07/04/14 4,005 5,256,288
3.75% 01/04/15 11,365 14,391,675
6.25% 01/04/24 19,475 32,184,009
5.50% 01/04/31 3,420 5,424,124
4.75% 07/04/34 31,300 45,474,682
4.00% 01/04/37 3,930 5,098,960
Bundesschatzanweisungen Bonds
(EUR)
2.00% 06/15/07 28,870 34,593,321
-------------
175,237,375
-------------
Ireland -- 5.3%
Depfa ACS Bank (JPY)
1.65% 12/20/16 3,030,000 26,779,196
Irish Treasury Notes (EUR)
3.25% 04/18/09 14,000 17,258,165
-------------
44,037,361
-------------
Italy -- 4.6%
Buoni Poliennali Del Tesoro (EUR)
5.00% 02/01/12 6,500 8,763,084
4.25% 02/01/15 22,150 28,799,033
-------------
37,562,117
-------------
Japan -- 7.1%
Development Bank of Japan (JPY)
1.60% 06/20/14 1,660,000 14,989,394
1.70% 09/20/22 401,000 3,466,908
Japan Finance Corp. (GBP)
5.75% 08/09/19 2,860 5,602,190
Japan Government Bonds (JPY)
1.90% 06/20/14 1,500,000 13,840,259
1.30% 03/20/15 1,850,000 16,145,796
Japan Government, Treasury Inflation
Protected Notes (JPY)
0.50% 06/10/15 479,000 4,108,437
-------------
58,152,984
-------------
Mexico -- 0.9%
Mexican Fixed Rate Bonds (MXP)
9.00% 12/24/09 56,720 5,398,674
8.00% 12/13-12/23 10,380 923,913
9.50% 12/18/14 7,800 781,094
-------------
7,103,681
-------------
Netherlands -- 1.5%
Netherland Government Bonds
(EUR)
5.75% 02/15/07 1,845 2,325,497
4.25% 07/15/13 7,400 9,683,621
-------------
12,009,118
-------------
New Zealand -- 0.8%
General Electric Capital Corp.,
Senior Unsubordinated Notes (NZD)
6.50% 09/28/15 5,945 4,020,139
New Zealand Government Bonds
(NZD)
6.00% 12/15/17 3,775 2,639,618
-------------
6,659,757
-------------
See accompanying notes to financial statements.
95
BlackRock Funds
STATEMENT OF NET ASSETS
INTERNATIONAL BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
FOREIGN BONDS (Continued)
Poland -- 2.6%
Poland Government Bonds (PLN)
6.00% 05/24/09 $ 50,415 $ 16,230,326
5.00% 10/24/13 16,425 5,149,845
-------------
21,380,171
-------------
Portugal -- 0.5%
Portugal Government Bonds (EUR)
4.38% 06/16/14 2,950 3,888,709
-------------
South Africa -- 0.2%
Republic of South Africa (GBP)
9.38% 02/06/06 775 1,390,348
-------------
Spain -- 1.5%
Bonos y Obligation del Estado (EUR)
6.00% 01/31/08 1,650 2,148,682
4.00% 01/31/10 700 890,413
5.75% 07/30/32 2,475 4,072,024
Kingdom of Spain (EUR)
5.00% 07/30/12 4,155 5,647,370
-------------
12,758,489
-------------
Sweden -- 0.3%
AB Spintab, Notes (EUR)
4.38% 04/20/09 1,780 2,257,432
-------------
United Kingdom -- 6.0%
Aviva PLC, Subordinated Notes
(EUR)
5.70% 06/29/49 630 866,667
BP Capital Markets PLC,
Senior Unsecured Notes (GBP)
5.12% 12/07/08 1,345 2,423,265
Network Rail
Infrastructure Finance
(GBP)
4.88% 11/27/15 1,630 2,963,035
Royal Bank of Scotland PLC (GBP)
5.50%(c) 12/03/49 690 1,260,603
United Kingdom Treasury Bonds
(GBP)
4.75% 06/10-09/15 9,840 17,979,619
8.00% 06/07/21 2,000 5,011,640
5.00% 03/07/25 1,600 3,092,042
United Kingdom Treasury Inflation
Protected Gilt Stock (GBP)
6.05%(c) 05/20/09 3,544 15,636,581
-------------
49,233,452
-------------
TOTAL FOREIGN BONDS
(Cost $534,971,898) 540,169,779
-------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 3.2%
U.S. Treasury Bills
3.16%(d) 11/10/05 3,800 3,786,666
U.S. Treasury Notes
3.88%(d)(e) 07/15/10 4,455 4,387,306
4.12% 08/10-05/15 10,720 10,575,442
4.25% 08/15/15 7,310 7,264,313
-------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Cost $26,165,989) 26,013,727
-------------
MORTGAGE PASS-THROUGHS -- 1.0%
Federal Home Loan Mortgage Corp.
ARM
4.64%(c)
(Cost $7,550,897) 02/01/35 7,533 7,509,996
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1 6%
Bear Stearns Mortgage Trust, Series
04-13, Class A1
4.20%(c) 11/25/34 5,067 5,090,704
Countrywide Alternative Loan Trust,
Series 05-56, Class 1A1
4.69%(c) 11/25/35 7,780 7,857,800
-------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $12,924,913) 12,948,504
-------------
COMMERCIAL MORTGAGE BACKED SECURITIES -- 5.4%
Banc of America Commercial
Mortgage, Inc., Series 01-1,
Class A2
6.50% 04/15/36 3,690 3,954,208
Banc of America Commercial
Mortgage, Inc., Series 04-5,
Class A3
4.56% 11/10/41 2,470 2,435,272
Banc of America Commercial Mortgage, Inc.,
Series 05-1,
Class A4
4.88%(c) 11/10/42 4,320 4,319,611
Bear Stearns Commercial Mortgage
Securities, Inc., Series 04-PWR6,
Class A6
4.82% 11/11/41 3,210 3,180,660
Commercial Mortgage Acceptance
Corp., Series 98-C2, Class A2
6.03% 09/15/30 3,913 4,003,687
Credit Suisse First Boston Mortgage
Securities Corp., Series 02-CP5,
Class A2
4.94% 12/15/35 5,655 5,658,761
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc., Series 00-C2, Class A2
7.46% 08/16/33 1,890 2,074,742
Goldman Sachs Mortgage Securities
Corp. II, Series 05-GG4,
Class A4
4.76% 07/10/39 5,075 4,978,328
J.P. Morgan Chase Commercial
Mortgage Securities Corp.,
Series 01-C1, Class A3
5.87% 10/12/35 4,530 4,744,552
J.P. Morgan Chase Commercial
Mortgage Security, Series 04-CBX,
Class A4
4.53% 11/12/39 2,700 2,653,371
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 00-C4,
Class A2
7.37% 08/15/26 1,800 1,978,981
Lehman Brothers-UBS Commercial
Mortgage Trust, Series 04-C8,
Class A4
4.51% 12/15/29 3,825 3,747,546
See accompanying notes to financial statements.
96
BlackRock Funds
STATEMENT OF NET ASSETS
INTERNATIONAL BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
COMMERCIAL MORTGAGE BACKED SECURITIES (Continued)
Morgan Stanley Capital Investments,
Series 99-FNV1, Class A2
6.53% 03/15/31 $ 685 $ 716,632
-------------
TOTAL COMMERCIAL MORTGAGE BACKED
SECURITIES
(Cost $45,161,471) 44,446,351
-------------
ASSET BACKED SECURITIES -- 3.1%
Chase Issuance Trust, Series 04-A9,
Class A9
3.22% 06/15/10 3,450 3,365,095
Citibank Credit Card Issuance Trust,
Series 03-A6, Class A6
2.90%(e) 05/17/10 1,375 1,319,786
Citibank Credit Card Issuance Trust,
Series 04-A4, Class A4
3.20%(c) 08/24/07 3,175 3,098,419
Ford Credit Auto Owner Trust,
Series 05-C, Class A3
4.30% 08/15/09 6,300 6,299,861
Greenwich Capital Commercial
Funding Corp.,
Series 04-GG1A, Class A4
4.76% 06/10/36 740 737,543
Student Loan Marketing Association
Student Loan Trust,
Series 99-3, Class A2
3.32%(c)(e) 07/25/12 698 700,108
Student Loan Marketing Association
Student Loan Trust, Series 03-7
(GBP)
5.15% 09/15/39 1,280 2,331,925
Student Loan Marketing Association
Student Loan Trust, Series 05-6,
Class A2
3.64%(c) 07/25/16 7,225 7,218,180
-------------
TOTAL ASSET BACKED SECURITIES
(Cost $25,076,900) 25,070,917
-------------
CORPORATE BONDS -- 0.3%
Citigroup, Inc., Unsecured Bonds
2.24% 12/09/22 200,000 1,748,105
Pemex Project Funding Master Trust,
Senior Unsecured Notes
5.75%(f) 12/15/15 480 475,200
-------------
TOTAL CORPORATE BONDS
(Cost $2,433,157) 2,223,305
-------------
Par/Shares
Maturity (000) Value
------------- ---------- -------------
SHORT TERM INVESTMENTS -- 20.1%
French Discount Treasury Bills (EUR)
2.00% 10/20/05 $ 18,000 $ 21,671,688
Federal Home Loan Bank,
Discount
Notes
3.15%(g) 10/03/05 26,000 25,995,450
3.18%(g) 10/03/05 30,000 29,994,700
3.44%(g) 10/05/05 5,000 4,998,089
3.67%(g) 10/26/05 75,000 74,808,854
Galileo Money Market Fund 7,529 7,528,877
-------------
TOTAL SHORT TERM INVESTMENTS
(Cost $165,567,192) 164,997,658
-------------
TOTAL INVESTMENTS IN SECURITIES -- 100.3%
(Cost $819,852,417(a)) 823,380,237
Number of
Contracts
----------
CALL SWAPTIONS WRITTEN -- (0.2)%
Union Bank, Strike Price 4.725,
Expires 06/13/07 (2,650)(h) (777,775)
Warburg Dillon Read LLC, Strike
Price 5.00, Expires 06/16/10 (1,230)(h) (564,816)
-------------
TOTAL CALL SWAPTIONS WRITTEN
(Premiums received $1,637,760) (1,342,591)
-------------
PUT SWAPTIONS WRITTEN -- (0.2)%
Union Bank, Strike Price 4.725,
Expires 06/13/07 (2,650)(h) (1,103,990)
Warburg Dillon Read LLC, Strike
Price 5.00, Expires 06/16/10 (1,230)(h) (622,257)
-------------
TOTAL PUT SWAPTIONS WRITTEN
(Premiums received $1,637,760) (1,726,247)
-------------
See accompanying notes to financial statements.
97
BlackRock Funds
STATEMENT OF NET ASSETS
INTERNATIONAL BOND PORTFOLIO (Concluded)
As of September 30, 2005
Value
----------------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.0% $ 139,210
----------------
NET ASSETS -- 100.0%
(Applicable to 8,869,119 BlackRock shares, 31,148,729
Institutional shares, 9,639,197 Service shares,
16,364,811 Investor A shares, 1,768,153 Investor B
shares and 5,868,796 Investor C shares
outstanding) $ 820,450,609
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
BLACKROCK SHARE
($98,721,284/8,869,119) $ 11.13
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($346,746,124/31,148,729) $ 11.13
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($107,401,769/9,639,197) $ 11.14
================
NET ASSET VALUE AND
REDEMPTION PRICE PER
INVESTOR A SHARE
($182,321,196/16,364,811) $ 11.14
================
MAXIMUM OFFERING PRICE
PER INVESTOR A SHARE
($11.14/.950) $ 11.73
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($19,705,481/1,768,153) $ 11.14
================
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR C SHARE
($65,554,755/5,868,796) $ 11.17
================
- ----------
(a) Cost for Federal income tax purposes is $820,300,351.
The gross unrealized appreciation (depreciation) on
a tax basis is as follows:
Gross unrealized appreciation $ 20,662,862
Gross unrealized depreciation (17,582,976)
----------------
$ 3,079,886
================
(b) Security is illiquid. As of September 30, 2005, the Portfolio held 0.6% of
its net assets, with a current market value of $5,324,349 in these
securities.
(c) Rates shown are the rates as of September 30, 2005.
(d) Securities, or a portion thereof, with a market value of $5,012,748 have
been pledged as collateral for swap and swaption contracts.
(e) Securities, or a portion thereof, pledged as collateral with a value of
$2,315,335 on 945 short U.S. Treasury Note futures contracts, 778 short
Australian Treasury Bond futures contracts, 2 short Gilt British futures
contracts, 117 short Canadian Bond futures contracts, 17 short Euro Bund
futures contracts, 57 long Euro Bobl futures contracts, 13 long Japan
Government Bond futures contracts expiring December 2005 and 156 short
Canadian Bank Acceptance futures contracts expiring March 2006. The value
of such contracts on September 30, 2005 was $332,328,334 with an unrealized
gain of $1,081,622 (including commissions of $5,154).
(f) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of June 30, 2005, the
Portfolio held 0.1% of its net assets, with a current market value of
$475,200 in securities restricted as to resale.
(g) The rate shown is the effective yield on the discount notes at the time of
purchase.
(h) Each swaption contract is equivalent to $10,000 notional amount.
See accompanying notes to financial statements.
98
BlackRock Funds
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO
As of September 30, 2005
Number
of Shares Value
------------- -------------
COMMON STOCKS -- 0.3%
American Tower Corp. - Class A(b) 475 $ 11,851
Freedom Pay, Inc.(b)(c) 314,534 3,146
HCI Direct, Inc., Class A(c)(d) 242,857 2,671,427
Mach Gen LLC(b)(d) 412 0
Mattress Discounters Corp.(b)(c)(d) 22,488 0
Phase Metrics, Inc.(b)(c) 842,908 16,858
Reunion Industries, Inc.(b) 8,341 1,835
-------------
TOTAL COMMON STOCKS
(Cost $16,368,549) 2,705,117
-------------
PREFERRED STOCKS -- 0.0%
Adelphia Business Solutions, Inc.,
Series B(b) 2,200 0
Paxson Communications Corp.(e) 18 126,259
-------------
TOTAL PREFERRED STOCKS
(Cost $1,982,681) 126,259
-------------
WARRANTS -- 0.0%
DIVA Systems Corp.
(issued 02/19/98, expiring 03/01/08,
strike price $.01)(b)(c)(f) 4,500 0
Mattress Discounters Co.
(issued 08/03/99, expiring 07/15/07, strike
price $.01)(b) 1,500 2
Ubiquitel, Inc. (issued 04/11/00
expiring 04/15/10, strike price
$22.74)(b)(c)(f) 3,000 0
-------------
TOTAL WARRANTS
(Cost $116,295) 2
-------------
Par
Maturity (000) Value
------------- ----------- -------------
ASSET BACKED SECURITIES -- 0.1%
Continental Airlines, Inc.,
Pass-Through Certificates,
Series 99-1B
6.80%
(Cost $1,354,391) 08/02/18 $ 1,608 1,367,091
-------------
CORPORATE BONDS -- 83.7%
Aerospace -- 2.3%
AAR Corp., Senior Unsecured Notes
6.88% 12/15/07 1,845 1,881,898
8.39%(f) 05/15/11 3,850 3,927,000
Amor Holdings, Inc.,
Senior Subordinated Notes
8.25% 08/15/13 2,200 2,370,500
BE Aerospace, Inc., Senior Notes
8.50% 10/01/10 3,825 4,159,687
BE Aerospace, Inc., Senior
Subordinated Notes
8.88% 05/01/11 4,565 4,787,544
Sequa Corp.,
Senior Unsecured Notes
8.88% 04/01/08 1,390 1,452,550
9.00% 08/01/09 595 632,188
Standard Aero Holdings, Inc.,
Senior Subordinated Notes
8.25% 09/01/14 4,555 4,406,962
-------------
23,618,329
-------------
Broadcasting -- 5.0%
Adelphia Communications Corp.,
Senior Notes
0.13%(b)(g) 12/31/49 1,500 1,425,000
10.50%(b)(g) 12/31/49 2,000 1,500,000
Adelphia Communications Corp.,
Senior Unsecured Notes
12.74%(b)(g) 10/01/10 5,950 4,492,250
Allbritton Communications Co.,
Senior Subordinated Notes
7.75% 12/15/12 2,510 2,491,175
Cablevision Systems Corp.,
Senior Unsecured Notes
7.89%(h) 04/01/09 3,855 3,951,375
Charter Communications Holdings
LLC, Senior Unsecured Notes
8.00%(f) 04/30/12 1,825 1,834,125
Charter Communications Holdings
LLC,
Unsecured Notes
10.25% 09/15/10 3,360 3,452,400
Charter Communications, Inc.,
Senior Unsecured Notes
5.88%(f) 11/16/09 6,295 5,196,774
Charter I Communications Holdings,
Inc., LLC, Company Guarantee
11.12%(f)(i) 01/15/14 2,415 1,956,150
17.15%(i) 01/01/15 9,850 6,254,750
DirecTV Holdings LLC,
Senior Unsecured Notes
6.38%(f) 06/15/15 1,265 1,246,025
Echostar DBS Corp.,
Senior Unsecured Notes
6.75%(h) 10/01/08 1,585 1,612,737
Fisher Communications, Inc.,
Senior Unsecured Notes
8.62% 09/15/14 1,145 1,222,288
Nexstar Finance Holdings LLC, Inc.,
Senior Unsecured Notes
11.74%(i) 04/01/13 920 680,800
Paxson Communications Corp.,
Senior Subordinated Notes
11.37%(i) 01/15/09 2,935 2,846,950
Rainbow National Services LLC,
Senior Subordinated Notes
10.38% 09/01/14 6,895 7,756,875
Rogers Cable, Inc.,
Senior Secured Notes
6.75% 03/15/15 640 646,400
Young Broadcasting, Inc.,
Senior Subordinated Notes
10.00%(j) 03/01/11 3,020 2,853,900
-------------
51,419,974
-------------
Business Services -- 3.4%
Crystal U.S. Holdings,
Senior Unsecured Notes
9.08%(i) 10/01/14 3,190 2,233,000
DI Finance/Dyncorp International,
Senior Subordinated Notes
9.50%(f) 02/15/13 7,885 8,200,400
Knowledge Learning CTR,
Senior Subordinated Notes
7.75%(f) 02/01/15 5,250 5,118,750
See accompanying notes to financial statements.
99
BlackRock Funds
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Business Services (Continued)
Newpage Corp., Senior Secured
Notes
9.94%(h) 05/01/12 $ 1,175 $ 1,110,375
Newpage Corp.,
Senior Secured Notes
10.00%(j) 05/01/12 7,335 6,913,238
Rent-A-Center,
Senior Subordinated Notes
7.50% 05/01/10 925 879,906
Service Corp. International,
Senior Unsecured Notes
7.70% 04/15/09 3,050 3,202,500
UGS Corp.,
Senior Subordinated Notes
10.00% 06/01/12 2,590 2,836,050
United Rentals N.A., Inc.,
Senior Subordinated Notes
7.00%(j) 02/15/14 1,395 1,290,375
1.88%(j) 10/15/23 1,760 1,863,400
Xerox Corp.,
Senior Unsecured Notes
7.62% 06/15/13 650 690,625
-------------
34,338,619
-------------
Chemicals -- 3.9%
Airgas, Inc.,
Senior Subordinated Notes
9.12% 10/01/11 1,240 1,336,100
Airgas, Inc.,
Senior Unsecured Notes
6.25% 07/15/14 614 623,210
BCI US Finance Borden 2,
Senior Secured Notes
9.10%(f)(h) 07/15/10 1,120 1,131,200
BCP Crystal U.S. Holdings Corp.,
Senior Subordinated Notes
9.62% 06/15/14 2,607 2,913,322
Equistar Chemical/Funding,
Senior Unsecured Notes
10.12% 09/01/08 3,725 4,023,000
10.62% 05/01/11 1,635 1,782,150
Equistar Chemicals LP,
Senior Unsecured Notes
8.75% 02/15/09 1,215 1,263,600
Huntsman Advance Materials,
Senior Secured Notes
11.00% 07/15/10 2,025 2,268,000
Huntsman LLC,
Senior Secured Notes
11.62% 10/15/10 1,971 2,251,868
Huntsman LLC,
Senior Unsecured Notes
11.50% 07/15/12 1,114 1,272,745
IMC Global, Inc.,
Senior Unsecured Notes
10.88% 06/01/08 1,505 1,700,650
IMC Global, Inc.,
Senior Notes
10.88% 08/01/13 1,430 1,687,400
Innophos, Inc.,
Senior Subordinated Notes
8.88%(f) 08/15/14 4,625 4,729,062
Lyondell Chemical Co.,
Senior Secured Notes
9.62% 05/01/07 2,325 2,441,250
11.12% 07/15/12 1,120 1,257,200
Nalco Co.,
Senior Subordinated Notes
8.88% 11/15/13 3,790 3,884,750
Nova Chemicals Corp.,
Senior Unsecured Notes
6.50% 01/15/12 490 480,200
PQ Corp.,
Senior Subordinated Notes
7.50%(f) 02/15/13 1,195 1,162,138
Rhodia SA,
Senior Notes
10.25%(j) 06/01/10 2,165 2,289,488
Rockwood Specialties Group, Inc.,
Senior Subordinated Notes
10.62% 05/15/11 1,094 1,192,460
-------------
39,689,793
-------------
Computer Software & Services -- 1.3%
NDC Health Corp.,
Senior Subordinated Notes
10.50% 12/01/12 2,930 3,354,850
Sungard Data Systems, Inc.,
Senior Unsecured Notes
8.52%(f)(h) 08/15/13 1,070 1,107,450
9.12%(f) 08/15/13 3,645 3,777,131
Xerox Corp., Debentures
7.20% 04/01/16 2,135 2,327,150
Xerox Corp.,
Senior Notes
6.88% 08/15/11 2,690 2,811,050
-------------
13,377,631
-------------
Construction -- 2.8%
Ahern Rentals, Inc.,
Senior Secured Notes
9.25%(f) 08/15/13 4,075 4,166,688
Ainsworth Lumber Co. Ltd.,
Senior Unsecured Notes
7.77%(h) 10/01/10 3,800 3,790,500
Beazer Homes USA, Inc.,
Senior Unsecured Notes
8.62% 05/15/11 580 610,450
Compression Polymers Holdings,
Senior Unsecured Notes
10.50%(f) 07/01/13 2,450 2,272,375
D.R. Horton, Inc.,
Senior Unsecured Notes
6.88% 05/01/13 1,300 1,371,500
K. Hovnanian Enterprises, Inc.,
Senior Unsecured Notes
10.50% 10/01/07 2,000 2,180,000
North American Energy Partners,
Inc., Senior Secured Notes
9.00% 06/01/10 6,700 6,968,000
North American Energy Partners,
Inc., Senior Unsecured Notes
8.75% 12/01/11 4,070 3,876,675
NVR, Inc., Senior Unsecured Notes
5.00% 06/15/10 1,605 1,572,900
Texas Industries, Inc.,
Senior Unsecured Notes
7.25%(f) 07/15/13 1,500 1,571,250
-------------
28,380,338
-------------
See accompanying notes to financial statements.
100
BlackRock Funds
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Containers -- 0.7%
Ball Corp.,
Senior Unsecured Notes
6.88% 12/15/12 $ 575 $ 586,500
Concentra Operating Corp.,
Senior Subordinated Notes
9.12% 06/01/12 2,145 2,241,525
Crown Holdings, Inc.,
Debentures
8.00% 04/15/23 1,195 1,159,150
Crown Holdings, Inc.,
Senior Debentures
7.38% 12/15/26 920 874,000
Crown Holdings, Inc.,
Senior Secured Notes
9.50% 03/01/11 585 640,575
Pliant Corp.,
Senior Secured Notes
11.62%(f) 06/15/09 1,328 1,407,187
-------------
6,908,937
-------------
Electronics -- 0.9%
Amkor Technology, Inc.,
Senior Unsecured Notes
9.25%(j) 02/15/08 2,540 2,381,250
Celestica, Inc.,
Senior Subordinated Notes
7.62% 07/01/13 1,700 1,689,375
Condor Systems, Inc.,
Senior Subordinated Notes,
Series B
11.88%(b)(g) 05/01/09 1,500 0
Flextronics International Ltd.,
Senior Subordinated Notes
6.50% 05/15/13 4,135 4,217,700
Stats Chippac LTD,
Senior Unsecured Notes
7.50% 07/19/10 430 434,300
-------------
8,722,625
-------------
Energy & Utilities -- 9.9%
AES Eastern Energy LP,
Pass-Through Certificates
9.00% 01/02/17 3,487 4,071,021
AES Eastern Energy,
Pass Through Certificates,
Series 99-B
9.67% 01/02/29 500 625,000
AES Ironwood LLC,
Senior Secured Notes
8.86% 11/30/25 3,988 4,545,966
AES Red Oak LLC,
Senior Secured Notes
8.54% 11/30/19 2,974 3,331,018
Calpine Generating Co.,
Unsecured Notes
11.50%(j) 04/01/11 2,300 2,116,000
CE Generation LLC,
Senior Notes
7.42% 12/15/18 6,459 6,862,172
Centerpoint Energy, Inc.,
Senior Unsecured Notes
7.25% 09/01/10 505 548,286
CMS Energy Corp.,
Senior Notes
7.50% 01/15/09 740 775,150
CMS Energy Corp.,
Senior Unsecured Notes
9.88% 10/15/07 2,285 2,484,937
Colorado Interstate Gas,
Senior Unsecured Notes
5.95%(f) 03/15/15 725 705,969
El Paso Corp.,
Senior Debentures
10.75% 10/01/10 390 438,750
Elwood Energy LLC,
Senior Secured Notes
8.16% 07/05/26 11,405 12,659,453
FPL Energy National Wind,
Senior Secured Notes
6.12%(f) 03/25/19 628 625,025
Homer City Funding LLC,
Senior Secured Notes
8.73% 10/01/26 1,690 2,006,839
Massey Energy Co.,
Senior Unsecured Notes
2.25% 04/01/24 1,270 2,102,828
Midwest Generation LLC,
Pass-Through Certificates
8.30% 07/02/09 165 173,250
8.56% 01/02/16 4,523 4,974,836
Midwest Generation LLC,
Senior Secured Notes
8.75% 05/01/34 815 907,706
Mirant Americas Generation, LLC,
Senior Unsecured Notes
7.62%(b)(g) 05/01/06 1,155 1,155,000
Mirant Corp.,
Senior Unsecured Notes
5.75%(b)(c)(g)(h) 07/15/07 900 956,250
7.90%(b)(f)(g)(j) 07/15/09 1,240 1,506,600
7.40%(b)(f)(g)(j) 07/15/49 3,270 3,940,350
Mirant Mid-Atlantic LLC,
Pass-Through Certificates
8.62%(c) 06/30/12 6,418 6,834,793
Mission Energy Holding Co.,
Senior Secured Notes
13.50% 07/15/08 8,515 9,994,481
Northwestern Corp.,
Notes
5.88% 11/01/14 2,320 2,369,300
Orion Power Holdings, Inc.,
Senior Unsecured Notes
12.00% 05/01/10 7,850 9,439,625
Reliant Energy, Inc.,
Senior Secured Notes
9.25% 07/15/10 1,065 1,155,525
6.75% 12/15/14 385 376,337
Sithe Independence Funding Corp.,
Notes
9.00%(i) 12/30/13 1,535 1,674,700
Tenaska Alabama Partners LP,
Senior Secured Notes
7.00%(f) 06/30/21 4,625 4,722,449
Transcontinental Gas Pipe Line
Corp.,
Senior Notes
8.88% 07/15/12 3,645 4,264,650
TXU Corp., Senior
Unsecured Notes
4.80% 11/15/09 925 891,244
6.50% 11/15/24 715 669,797
TXU Corp.,
Senior Unsecured Notes, Series P
5.55% 11/15/14 650 617,063
TXU Corp.,
Senior Unsecured Notes, Series R
6.55% 11/15/34 880 816,730
-------------
101,339,100
-------------
See accompanying notes to financial statements.
101
BlackRock Funds
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Entertainment & Leisure -- 4.3%
Choctaw Resort Development
Enterprise,
Senior Unsecured Notes
7.25%(f) 11/15/19 $ 540 $ 542,700
Cinemark, Inc.,
Senior Unsecured Notes
9.75%(h)(i)(k) 03/15/14 755 528,500
CSC Holdings, Inc.,
Senior Unsecured Notes
8.12% 07/15/09 450 453,375
K2, Inc., Senior
Unsecured Notes
7.38% 07/01/14 1,420 1,420,000
Lazydays RV Center, Inc.,
Senior Notes
11.75% 05/15/12 4,205 4,462,556
Mashantucket West Pequot,
Notes
5.91%(f) 09/01/21 500 502,890
MGM Mirage, Inc.,
Senior Notes
6.00% 10/01/09 3,820 3,772,250
MGM Mirage, Inc.,
Senior Unsecured Notes
6.75% 09/01/12 825 831,187
Mohegan Tribal Gaming Authority,
Senior Unsecured Notes
6.12% 02/15/13 1,790 1,778,812
Penn National Gaming, Inc.,
Senior Subordinated Notes
6.75% 03/01/15 770 758,450
Riddell Bell Holdings, Inc.,
Senior Subordinated Notes
8.38% 10/01/12 2,235 2,240,588
San Pasqual Casino,
Senior Unsecured Notes
8.00%(f) 09/15/13 2,030 2,040,150
Seneca Gaming Corp.,
Senior Unsecured Notes
7.25%(f) 05/01/12 7,170 7,338,500
Station Casinos, Inc.,
Senior Notes
6.00% 04/01/12 1,450 1,448,188
Universal City Florida Holding Co.,
Senior Unsecured Notes
8.44%(h) 05/01/10 5,200 5,408,000
Virgin River Casino Corp.,
Senior Secured Notes
9.00%(f) 01/15/12 2,930 3,047,200
Waterford Gaming LLC,
Senior Unsecured Notes
8.62%(f) 09/15/12 3,318 3,517,080
WMG Holdings Corp.,
Senior Discount Notes
8.88%(i) 12/15/14 2,455 1,718,500
Wynn Las Vegas LLC,
First Mortgage Notes
6.62% 12/01/14 1,780 1,695,450
-------------
43,504,376
-------------
Finance -- 4.3%
ALH Finance Corp.,
Senior Subordinated Notes
8.50% 01/15/13 630 600,075
Ameriserve Finance Trust,
Senior Secured Notes
12.00%(b)(c)(f)(g)(j) 09/15/06 500 25,000
Arch Western Finance,
Senior Notes
6.75%(h) 07/01/13 1,575 1,606,500
Borden US / Nova Scotia Finance,
Senior Secured Notes
9.00%(f) 07/15/14 1,715 1,766,450
Calpine Canada Energy Finance
ULC,
Senior Unsecured Notes
8.50%(j) 05/01/08 12,005 7,263,025
Capital Guardian Ltd.,
Subordinated Bonds
11.45%(f) 05/24/13 1,000 1,043,100
Crown European Holdings SA,
Senior Secured Notes
10.88% 03/01/13 2,090 2,424,400
Ford Motor Credit Co.,
Unsecured Notes
5.70%(j) 01/15/10 11,820 10,737,418
Hilcorp Energy/Finance,
Senior Notes
10.50%(f) 09/01/10 4,935 5,428,500
Jason, Inc.,
Second Lien Notes Certificates
15.00%(c)(d)(e)(h) 12/15/07 1,590 1,590,425
K&F Acquisition, Inc.,
Senior Subordinated Notes
7.75% 11/15/14 2,115 2,146,725
Nell Af Sarl,
Senior Unsecured Notes
8.38%(j) 08/15/15 3,340 3,264,850
Poster Financial Group, Inc.,
Senior Secured Notes
8.75% 12/01/11 1,780 1,831,175
Salton Sea Funding,
Senior Secured Notes
7.48% 11/30/18 1,049 1,146,427
Vanguard Health Holdings II,
Senior Subordinated Notes
9.00% 10/01/14 2,495 2,669,650
Zais Investment Grade Ltd.,
Secured Notes
9.95%(e)(f) 09/23/14 1,275 127,476
-------------
43,671,196
-------------
Food & Agriculture -- 0.9%
B&G Foods Holding Corp.,
Senior Notes
8.00% 10/01/11 2,170 2,197,125
Gold Kist, Inc.,
Senior Notes
10.25% 03/15/14 1,946 2,198,980
Merisant Co.,
Senior Subordinated Notes
10.75%(f)(h)(j) 07/15/13 4,620 3,141,600
Nebco Evans Holding Co.,
Senior Notes
17.25%(b)(c)(d)(g)(i) 07/15/07 800 0
Smithfield Foods, Inc.,
Senior Unsecured Notes
7.00% 08/01/11 1,190 1,213,800
-------------
8,751,505
-------------
Insurance -- 0.8%
Coventry Health Care, Inc.,
Senior Unsecured Notes
5.88% 01/15/12 990 1,012,275
6.12% 01/15/15 990 1,019,700
Crum & Forster Holdings Corp.,
Senior Notes
10.38% 06/15/13 2,160 2,359,800
See accompanying notes to financial statements.
102
BlackRock Funds
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Insurance (Continued)
Fairfax Financial Holdings Ltd.,
Debenture Notes
8.30% 04/15/26 $ 530 $ 463,750
Fairfax Financial Holdings Ltd.,
Senior Notes
6.88%(j) 04/15/08 665 666,663
Fairfax Financial Holdings Ltd.,
Senior Unsecured Notes
7.75% 04/26/12 1,010 969,600
First Mercury Holdings,
Senior Unsecured Notes
11.80%(f)(h) 08/15/12 1,800 1,799,406
-------------
8,291,194
-------------
Leasing -- 0.4%
United Rentals N.A., Inc.,
Senior Subordinated Notes
7.75%(j) 11/15/13 4,015 3,874,475
-------------
Machinery & Heavy Equipment -- 0.3%
Chart Industries, Inc.,
Senior Subordinated Notes
9.12%(f) 10/15/15 1,050 1,050,000
JLG Industries, Inc.,
Senior Subordinated Notes
8.38%(j) 06/15/12 2,315 2,453,900
-------------
3,503,900
-------------
Manufacturing -- 5.3%
Accuride Corp.,
Senior Subordinated Notes
8.50% 02/01/15 3,775 3,699,500
Argo Tech Corp.,
Senior Unsecured Notes
9.25% 06/01/11 1,625 1,714,375
Blount International, Inc.,
Senior Subordinated Notes
8.88% 08/01/12 4,050 4,313,250
California Steel Industries, Inc.,
Senior Unsecured Notes
6.12% 03/15/14 1,990 1,870,600
Delco Remy International, Inc.,
Senior Secured Notes
7.60%(h) 04/15/09 1,185 1,146,487
Erico International Corp.,
Senior Subordinated Notes
8.88% 03/01/12 4,405 4,526,138
General Cable Corp.,
Senior Unsecured Notes
9.50% 11/15/10 3,230 3,407,650
Gentek, Inc., Escrow Bonds
0.00%(l) 12/01/33 1,000 0
Goodman Global Holdings,
Senior Subordinated Notes
7.88%(f)(j) 12/15/12 3,960 3,583,800
Goodman Global Holdings,
Senior Unsecured Notes
6.41%(f)(h) 06/15/12 1,160 1,125,200
Graham Packaging Co.,
Senior Subordinated Notes
9.88%(j) 10/15/14 2,465 2,366,400
Ispat Inland ULC,
Senior Secured Notes
9.75% 04/01/14 5,449 6,320,840
Metaldyne Corp.,
Senior Unsecured Notes
11.00%(f)(h)(j) 11/01/13 3,200 2,784,000
Navistar International Corp.,
Senior
Unsecured Notes
6.25% 03/01/12 6,115 5,809,250
Norcross Safety Products LLC,
Senior Subordinated Notes
9.88% 08/15/11 3,350 3,592,875
Park-Ohio Industries, Inc., Senior
Subordinated Notes
8.38% 11/15/14 4,120 3,574,100
Quiksilver, Inc., Senior Unsecured
Notes
6.88%(f) 04/15/15 100 96,500
Russell Metals, Inc., Senior
Subordinated Notes
6.38% 03/01/14 1,415 1,372,550
Stanadyne Corp., Senior
Subordinated Notes
10.00% 08/15/14 2,415 2,390,850
-------------
53,694,365
-------------
Medical & Medical Services -- 1.6%
Bio-Rad Laboratories, Inc., Senior
Subordinated Notes
7.50% 08/15/13 2,820 2,982,150
Duloxetine Royalty, Senior Secured
Notes
13.00% 10/15/13 2,500 2,500,000
HCA, Inc., Unsecured Notes
5.50% 12/01/09 3,350 3,285,881
6.75% 07/15/13 730 745,016
Select Medical Corp., Senior
Unsecured Notes
9.93%(f)(h) 09/15/15 3,960 3,940,200
U.S. Oncology, Inc., Senior
Unsecured Notes
9.00% 08/15/12 2,425 2,619,000
-------------
16,072,247
-------------
Medical Instruments & Supplies -- 1.5%
Insight Health Services, Notes
9.15%(f)(h) 11/01/11 4,225 4,119,375
National Nephrology Associates,
Senior Subordinated Notes
9.00%(f) 11/01/11 2,645 2,942,563
Perkinelmer, Inc., Senior
Subordinated Notes
8.88% 01/15/13 3,235 3,550,412
Universal Hospital Services, Inc.,
Senior Notes
10.12% 11/01/11 4,525 4,649,438
-------------
15,261,788
-------------
Metal & Mining -- 2.4%
Alpha Natural Resources, Senior
Unsecured Notes
10.00% 06/01/12 3,395 3,768,450
Century Aluminum Co., Senior
Unsecured Notes
7.50% 08/15/14 2,605 2,683,150
See accompanying notes to financial statements.
103
BlackRock Funds
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Metal & Mining (Continued)
Foundation PA Coal Co., Senior
Unsecured Notes
7.25% 08/01/14 $ 3,225 $ 3,370,125
Ipsco, Inc.,
Senior Notes
8.75% 06/01/13 4,800 5,304,000
Plains E&P Co.,
Senior Unsecured Notes
7.12% 06/15/14 450 474,750
Southern Peru Copper Corp.,
Senior Unsecured Notes
6.38%(f) 07/27/15 1,575 1,568,810
7.50%(f) 07/27/35 3,100 3,022,500
TRIMAS Corp., Senior Subordinated
Notes
9.88% 06/15/12 4,890 4,034,250
-------------
24,226,035
-------------
Motor Vehicles -- 1.8%
Arvinmeritor, Inc.,
Senior Notes
6.80% 02/15/09 465 444,075
Arvinmeritor, Inc.,
Senior Unsecured Notes
8.75% 03/01/12 360 354,600
Delco Remy International, Inc.,
Senior Subordinated Notes
9.38%(c)(f) 04/15/12 700 392,000
Eagle-Picher, Inc.,
Senior Notes
9.75%(b)(g)(j) 09/01/13 3,285 2,430,900
Holley Performance Products, Senior
Unsecured Notes
12.25%(j) 09/15/07 6,025 5,302,000
Nationsrent, Inc., Senior Unsecured
Notes
9.50% 05/01/15 3,750 3,900,000
Sunstate Equipment Co. LLC, Senior
Secured Notes
10.50%(f) 04/01/13 5,000 5,131,250
-------------
17,954,825
-------------
Oil & Gas -- 8.6%
ANR Pipeline Co., Senior Debentures
9.62% 11/01/21 3,515 4,341,025
Chesapeake Energy Corp., Senior
Unsecured Notes
7.00% 08/15/14 415 437,825
6.38% 06/15/15 2,080 2,093,000
6.88% 01/15/16 2,200 2,255,000
Chesapeake Energy Corp., Senior
Unsecured Notes
6.25% 01/15/18 1,975 1,935,500
Citgo Petroleum Corp., Senior
Unsecured Notes
6.00% 10/15/11 1,330 1,330,000
Compton Petroleum Corp., Senior
Unsecured Notes
9.90% 05/15/09 3,000 3,210,000
Dynegy Holdings, Inc., Secured
Notes
10.12%(f) 07/15/13 5,040 5,619,600
Dynegy Holdings, Inc., Senior
Secured Notes
9.88%(f) 07/15/10 490 533,487
Dynegy-Roseton Danskammer LLC,
Pass-Through Certificates
7.27% 11/08/10 2,785 2,764,112
El Paso CGP Co., Senior Debentures
9.62% 05/15/12 3,285 3,629,925
El Paso CGP Co., Senior Unsecured
Notes
7.62%(f)(h) 08/16/07 2,175 2,221,219
06/15/10-
7.75% 10/15/35 2,550 2,481,000
7.42% 02/15/37 2,190 2,014,800
El Paso Natural Gas Co., Senior
Notes
7.62% 08/01/10 1,290 1,341,308
El Paso Natural Gas Co., Senior
Unsecured Notes
8.38%(h) 06/15/32 340 388,875
Exco Resources, Inc., Senior
Secured Notes
7.25% 01/15/11 3,605 3,731,175
Frontier Oil Corp., Senior Unsecured
Notes
6.62% 10/01/11 4,415 4,547,450
KCS Energy, Inc., Senior Unsecured
Notes
7.12%(f) 04/01/12 4,725 4,843,125
Newfield Exploration Co., Senior
Subordinated Notes
8.38% 08/15/12 420 453,600
6.62% 09/01/14 250 260,000
Northwest Pipeline Corp., Senior
Notes
6.62% 12/01/07 500 512,500
Ocean Rig Norway AS, Senior
Secured Notes
8.38%(f) 07/01/13 960 1,039,200
Pacific Energy Partners, Senior
Unsecured Notes
6.25%(f) 09/15/15 830 835,188
Pogo Producing Co., Senior
Subordinated Notes
6.88%(f) 10/01/17 2,225 2,255,594
The Premcor Refining Group, Inc.,
Senior Notes
6.75% 05/01/14 2,500 2,668,750
7.50% 06/15/15 1,195 1,290,600
Pride International, Inc., Senior
Unsecured Notes
7.38% 07/15/14 1,190 1,285,200
Range Resources Corp., Senior
Subordinated Notes
7.38% 07/15/13 2,325 2,464,500
6.38% 03/15/15 430 432,150
Tennessee Gas Pipeline, Senior
Unsecured Notes
8.38% 06/15/32 1,565 1,797,794
Transcontinental Gas Pipeline Corp.,
Senior Debentures
7.25% 12/01/26 2,515 2,738,206
Utilicorp Canada Finance, Senior
Unsecured Notes
7.75% 06/15/11 6,780 7,135,950
See accompanying notes to financial statements.
104
BlackRock Funds
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Oil & Gas (Continued)
Whiting Petroleum Corp., Senior
Subordinated Notes
05/01/12-
7.25% 05/01/13 $ 2,355 $ 2,388,388
7.00%(f) 02/01/14 2,500 2,531,250
The Williams Cos., Inc., Certificates
of Participation
7.75%(f) 08/01/13 2,360 2,318,700
The Williams Cos., Inc., Credit Link
Certificates
6.75%(f) 04/15/09 2,800 2,866,500
The Williams Cos., Inc., Senior
Unsecured Notes
5.89%(f)(h) 10/01/10 2,110 2,099,450
7.62% 07/15/19 500 542,500
7.75% 06/15/31 325 351,812
-------------
87,986,258
-------------
Paper & Forest Products -- 2.2%
Bowater Canada Finance Corp.,
Senior Unsecured Notes
7.95% 11/15/11 4,075 4,105,563
Bowater, Inc., Senior Unsecured
Notes
6.87%(h) 03/15/10 510 507,450
Caraustar Industries, Inc., Senior
Subordinated Notes
9.88% 04/01/11 7,590 7,599,488
Cascades, Inc., Unsecured Notes
7.25% 02/15/13 2,275 2,223,812
Donohue Forest Products, Senior
Notes
7.62% 05/15/07 1,515 1,568,025
Georgia-Pacific Corp., Debentures
7.70% 06/15/15 900 993,375
Georgia-Pacific Corp., Senior Notes
7.38% 07/15/08 2,500 2,634,375
Georgia-Pacific Corp., Senior
Unsecured Notes
8.00% 01/15/24 425 468,031
Norske Skog Canada Ltd., Senior
Unsecured Notes
7.38% 03/01/14 1,480 1,406,000
Pliant Corp., Senior Secured Notes
11.12%(j) 09/01/09 640 550,400
-------------
22,056,519
-------------
Pharmaceuticals -- 0.8%
Curative Health Services, Senior
Unsecured Notes
10.75%(j) 05/01/11 4,115 2,633,600
Elan Finance Corp., Unsecured
Notes
7.75%(f) 11/15/11 6,000 5,287,500
Elan Finance Corp., Unsecured
Notes
7.79%(f)(h) 11/15/11 510 446,888
-------------
8,367,988
-------------
Plastics -- 0.0%
Graham Packaging Co., Senior
Unsecured Notes
8.50% 10/15/12 385 377,300
-------------
Publishing & Printing -- 1.9%
American Media Operation, Inc.,
Senior Subordinated Notes, Series
B
10.25% 05/01/09 3,330 3,246,750
Dex Media West/Finance, Senior
Subordinated Notes
9.88% 08/15/13 2,298 2,536,418
Nextmedia Operating, Inc., Senior
Subordinated Notes
10.75% 07/01/11 1,960 2,097,200
Primedia, Inc., Senior Notes
7.62% 04/01/08 824 832,240
Primedia, Inc., Senior Unsecured
Notes
9.16%(h) 05/15/10 1,300 1,365,000
8.00% 05/15/13 1,000 1,007,500
Quebecor Media, Inc., Senior
Unsecured Notes
11.12% 07/15/11 1,075 1,175,781
Vertis, Inc., Senior Notes
13.50%(j) 12/07/09 5,075 4,212,250
Vertis, Inc., Senior Unsecured Notes
10.88%(j) 06/15/09 2,585 2,546,225
-------------
19,019,364
-------------
Real Estate -- 0.9%
AMR Real Estate, Senior Unsecured
Notes
8.12% 06/01/12 3,075 3,244,125
7.12%(f) 02/15/13 3,225 3,225,000
La Quinta Properties, Inc., Senior
Notes
8.88% 03/15/11 520 556,400
Ventas Realty L.P., Senior Unsecured
Notes
6.75%(f) 06/01/10 2,360 2,407,200
-------------
9,432,725
-------------
Retail Merchandising -- 2.2%
AutoNation, Inc., Senior Unsecured
Notes
9.00% 08/01/08 1,600 1,728,000
Duane Reade, Inc., Senior Secured
Notes
8.37%(h) 12/15/10 800 764,000
Finlay Fine Jewelry Corp., Senior
Unsecured Notes
8.38% 06/01/12 5,080 4,298,950
GSC Holdings Corp., Senior
Unsecured Notes
7.88%(f)(h) 10/01/11 460 461,150
8.00%(f) 10/01/12 650 646,750
Movie Gallery, Inc., Senior
Unsecured Notes
11.00%(j) 05/01/12 6,540 5,836,950
Neiman Marcus Group, Inc., Senior
Unsecured Notes
9.00%(f) 10/15/15 1,926 1,926,000
Rite Aid Corp., Senior Unsecured
Notes
6.12%(f)(j) 12/15/08 4,855 4,612,250
See accompanying notes to financial statements.
105
BlackRock Funds
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Retail Merchandising (Continued)
Shopko Stores, Inc., Senior Notes
9.25% 03/15/22 $ 1,915 $ 2,278,850
-------------
22,552,900
-------------
Security Brokers & Dealers -- 0.1%
Rural Metro Corp., Senior
Subordinated Notes
9.88%(f) 03/15/15 925 973,562
-------------
Semiconductors & Related Devices -- 1.1%
Freescale Semiconductor, Inc.,
Senior Unsecured Notes
6.35%(h) 07/15/09 1,550 1,592,625
6.88% 07/15/11 735 764,400
Magnachip Semiconductor, Notes
6.88% 12/15/11 1,505 1,444,800
Magnachip Semiconductor, Secured
Notes
7.12%(h) 12/15/11 3,135 3,119,325
Magnachip Semiconductor, Senior
Subordinated Notes
8.00% 12/15/14 2,385 2,182,275
Stats Chippac LTD, Inc., Senior
Unsecured Notes
6.75% 11/15/11 2,100 2,037,000
-------------
11,140,425
-------------
Telecommunications -- 8.7%
American Tower Corp., Senior
Unsecured Notes
7.50%(j) 05/01/12 5,025 5,326,500
Asia Global Crossing Ltd., Senior
Unsecured Notes
13.38%(b)(g) 10/15/10 2,000 65,000
CCO Holdings LLC, Capital Corp.,
Senior Unsecured Notes
8.00%(h) 12/15/10 1,270 1,254,125
Centennial Communications, Senior
Subordinated Notes
10.75%(j) 12/15/08 3,530 3,627,075
Centennial Communications, Senior
Unsecured Notes
8.12% 02/01/14 2,535 2,687,100
Charter Communications, Inc., Senior
Unsecured Notes
5.88% 11/16/09 500 412,500
Cincinnati Bell, Inc., Senior
Unsecured Notes
7.25%(j) 07/15/13 5,365 5,700,313
CSC Holdings, Inc., Senior
Unsecured Notes
7.62% 04/01/11 1,835 1,807,475
6.75%(f) 04/15/12 360 339,300
Dobson Cellular Systems, Inc.,
Senior Secured Notes
8.38% 11/01/11 3,145 3,317,975
Dobson Cellular Systems, Inc.,
Senior Secured Notes
8.44%(h) 11/01/11 1,595 1,654,813
Dobson Communications Corp.,
Debentures
1.50%(f) 10/01/25 930 900,110
Dobson Communications Corp.,
Senior Unsecured Notes
8.10%(f)(h) 10/15/12 1,330 1,311,713
Eircom Funding (Ireland), Senior
Subordinated Notes
8.25% 08/15/13 2,650 2,875,250
Intelsat Bermuda Ltd., Senior
Unsecured Notes
8.70%(f)(h) 01/15/12 4,870 4,967,400
8.25%(f) 01/15/13 950 954,750
8.62%(f) 01/15/15 900 918,000
IWO Holdings, Inc., Senior
Unsecured Notes
8.08%(i) 01/15/15 3,297 2,316,142
L-3 Communications Corp., Senior
Subordinated Notes
6.38%(f) 10/15/15 1,910 1,924,325
Lucent Technologies, Inc.,
Debentures
6.50% 01/15/28 4,856 4,200,440
Lucent Technologies, Inc., Senior
Debentures
6.45% 03/15/29 3,140 2,747,500
Lucent Technologies, Inc., Senior
Unsecured Notes
5.50% 11/15/08 265 263,012
MCI, Inc., Senior Notes
8.74% 05/01/14 1,225 1,365,875
MCI, Inc., Senior Unsecured Notes
7.69% 05/01/09 495 513,562
Nortel Networks Ltd., Unsecured
Notes
6.12% 02/15/06 245 245,000
PanAmSat Corp., Senior Debentures
6.88% 01/15/28 2,690 2,461,350
PF Net Communications, Inc., Senior
Unsecured Notes
13.75%(b)(g) 05/15/10 1,000 0
Qwest Communications International,
Senior Unsecured Notes
7.29%(h) 02/15/09 485 478,938
Qwest Corp., Senior Unsecured
Notes
7.88% 09/01/11 3,175 3,317,875
Qwest Corp., Unsecured Notes
8.88%(h) 03/15/12 1,740 1,896,600
7.12%(f)(h) 06/15/13 2,000 2,080,000
Qwest Services Corp., Senior
Subordinated Notes
13.50%(h) 12/15/10 6,440 7,381,850
Rogers Wireless, Inc., Senior
Secured Notes
7.00%(h) 12/15/10 795 824,812
9.62% 05/01/11 1,750 2,021,250
7.25% 12/15/12 360 379,800
7.50% 03/15/15 500 538,750
Rogers Wireless, Inc., Senior
Subordinated Notes
8.00%(j) 12/15/12 2,730 2,880,150
Rural Cellular Corp., Senior
Subordinated Notes
9.75%(j) 01/15/10 1,110 1,121,100
Rural Cellular Corp., Senior
Unsecured Notes
9.88% 02/01/10 5,695 5,965,512
See accompanying notes to financial statements.
106
BlackRock Funds
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
------------- ---------- -------------
CORPORATE BONDS (Continued)
Telecommunications (Continued)
Suncom Wireless, Inc., Senior
Subordinated Notes
9.38%(j) 02/01/11 $ 1,480 $ 1,213,600
Superior Essex Communications &
Essex Group, Senior Notes
9.00% 04/15/12 4,845 4,893,450
-------------
89,150,292
-------------
Transportation -- 2.5%
Allied Holdings, Inc., Senior Notes,
Series B
8.62%(b)(g)(j) 10/01/07 5,590 3,018,600
CHC Helicopter Corp., Senior
Subordinated Notes
7.38%(f) 05/01/14 3,310 3,392,750
General Maritime Corp., Senior
Unsecured Notes
10.00% 03/15/13 1,675 1,842,500
H-Lines Finance Holding, Senior
Notes
10.25%(f)(i) 04/01/13 4,713 3,829,313
Horizon Lines LLC, Senior
Unsecured Notes
9.00% 11/01/12 3,700 3,959,000
Hornbeck Offshore Services, Inc.,
Senior Unsecured Notes
6.12% 12/01/14 955 949,031
Overseas Shipholding Group, Inc.,
Debentures
8.75% 12/01/13 3,980 4,517,300
Stanadyne Holdings, Inc., Senior
Unsecured Notes
12.00%(i) 02/15/15 4,755 2,686,575
Teekay Shipping Corp., Senior
Unsecured Notes
8.88% 07/15/11 1,250 1,421,875
-------------
25,616,944
-------------
Waste Management -- 0.3%
Allied Waste N.A., Inc., Senior
Secured Notes
8.50% 12/01/08 1,740 1,813,950
Casella Waste Systems, Inc., Senior
Subordinated Notes
9.75% 02/01/13 1,225 1,316,875
-------------
3,130,825
-------------
Yankee -- 0.6%
Abitibi-Consolidated, Inc. (Canada),
Senior Unsecured Notes
8.38%(j)(m) 04/01/15 1,300 1,280,500
Ainsworth Lumber Co. Ltd. (Canada),
Senior Unsecured Notes
7.25%(m) 10/01/12 840 789,600
Compagnie Generale de
Geophysique (France), Senior
Unsecured Notes
7.50%(f)(m) 05/15/15 1,650 1,742,812
Omi Corp. (Mali), Senior Notes
7.62%(m) 12/01/13 2,355 2,402,100
-------------
6,215,012
-------------
TOTAL CORPORATE BONDS
(Cost $855,937,214) 852,621,366
-------------
FOREIGN BONDS -- 1.4%
Aero Investments (EUR)
10.63%(e)(f)(h) 03/01/15 4,359 5,241,881
Cablecom Luxembourg SCA (EUR)
4.87%(f)(h) 04/15/12 1,650 2,004,238
Eggborough Power Station Terminal
(EUR)
7.00%(h) 09/08/15 1,300 5,519,583
Hellas Telecom III (EUR)
8.50% 10/15/13 1,230 1,482,946
-------------
TOTAL FOREIGN BONDS
(Cost $13,389,051) 14,248,648
-------------
TERM LOANS -- 0.6%
Blb Wembley Term 2nd Lien
7.32%(h) 08/31/12 500 509,375
Healthsouth Corp., Senior Unsecured
Notes
8.77%(h) 03/21/10 1,000 1,001,250
Hit Entertainment, Senior Notes
9.33%(h) 01/31/13 1,500 1,526,250
Mach Gen LLC Tranche A
Construction
0.00%(g)(h) 12/31/49 362 423,913
Mach Gen LLC Tranche B
Construction
0.00%(g)(h) 12/31/49 604 705,987
Mach Gen LLC Working Capital
Communications
0.00%(g)(h) 12/31/49 96 102,009
Mach Gen LLC Working Capital LOC
0.00%(g)(h) 12/31/49 45 44,935
Polar Corp. Term 2nd Lien Loan
10.27%(h) 05/30/10 1,250 1,268,750
Synventive Mezz Loan, Notes
14.00%(h) 02/17/14 500 500,000
-------------
TOTAL TERM LOANS
(Cost $6,026,845)
6,082,469
-------------
See accompanying notes to financial statements.
107
BlackRock Funds
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (Concluded)
As of September 30, 2005
Par/Shares
Maturity (000) Value
------------- ---------- -------------
SHORT TERM INVESTMENTS -- 13.9%
Federal National Mortgage
Association, Discount Notes
3.50%(n) 10/03/05 $ 29,000 $ 28,994,361
Galileo Money Market Fund 8,885 8,885,167
Institutional Money Market Trust(o)(p) 103,315 103,315,470
--------------
TOTAL SHORT TERM INVESTMENTS
(Cost $141,194,998) 141,194,998
--------------
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $1,036,370,024(a)) $1,018,345,950
==============
Number of
Contracts
-----------
PUT OPTIONS WRITTEN -- 0.0%
Neiman Marcus Senior Bridge Debt
Option, Strike 100.00, Expires 10/30/05 (84) (62,685)
Neiman Marcus Senior Bridge Debt
Option, Strike 100.00, Expires 10/30/05 (36) (26,865)
--------------
TOTAL PUT OPTIONS WRITTEN
(Premiums received $89,553) (89,550)
--------------
- ----------
(a) Cost for Federal income tax purposes is $1,037,273,374. The gross
unrealized appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 20,721,142
Gross unrealized depreciation (39,648,566)
-------------
$ (18,927,424)
-------------
(b) Non-income producing security.
(c) Security is illiquid. As of September 30, 2005, the Portfolio held 1.4% of
its net assets, with a current market value of $12,489,899 in these
securities.
(d) Securities valued at fair value as determined in good faith by or under the
direction of the Trustees. These securities had a total market value of
$4,261,852 which represents 0.5% of net assets.
(e) Payment in kind security.
(f) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 20.8% of its net assets, with a current market
value of $190,274,176 in securities restricted as to resale.
(g) Security in default.
(h) Rates shown are the rates as of September 30, 2005.
(i) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified date and rate. The rates shown are the effective
yields as of September 30, 2005.
(j) Total or partial securities on loan.
(k) Rates shown are the effective yields as of September 30, 2005.
(l) Security held in escrow for future payments
(m) Security is a foreign domiciled issuer which is registered with the
Securities and Exchange Commission.
(n) The rate shown is the effective yield on the discount notes at the time of
purchase.
(o) Securities purchased with the cash proceeds from securities loaned.
(p) Represents an investment in an affiliated security.
See accompanying notes to financial statements.
108
BlackRock Funds
STATEMENT OF ASSETS AND LIABILITIES
HIGH YIELD PORTFOLIO
September 30, 2005
ASSETS
Investments at value (Cost $1,036,370,024) ................... $ 1,018,345,950
Cash denominated in foreign currencies (Cost $1,084,530) ..... 1,089,071
Interest receivable .......................................... 18,797,102
Investments sold receivable .................................. 5,887,226
Capital shares sold receivable ............................... 1,156,083
Prepaid expenses ............................................. 58,915
Unrealized appreciation on forward foreign currency contracts 19,047
Unrealized appreciation on interest rate swaps ............... 189,251
----------------
TOTAL ASSETS .............................................. 1,045,542,645
----------------
LIABILITIES
Payable upon return of securities loaned ..................... 103,315,470
Investments purchased payable ................................ 20,706,110
Swaps payable ................................................ 16,335
Capital shares redeemed payable .............................. 1,442,881
Distributions payable ........................................ 2,444,081
Advisory fees payable ........................................ 201,101
Administrative fees payable .................................. 153,138
Transfer agent fees payable .................................. 68,701
Other accrued expenses payable ............................... 320,308
Options written, at fair value (premiums received $89,553) ... 89,550
Unrealized depreciation on forward foreign currency contracts 2,986
Unrealized depreciation on interest rate swaps ............... 83,124
----------------
TOTAL LIABILITIES ......................................... 128,843,785
----------------
NET ASSETS (Applicable to 20,950,486 BlackRock shares,
20,490,338 Institutional shares,19,533,333 Service shares,
32,488,847 Investor A shares, 13,648,656 Investor B shares and
6,168,003 Investor C shares outstanding) ..................... $ 916,698,860
===============-
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER BLACKROCK SHARE ($169,532,360/20,950,486) ................ $ 8.09
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER INSTITUTIONAL SHARE ($165,805,121/20,490,338) ............ $ 8.09
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SERVICE SHARE ($158,082,732/19,533,333) .................. $ 8.09
================
NET ASSET VALUE AND REDEMPTION PRICE
PER INVESTOR A SHARE ($262,919,913/32,488,847) ............... $ 8.09
================
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($8.09/0.950) ..... $ 8.52
================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($110,420,303/13,648,656) ............... $ 8.09
----------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($49,938,431/6,168,003) ................. $ 8.10
----------------
See accompanying notes to financial statements.
109
BlackRock Funds
Investment Abbreviations
ARM Adjustable Rate Mortgage
CMT Constant Maturity Treasury Rate
CND Canadian Dollar
COFI Cost of Funds Index
DKK Danish Krone
EUR European Currency Unit
GBP Great British Pound
IO Interest Only
JPY Japanese Yen
LLC Limited Liability Company
MULTI Multi-issued pools
MXP Mexican Peso
NZD New Zealand Dollar
PLC Project Loan Certificate
PLN Polish Zloty
PO Principal Only
SEK Swedish Krone
110
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BlackRock Funds
STATEMENTS OF OPERATIONS
For the Period Ended September 30, 2005
Enhanced Low Duration Intermediate Intermediate Intermediate
Income Bond Government Bond PLUS Bond
Portfolio Portfolio Bond Portfolio Portfolio Portfolio
-------------- -------------- -------------- -------------- --------------
Investment income:
Interest ................................ $ 1,872,570 $ 61,752,030 $ 25,242,285 $ 38,592,487 $ 1,077,123
Securities lending income ............... 6 171 434 7,402 --
Dividends ............................... -- 538,125 -- -- 2,800
-------------- -------------- -------------- -------------- --------------
Total investment income ............... 1,872,576 62,290,326 25,242,719 38,599,889 1,079,923
-------------- -------------- -------------- -------------- --------------
Expenses:
Investment advisory fee ................. 234,659 8,237,547 2,863,740 4,598,222 131,286
Administration fee ...................... 49,865 1,267,646 472,983 739,733 22,319
Administration fee - class specific ..... 59,831 1,724,855 831,306 840,409 9,357
Custodian fee ........................... 21,800 191,938 103,122 120,948 35,522
Transfer agent fee ...................... 5,982 409,406 396,056 151,559 3,273
Transfer agent fee - class specific ..... 7,576 220,838 103,196 107,264 1,331
Shareholder servicing fees - class ......
specific ............................... 79 1,507,824 853,801 372,525 28
Distribution fees - class specific ...... 2 1,211,414 845,748 211,160 14
Legal and audit fees .................... 29,240 239,185 103,877 139,382 22,147
Printing fee ............................ 7,625 332,531 120,036 178,153 4,395
Registration fees and expenses .......... 35,427 109,691 49,482 67,920 34,586
Trustees' fees .......................... 1,889 60,723 19,374 32,060 892
Other ................................... 2,256 139,837 59,605 83,682 9,100
-------------- -------------- -------------- -------------- --------------
Total expenses excluding interest
expense .............................. 456,231 15,653,435 6,822,326 7,643,017 274,250
Interest expense .................... 7,485 2,663 698 -- --
-------------- -------------- -------------- -------------- --------------
Total expenses ........................ 463,716 15,656,098 6,823,024 7,643,017 274,250
-------------- -------------- -------------- -------------- --------------
Less investment advisory fees
waived ............................. (214,614) (4,157,712) (815,569) (2,001,206) (131,286)
Less administration fees waived ..... -- -- -- -- (22,319)
Less administration fee waived -
class specific ..................... (28,156) (255,112) (336,300) (182,964) (9,133)
Less distribution fee waived - class
specific ........................... (2) (80,741) (262,823) (31,873) (10)
Less custodian fees waived .......... (1,141) (9,674) (7,332) (6,790) (2,254)
Less transfer agent fees waived ..... (499) (23,835) (31,571) (10,501) (114)
Less expenses reimbursed by
advisor ............................ -- -- -- -- (3,910)
-------------- -------------- -------------- -------------- --------------
Net expenses .......................... 219,304 11,129,024 5,369,429 5,409,683 105,224
-------------- -------------- -------------- -------------- --------------
Net investment income ..................... 1,653,272 51,161,302 19,873,290 33,190,206 974,699
-------------- -------------- -------------- -------------- --------------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions:
Net realized gain (loss) from:
Investment transactions ............... (180,326) (15,209,504) (3,087,711) 2,271,175 (159,902)
Futures and options contracts ......... 113,047 101,603 116,843 2,233,368 (7,796)
Swap and swaption contracts ........... (75,691) (745,565) 84,684 (3,530,875) 20,560
Foreign currency related transactions . 3,259 2,436,340 -- -- 12,611
-------------- -------------- -------------- -------------- --------------
(139,711) (13,417,126) (2,886,184) 973,668 (134,527)
-------------- -------------- -------------- -------------- --------------
Change in unrealized appreciation
(depreciation) from:
Investments ........................... (334,284) (14,421,003) (13,724,930) (21,534,441) (339,534)
Futures and options contracts ......... 23,735 677,741 (424,356) (127,805) 14,533
Swap and swaption contracts ........... (15,346) (2,081,550) 337,826 1,492,209 (18,196)
Foreign currency related transactions . 5,793 553,469 -- -- (4,105)
-------------- -------------- -------------- -------------- --------------
(320,102) (15,271,343) (13,811,460) (20,170,037) (347,302)
-------------- -------------- -------------- -------------- --------------
Net gain (loss) on investments and foreign
currency transactions .................... (459,813) (28,688,469) (16,697,644) (19,196,369) (481,829)
-------------- -------------- -------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations ................ $ 1,193,459 $ 22,472,833 $ 3,175,646 $ 13,993,837 $ 492,870
-------------- -------------- -------------- -------------- --------------
See accompanying notes to financial statements.
112
Inflation
Core Bond Core PLUS Government Protected
Total Return Total Return Income Bond
Portfolio Portfolio Portfolio Portfolio
-------------- -------------- -------------- --------------
Investment income:
Interest ................................ $ 117,700,876 $ 15,006,730 $ 21,076,138 $ 1,520,808
Securities lending income ............... 21,414 -- -- --
Dividends ............................... 9,307 18,200 -- --
-------------- -------------- -------------- --------------
Total investment income ............... 117,731,597 15,024,930 21,076,138 1,520,808
-------------- -------------- -------------- --------------
Expenses:
Investment advisory fee ................. 12,036,872 1,713,939 2,200,173 137,988
Administration fee ...................... 1,837,992 291,370 373,326 29,323
Administration fee - class specific ..... 1,913,561 120,128 624,405 22,134
Custodian fee ........................... 405,990 106,593 200,912 16,438
Transfer agent fee ...................... 437,068 37,217 161,838 7,518
Transfer agent fee - class specific ..... 268,309 17,154 77,583 2,908
Shareholder servicing fees - class ......
specific ............................... 1,165,718 1,033 709,668 23,170
Distribution fees - class specific ...... 366,340 67,610 86,600 22,504
Legal and audit fees .................... 388,306 41,874 114,063 5,320
Printing fee ............................ 91,151 12,952 47,212 91,847
Registration fees and expenses .......... 90,902 12,442 14,508 1,113
Trustees' fees .......................... 221,720 40,508 46,016 4,983
Other ................................... -- -- -- --
-------------- -------------- -------------- --------------
Total expenses excluding interest
expense .............................. 20,370,498 2,463,304 5,728,352 379,501
Interest expense .................... -- -- -- --
-------------- -------------- -------------- --------------
Total expenses ........................ 20,370,498 2,463,304 5,728,352 379,501
-------------- -------------- -------------- --------------
Less investment advisory fees
waived ............................. (5,551,434) (962,907) (1,267,772) (137,988)
Less administration fees waived ..... -- -- -- (29,323)
Less administration fee waived -
class specific ..................... (424,649) (119,854) (3,860) (9,591)
Less distribution fee waived - class
specific ........................... (171,855) (34) (179,180) (3,014)
Less custodian fees waived .......... (22,456) (6,067) (14,366) (1,557)
Less transfer agent fees waived ..... (29,602) (1,512) (12,013) (558)
Less expenses reimbursed by
advisor ............................ -- -- -- (47,967)
-------------- -------------- -------------- --------------
Net expenses .......................... 14,170,502 1,372,930 4,251,161 149,503
-------------- -------------- -------------- --------------
Net investment income ..................... 103,561,095 13,652,000 16,824,977 1,371,305
-------------- -------------- -------------- --------------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions:
Net realized gain (loss) from:
Investment transactions ............... 3,534,582 1,616,022 2,050,472 535,664
Futures and options contracts ......... 496,743 70,875 (1,281,507) 142,918
Swap and swaption contracts ........... 816,310 193,583 (1,125,499) 2,558
Foreign currency related transactions . 4,642,599 288,125 -- (763)
-------------- -------------- -------------- --------------
9,490,234 2,168,605 (356,534) 680,377
-------------- -------------- -------------- --------------
Change in unrealized appreciation
(depreciation) from:
Investments ........................... (45,249,618) (5,873,366) (9,128,325) (294,406)
Futures and options contracts ......... 5,041,868 642,922 (954,035) 68,091
Swap and swaption contracts ........... (2,654,750) (245,222) 439,976 34,547
Foreign currency related transactions . 1,504,414 336,968 -- (18,407)
-------------- -------------- -------------- --------------
(41,358,086) (5,138,698) (9,642,384) (210,175)
-------------- -------------- -------------- --------------
Net gain (loss) on investments and foreign
currency transactions .................... (31,867,852) (2,970,093) (9,998,918) 470,202
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations ................ $ 71,693,243 $ 10,681,907 $ 6,826,059 $ 1,841,507
-------------- -------------- -------------- --------------
Managed International High Yield
GNMA Income Bond Bond
Portfolio Portfolio Portfolio Portfolio
-------------- -------------- -------------- -------------
Investment income:
Interest ................................ $ 11,151,629 $ 37,226,406 $ 24,123,568 $ 66,949,977
Securities lending income ............... -- 4,764 691 622,559
Dividends ............................... -- -- 2,233,898
-------------- -------------- -------------- -------------
Total investment income ............... 11,151,629 37,231,170 24,124,259 69,806,434
-------------- -------------- -------------- -------------
Expenses:
Investment advisory fee ................. 1,224,301 3,652,204 3,944,350 4,137,013
Administration fee ...................... 189,210 597,831 587,295 670,552
Administration fee - class specific ..... 311,203 1,047,955 949,803 1,043,883
Custodian fee ........................... 136,915 171,889 201,059 112,278
Transfer agent fee ...................... 65,731 115,370 393,075 602,275
Transfer agent fee - class specific ..... 38,707 131,478 118,431 130,519
Shareholder servicing fees - class
specific ............................... 194,367 296,986 873,887 1,300,143
Distribution fees - class specific ...... 432,622 100,792 742,334 1,470,609
Legal and audit fees .................... 53,555 118,758 109,504 134,522
Printing fee ............................ 39,382 95,754 200,417 154,226
Registration fees and expenses .......... 50,936 51,308 107,043 70,234
Trustees' fees .......................... 7,964 25,686 24,527 28,302
Other ................................... 22,179 70,042 73,331 128,278
-------------- -------------- -------------- -------------
Total expenses excluding interest
expense .............................. 2,767,072 6,476,053 8,325,056 9,982,834
Interest expense .................... 12,063 2,014 -- 7,677
-------------- -------------- -------------- -------------
Total expenses ........................ 2,779,135 6,478,067 8,325,056 9,990,511
-------------- -------------- -------------- -------------
Less investment advisory fees
waived ............................. (786,389) (263,326) (50,613) (1,475,677)
Less administration fees waived ..... -- -- -- --
Less administration fee waived -
class specific ..................... (13,856) (947,681) (28,017) (60,017)
Less distribution fee waived - class
specific ........................... (16,192) (33,586) (171,698) (211,597)
Less custodian fees waived .......... (8,418) (9,108) (17,617) (6,422)
Less transfer agent fees waived ..... (4,760) (10,229) (27,607) (44,155)
Less expenses reimbursed by
advisor ............................ -- -- -- --
-------------- -------------- -------------- -------------
Net expenses .......................... 1,949,520 5,214,137 8,029,504 8,192,643
-------------- -------------- -------------- -------------
Net investment income ..................... 9,202,109 32,017,033 16,094,755 61,613,791
-------------- -------------- -------------- -------------
Realized and unrealized gain (loss) on
investments and foreign currency
transactions:
Net realized gain (loss) from:
Investment transactions ............... 1,798,509 1,590,440 12,847,457 24,094,487
Futures and options contracts ......... (1,907,059) (176,600) 1,463,566 --
Swap and swaption contracts ........... (504,902) (141,453) 410,292 694,659
Foreign currency related transactions . -- 1,496,226 (21,047,503) 559,863
-------------- -------------- -------------- -------------
(613,452) 2,768,613 (6,326,188) 25,349,009
-------------- -------------- -------------- -------------
Change in unrealized appreciation
(depreciation) from:
Investments ........................... (4,325,572) (16,877,382) (14,122,201) (27,091,354)
Futures and options contracts ......... 491,300 1,954,113 800,267 (68,389)
Swap and swaption contracts ........... (236,440) (406,633) (147,761) 5,033
Foreign currency related transactions . -- 591,231 (4,739,910) 26,737
-------------- -------------- -------------- -------------
(4,070,712) (14,738,671) (18,209,605) (27,127,973)
-------------- -------------- -------------- -------------
Net gain (loss) on investments and foreign
currency transactions .................... (4,684,164) (11,970,058) (24,535,793) (1,778,964)
-------------- -------------- -------------- -------------
Net increase (decrease) in net assets
resulting from operations ................ $ 4,517,945 $ 20,046,975 $ (8,441,038) $ 59,834,827
-------------- -------------- -------------- -------------
113
BlackRock Funds
STATEMENT OF CASH FLOWS
ENHANCED INCOME PORTFOLIO
FOR THE YEAR ENDED SEPTEMBER 30, 2005
Increase in cash
Cash flows from operating activities:
Net increase in net assets from operations .......................................... $ 1,193,459
Adjustments to reconcile net increase in net assets from
operations to net cash used for operating activities:
Purchase of long-term investment securities ...................................... (115,214,879)
Proceeds from disposition of long-term investment securities ..................... 111,914,888
Net sale of short term investment securities ..................................... 1,350,857
Net change in swap transactions .................................................. (75,691)
Change in foreign currency contracts ............................................. 521,573
Amortization of premium .......................................................... 16,177
Increase in futures variation margin ............................................. (10,984)
Decrease in interest receivable .................................................. 21,707
Increase in principal paydown receivable ......................................... (41,472)
Decrease in prepaid expenses ..................................................... 11,501
Decrease in investments purchased payable ........................................ (335,545)
Increase in accrued expenses ..................................................... 4,580
Decrease in receivable from advisor .............................................. 41,732
Net increase in unrealized appreciation on foreign currency related
transactions .................................................................... (5,793)
Net decrease in unrealized appreciation on investment securities ................. 334,284
Net decrease in unrealized appreciation on swap
and swaption contracts .......................................................... 15,346
Net increase in unrealized appreciation on futures and options ................... (23,735)
Net realized loss on investment securities ....................................... 180,326
Net realized gain on futures and options ......................................... (113,047)
Net realized loss on swap and swaption contracts ................................. 75,691
Net realized gain on foreign currency related transactions ....................... (3,259)
--------------
Net cash used for operating activities .............................................. (142,284)
--------------
Cash flows from financing activities:
Proceeds from units sold ......................................................... 71,988,054
Payments on units redeemed ....................................................... (70,022,419)
Cash distributions paid .......................................................... (1,321,593)
--------------
Net cash provided by financing activities ........................................ 644,042
--------------
Net increase in cash ................................................................. 501,758
--------------
Cash and cash eqivalents (including foreign currency):
Beginning balance ................................................................... 460
--------------
Ending balance ...................................................................... $ 502,218
==============
Supplemental disclosure of cash flow information:
Reinvestment of dividends and distributions (non-cash financing activity) ............ $ 270,456
Cash paid during the year for interest ............................................... $ (7,485)
See accompanying notes to financial statements.
114
BlackRock Funds
STATEMENT OF CASH FLOWS
LOW DURATION PORTFOLIO
FOR THE YEAR ENDED SEPTEMBER 30, 2005
Increase in cash
Cash flows from operating activities:
Net increase in net assets from operations ............................................... $ 22,472,833
Adjustments to reconcile net increase in net assets from
operations to net cash provided by operating activities:
Purchase of long-term investment securities ........................................... (2,731,080,498)
Proceeds from disposition of long-term investment securities .......................... 2,873,495,615
Net purchase of short term investment securities ...................................... (18,246,877)
Net change in swap transactions ....................................................... (745,565)
Change in foreign currency contracts .................................................. (7,340,796)
Amortization of premium ............................................................... 5,412,072
Increase in futures variation margin .................................................. (169,690)
Decrease in interest receivable ....................................................... 10,680,183
Decrease in investments sold receivable ............................................... 21,632,577
Increase in principal paydown receivable .............................................. (509,753)
Decrease in payable upon return of securities loaned .................................. (882,000)
Decrease in prepaid expenses .......................................................... 44,128
Increase in investments purchased payable ............................................. 49,102,303
Decrease in accrued expenses .......................................................... (135,632)
Net increase in unrealized appreciation on foreign currency related
transactions ......................................................................... (553,469)
Net decrease in unrealized appreciation on investment securities ...................... 14,421,003
Net decrease in unrealized appreciation on swap and swaption contracts ................ 2,081,550
Net increase in unrealized appreciation on futures and options ........................ (677,741)
Net realized loss on investment securities ............................................ 15,209,504
Net realized gain on futures and options .............................................. (101,603)
Net realized loss on swap and swaption contracts ...................................... 745,565
Net realized gain on foreign currency related transactions ............................ (2,436,340)
-----------------
Net cash provided by operating activities ................................................ 252,417,369
-----------------
Cash flows from financing activities:
Net borrowing (repayment) of reverse repurchase agreements and other
short term borrowings ................................................................ 161,897,918
Proceeds from units sold .............................................................. 577,060,929
Payments on units redeemed (net of redemption fees) ................................... (955,574,061)
Cash distributions paid ............................................................... (19,441,924)
-----------------
Net cash used for financing activities ................................................... (236,057,138)
-----------------
Net increase in cash ...................................................................... 16,360,231
-----------------
Cash and cash equivalents (including foreign currency):
Beginning balance ........................................................................ 9,254
-----------------
Ending balance ........................................................................... $ 16,369,485
=================
Supplemental disclosure of cash flow information:
Reinvestment of dividends and distributions (non-cash financing activity) ................. $ 29,913,785
Cash paid during the year for interest .................................................... $ (2,663)
115
BlackRock Funds
STATEMENT OF CASH FLOWS
INTERMEDIATE GOVERNMENT PORTFOLIO
FOR THE YEAR ENDED SEPTEMBER 30, 2005
Increase (decrease) in cash
Cash flows from operating activities:
Net increase in net assets from operations ............................... $ 3,175,646
Adjustments to reconcile net increase in net assets from operations to
net cash operating activities:
Purchase of long-term investment securities ........................... (1,416,884,486)
Proceeds from disposition of long-term investment securities .......... 1,400,049,349
Net change in options/swaptions ....................................... 2,312,677
Net change in swap transactions ....................................... (285,864)
Net sale of short term investment securities .......................... 9,515,002
Amortization of premium ............................................... 3,510,042
Increase in futures variation margin .................................. (111,363)
Increase in interest receivable ....................................... (3,047,019)
Increase in investments sold receivable ............................... (2,843,191)
Increase in principal paydown receivable .............................. (836,622)
Increase in prepaid expenses .......................................... (5,208)
Increase in investments purchased payable ............................. 3,972,935
Increase in accrued expenses .......................................... 369,384
Net decrease in unrealized appreciation on investment securities ...... 13,724,930
Net decrease in unrealized appreciation on futures and options ........ 424,356
Net increase in unrealized appreciation on swap
and swaption contracts ............................................... (337,826)
Net realized loss on investment securities ............................ 3,087,711
Net realized gain on futures and options .............................. (116,843)
Net realized gain on swap and swaption contracts ...................... (84,684)
-----------------
Net cash provided by operating activities ................................ 15,588,926
-----------------
Cash flows from financing activities:
Net borrowing (repayment) of reverse repurchase agreements and other
short term borrowings ................................................ 110,549,983
Proceeds from units sold .............................................. 82,654,934
Payments on units redeemed (net of redemption fees) ................... (199,099,769)
Cash distributions paid ............................................... (9,694,074)
-----------------
Net cash used for financing activities ................................... (15,588,926)
-----------------
Net increase (decrease) in cash ........................................... --
-----------------
Cash:
Beginning balance ........................................................ --
-----------------
Ending balance ........................................................... $ --
=================
Supplemental disclosure of cash flow information:
Reinvestment of dividends and distributions (non-cash financing activity) . $ 9,092,562
Cash paid during the year for interest .................................... $ (698)
See accompanying notes to financial statements.
116
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BlackRock Funds
STATEMENTS OF CHANGES IN NET ASSETS
Enhanced
Income Low Duration
Portfolio Bond Portfolio
` ----------------------------------- -------------------------------------
For the For the For the
Year Ended For the Period Year Ended Year Ended
9/30/05 3/4/04/1/-9/30/04 9/30/05 9/30/04
------------- ------------------ ------------------ -----------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................ $ 1,653,272 $ 335,513 $ 51,161,302 $ 36,962,711
Net realized gain (loss)
on investments, futures, options, swap and
swaption contracts and foreign currency related
transactions .................................... (139,711) (219,169) (13,417,126) (10,723,689)
Net unrealized appreciation/depreciation on
investments, futures, options, swap and swaption
contracts and foreign currency related
transactions .................................... (320,102) (30,863) (15,271,343) (10,258,210)
------------- ------------------ ---------------- ----------------
Net increase (decrease) in net assets resulting
from operations ................................. 1,193,459 85,481 22,472,833 15,980,812
------------- ------------------ ---------------- ----------------
Distributions to shareholders from:
Net investment income:
BlackRock Class .................................. (685,290) (213,539) (21,399,011) (16,101,779)
Institutional Class .............................. (991,596) (153,489) (12,976,033) (9,546,236)
Service Class .................................... (869) (2) (10,327,815) (4,914,169)
Investor A Class ................................. (31) (1) (2,215,025) (1,638,667)
Investor B Class ................................. -- -- (1,096,050) (667,531)
Investor C Class ................................. -- -- (1,841,995) (1,422,382)
------------- ------------------ ---------------- ----------------
Total distributions from net investment income ... (1,677,786) (367,031) (49,855,929) (34,290,764)
------------- ------------------ ---------------- ----------------
Capital:
Institutional Class .............................. -- -- -- --
Service Class .................................... -- -- -- --
Investor A Class ................................. -- -- -- --
Investor B Class ................................. -- -- -- --
Investor C Class ................................. -- -- -- --
------------- ------------------ ---------------- ----------------
Total distributions from capital ................. -- -- -- --
------------- ------------------ ---------------- ----------------
Net realized gains:
BlackRock Class .................................. -- -- -- (3,237,280)
Institutional Class .............................. -- -- -- (2,090,517)
Service Class .................................... -- -- -- (1,158,715)
Investor A Class ................................. -- -- -- (463,589)
Investor B Class ................................. -- -- -- (352,109)
Investor C Class ................................. -- -- -- (776,700)
------------- ------------------ ---------------- ----------------
Total distributions from net realized gains ...... -- -- -- (8,078,910)
------------- ------------------ ---------------- ----------------
Total distributions to shareholders .............. (1,677,786) (367,031) (49,855,929) (42,369,674)
------------- ------------------ ---------------- ----------------
Capital share transactions (Note D) .................. 2,178,387 54,925,695 (353,543,952) 164,789,326
------------- ------------------ ---------------- ----------------
Redemption fees ...................................... -- -- 3,856 --
------------- ------------------ ---------------- ----------------
Total increase (decrease) in net assets .......... 1,694,060 54,644,145 (380,923,192) 138,400,464
Net assets:
Beginning of period .............................. 54,644,145 -- 1,873,827,408 1,735,426,944
------------- ------------------ ---------------- ----------------
End of period .................................... $ 56,338,205 $ 54,644,145 $ 1,492,904,216 $ 1,873,827,408
============= ================== ================ ================
End of period undistributed net investment income
(distributions in excess of net investment income)$ 14,165 $ (12,452) $ 4,928,237 $ 370,456
Intermediate Government
Bond Portfolio
----------------------------
For the For the
Year Ended Year Ended
9/30/05 9/30/04
------------- -------------
Increase (decrease) in net assets:
Operations:
Net investment income .............................. $ 19,873,290 $ 10,699,389
Net realized gain (loss) on investments, futures,
options, swap and swaption contracts and foreign
currency related transactions ..................... (2,886,184) 1,787,815
Net unrealized appreciation/depreciation on
investments, futures, options, swap and swaption
contracts and foreign currency related
transactions ...................................... (13,811,460) (6,798,758)
------------- -------------
Net increase (decrease) in net assets resulting from
operations ........................................ 3,175,646 5,688,446
------------- -------------
Distributions to shareholders from:
Net investment income:
BlackRock Class .................................... -- --
Institutional Class ................................ (5,987,593) (8,451,541)
Service Class ...................................... (28,235) (46,005)
Investor A Class ................................... (6,367,147) (1,704,214)
Investor B Class ................................... (1,067,572) (310,631)
Investor C Class ................................... (342,355) (419,572)
------------- -------------
Total distributions from net investment income ..... (13,792,902) (10,931,963)
------------- -------------
Capital:
Institutional Class ................................ (1,705,727) --
Service Class ...................................... (8,044) --
Investor A Class ................................... (1,813,851) --
Investor B Class ................................... (304,127) --
Investor C Class ................................... (97,529) --
------------- -------------
Total distributions from capital ................... (3,929,278) --
------------- -------------
Net realized gains:
BlackRock Class .................................... -- --
Institutional Class ................................ (1,106,478) --
Service Class ...................................... (6,048) --
Investor A Class ................................... (183,301) --
Investor B Class ................................... (47,030) --
Investor C Class ................................... (55,783) --
------------- -------------
Total distributions from net realized gains ........ (1,398,640) --
------------- -------------
Total distributions to shareholders ................ (19,120,820) (10,931,963)
------------- -------------
Capital share transactions (Note D) .................... 366,560,310 (6,172,509)
------------- -------------
Redemption fees ........................................ 838 --
------------- -------------
Total increase (decrease) in net assets ............ 350,615,974 (11,416,026)
Net assets:
Beginning of period ................................ 305,673,659 317,089,685
------------- -------------
End of period ...................................... $ 656,289,633 $ 305,673,659
============= =============
End of period undistributed net investment income
(distributions in excess of net investment
income) ........................................... $ (751,511) $ (313,895)
- ----------
1 Commencement of operations.
See accompanying notes to financial statements.
118
BlackRock Funds
Intermediate Intermediate PLUS
Bond Portfolio Bond Portfolio
---------------------------- --------------------------
For the
For the For the For the Period
Year Ended Year Ended Year Ended 8/18/04/1/-
9/30/05 9/30/04 9/30/05 9/30/04
------------- ------------- ------------- ------------
Increase (decrease) in net assets:
Operations:
Net investment income .............................. $ 33,190,206 $ 33,037,063 $ 974,699 $ 118,733
Net realized gain (loss) on investments, futures,
options, swap and swaption contracts and foreign
currency related transactions ..................... 973,668 7,771,479 (134,527) 14,953
Net unrealized appreciation/depreciation on
investments, futures, options, swap and swaption
contracts and foreign currency related
transactions ...................................... (20,170,037) (17,841,712) (347,302) 5,297
------------- ------------- ------------ ------------
Net increase (decrease) in net assets resulting from
operations ........................................ 13,993,837 22,966,830 492,870 138,983
------------- ------------- ------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Class .................................... (15,416,741) (15,750,126) (986,708) (121,847)
Institutional Class ................................ (10,587,518) (13,010,903) (4,907) --
Service Class ...................................... (2,833,389) (2,218,577) -- --
Investor A Class ................................... (965,616) (1,285,713) (373) --
Investor B Class ................................... (277,811) (339,078) (14) --
Investor C Class ................................... (265,015) (363,366) -- --
------------- ------------- ------------ ------------
Total distributions from net investment income ..... (30,346,090) (32,967,763) (992,002) (121,847)
------------- ------------- ------------ ------------
Capital:
Institutional Class ................................ -- -- -- --
Service Class ...................................... -- -- -- --
Investor A Class ................................... -- -- -- --
Investor B Class ................................... -- -- -- --
Investor C Class ................................... -- -- -- --
------------- ------------- ------------ ------------
Total distributions from capital ................... -- -- -- --
------------- ------------- ------------ ------------
Net realized gains:
BlackRock Class .................................... (3,605,317) (8,456,396) (22,983) --
Institutional Class ................................ (2,617,586) (8,468,244) -- --
Service Class ...................................... (720,929) (1,395,950) -- --
Investor A Class ................................... (278,111) (910,295) -- --
Investor B Class ................................... (106,933) (311,883) -- --
Investor C Class ................................... (110,018) (351,717) -- --
------------- ------------- ------------ ------------
Total distributions from net realized gains ........ (7,438,894) (19,894,485) (22,983) --
------------- ------------- ------------ ------------
Total distributions to shareholders ................ (37,784,984) (52,862,248) (1,014,985) (121,847)
------------- ------------- ------------ ------------
Capital share transactions (Note D) .................... (2,239,453) 69,338,781 5,506,774 25,979,168
------------- ------------- ------------ ------------
Redemption fees ........................................ 327 -- -- --
------------- ------------- ------------ ------------
Total increase (decrease) in net assets ............ (26,030,273) 39,443,363 4,984,659 25,996,304
Net assets:
Beginning of period ................................ 923,709,636 884,266,273 25,996,304 --
------------- ------------- ------------ ------------
End of period ...................................... $ 897,679,363 $ 923,709,636 $ 30,980,963 $ 25,996,304
============= ============= ============ ============
End of period undistributed net investment income
(distributions in excess of net investment
income) ........................................... $ 3,098,801 $ 435,858 $ 9,476 $ 157
Core Bond Core PLUS
Total Return Portfolio Total Return Portfolio
--------------------------------- -----------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
9/30/05 9/30/04 9/30/05 9/30/04
---------------- --------------- ------------- -------------
Increase (decrease) in net assets:
Operations:
Net investment income ......................................... $ 103,561,095 $ 99,866,904 $ 13,652,000 $ 10,331,787
Net realized gain (loss) on investments, futures,
options, swap and swaption contracts and foreign
currency related transactions ................................ 9,490,234 3,895,102 2,168,605 (912,455)
Net unrealized appreciation/depreciation on
investments, futures, options, swap and swaption
contracts and foreign currency related
transactions ................................................. (41,358,086) (14,325,035) (5,138,698) 984,328
---------------- --------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations ................................................... 71,693,243 89,436,971 10,681,907 10,403,660
---------------- --------------- ------------- -------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ............................................... (61,252,277) (48,517,179) (13,248,140) (9,749,470)
Institutional Class ........................................... (23,166,365) (33,017,672) (7) (4)
Service Class ................................................. (5,497,287) (5,040,584) (885) (251)
Investor A Class .............................................. (6,235,815) (4,395,274) (1,220) (249)
Investor B Class .............................................. (1,486,721) (1,743,639) (2,999) (1,831)
Investor C Class .............................................. (2,243,809) (2,388,478) (636) (3)
---------------- --------------- ------------- -------------
Total distributions from net investment income ................ (99,882,274) (95,102,826) (13,253,887) (9,751,808)
---------------- --------------- ------------- -------------
Capital:
Institutional Class ........................................... -- -- -- --
Service Class ................................................. -- -- -- --
Investor A Class .............................................. -- -- -- --
Investor B Class .............................................. -- -- -- --
Investor C Class .............................................. -- -- -- --
---------------- --------------- ------------- -------------
Total distributions from capital .............................. -- -- -- --
---------------- --------------- ------------- -------------
Net realized gains:
BlackRock Class ............................................... (2,614,942) (26,256,064) -- (2,841,616)
Institutional Class ........................................... (1,031,692) (22,929,791) -- (2)
Service Class ................................................. (256,095) (3,469,665) -- (2)
Investor A Class .............................................. (232,258) (2,988,709) -- (96)
Investor B Class .............................................. (94,378) (1,715,637) -- (900)
Investor C Class .............................................. (143,147) (2,208,746) -- (2)
---------------- --------------- ------------- -------------
Total distributions from net realized gains ................... (4,372,512) (59,568,612) -- (2,842,618)
---------------- --------------- ------------- -------------
Total distributions to shareholders ........................... (104,254,786) (154,671,438) (13,253,887) (12,594,426)
---------------- --------------- ------------- -------------
Capital share transactions (Note D) ............................... 161,228,013 242,826,510 43,644,304 63,092,827
---------------- --------------- ------------- -------------
Redemption fees ................................................... -- 1 -- --
---------------- --------------- ------------- -------------
Total increase (decrease) in net assets ....................... 128,666,470 177,592,044 41,072,324 60,902,061
Net assets:
Beginning of period ........................................... 2,525,633,820 2,348,041,776 285,238,245 224,336,184
---------------- --------------- ------------- -------------
End of period ...................................... $ 2,654,300,290 $ 2,525,633,820 $ 326,310,569 $ 285,238,245
================ =============== ============= =============
End of period undistributed net investment income
(distributions in excess of net investment
income) ...................................................... $ 846,059 $ (2,223,824) $ 609,923 $ 228,560
119
BlackRock Funds
STATEMENTS OF CHANGES IN NET ASSETS (Concluded)
Government
Income Portfolio
-------------------------------
For the For the
Year Ended Year Ended
9/30/05 9/30/04
------------- -------------
Increase (decrease) in net assets:
Operations:
Net investment income .................................. $ 16,824,977 $ 6,350,140
Net realized gain (loss) on investments, futures,
options, swap and swaption contracts and foreign
currency related transactions ......................... (356,534) (2,257,615)
Net unrealized appreciation/depreciation on
investments, futures, options, swap and swaption
contracts and foreign currency related
transactions .......................................... (9,642,384) 1,061,473
------------- -------------
Net increase (decrease) in net assets resulting from
operations ............................................ 6,826,059 5,153,998
------------- -------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ........................................ (511,763) (186,632)
Institutional Class .................................... -- --
Service Class .......................................... (7,849,415) --
Investor A Class ....................................... (7,517,673) (3,390,674)
Investor B Class ....................................... (1,517,239) (1,246,261)
Investor C Class ....................................... (976,151) (688,847)
------------- -------------
Total distributions from net investment income ......... (18,372,241) (5,512,414)
------------- -------------
Capital:
BlackRock Class ........................................ (22,490) --
Service Class .......................................... (344,955) --
Investor A Class ....................................... (330,376) --
Investor B Class ....................................... (66,677) --
Investor C Class ....................................... (42,899) --
------------- -------------
Total distributions from capital ....................... (807,397) --
------------- -------------
Net realized gains:
BlackRock Class ........................................ -- (40)
Institutional Class .................................... -- --
Service Class .......................................... -- --
Investor A Class ....................................... -- (1,252,750)
Investor B Class ....................................... -- (740,622)
Investor C Class ....................................... -- (407,937)
------------- -------------
Total distributions from net realized gains ............ -- (2,401,349)
------------- -------------
Total distributions to shareholders .................... (19,179,638) (7,913,763)
------------- -------------
Capital share transactions (Note D) ........................ 348,126,461 40,817,268
------------- -------------
Redemption fees .......................................... 78 --
------------- -------------
Total increase (decrease) in net assets ................ 335,772,960 38,057,503
Net assets:
Beginning of period .................................... 208,052,043 169,994,540
------------- -------------
End of period .......................................... $ 543,825,003 $ 208,052,043
============= =============
End of period undistributed net investment income
(distributions in excess of net investment
income) .............................................. $ 215,576 $ 1,022,088
Inflation Protected GNMA
Bond Portfolio Portfolio
-------------------------------------- ----------------------------------
For the For the For the
Year Ended For the Period Year Ended Year Ended
9/30/05 6/28/04/1/-9/30/04 9/30/05 9/30/04
--------------- ------------------- --------------- ---------------
Increase (decrease) in net assets:
Operations:
Net investment income .............................$ 1,371,305 $ 226,154 $ 9,202,109 $ 12,573,800
Net realized gain (loss) on investments, futures,
options, swap and swaption contracts and foreign
currency related transactions .................... 680,377 230,428 (613,452) 107,676
Net unrealized appreciation/depreciation on
investments, futures, options, swap and swaption
contracts and foreign currency related
transactions ..................................... (210,175) 551,836 (4,070,712) (2,663,323)
--------------- ------------------- --------------- ---------------
Net increase (decrease) in net assets resulting
from operations .................................. 1,841,507 1,008,418 4,517,945 10,018,153
--------------- ------------------- --------------- ---------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ................................... (1,287,901) (244,948) (458,891) (1,338,791)
Institutional Class ............................... (167,696) -- (5,481,541) (8,673,330)
Service Class ..................................... (23) -- (229,895) (93,657)
Investor A Class .................................. (140,624) (116) (618,625) (947,977)
Investor B Class .................................. (40,615) (29) (711,108) (1,270,170)
Investor C Class .................................. (66,562) -- (998,790) (1,985,772)
--------------- ------------------- --------------- ---------------
Total distributions from net investment income .... (1,703,421) (245,093) (8,498,850) (14,309,697)
--------------- ------------------- --------------- ---------------
Capital:
BlackRock Class ................................... -- -- -- --
Service Class ..................................... -- -- -- --
Investor A Class .................................. -- -- -- --
Investor B Class .................................. -- -- -- --
Investor C Class .................................. -- -- -- --
--------------- ------------------- --------------- ---------------
Total distributions from capital .................. -- -- -- --
--------------- ------------------- --------------- ---------------
Net realized gains:
BlackRock Class ................................... (245,658) -- -- --
Institutional Class ............................... (16,405) -- -- --
Service Class ..................................... (1) -- -- --
Investor A Class .................................. (8,360) -- -- --
Investor B Class .................................. (1,956) -- -- --
Investor C Class .................................. (3,694) -- -- --
--------------- ------------------- --------------- ---------------
Total distributions from net realized gains ....... (276,074) -- -- --
--------------- ------------------- --------------- ---------------
Total distributions to shareholders ............... (1,979,495) (245,093) (8,498,850) (14,309,697)
--------------- ------------------- --------------- ---------------
Capital share transactions (Note D) ................... 17,767,043 20,160,373 (41,195,146) (84,565,804)
--------------- ------------------- --------------- ---------------
Redemption fees ....................................... -- -- 1,692 15
--------------- ------------------- --------------- ---------------
Total increase (decrease) in net assets ........... 17,629,055 20,923,698 (45,174,359) (88,857,333)
Net assets:
Beginning of period 20,923,698 -- 247,561,205 336,418,538
--------------- ------------------- --------------- ---------------
End of period .....................................$ 38,552,753 $ 20,923,698 $ 202,386,846 $ 247,561,205
=============== =================== =============== ===============
End of period undistributed net investment income
(distributions in excess of net investment
income) ..........................................$ 141,690 $ 51,317 $ 1,825,109 $ (325,015)
- ----------
1 Commencement of operations.
See accompanying notes to financial statements.
120
BlackRock Funds
Managed
Income Portfolio
----------------------------------
For the For the
Year Ended Year Ended
9/30/05 9/30/04
--------------- ---------------
Increase (decrease) in net assets:
Operations:
Net investment income .............................. $ 32,017,033 $ 38,800,743
Net realized gain (loss) on investments, futures,
options, swap and swaption contracts and foreign
currency related transactions ..................... 2,768,613 196,121
Net unrealized appreciation/depreciation on
investments, futures, options, swap and swaption
contracts and foreign currency related
transactions ...................................... (14,738,671) (11,092,359)
--------------- ---------------
Net increase (decrease) in net assets resulting from
operations ........................................ 20,046,975 27,904,505
--------------- ---------------
Distributions to shareholders from:
Net investment income:
BlackRock Class .................................... -- --
Institutional Class ................................ (26,826,072) (33,874,661)
Service Class ...................................... (3,120,883) (3,677,325)
Investor A Class ................................... (1,340,701) (1,797,350)
Investor B Class ................................... (251,998) (330,340)
Investor C Class ................................... (37,389) (27,287)
--------------- ---------------
Total distributions from net investment income ..... (31,577,043) (39,706,963)
--------------- ---------------
Capital:
BlackRock Class .................................... -- --
Service Class ...................................... -- --
Investor A Class ................................... -- --
Investor B Class ................................... -- --
Investor C Class ................................... -- --
--------------- ---------------
Total distributions from capital ................... -- --
--------------- ---------------
Net realized gains:
BlackRock Class .................................... -- --
Institutional Class ................................ (2,338,691) (20,585,568)
Service Class ...................................... (263,605) (2,347,707)
Investor A Class ................................... (128,734) (1,248,261)
Investor B Class ................................... (32,026) (267,625)
Investor C Class ................................... (4,139) (19,166)
--------------- ---------------
Total distributions from net realized gains ........ (2,767,195) (24,468,327)
--------------- ---------------
Total distributions to shareholders ................ (34,344,238) (64,175,290)
--------------- ---------------
Capital share transactions (Note D) .................... (49,835,255) (157,771,373)
--------------- ---------------
Redemption fees ........................................ -- --
--------------- ---------------
Total increase (decrease) in net assets ............ (64,132,518) (194,042,158)
Net assets:
Beginning of period ................................ 769,804,418 963,846,576
--------------- ---------------
End of period ...................................... $ 705,671,900 $ 769,804,418
=============== ===============
End of period undistributed net investment income
(distributions in excess of net investment
income) .......................................... $ 1,816,732 $ 284,886
International High Yield
Bond Portfolio Bond Portfolio
--------------------------------------------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
9/30/05 9/30/04 9/30/05 9/30/04
-------------- ------------- ------------- -------------
Increase (decrease) in net assets:
Operations:
Net investment income .................................. $ 16,094,755 $ 7,189,923 $ 61,613,791 $ 44,111,805
Net realized gain (loss) on investments, futures,
options, swap and swaption contracts and foreign
currency related transactions ......................... (6,326,188) 10,996,047 25,349,009 33,594,357
Net unrealized appreciation/depreciation on
investments, futures, options, swap and swaption
contracts and foreign currency related
transactions .......................................... (18,209,605) (64,501) (27,127,973) (6,063,310)
-------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations ............................................ (8,441,038) 18,121,469 59,834,827 71,642,852
-------------- ------------- ------------- -------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ........................................ (3,836,007) (423,849) (10,447,236) (6,682,859)
Institutional Class .................................... (13,371,592) (4,289,402) (11,719,171) (12,247,677)
Service Class .......................................... (4,647,433) (2,578,046) (9,855,000) (7,116,452)
Investor A Class ....................................... (7,771,213) (3,713,909) (14,980,576) (4,942,313)
Investor B Class ....................................... (772,214) (425,800) (6,797,925) (6,367,995)
Investor C Class ....................................... (2,060,078) (787,077) (3,593,974) (4,444,804)
-------------- ------------- ------------ -------------
Total distributions from net investment income ......... (32,458,537) (12,218,083) (57,393,882) (41,802,100)
-------------- ------------- ------------ -------------
Capital:
BlackRock Class ........................................ -- -- -- --
Service Class .......................................... -- -- -- --
Investor A Class ....................................... -- -- -- --
Investor B Class ....................................... -- -- -- --
Investor C Class ....................................... -- -- -- --
-------------- ------------- ------------- -------------
Total distributions from capital ....................... -- -- -- --
-------------- ------------- ------------- -------------
Net realized gains:
BlackRock Class ........................................ (31,979) -- (2,217,477) --
Institutional Class .................................... (111,687) -- (2,744,299) --
Service Class .......................................... (45,846) -- (2,126,281) --
Investor A Class ....................................... (76,674) -- (1,216,391) --
Investor B Class ....................................... (9,510) -- (1,516,927) --
Investor C Class ....................................... (22,658) -- (990,873) --
-------------- ------------- ------------- -------------
Total distributions from net realized gains ............ (298,354) -- (10,812,248) --
-------------- ------------- ------------- -------------
Total distributions to shareholders .................... (32,756,891) (12,218,083) (68,206,130) (41,802,100)
-------------- ------------- ------------- -------------
Capital share transactions (Note D) ........................ 435,410,598 201,930,564 296,865,467 22,209,066
-------------- ------------- ------------- -------------
Redemption fees ............................................ 49,151 47,581 26,956 56,693
-------------- ------------- ------------- -------------
Total increase (decrease) in net assets ................ 394,261,820 207,881,531 288,521,120 52,106,511
Net assets:
Beginning of period .................................... 426,188,789 218,307,258 628,177,740 576,071,229
-------------- ------------- ------------- -------------
End of period .......................................... $ 820,450,609 $ 426,188,789 $ 916,698,860 $ 628,177,740
============== ============= ============= =============
End of period undistributed net investment income
(distributions in excess of net investment
income) .............................................. $ (18,600,877) $ 2,946,297 $ 3,568,504 $ (1,207,716)
- ----------
1 Commencement of operations.
See accompanying notes to financial statements.
121
BlackRock Funds
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net gain
asset (loss) on
value Net investments
beginning investment (both realized
of period income/14/ and unrealized)/14/
--------- ---------- -------------------
- -------------------------
Enhanced Income Portfolio
- -------------------------
BlackRock Class
9/30/05 $ 9.94 $ 0.29/7/ $ (0.08)
3/04/04/1/ through 9/30/04 10.00 0.11/7/ (0.05)
Institutional Class
9/30/05 $ 9.94 $ 0.27/7/ $ (0.07)
3/19/04/1/ through 9/30/04 10.00 0.09/7/ (0.05)
Service Class
9/30/05 $ 9.86 $ 0.27/7/ $ (0.11)
3/19/04/1/ through 9/30/04 10.00 0.14/7/ (0.08)
Investor A Class
9/30/05 $ 9.93 $ 0.28/7/ $ (0.12)
3/19/04/1/ through 9/30/04 10.00 0.06/7/ (0.07)
- ---------------------------
Low Duration Bond Portfolio
- ---------------------------
BlackRock Class
9/30/05 $ 10.09 $ 0.32/7/ $ (0.17)
9/30/04 10.23 0.23/7/ (0.11)
9/30/03/16/ 10.25 0.30 0.01
9/30/02/16/ 10.20 0.42 0.13
9/30/01/16/ 9.81 0.57 0.42
Institutional Class
9/30/05 $ 10.09 $ 0.31/7/ $ (0.17)
9/30/04 10.23 0.21/7/ (0.11)
9/30/03/16/ 10.25 0.26 0.03
9/30/02/16/ 10.21 0.41 0.12
9/30/01/16/ 9.82 0.56 0.41
Service Class
9/30/05 $ 10.09 $ 0.28/7/ $ (0.16)
9/30/04 10.23 0.19/7/ (0.12)
9/30/03/16/ 10.25 0.24 0.02
9/30/02/16/ 10.21 0.38 0.12
9/30/01/16/ 9.82 0.53 0.41
Investor A Class
9/30/05 $ 10.10 $ 0.28/7/ $ (0.17)
9/30/04 10.24 0.18/7/ (0.12)
9/30/03/16/ 10.26 0.21 0.04
9/30/02/16/ 10.21 0.36 0.13
9/30/01/16/ 9.82 0.52 0.41
Investor B Class
9/30/05 $ 10.09 $ 0.21/7/ $ (0.17)
9/30/04 10.23 0.10/7/ (0.11)
9/30/03/16/ 10.25 0.15 0.03
9/30/02/16/ 10.21 0.29 0.12
9/30/01/16/ 9.82 0.44 0.41
Investor C Class
9/30/05 $ 10.09 $ 0.21/7/ $ (0.17)
9/30/04 10.23 0.10/7/ (0.11)
9/30/03/16/ 10.25 0.15 0.03
9/30/02/16/ 10.21 0.30 0.11
9/30/01/16/ 9.82 0.44 0.41
Net
Distributions Distributions asset
from net Distributions from net value
investment from realized end of
income/6/ capital gains period
------------- ------------- ------------- --------
- -------------------------
Enhanced Income Portfolio
- -------------------------
BlackRock Class
9/30/05 $ (0.29) $ -- $ -- $ 9.86
3/04/04/1/ through 9/30/04 (0.12) -- -- 9.94
Institutional Class
9/30/05 $ (0.28) $ -- $ -- $ 9.86
3/19/04/1/ through 9/30/04 (0.10) -- -- 9.94
Service Class
9/30/05 $ (0.32) $ -- $ -- $ 9.70
3/19/04/1/ through 9/30/04 (0.20) -- -- 9.86
Investor A Class
9/30/05 $ (0.24) $ -- $ -- $ 9.85
3/19/04/1/ through 9/30/04 (0.06) -- -- 9.93
- ---------------------------
Low Duration Bond Portfolio
- ---------------------------
BlackRock Class
9/30/05 $ (0.32) $ -- $ -- $ 9.92
9/30/04 (0.21) -- (0.04) 10.09
9/30/03/16/ (0.32) -- (0.01) 10.23
9/30/02/16/ (0.45) -- (0.05) 10.25
9/30/01/16/ (0.60) -- -- 10.20
Institutional Class
9/30/05 $ (0.30) $ -- $ -- $ 9.93
9/30/04 (0.20) (0.01) (0.04) 10.09
9/30/03/16/ (0.30) -- (0.01) 10.23
9/30/02/16/ (0.44) -- (0.05) 10.25
9/30/01/16/ (0.58) -- -- 10.21
Service Class
9/30/05 $ (0.28) $ -- $ -- $ 9.93
9/30/04 (0.17) (0.01) (0.04) 10.09
9/30/03/16/ (0.27) -- (0.01) 10.23
9/30/02/16/ (0.41) -- (0.05) 10.25
9/30/01/16/ (0.55) -- -- 10.21
Investor A Class
9/30/05 $ (0.28) $ -- $ -- $ 9.93
9/30/04 (0.16) -- (0.04) 10.10
9/30/03/16/ (0.26) -- (0.01) 10.24
9/30/02/16/ (0.39) -- (0.05) 10.26
9/30/01/16/ (0.54) -- -- 10.21
Investor B Class
9/30/05 $ (0.20) $ -- $ -- $ 9.93
9/30/04 (0.09) (0.01) (0.04) 10.09
9/30/03/16/ (0.19) -- (0.01) 10.23
9/30/02/16/ (0.32) -- (0.05) 10.25
9/30/01/16/ (0.46) -- -- 10.21
Investor C Class
9/30/05 $ (0.20) $ -- $ -- $ 9.93
9/30/04 (0.09) (0.01) (0.04) 10.09
9/30/03/16/ (0.19) -- (0.01) 10.23
9/30/02/16/ (0.32) -- (0.05) 10.25
9/30/01/16/ (0.46) -- -- 10.21
See accompanying notes to financial statements.
122
BlackRock Funds
Ratio of net
expenses to
Net average net
assets Ratio of net assets
end of expenses to (excluding
Total period average net interest
return (000) assets expense)
-------------- -------------- -------------- --------------
- -------------------------
Enhanced Income Portfolio
- -------------------------
BlackRock Class
9/30/05 2.15% $ 23,641 0.32% 0.30%
3/04/04/1/ through 9/30/04 0.58 18,677 0.30/2,15/ 0.30/2,15/
Institutional Class
9/30/05 2.05% $ 32,646 0.41% 0.40%
3/19/04/1/ through 9/30/04 0.40 35,967 0.40/2,15/ 0.40/2,15/
Service Class
9/30/05 1.66% $ 49 0.74% 0.71%
3/19/04/1/ through 9/30/04 0.61 -- 0.71/2/ 0.71/2/
Investor A Class
9/30/05 1.62%/3/ $ 2 0.74% 0.71%
3/19/04/1/ through 9/30/04 (0.12)/3/ -- 0.71/2/ 0.71/2/
- ---------------------------
Low Duration Bond Portfolio
- ---------------------------
BlackRock Class
9/30/05 1.49%/8/ $ 543,043 0.40% 0.40%
9/30/04 1.18 772,355 0.40 0.40
9/30/03/16/ 2.98 625,363 0.40 0.40
9/30/02/16/ 5.58 281,844 0.40 0.40
9/30/01/16/ 10.38 114,205 0.99 0.40
Institutional Class
9/30/05 1.43%/8/ $ 378,712 0.55% 0.55%
9/30/04 1.03 477,622 0.55 0.55
9/30/03/16/ 2.82 477,420 0.55 0.55
9/30/02/16/ 5.32 298,698 0.55 0.55
9/30/01/16/ 10.21 135,243 1.24 0.55
Service Class
9/30/05 1.17%/8/ $ 377,470 0.81% 0.81%
9/30/04 0.73 345,733 0.84 0.84
9/30/03/16/ 2.52 248,426 0.85 0.85
9/30/02/16/ 5.01 120,857 0.85 0.85
9/30/01/16/ 9.88 42,909 1.41 0.85
Investor A Class
9/30/05 1.07%/3,8/ $ 75,652 0.81% 0.81%
9/30/04 0.69/3/ 87,317 0.88 0.88
9/30/03/16/ 2.47/3/ 102,047 0.90 0.90
9/30/02/16/ 4.93/3/ 69,211 1.02 1.02
9/30/01/16/ 9.70/3/ 12,808 1.43 1.00
Investor B Class
9/30/05 0.41%/4,8/ $ 45,942 1.56% 1.56%
9/30/04 (0.06)/4/ 66,253 1.63 1.63
9/30/03/16/ 1.70/4/ 83,937 1.65 1.65
9/30/02/16/ 4.05/4/ 53,087 1.77 1.77
9/30/01/16/ 8.89/4/ 20,485 2.28 1.76
Investor C Class
9/30/05 0.41%/4,8/ $ 72,085 1.57% 1.57%
9/30/04 (0.06)/4/ 124,548 1.63 1.63
9/30/03/16/ 1.70/4/ 198,234 1.65 1.65
9/30/02/16/ 4.05/4/ 118,851 1.77 1.77
9/30/01/16/ 8.89/4/ 9,282 1.99 1.72
Ratio of net
Ratio of total investment
expenses income
to average Ratio of net to average
net assets investment income net assets Portfolio
(excluding to average net (excluding turnover
waivers) assets/14/ waivers)/14/ rate
-------------- ----------------- -------------- --------------
- -------------------------
Enhanced Income Portfolio
- -------------------------
BlackRock Class
9/30/05 0.72% 2.94% 2.54% 147%
3/04/04/1/ through 9/30/04 1.14/2,15/ 1.87/2,15/ 1.03/2,15/ 208
Institutional Class
9/30/05 0.83% 2.74% 2.32% 147%
3/19/04/1/ through 9/30/04 1.26/2,15/ 1.77/2,15/ 0.91/2,15/ 208
Service Class
9/30/05 1.09% 2.77% 2.42% 147%
3/19/04/1/ through 9/30/04 1.51/2/ 1.46/2/ 0.66/2/ 208
Investor A Class
9/30/05 1.19% 2.77% 2.32% 147%
3/19/04/1/ through 9/30/04 1.61/2/ 1.46/2/ 0.56/2/ 208
- ---------------------------
Low Duration Bond Portfolio
- ---------------------------
BlackRock Class
9/30/05 0.68% 3.22% 2.94% 127%
9/30/04 0.65 2.25 1.99 216
9/30/03/16/ 0.67 2.31 2.04 195
9/30/02/16/ 0.79 3.86 3.47 195
9/30/01/16/ 1.28 5.78 5.48 168
Institutional Class
9/30/05 0.80% 3.07% 2.82% 127%
9/30/04 0.78 2.09 1.86 216
9/30/03/16/ 0.80 2.28 2.03 195
9/30/02/16/ 0.81 3.76 3.50 195
9/30/01/16/ 1.52 5.64 5.36 168
Service Class
9/30/05 1.05% 2.82% 2.58% 127%
9/30/04 1.07 1.83 1.60 216
9/30/03/16/ 1.10 1.94 1.69 195
9/30/02/16/ 1.11 3.40 3.15 195
9/30/01/16/ 1.68 5.25 4.97 168
Investor A Class
9/30/05 1.15% 2.81% 2.47% 127%
9/30/04 1.27 1.74 1.35 216
9/30/03/16/ 1.20 1.91 1.61 195
9/30/02/16/ 1.27 3.18 2.93 195
9/30/01/16/ 1.70 4.91 4.64 168
Investor B Class
9/30/05 1.81% 2.06% 1.81% 127%
9/30/04 1.92 1.00 0.71 216
9/30/03/16/ 1.95 1.17 0.87 195
9/30/02/16/ 2.02 2.48 2.23 195
9/30/01/16/ 2.55 4.29 4.02 168
Investor C Class
9/30/05 1.81% 2.06% 1.82% 127%
9/30/04 1.93 0.98 0.69 216
9/30/03/16/ 1.95 1.16 0.86 195
9/30/02/16/ 2.00 2.30 2.05 195
9/30/01/16/ 2.26 4.04 3.77 168
123
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net gain
asset (loss) on
value Net investments
beginning investment (both realized
of period income/14/ and unrealized)/14/
--------- ---------- -------------------
- --------------------------------------
Intermediate Government Bond Portfolio
- --------------------------------------
Institutional Class
9/30/05 $ 10.45 $ 0.39/7/ $ (0.25)
9/30/04 10.63 0.38/7/ (0.17)
9/30/03/16/ 10.82 0.48 (0.15)
9/30/02/16/ 10.55 0.55 0.26
9/30/01/16/ 9.91 0.61 0.63
Service Class
9/30/05 $ 10.44 $ 0.36/7/ $ (0.25)
9/30/04 10.62 0.35/7/ (0.17)
9/30/03/16/ 10.81 0.45 (0.16)
9/30/02/16/ 10.55 0.52 0.25
9/30/01/16/ 9.91 0.58 0.63
Investor A Class
9/30/05 $ 10.47 $ 0.35/7/ $ (0.24)
9/30/04 10.65 0.33/7/ (0.17)
9/30/03/16/ 10.84 0.44 (0.16)
9/30/02/16/ 10.57 0.51 0.25
9/30/01/16/ 9.91 0.56 0.65
Investor B Class
9/30/05 $ 10.45 $ 0.27/7/ $ (0.24)
9/30/04 10.62 0.25/7/ (0.16)
9/30/03/16/ 10.82 0.34 (0.15)
9/30/02/16/ 10.55 0.43 0.25
9/30/01/16/ 9.91 0.49 0.63
Investor C Class
9/30/05 $ 10.46 $ 0.27/7/ $ (0.24)
9/30/04 10.63 0.26/7/ (0.17)
9/30/03/16/ 10.83 0.34 (0.15)
9/30/02/16/ 10.55 0.42 0.27
9/30/01/16/ 9.91 0.49 0.63
- ---------------------------
Intermediate Bond Portfolio
- ---------------------------
BlackRock Class
9/30/05 $ 9.57 $ 0.35/7/ $ (0.20)
9/30/04 9.89 0.35/7/ (0.09)
9/30/03/16/ 9.81 0.49 0.13
9/30/02/16/ 9.72 0.55 0.18
9/30/01/16/ 9.13 0.57 0.61
Institutional Class
9/30/05 $ 9.57 $ 0.34/7/ $ (0.20)
9/30/04 9.89 0.34/7/ (0.10)
9/30/03/16/ 9.81 0.47 0.14
9/30/02/16/ 9.71 0.54 0.19
9/30/01/16/ 9.13 0.57 0.59
Service Class
9/30/05 $ 9.57 $ 0.31/7/ $ (0.19)
9/30/04 9.89 0.31/7/ (0.10)
9/30/03/16/ 9.81 0.44 0.14
9/30/02/16/ 9.71 0.52 0.18
9/30/01/16/ 9.13 0.53 0.60
Net
Distributions Distributions asset
from net Distributions from net value
investment from realized end of
income/6/ capital gains period
------------- ------------- ------------- -------------
- --------------------------------------
Intermediate Government Bond Portfolio
- --------------------------------------
Institutional Class
9/30/05 $ (0.26) $ (0.08) $ (0.05) $ 10.20
9/30/04 (0.39) -- -- 10.45
9/30/03/16/ (0.52) -- -- 10.63
9/30/02/16/ (0.54) -- -- 10.82
9/30/01/16/ (0.60) -- -- 10.55
Service Class
9/30/05 $ (0.24) $ (0.07) $ (0.05) $ 10.19
9/30/04 (0.36) -- -- 10.44
9/30/03/16/ (0.48) -- -- 10.62
9/30/02/16/ (0.51) -- -- 10.81
9/30/01/16/ (0.57) -- -- 10.55
Investor A Class
9/30/05 $ (0.23) $ (0.07) $ (0.05) $ 10.23
9/30/04 (0.34) -- -- 10.47
9/30/03/16/ (0.47) -- -- 10.65
9/30/02/16/ (0.49) -- -- 10.84
9/30/01/16/ (0.55) -- -- 10.57
Investor B Class
9/30/05 $ (0.18) $ (0.05) $ (0.05) $ 10.20
9/30/04 (0.26) -- -- 10.45
9/30/03/16/ (0.39) -- -- 10.62
9/30/02/16/ (0.41) -- -- 10.82
9/30/01/16/ (0.48) -- -- 10.55
Investor C Class
9/30/05 $ (0.18) $ (0.05) $ (0.05) $ 10.21
9/30/04 (0.26) -- -- 10.46
9/30/03/16/ (0.39) -- -- 10.63
9/30/02/16/ (0.41) -- -- 10.83
9/30/01/16/ (0.48) -- -- 10.55
- ----------------------------
Intermediate Bond Portfolio
- ----------------------------
BlackRock Class
9/30/05 $ (0.32) $ -- $ (0.08) $ 9.32
9/30/04 (0.36) -- (0.22) 9.57
9/30/03/16/ (0.52) -- (0.02) 9.89
9/30/02/16/ (0.54) -- (0.10) 9.81
9/30/01/16/ (0.59) -- -- 9.72
Institutional Class
9/30/05 $ (0.31) $ -- $ (0.08) $ 9.32
9/30/04 (0.34) -- (0.22) 9.57
9/30/03/16/ (0.51) -- (0.02) 9.89
9/30/02/16/ (0.53) -- (0.10) 9.81
9/30/01/16/ (0.58) -- -- 9.71
Service Class
9/30/05 $ (0.28) $ -- $ (0.08) $ 9.33
9/30/04 (0.31) -- (0.22) 9.57
9/30/03/16/ (0.48) -- (0.02) 9.89
9/30/02/16/ (0.50) -- (0.10) 9.81
9/30/01/16/ (0.55) -- -- 9.71
See accompanying notes to financial statements.
124
BlackRock Funds
Ratio of net
Net expenses to
assets Ratio of net average net
end of expenses to assets
Total period average net (excluding
return (000) assets interest expense)
---------------- ----------------- --------------- -----------------
- --------------------------------------
Intermediate Government Bond Portfolio
- --------------------------------------
Institutional Class
9/30/05 1.38% $ 214,980 0.60% 0.60%
9/30/04 2.01 236,212 0.60 0.60
9/30/03/16/ 3.09 230,609 0.60 0.60
9/30/02/16/ 7.97 281,983 0.60 0.60
9/30/01/16/ 12.90 309,383 1.33 0.60
Service Class
9/30/05 1.08% $ 842 0.90% 0.90%
9/30/04 1.71 1,235 0.86 0.86
9/30/03/16/ 2.79 1,447 0.90 0.90
9/30/02/16/ 7.56 2,007 0.91 0.90
9/30/01/16/ 12.56 32,336 1.56 0.90
Investor A Class
9/30/05 1.07%/3/ $ 345,132 0.99% 0.99%
9/30/04 1.54/3/ 43,500 1.05 1.05
9/30/03/16/ 2.60/3/ 54,693 1.07 1.07
9/30/02/16/ 7.46/3/ 52,507 1.08 1.07
9/30/01/16/ 12.58/3/ 14,033 1.64 1.04
Investor B Class
9/30/05 0.22%/4/ $ 75,182 1.75% 1.75%
9/30/04 0.88/4/ 10,533 1.80 1.80
9/30/03/16/ 1.75/4/ 12,312 1.82 1.82
9/30/02/16/ 6.68/4/ 8,197 1.81 1.81
9/30/01/16/ 11.55/4/ 3,518 2.34 1.81
Investor C Class
9/30/05 0.22%/4/ $ 20,154 1.75% 1.75%
9/30/04 0.88/4/ 14,194 1.80 1.80
9/30/03/16/ 1.75/4/ 18,028 1.82 1.82
9/30/02/16/ 6.77/4/ 7,389 1.81 1.81
9/30/01/16/ 11.55/4/ 1,677 2.24 1.77
- ----------------------------
Intermediate Bond Portfolio
- ----------------------------
BlackRock Class
9/30/05 1.61% $ 435,529 0.45% 0.45%
9/30/04 2.72 444,821 0.45 0.45
9/30/03/16/ 6.56 392,112 0.45 0.45
9/30/02/16/ 7.87 371,857 0.48 0.45
9/30/01/16/ 13.39 524,046 0.70 0.45
Institutional Class
9/30/05 1.46% $ 316,522 0.60% 0.60%
9/30/04 2.57 332,460 0.60 0.60
9/30/03/16/ 6.40 371,079 0.61 0.60
9/30/02/16/ 7.82 378,616 0.63 0.60
9/30/01/16/ 13.11 502,749 0.95 0.60
Service Class
9/30/05 1.30% $ 94,557 0.86% 0.86%
9/30/04 2.26 84,013 0.89 0.89
9/30/03/16/ 6.08 56,632 0.89 0.89
9/30/02/16/ 7.50 35,198 0.94 0.90
9/30/01/16/ 12.77 35,351 1.21 0.90
Ratio of net
Ratio of total investment
expenses income
to average Ratio of net to average
net assets investment income net assets Portfolio
(excluding to average net (excluding turnover
waivers) assets/14/ waivers)/14/ rate
-------------- ----------------- -------------- --------------
- --------------------------------------
Intermediate Government Bond Portfolio
- --------------------------------------
Institutional Class
9/30/05 0.89% 3.78% 3.49% 194%
9/30/04 0.84 3.62 3.38 200
9/30/03/16/ 0.85 4.51 4.26 143
9/30/02/16/ 0.83 5.38 5.16 183
9/30/01/16/ 1.54 5.98 5.76 157
Service Class
9/30/05 1.14% 3.48% 3.24% 194%
9/30/04 1.08 3.38 3.16 200
9/30/03/16/ 1.15 4.22 3.97 143
9/30/02/16/ 1.12 5.34 5.12 183
9/30/01/16/ 1.78 5.66 5.44 157
Investor A Class
9/30/05 1.25% 3.43% 3.17% 194%
9/30/04 1.33 3.17 2.89 200
9/30/03/16/ 1.32 3.99 3.75 143
9/30/02/16/ 1.30 4.83 4.61 183
9/30/01/16/ 1.85 5.30 5.09 157
Investor B Class
9/30/05 1.90% 2.69% 2.54% 194%
9/30/04 1.98 2.43 2.25 200
9/30/03/16/ 2.06 3.22 2.97 143
9/30/02/16/ 2.04 4.00 3.78 183
9/30/01/16/ 2.56 4.68 4.47 157
Investor C Class
9/30/05 1.90% 2.66% 2.51% 194%
9/30/04 1.98 2.45 2.27 200
9/30/03/16/ 2.06 3.13 2.89 143
9/30/02/16/ 2.03 3.93 3.71 183
9/30/01/16/ 2.45 4.58 4.37 157
- ---------------------------
Intermediate Bond Portfolio
- ---------------------------
BlackRock Class
9/30/05 0.70% 3.75% 3.50% 194%
9/30/04 0.69 3.67 3.43 216
9/30/03/16/ 0.69 4.92 4.68 220
9/30/02/16/ 0.81 5.80 5.48 239
9/30/01/16/ 0.92 6.08 5.86 250
Institutional Class
9/30/05 0.83% 3.60% 3.37% 194%
9/30/04 0.81 3.53 3.32 216
9/30/03/16/ 0.84 4.81 4.59 220
9/30/02/16/ 0.84 5.66 5.45 239
9/30/01/16/ 1.16 6.03 5.83 250
Service Class
9/30/05 1.08% 3.34% 3.12% 194%
9/30/04 1.10 3.23 3.02 216
9/30/03/16/ 1.11 4.44 4.22 220
9/30/02/16/ 1.15 5.36 5.15 239
9/30/01/16/ 1.41 5.70 5.49 250
125
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net gain
asset (loss) on
value Net investments
beginning investment (both realized
of period income/14/ and unrealized)/14/
----------- ------------ --------------------
- ---------------------------------------
Intermediate Bond Portfolio (Continued)
- ---------------------------------------
Investor A Class
9/30/05 $ 9.57 $ 0.32/7/ $ (0.20)
9/30/04 9.88 0.31/7/ (0.09)
9/30/03/16/ 9.81 0.43 0.14
9/30/02/16/ 9.71 0.49 0.19
9/30/01/16/ 9.12 0.52 0.61
Investor B Class
9/30/05 $ 9.57 $ 0.24/7/ $ (0.20)
9/30/04 9.89 0.23/7/ (0.09)
9/30/03/16/ 9.81 0.36 0.14
9/30/02/16/ 9.72 0.43 0.17
9/30/01/16/ 9.13 0.45 0.61
Investor C Class
9/30/05 $ 9.57 $ 0.25/7/ $ (0.20)
9/30/04 9.89 0.23/7/ (0.09)
9/30/03/16/ 9.82 0.35 0.14
9/30/02/16/ 9.72 0.42 0.19
9/30/01/16/ 9.14 0.45 0.60
- --------------------------------
Intermediate PLUS Bond Portfolio
- --------------------------------
BlackRock Class
9/30/05 $ 10.01 $ 0.37/7/ $ (0.17)
8/18/04/1/ through 9/30/04 10.00 0.10/7/ (0.04)
Institutional Class
9/30/05 $ 10.06 $ 0.31/7/ $ (0.13)
8/18/04/1/ through 9/30/04 10.00 0.06/7/ --
Service Class
9/30/05/10/ $ 10.04 $ 0.33/7/ $ (0.17)
8/18/04/1/ through 9/30/04 10.00 0.01/7/ 0.03
Investor A Class
9/30/05 $ 10.06 $ 0.33/7/ $ (0.17)
8/18/04/1/ through 9/30/04 10.00 0.06/7/ --
Investor B Class
9/30/05 $ 10.06 $ 0.23/7/ $ (0.15)
8/18/04/1/ through 9/30/04 10.00 0.06/7/ --
Investor C Class
9/30/05 $ 10.06 $ 0.19/7/ $ (0.11)
8/18/04/1/ through 9/30/04 10.00 0.06/7/ --
- --------------------------------
Core Bond Total Return Portfolio
- --------------------------------
BlackRock Class
9/30/05 $ 9.76 $ 0.40/7/ $ (0.11)
9/30/04 10.03 0.40/7/ (0.06)
9/30/03/16/ 10.02 0.45 0.16
9/30/02/16/ 9.98 0.54 0.20
9/30/01/16/ 9.36 0.58 0.62
Institutional Class
9/30/05 $ 9.74 $ 0.39/7/ $ (0.12)
9/30/04 10.01 0.39/7/ (0.04)
9/30/03/16/ 10.00 0.44 0.16
9/30/02/16/ 9.98 0.53 0.18
9/30/01/16/ 9.36 0.57 0.62
Net
Distributions Distributions asset
from net from net value
investment realized end of
income/6/ gains period
---------------- --------------- -----------
- ---------------------------------------
Intermediate Bond Portfolio (Continued)
- ---------------------------------------
Investor A Class
9/30/05 $ (0.29) $ (0.08) $ 9.32
9/30/04 (0.31) (0.22) 9.57
9/30/03/16/ (0.48) (0.02) 9.88
9/30/02/16/ (0.48) (0.10) 9.81
9/30/01/16/ (0.54) -- 9.71
Investor B Class
9/30/05 $ (0.21) $ (0.08) $ 9.32
9/30/04 (0.24) (0.22) 9.57
9/30/03/16/ (0.40) (0.02) 9.89
9/30/02/16/ (0.41) (0.10) 9.81
9/30/01/16/ (0.47) -- 9.72
Investor C Class
9/30/05 $ (0.21) $ (0.08) $ 9.33
9/30/04 (0.24) (0.22) 9.57
9/30/03/16/ (0.40) (0.02) 9.89
9/30/02/16/ (0.41) (0.10) 9.82
9/30/01/16/ (0.47) -- 9.72
- --------------------------------
Intermediate PLUS Bond Portfolio
- --------------------------------
BlackRock Class
9/30/05 $ (0.38) $ (0.01) $ 9.82
8/18/04/1/ through 9/30/04 (0.05) -- 10.01
Institutional Class
9/30/05 $ (0.06) $ (0.01) $ 10.17
8/18/04/1/ through 9/30/04 -- -- 10.06
Service Class
9/30/05/10/ $ -- $ (0.01) $ 10.19
8/18/04/1/ through 9/30/04 -- -- 10.04
Investor A Class
9/30/05 $ (0.19) $ (0.01) $ 10.02
8/18/04/1/ through 9/30/04 -- -- 10.06
Investor B Class
9/30/05 $ (0.12) $ (0.01) $ 10.01
8/18/04/1/ through 9/30/04 -- -- 10.06
Investor C Class
9/30/05 $ -- $ (0.01) $ 10.13
8/18/04/1/ through 9/30/04 -- -- 10.06
- --------------------------------
Core Bond Total Return Portfolio
- --------------------------------
BlackRock Class
9/30/05 $ (0.39) $ (0.02) $ 9.64
9/30/04 (0.36) (0.25) 9.76
9/30/03/16/ (0.55) (0.05) 10.03
9/30/02/16/ (0.58) (0.12) 10.02
9/30/01/16/ (0.58) -- 9.98
Institutional Class
9/30/05 $ (0.37) $ (0.02) $ 9.62
9/30/04 (0.37) (0.25) 9.74
9/30/03/16/ (0.54) (0.05) 10.01
9/30/02/16/ (0.57) (0.12) 10.00
9/30/01/16/ (0.57) -- 9.98
See accompanying notes to financial statements.
126
BlackRock Funds
Ratio of net
expenses to
Net average net
assets Ratio of net assets
end of expenses to (excluding
Total period average net interest
return (000) assets expense)
----------- ------------- -------------- --------------
- ---------------------------------------
Intermediate Bond Portfolio (Continued)
- ---------------------------------------
Investor A Class
9/30/05 1.20%/3/ $ 31,272 0.86% 0.86%
9/30/04 2.33/3/ 33,977 0.93 0.93
9/30/03/16/ 5.92/3/ 38,547 0.94 0.94
9/30/02/16/ 7.32/3/ 26,805 1.12 1.07
9/30/01/16/ 12.58/3/ 7,106 1.33 1.06
Investor B Class
9/30/05 0.44%/4/ $ 10,594 1.61% 1.61%
9/30/04 1.46/4/ 14,106 1.68 1.68
9/30/03/16/ 5.24/4/ 12,850 1.69 1.69
9/30/02/16/ 6.41/4/ 6,291 1.86 1.81
9/30/01/16/ 11.87/4/ 2,933 2.05 1.80
Investor C Class
9/30/05 0.54%/4/ $ 9,204 1.61% 1.61%
9/30/04 1.46/4/ 14,334 1.67 1.67
9/30/03/16/ 5.13/4/ 13,046 1.68 1.68
9/30/02/16/ 6.52/4/ 3,950 1.85 1.80
9/30/01/16/ 11.74/4/ 885 2.11 1.81
- --------------------------------
Intermediate PLUS Bond Portfolio
- --------------------------------
BlackRock Class
9/30/05 1.98% $ 30,133 0.40% 0.40%
8/18/04/1/ through 9/30/04 0.57 25,918 0.40/2,15/ 0.40/2,15/
Institutional Class
9/30/05 1.78% $ 826 0.55% 0.55%
8/18/04/1/ through 9/30/04 0.60 -- 0.55/2/ 0.55/2/
Service Class
9/30/05/10/ 1.58% $ -- 0.80% 0.80%
8/18/04/1/ through 9/30/04 0.40 -- 0.81/2/ 0.81/2/
Investor A Class
9/30/05 1.60%/3/ $ 20 0.80% 0.80%
8/18/04/1/ through 9/30/04 0.60/3/ -- 0.81/2/ 0.81/2/
Investor B Class
9/30/05 0.81%/4/ $ 2 1.55% 1.55%
8/18/04/1/ through 9/30/04 0.60/4/ -- 1.56/2/ 1.56/2/
Investor C Class
9/30/05 0.78%/4/ $ -- 1.55% 1.55%
8/18/04/1/ through 9/30/04 0.60/4/ -- 1.56/2/ 1.56/2/
- --------------------------------
Core Bond Total Return Portfolio
- --------------------------------
BlackRock Class
9/30/05 2.96% $ 1,543,861 0.40% 0.40%
9/30/04 3.83 1,400,826 0.40 0.40
9/30/03/16/ 6.33 1,035,461 0.40 0.40
9/30/02/16/ 7.74 763,736 0.46 0.40
9/30/01/16/ 13.21 530,153 0.47 0.40
Institutional Class
9/30/05 2.81% $ 614,700 0.55% 0.55%
9/30/04 3.68 697,687 0.55 0.55
9/30/03/16/ 6.19 907,864 0.55 0.55
9/30/02/16/ 7.36 918,935 0.60 0.55
9/30/01/16/ 13.04 1,088,073 0.63 0.55
Ratio of net
Ratio of total investment
expenses Ratio of net income
to average investment to average
net assets income net assets Portfolio
(excluding to average net (excluding turnover
waivers) assets/14/ waivers)/14/ rate
---------------- ---------------- --------------- ----------
- ---------------------------------------
Intermediate Bond Portfolio (Continued)
- ---------------------------------------
Investor A Class
9/30/05 1.18% 3.34% 3.02% 194%
9/30/04 1.29 3.20 2.83 216
9/30/03/16/ 1.21 4.46 4.19 220
9/30/02/16/ 1.33 5.22 5.01 239
9/30/01/16/ 1.54 5.44 5.24 250
Investor B Class
9/30/05 1.83% 2.59% 2.37% 194%
9/30/04 1.94 2.45 2.18 216
9/30/03/16/ 1.96 3.67 3.40 220
9/30/02/16/ 2.07 4.45 4.24 239
9/30/01/16/ 2.25 4.67 4.47 250
Investor C Class
9/30/05 1.83% 2.59% 2.37% 194%
9/30/04 1.93 2.45 2.18 216
9/30/03/16/ 1.95 3.51 3.25 220
9/30/02/16/ 2.06 4.37 4.16 239
9/30/01/16/ 2.31 4.74 4.54 250
- --------------------------------
Intermediate PLUS Bond Portfolio
- --------------------------------
BlackRock Class
9/30/05 1.04% 3.72% 3.08% 217%
8/18/04/1/ through 9/30/04 3.40/2,15/ 3.91/2,15/ 0.91/2,15/ 114
Institutional Class
9/30/05 1.18% 3.63% 3.00% 217%
8/18/04/1/ through 9/30/04 3.52/2/ 3.76/2/ 0.79/2/ 114
Service Class
9/30/05/10/ 1.42% 3.37% 2.75% 217%
8/18/04/1/ through 9/30/04 3.77/2/ 3.50/2/ 0.54/2/ 114
Investor A Class
9/30/05 1.52% 3.37% 2.65% 217%
8/18/04/1/ through 9/30/04 3.87/2/ 3.50/2/ 0.44/2/ 114
Investor B Class
9/30/05 2.17% 2.62% 2.00% 217%
8/18/04/1/ through 9/30/04 4.52/2/ 2.75/2/ (0.21)/2/ 114
Investor C Class
9/30/05 2.17% 2.62% 2.00% 217%
8/18/04/1/ through 9/30/04 4.52/2/ 2.75/2/ (0.21)/2/ 114
- --------------------------------
Core Bond Total Return Portfolio
- --------------------------------
BlackRock Class
9/30/05 0.64% 4.13% 3.89% 351%
9/30/04 0.63 4.13 3.89 360
9/30/03/16/ 0.65 4.52 4.28 659/9/
9/30/02/16/ 0.79 5.48 5.14 359
9/30/01/16/ 0.72 6.04 5.80 304
Institutional Class
9/30/05 0.77% 4.00% 3.78% 351%
9/30/04 0.76 3.97 3.76 360
9/30/03/16/ 0.78 4.44 4.21 659/9/
9/30/02/16/ 0.82 5.36 5.14 359
9/30/01/16/ 0.85 5.91 5.68 304
127
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net gain
asset Net (loss) on
value investment investments
beginning income (both realized
of period (loss)/14/ and unrealized)/14/
------------ ------------ -------------------
- --------------------------------------------
Core Bond Total Return Portfolio (Continued)
- --------------------------------------------
Service Class
9/30/05 $ 9.74 $ 0.36/7/ $ (0.11)
9/30/04 10.01 0.36/7/ (0.04)
9/30/03/16/ 9.99 0.42 0.16
9/30/02/16/ 9.98 0.52 0.15
9/30/01/16/ 9.36 0.54 0.62
Investor A Class
9/30/05 $ 9.75 $ 0.36/7/ $ (0.11)
9/30/04 10.01 0.35/7/ (0.02)
9/30/03/16/ 10.00 0.40 0.16
9/30/02/16/ 9.99 0.47 0.18
9/30/01/16/ 9.36 0.53 0.62
Investor B Class
9/30/05 $ 9.75 $ 0.29/7/ $ (0.13)
9/30/04 10.01 0.28/7/ (0.02)
9/30/03/16/ 10.00 0.33 0.16
9/30/02/16/ 9.98 0.41 0.18
9/30/01/16/ 9.35 0.46 0.62
Investor C Class
9/30/05 $ 9.75 $ 0.29/7/ $ (0.12)
9/30/04 10.02 0.28/7/ (0.03)
9/30/03/16/ 10.01 0.33 0.16
9/30/02/16/ 9.99 0.42 0.17
9/30/01/16/ 9.35 0.46 0.63
- --------------------------------
Core PLUS Total Return Portfolio
- --------------------------------
BlackRock Class
9/30/05 $ 10.34 $ 0.41/7/ $ (0.08)
9/30/04 10.46 0.38/7/ (0.01)
9/30/03/16/ 10.31 0.42 0.29
12/07/01/1,16/ through 9/30/02 10.00 0.40 0.32
Institutional Class
9/30/05 $ 10.28 $ 0.47/7/ $ (0.16)
9/30/04 10.46 0.28/7/ 0.02
9/30/03/16/ 10.31 0.40 0.29
12/07/01/1,16/ through 9/30/02 10.00 0.24 0.47
Service Class
9/30/05 $ 10.40 $ 0.38/7/ $ (0.09)
9/30/04 10.46 0.38/7/ 0.01
9/30/03/16/ 10.31 0.37 0.29
12/07/01/1,16/ through 9/30/02 10.00 0.23 0.48
Investor A Class
9/30/05 $ 10.35 $ 0.36/7/ $ (0.07)
9/30/04 10.46 0.33/7/ --
9/30/03/16/ 10.31 0.37 0.29
12/07/01/1,16/ through 9/30/02 10.00 0.08 0.59
Investor B Class
9/30/05 $ 10.34 $ 0.29/7/ $ (0.08)
9/30/04 10.46 0.25/7/ --
9/30/03/16/ 10.31 0.29 0.29
12/07/01/1,16/ through 9/30/02 10.00 0.43 0.21
Net
Distributions Distributions asset
from net from net value
investment realized end of
income/6/ gains period
--------------- --------------- -----------
- --------------------------------------------
Core Bond Total Return Portfolio (Continued)
- --------------------------------------------
Service Class
9/30/05 $ (0.35) $ (0.02) $ 9.62
9/30/04 (0.34) (0.25) 9.74
9/30/03/16/ (0.51) (0.05) 10.01
9/30/02/16/ (0.54) (0.12) 9.99
9/30/01/16/ (0.54) -- 9.98
Investor A Class
9/30/05 $ (0.35) $ (0.02) $ 9.63
9/30/04 (0.34) (0.25) 9.75
9/30/03/16/ (0.50) (0.05) 10.01
9/30/02/16/ (0.52) (0.12) 10.00
9/30/01/16/ (0.52) -- 9.99
Investor B Class
9/30/05 $ (0.27) $ (0.02) $ 9.62
9/30/04 (0.27) (0.25) 9.75
9/30/03/16/ (0.43) (0.05) 10.01
9/30/02/16/ (0.45) (0.12) 10.00
9/30/01/16/ (0.45) -- 9.98
Investor C Class
9/30/05 $ (0.27) $ (0.02) $ 9.63
9/30/04 (0.27) (0.25) 9.75
9/30/03/16/ (0.43) (0.05) 10.02
9/30/02/16/ (0.45) (0.12) 10.01
9/30/01/16/ (0.45) -- 9.99
- --------------------------------
Core PLUS Total Return Portfolio
- --------------------------------
BlackRock Class
9/30/05 $ (0.40) $ -- $ 10.27
9/30/04 (0.36) (0.13) 10.34
9/30/03/16/ (0.50) (0.06) 10.46
12/07/01/1,16/ through 9/30/02 (0.41) -- 10.31
Institutional Class
9/30/05 $ (0.38) $ -- $ 10.21
9/30/04 (0.35) (0.13) 10.28
9/30/03/16/ (0.48) (0.06) 10.46
12/07/01/1,16/ through 9/30/02 (0.40) -- 10.31
Service Class
9/30/05 $ (0.36) $ -- $ 10.33
9/30/04 (0.32) (0.13) 10.40
9/30/03/16/ (0.45) (0.06) 10.46
12/07/01/1,16/ through 9/30/02 (0.40) -- 10.31
Investor A Class
9/30/05 $ (0.36) $ -- $ 10.28
9/30/04 (0.31) (0.13) 10.35
9/30/03/16/ (0.45) (0.06) 10.46
12/07/01/1,16/ through 9/30/02 (0.36) -- 10.31
Investor B Class
9/30/05 $ (0.28) $ -- $ 10.27
9/30/04 (0.24) (0.13) 10.34
9/30/03/16/ (0.37) (0.06) 10.46
12/07/01/1,16/ through 9/30/02 (0.33) -- 10.31
See accompanying notes to financial statements.
128
BlackRock Funds
Ratio of net
Net expenses to
assets Ratio of net average net
end of expenses to assets
Total period average net (excluding
return (000) assets interest expense)
---------- ------------ -------------- -------------------
- --------------------------------------------
Core Bond Total Return Portfolio (Continued)
- --------------------------------------------
Service Class
9/30/05 2.54% $ 158,200 0.81% 0.81%
9/30/04 3.38 152,085 0.84 0.84
9/30/03/16/ 5.98 139,499 0.85 0.85
9/30/02/16/ 6.94 115,774 0.91 0.85
9/30/01/16/ 12.71 112,748 0.91 0.85
Investor A Class
9/30/05 2.54%/3/ $ 214,196 0.81% 0.81%
9/30/04 3.44/3/ 132,561 0.88 0.88
9/30/03/16/ 5.81/3/ 113,190 0.90 0.90
9/30/02/16/ 6.75/3/ 90,460 1.08 1.02
9/30/01/16/ 12.63/3/ 22,123 1.07 1.02
Investor B Class
9/30/05 1.67%/4/ $ 49,389 1.56% 1.56%
9/30/04 2.66/4/ 56,758 1.63 1.63
9/30/03/16/ 5.03/4/ 70,550 1.65 1.65
9/30/02/16/ 6.06/4/ 56,047 1.83 1.76
9/30/01/16/ 11.69/4/ 36,314 1.81 1.75
Investor C Class
9/30/05 1.77%/4/ $ 73,954 1.56% 1.56%
9/30/04 2.56/4/ 85,717 1.62 1.62
9/30/03/16/ 5.02/4/ 81,478 1.65 1.65
9/30/02/16/ 6.06/4/ 47,326 1.82 1.76
9/30/01/16/ 11.80/4/ 21,678 1.79 1.75
- --------------------------------
Core PLUS Total Return Portfolio
- --------------------------------
BlackRock Class
9/30/05 3.21% $ 326,033 0.40% 0.40%
9/30/04 3.65 285,096 0.40 0.40
9/30/03/16/ 7.00 224,248 0.40 0.40
12/07/01/1,16/ through 9/30/02 7.37 95,503 0.32/2/ 0.32/2/
Institutional Class
9/30/05 3.08% $ -- 0.55% 0.55%
9/30/04 2.91 -- 0.55 0.55
9/30/03/16/ 6.84 -- 0.55 0.55
12/07/01/1,16/ through 9/30/02 7.21 -- 0.52/2/ 0.52/2/
Service Class
9/30/05 2.77% $ -- 0.80% 0.80%
9/30/04 3.78 29 0.78 0.78
9/30/03/16/ 6.53 -- 0.85 0.85
12/07/01/1,16/ through 9/30/02 7.22 -- 0.82/2/ 0.82/2/
Investor A Class
9/30/05 2.79%/3/ $ 88 0.80% 0.80%
9/30/04 3.25/3/ 9 0.86 0.86
9/30/03/16/ 6.47/3/ 8 0.90 0.90
12/07/01/1,16/ through 9/30/02 6.88/3/ 2 0.99/2/ 0.99/2/
Investor B Class
9/30/05 2.02%/4/ $ 137 1.56% 1.56%
9/30/04 2.38/4/ 103 1.63 1.63
9/30/03/16/ 5.68/4/ 80 1.65 1.65
12/07/01/1,16/ through 9/30/02 6.46/4/ -- 1.74/2/ 1.74/2/
Ratio of net
Ratio of total investment
expenses Ratio of net income
to average investment to average
net assets income net assets Portfolio
(excluding to average net (excluding turnover
waivers) assets/14/ waivers)/14/ rate
--------------- ---------------- ---------------- ----------
- --------------------------------------------
Core Bond Total Return Portfolio (Continued)
- --------------------------------------------
Service Class
9/30/05 1.03% 3.73% 3.51% 351%
9/30/04 1.05 3.69 3.48 360
9/30/03/16/ 1.08 4.09 3.86 659/9/
9/30/02/16/ 1.13 5.07 4.85 359
9/30/01/16/ 1.13 5.56 5.34 304
Investor A Class
9/30/05 1.13% 3.72% 3.40% 351%
9/30/04 1.23 3.65 3.30 360
9/30/03/16/ 1.25 4.01 3.66 659/9/
9/30/02/16/ 1.30 4.89 4.67 359
9/30/01/16/ 1.28 5.34 5.13 304
Investor B Class
9/30/05 1.78% 2.97% 2.75% 351%
9/30/04 1.88 2.88 2.63 360
9/30/03/16/ 2.00 3.26 2.91 659/9/
9/30/02/16/ 2.04 4.14 3.92 359
9/30/01/16/ 2.02 4.62 4.41 304
Investor C Class
9/30/05 1.78% 2.93% 2.71% 351%
9/30/04 1.87 2.89 2.64 360
9/30/03/16/ 2.00 3.22 2.87 659/9/
9/30/02/16/ 2.04 4.14 3.92 359
9/30/01/16/ 2.00 4.57 4.36 304
- --------------------------------
Core PLUS Total Return Portfolio
- --------------------------------
BlackRock Class
9/30/05 0.72% 3.98% 3.66% 358%
9/30/04 0.71 3.68 3.37 412
9/30/03/16/ 0.75 3.61 3.26 1,021/10/
12/07/01/1,16/ through 9/30/02 0.72/2/ 3.94/2/ 3.54/2/ 330
Institutional Class
9/30/05 0.83% 3.83% 3.55% 358%
9/30/04 0.82 3.53 3.26 412
9/30/03/16/ 0.90 3.47 3.12 1,021/10/
12/07/01/1,16/ through 9/30/02 0.93/2/ 3.80/2/ 3.38/2/ 330
Service Class
9/30/05 1.08% 3.57% 3.29% 358%
9/30/04 1.07 3.74 3.45 412
9/30/03/16/ 1.20 3.17 2.82 1,021/10/
12/07/01/1,16/ through 9/30/02 1.23/2/ 3.50/2/ 3.08/2/ 330
Investor A Class
9/30/05 1.19% 3.56% 3.17% 358%
9/30/04 1.28 3.21 2.79 412
9/30/03/16/ 1.25 3.12 2.77 1,021/10/
12/07/01/1,16/ through 9/30/02 1.40/2/ 3.33/2/ 2.91/2/ 330
Investor B Class
9/30/05 1.84% 2.84% 2.56% 358%
9/30/04 1.97 2.46 2.12 412
9/30/03/16/ 2.00 2.36 2.01 1,021/10/
12/07/01/1,16/ through 9/30/02 2.15/2/ 2.58/2/ 2.16/2/ 330
129
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net gain
asset Net (loss) on
value investment investments
beginning income (both realized
of period (loss)/14/ and unrealized)/14/
----------- ------------- --------------------
- --------------------------------------------
Core PLUS Total Return Portfolio (Continued)
- --------------------------------------------
Investor C Class
9/30/05 $ 10.33 $ 0.28/7/ $ (0.07)
9/30/04 10.46 0.27/7/ (0.03)
9/30/03/16/ 10.31 0.29 0.29
12/07/01/1,16/ through 9/30/02 10.00 0.43 0.21
- ---------------------------
Government Income Portfolio
- ---------------------------
BlackRock Class
9/30/05 $ 11.18 $ 0.48/7/ $ (0.21)
9/30/04 11.34 0.47/7/ (0.05)
2/10/03/1,16/ through 9/30/03 11.27 0.60/7/ (0.19)
Service Class
10/27/04/1/ through 09/30/05 $ 11.21 $ 0.40/7/ $ (0.24)
Investor A Class
9/30/05 $ 11.18 $ 0.43/7/ $ (0.21)
9/30/04 11.33 0.40/7/ (0.04)
9/30/03/16/ 11.40 0.34/7/ 0.14
9/30/02/16/ 10.99 0.45/7/ 0.74
9/30/01/16/ 10.03 0.56 0.94
Investor B Class
9/30/05 $ 11.18 $ 0.35/7/ $ (0.21)
9/30/04 11.33 0.31/7/ (0.03)
9/30/03/16/ 11.40 0.30/7/ 0.10
9/30/02/16/ 10.98 0.39/7/ 0.73
9/30/01/16/ 10.03 0.48 0.93
Investor C Class
9/30/05 $ 11.16 $ 0.35/7/ $ (0.21)
9/30/04 11.31 0.31/7/ (0.03)
9/30/03/16/ 11.38 0.30/7/ 0.10
9/30/02/16/ 10.97 0.36/7/ 0.75
9/30/01/16/ 10.02 0.47 0.94
- ----------------------------------
Inflation Protected Bond Portfolio
- ----------------------------------
BlackRock Class
9/30/05 $ 10.38 $ 0.41/7/ $ 0.19
6/28/04/1/ through 9/30/04 10.00 0.12/7/ 0.38
Institutional Class
9/30/05 $ 10.54 $ 0.42/7/ $ 0.18
6/28/04/1/ through 9/30/04 10.00 0.16/7/ 0.38
Service Class
9/30/05 $ 10.39 $ 0.43/7/ $ 0.14
6/28/04/1/ through 9/30/04 10.00 (0.02)/7/ 0.41
Investor A Class
9/30/05 $ 10.50 $ 0.42/7/ $ 0.13
6/28/04/1/ through 9/30/04 10.00 0.01/7/ 0.51
Investor B Class
9/30/05 $ 10.51 $ 0.38/7/ $ 0.09
6/28/04/1/ through 9/30/04 10.00 (0.01)/7/ 0.53
Investor C Class
9/30/05 $ 10.55 $ 0.36/7/ $ 0.12
6/28/04/1/ through 9/30/04 10.00 (0.01)/7/ 0.56
Net
Distributions Distributions asset
from net Distributions from net value
investment from realized end of
income/6/ capital gains period
--------------- --------------- --------------- -----------
- --------------------------------------------
Core PLUS Total Return Portfolio (Continued)
- --------------------------------------------
Investor C Class
9/30/05 $ (0.28) $ -- $ -- $ 10.26
9/30/04 (0.24) -- (0.13) 10.33
9/30/03/16/ (0.37) -- (0.06) 10.46
12/07/01/1,16/ through 9/30/02 (0.33) -- -- 10.31
- ---------------------------
Government Income Portfolio
- ---------------------------
BlackRock Class
9/30/05 $ (0.52) $ (0.02) $ -- $ 10.91
9/30/04 (0.42) -- (0.16) 11.18
2/10/03/1,16/ through 9/30/03 (0.34) -- -- 11.34
Service Class
10/27/04/1/ through 09/30/05 $ (0.45) $ (0.02) $ -- $ 10.90
Investor A Class
9/30/05 $ (0.47) $ (0.02) $ -- $ 10.91
9/30/04 (0.36) -- (0.16) 11.18
9/30/03/16/ (0.46) -- (0.09) 11.33
9/30/02/16/ (0.51) -- (0.27) 11.40
9/30/01/16/ (0.54) -- -- 10.99
Investor B Class
9/30/05 $ (0.39) $ (0.02) $ -- $ 10.91
9/30/04 (0.27) -- (0.16) 11.18
9/30/03/16/ (0.38) -- (0.09) 11.33
9/30/02/16/ (0.43) -- (0.27) 11.40
9/30/01/16/ (0.46) -- -- 10.98
Investor C Class
9/30/05 $ (0.39) $ (0.02) $ -- $ 10.89
9/30/04 (0.27) -- (0.16) 11.16
9/30/03/16/ (0.38) -- (0.09) 11.31
9/30/02/16/ (0.43) -- (0.27) 11.38
9/30/01/16/ (0.46) -- -- 10.97
- ----------------------------------
Inflation Protected Bond Portfolio
- ----------------------------------
BlackRock Class
9/30/05 $ (0.53) $ -- $ (0.10) $ 10.35
6/28/04/1/ through 9/30/04 (0.12) -- -- 10.38
Institutional Class
9/30/05 $ (0.50) $ -- $ (0.10) $ 10.54
6/28/04/1/ through 9/30/04 -- -- -- 10.54
Service Class
9/30/05 $ (0.30) $ -- $ (0.10) $ 10.56
6/28/04/1/ through 9/30/04 -- -- -- 10.39
Investor A Class
9/30/05 $ (0.48) $ -- $ (0.10) $ 10.47
6/28/04/1/ through 9/30/04 (0.02) -- -- 10.50
Investor B Class
9/30/05 $ (0.40) $ -- $ (0.10) $ 10.48
6/28/04/1/ through 9/30/04 (0.01) -- -- 10.51
Investor C Class
9/30/05 $ (0.40) $ -- $ (0.10) $ 10.53
6/28/04/1/ through 9/30/04 -- -- -- 10.55
See accompanying notes to financial statements.
130
BlackRock Funds
Ratio of net
Net expenses to
assets Ratio of net average net
end of expenses to assets
Total period average net (excluding
return (000) assets interest expense)
----------- --------- -------------- -----------------
- --------------------------------------------
Core PLUS Total Return Portfolio (Continued)
- --------------------------------------------
Investor C Class
9/30/05 2.02%/4/ $ 53 1.55% 1.56%
9/30/04 2.28/4/ -- 1.63 1.63
9/30/03/16/ 5.68/4/ -- 1.65 1.65
12/07/01/1,16/ through 9/30/02 6.46/4/ -- 1.74/2/ 1.74/2/
- ---------------------------
Government Income Portfolio
- ---------------------------
BlackRock Class
9/30/05 2.43% $ 9,164 0.45% 0.45%
9/30/04 3.85 10,899 0.44 0.44
2/10/03/1,16/ through 9/30/03 3.68 3 0.29/2/ 0.29/2/
Service Class
10/27/04/1/ through 09/30/05 1.46% $ 212,963 0.85%/2/ 0.85%/2/
Investor A Class
9/30/05 2.01%/3/ $ 247,380 0.86% 0.86%
9/30/04 3.34/3/ 126,332 0.98 0.98
9/30/03/16/ 4.34/3/ 86,559 1.07 1.07
9/30/02/16/ 11.47/3/ 42,845 1.11 1.07
9/30/01/16/ 15.36/3/ 12,040 1.31 1.06
Investor B Class
9/30/05 1.25%/4/ $ 42,479 1.61% 1.61%
9/30/04 2.57/4/ 44,786 1.73 1.73
9/30/03/16/ 3.56/4/ 53,897 1.82 1.82
9/30/02/16/ 10.74/4/ 48,240 1.87 1.82
9/30/01/16/ 14.41/4/ 29,936 2.10 1.82
Investor C Class
9/30/05 1.25%/4/ $ 31,840 1.61% 1.61%
9/30/04 2.57/4/ 26,036 1.73 1.73
9/30/03/16/ 3.56/4/ 29,537 1.82 1.82
9/30/02/16/ 10.66/4/ 18,378 1.84 1.81
9/30/01/16/ 14.42/4/ 3,589 2.04 1.80
- -----------------------------------
Inflation Protected Bond Portfolio
- -----------------------------------
BlackRock Class
9/30/05 5.91% $ 22,975 0.30% 0.30%
6/28/04/1/ through 9/30/04 5.05 20,763 0.30/2,15/ 0.30/2,15/
Institutional Class
9/30/05 5.90% $ 5,788 0.40% 0.40%
6/28/04/1/ through 9/30/04 5.40 -- 0.40/2/ 0.40/2/
Service Class
9/30/05 5.52% $ 2 0.69% 0.69%
6/28/04/1/ through 9/30/04 3.90 -- 0.71/2/ 0.71/2/
Investor A Class
9/30/05 5.42%/3/ $ 3,994 0.69% 0.69%
6/28/04/1/ through 9/30/04 5.21/3/ 93 0.71/2/ 0.71/2/
Investor B Class
9/30/05 4.62%/4/ $ 2,045 1.44% 1.44%
6/28/04/1/ through 9/30/04 5.21/4/ 61 1.44/2/ 1.44/2/
Investor C Class
9/30/05 4.70%/4/ $ 3,749 1.42% 1.42%
6/28/04/1/ through 9/30/04 5.51/4/ 6 1.44/2/ 1.44/2/
Ratio of net
Ratio of total investment
expenses Ratio of net income
to Average investment to average
net assets income net assets Portfolio
(excluding to average net (excluding turnover
waivers) assets/14/ waivers)/14/ rate
------------------ ----------------- -------------- -----------
- --------------------------------------------
Core PLUS Total Return Portfolio (Continued)
- --------------------------------------------
Investor C Class
9/30/05 1.84% 2.78% 2.49% 358%
9/30/04 1.97 2.46 2.12 412
9/30/03/16/ 2.00 2.37 2.02 1,021/10/
12/07/01/1,16/ through 9/30/02 2.15/2/ 2.58/2/ 2.16/2/ 330
- ----------------------------
Government Income Portfolio
- ----------------------------
BlackRock Class 0.77% 4.35% 4.03% 662%
9/30/05 0.78% 4.25 3.92 345
9/30/04 0.47/2/ 2.95/2/ 2.76/2/ 1,981/11/
2/10/03/1,16/ through 9/30/03
Service Class
1/27/04/1/ through 09/30/05 1.15%/2/ 3.95%/2/ 3.65%/2/ 662%
Investor A Class
9/30/05 1.26% 3.92% 3.52% 662%
9/30/04 1.38 3.63 3.23 345
9/30/03/16/ 1.34 3.05 2.78 1,981/11/
9/30/02/16/ 1.41 4.26 3.97 615
9/30/01/16/ 1.60 5.25 4.96 849
Investor B Class
9/30/05 1.90% 3.20% 2.91% 662%
9/30/04 2.03 2.81 2.51 345
9/30/03/16/ 2.09 2.62 2.35 1,981/11/
9/30/02/16/ 2.17 3.69 3.40 615
9/30/01/16/ 2.39 4.62 4.33 849
Investor C Class
9/30/05 1.90% 3.19% 2.90% 662%
9/30/04 2.03 2.81 2.51 345
9/30/03/16/ 2.09 2.61 2.34 1,981/11/
9/30/02/16/ 2.13 3.42 3.13 615
9/30/01/16/ 2.33 4.50 4.21 849
- ----------------------------------
Inflation Protected Bond Portfolio
- ----------------------------------
BlackRock Class
9/30/05 0.97% 4.01% 3.34% 419%
6/28/04/1/ through 9/30/04 2.61/2,15/ 4.29/2,15/ 1.98/2,15/ 96
Institutional Class
9/30/05 1.06% 4.00% 3.34% 419%
6/28/04/1/ through 9/30/04 2.73/2/ 4.19/2/ 1.86/2/ 96
Service Class
9/30/05 1.29% 3.71% 3.11% 419%
6/28/04/1/ through 9/30/04 2.98/2/ 3.88/2/ 1.61/2/ 96
Investor A Class
9/30/05 1.39% 4.06% 3.36% 419%
6/28/04/1/ through 9/30/04 3.08/2/ 3.88/2/ 1.51/2/ 96
Investor B Class
9/30/05 2.07% 3.65% 3.02% 419%
6/28/04/1/ through 9/30/04 3.73/2/ 3.15/2/ 0.86/2/ 96
Investor C Class
9/30/05 2.04% 3.46% 2.84% 419%
6/28/04/1/ through 9/30/04 3.73/2/ 3.15/2/ 0.86/2/ 96
131
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net gain Net
asset (loss) on Distributions Distributions asset
value Net investments from net from net value
beginning investment (both realized investment realized end of
of period income/14/ and unrealized)/14/ income/6/ gains period
----------- ------------ ------------------- -------------- ------------- --------
- --------------
GNMA Portfolio
- --------------
BlackRock Class
9/30/05 $ 9.87 $ 0.44/7/ $ (0.20) $ (0.42) $ -- $ 9.69
9/30/04 10.02 0.48/7/ (0.14) (0.49) -- 9.87
12/19/02/1,16/ through 9/30/03 10.27 0.41 (0.18) (0.48) -- 10.02
Institutional Class
9/30/05 $ 9.88 $ 0.43/7/ $ (0.21) $ (0.40) $ -- $ 9.70
9/30/04 10.02 0.47/7/ (0.09) (0.52) -- 9.88
9/30/03/16/ 10.23 0.48 (0.08) (0.61) -- 10.02
9/30/02/16/ 10.28 0.61 0.18 (0.63) (0.21) 10.23
9/30/01/16/ 9.70 0.63 0.58 (0.63) -- 10.28
Service Class
9/30/05 $ 9.87 $ 0.39/7/ $ (0.19) $ (0.38) $ -- $ 9.69
9/30/04 10.01 0.44/7/ (0.08) (0.50) -- 9.87
9/30/03/16/ 10.23 0.50 (0.14) (0.58) -- 10.01
9/30/02/16/ 10.29 0.56 0.19 (0.60) (0.21) 10.23
9/30/01/16/ 9.72 0.60 0.57 (0.60) -- 10.29
Investor A Class
9/30/05 $ 9.92 $ 0.41/7/ $ (0.21) $ (0.38) $ -- $ 9.74
9/30/04 10.06 0.43/7/ (0.09) (0.48) -- 9.92
9/30/03/16/ 10.27 0.46 (0.11) (0.56) -- 10.06
9/30/02/16/ 10.32 0.54 0.20 (0.58) (0.21) 10.27
9/30/01/16/ 9.71 0.58 0.61 (0.58) -- 10.32
Investor B Class
9/30/05 $ 9.89 $ 0.33/7/ $ (0.21) $ (0.30) $ -- $ 9.71
9/30/04 10.03 0.36/7/ (0.09) (0.41) -- 9.89
9/30/03/16/ 10.24 0.38 (0.11) (0.48) -- 10.03
9/30/02/16/ 10.29 0.47 0.19 (0.50) (0.21) 10.24
9/30/01/16/ 9.71 0.51 0.58 (0.51) -- 10.29
Investor C Class
9/30/05 $ 9.88 $ 0.34/7/ $ (0.22) $ (0.30) $ -- $ 9.70
9/30/04 10.01 0.36/7/ (0.08) (0.41) -- 9.88
9/30/03/16/ 10.23 0.38 (0.12) (0.48) -- 10.01
9/30/02/16/ 10.27 0.45 0.22 (0.50) (0.21) 10.23
9/30/01/16/ 9.68 0.51 0.59 (0.51) -- 10.27
- ------------------------
Managed Income Portfolio
- ------------------------
Institutional Class
9/30/05 $ 10.41 $ 0.46/7/ $ (0.18) $ (0.45) $ (0.04) $ 10.20
9/30/04 10.80 0.47/7/ (0.10) (0.48) (0.28) 10.41
9/30/03/16/ 10.71 0.55 0.17 (0.63) -- 10.80
9/30/02/16/ 10.60 0.60 0.10 (0.59) -- 10.71
9/30/01/16/ 9.92 0.61 0.68 (0.61) -- 10.60
See accompanying notes to financial statements.
132
BlackRock Funds
Ratio of net
expenses to
Net average net
assets Ratio of net assets
end of expenses to (excluding
Total period average net interest
return (000) assets expense)
--------- ---------- ------------ ------------
- --------------
GNMA Portfolio
- --------------
BlackRock Class
9/30/05 2.44% $ 10,915 0.45% 0.45%
9/30/04 4.02 10,659 0.50 0.45
12/19/02/1,16/ through 9/30/03 2.33 59,935 0.35/2/ 0.35/2/
Institutional Class
9/30/05 2.28% $ 121,571 0.61% 0.60%
9/30/04 3.97 151,558 0.66 0.60
9/30/03/16/ 4.00 172,358 0.64 0.60
9/30/02/16/ 8.03 183,328 0.95 0.60
9/30/01/16/ 12.84 117,528 1.34 0.60
Service Class
9/30/05 2.02% $ 8,129 0.86% 0.86%
9/30/04 3.67 2,271 0.94 0.89
9/30/03/16/ 3.58 1,554 0.93 0.90
9/30/02/16/ 7.61 1,069 1.14 0.90
9/30/01/16/ 12.38 224 1.59 0.90
Investor A Class
9/30/05 2.01%/3/ $ 15,288 0.86% 0.86%
9/30/04 3.50/3/ 18,080 1.05 0.99
9/30/03/16/ 3.50/3/ 18,978 1.11 1.07
9/30/02/16/ 7.50/3/ 13,620 1.36 1.07
9/30/01/16/ 12.74/3/ 3,672 1.81 1.07
Investor B Class
9/30/05 1.25%/4/ $ 19,792 1.62% 1.61%
9/30/04 2.74/4/ 25,439 1.80 1.74
9/30/03/16/ 2.74/4/ 32,486 1.85 1.82
9/30/02/16/ 6.72/4/ 23,928 2.07 1.80
9/30/01/16/ 11.48/4/ 4,936 2.53 1.77
Investor C Class
9/30/05 1.26%/4/ $ 26,691 1.62% 1.61%
9/30/04 2.85/4/ 39,542 1.80 1.74
9/30/03/16/ 2.64/4/ 51,109 1.85 1.82
9/30/02/16/ 6.84/4/ 36,220 1.94 1.79
9/30/02/16/ 11.62/4/ 1,225 2.48 1.75
- ------------------------
Managed Income Portfolio
- ------------------------
Institutional Class
9/30/05 2.76% $ 587,061 0.65% 0.65%
9/30/04 3.60 644,083 0.65 0.65
9/30/03/16/ 6.91 810,452 0.65 0.65
9/30/02/16/ 6.82 924,211 0.75 0.65
9/30/01/16/ 13.39 1,042,238 1.07 0.65
Ratio of net
Ratio of total investment
expenses Ratio of net income
to average investment to average
net assets income net assets Portfolio
(excluding to average net (excluding turnover
waivers) assets/14/ waivers)/14/ rate
-------------- -------------- ------------- ---------
- --------------
GNMA Portfolio
- --------------
BlackRock Class
9/30/05 0.85% 4.53% 4.13% 521%
9/30/04 0.83 4.85 4.51 228
12/19/02/1,16/ through 9/30/03 0.61/2/ 3.32/2/ 3.05/2/ 1,365/12/
Institutional Class
9/30/05 0.97% 4.40% 4.04% 521%
9/30/04 0.97 4.74 4.43 228
9/30/03/16/ 0.95 4.89 4.58 1,365/12/
9/30/02/16/ 1.24 5.99 5.70 401
9/30/01/16/ 1.66 6.30 5.97 773
Service Class
9/30/05 1.23% 3.97% 3.60% 521%
9/30/04 1.25 4.45 4.13 228
9/30/03/16/ 1.25 4.70 4.39 1,365/12/
9/30/02/16/ 1.44 5.37 5.07 401
9/30/01/16/ 1.92 5.97 5.65 773
Investor A Class
9/30/05 1.32% 4.13% 3.67% 521%
9/30/04 1.46 4.34 3.93 228
9/30/03/16/ 1.42 4.27 3.96 1,365/12/
9/30/02/16/ 1.65 5.18 4.89 401
9/30/01/16/ 2.13 5.77 5.45 773
Investor B Class
9/30/05 1.97% 3.40% 3.05% 521%
9/30/04 2.11 3.62 3.31 228
9/30/03/16/ 2.16 3.56 3.25 1,365/12/
9/30/02/16/ 2.36 4.44 4.15 401
9/30/01/16/ 2.83 4.67 4.36 773
Investor C Class
9/30/05 1.98% 3.44% 3.08% 521%
9/30/04 2.11 3.62 3.31 228
9/30/03/16/ 2.16 3.55 3.24 1,365/12/
9/30/02/16/ 2.23 4.13 3.84 401
9/30/01/16/ 2.79 4.54 4.23 773
- ------------------------
Managed Income Portfolio
- ------------------------
Institutional Class
9/30/05 0.83% 4.45% 4.27% 252%
9/30/04 0.81 4.50 4.34 284
9/30/03/16/ 0.82 5.06 4.89 613/13/
9/30/02/16/ 0.90 5.63 5.50 290
9/30/01/16/ 1.19 5.99 5.87 262
133
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net gain
asset (Loss) on
value Net investments
beginning investment (both realized
of period income/14/ and unrealized)/14/
--------- ---------- ---------------------
- ------------------------------------
Managed Income Portfolio (Continued)
- ------------------------------------
Service Class
9/30/05 $ 10.41 $ 0.43/7/ $ (0.18)
9/30/04 10.80 0.44/7/ (0.10)
9/30/03/16/ 10.71 0.54 0.15
9/30/02/16/ 10.60 0.57 0.10
9/30/01/16/ 9.92 0.58 0.68
Investor A Class
9/30/05 $ 10.41 $ 0.42/7/ $ (0.17)
9/30/04 10.80 0.42/7/ (0.10)
9/30/03/16/ 10.71 0.49 0.18
9/30/02/16/ 10.60 0.53 0.12
9/30/01/16/ 9.92 0.56 0.68
Investor B Class
9/30/05 $ 10.41 $ 0.35/7/ $ (0.17)
9/30/04 10.80 0.35/7/ (0.11)
9/30/03/16/ 10.71 0.41 0.18
9/30/02/16/ 10.60 0.46 0.11
9/30/01/16/ 9.92 0.49 0.68
Investor C Class
9/30/05 $ 10.38 $ 0.34/7/ $ (0.16)
9/30/04 10.78 0.35/7/ (0.12)
9/30/03/16/ 10.68 0.41 0.19
9/30/02/16/ 10.57 0.46 0.11
9/30/01/16/ 9.91 0.49 0.66
- -----------------------------
International Bond Portfolio
- -----------------------------
BlackRock Class
9/30/05 $ 11.41 $ 0.30/7/ $ 0.03
5/18/04/1/ through 9/30/04 10.96 0.11/7/ 0.51
Institutional Class
9/30/05 $ 11.41 $ 0.28/7/ $ 0.03
9/30/04 11.07 0.28/7/ 0.51
9/30/03/16/ 10.54 0.29/7/ 0.81
9/30/02/16/ 10.53 0.42/7/ 0.17
9/30/01/16/ 10.69 0.55 0.68
Service Class
9/30/05 $ 11.42 $ 0.26/7/ $ 0.02
9/30/04 11.08 0.25/7/ 0.50
9/30/03/16/ 10.54 0.26/7/ 0.81
9/30/02/16/ 10.53 0.37/7/ 0.19
9/30/01/16/ 10.69 0.50 0.70
Investor A Class
9/30/05 $ 11.42 $ 0.25/7/ $ 0.03
9/30/04 11.07 0.23/7/ 0.52
9/30/03/16/ 10.54 0.24/7/ 0.81
9/30/02/16/ 10.53 0.35/7/ 0.19
9/30/01/16/ 10.69 0.47 0.71
Net
Distributions Distributions asset
from net Distributions from net value
investment from realized end of
income/6/ capital gains period
------------- ------------- --------------- --------
- ------------------------------------
Managed Income Portfolio (Continued)
- ------------------------------------
Service Class
9/30/05 $ (0.42) $ -- $ (0.04) $ 10.20
9/30/04 (0.45) -- (0.28) 10.41
9/30/03/16/ (0.60) -- -- 10.80
9/30/02/16/ (0.56) -- -- 10.71
9/30/01/16/ (0.58) -- -- 10.60
Investor A Class
9/30/05 $ (0.41) $ -- $ (0.04) $ 10.21
9/30/04 (0.43) -- (0.28) 10.41
9/30/03/16/ (0.58) -- -- 10.80
9/30/02/16/ (0.54) -- -- 10.71
9/30/01/16/ (0.56) -- -- 10.60
Investor B Class
9/30/05 $ (0.34) $ -- $ (0.04) $ 10.21
9/30/04 (0.35) -- (0.28) 10.41
9/30/03/16/ (0.50) -- -- 10.80
9/30/02/16/ (0.46) -- -- 10.71
9/30/01/16/ (0.49) -- -- 10.60
Investor C Class
9/30/05 $ (0.34) $ -- $ (0.04) $ 10.18
9/30/04 (0.35) -- (0.28) 10.38
9/30/03/16/ (0.50) -- -- 10.78
9/30/02/16/ (0.46) -- -- 10.68
9/30/01/16/ (0.49) -- -- 10.57
- ----------------------------
International Bond Portfolio
- ----------------------------
BlackRock Class
9/30/05 $ (0.60) $ -- $ (0.01) $ 11.13
5/18/04/1/ through 9/30/04 (0.17) -- -- 11.41
Institutional Class
9/30/05 $ (0.58) $ -- $ (0.01) $ 11.13
9/30/04 (0.45) -- -- 11.41
9/30/03/16/ (0.33) (0.17) (0.07) 11.07
9/30/02/16/ (0.58) -- -- 10.54
9/30/01/16/ (1.39) -- -- 10.53
Service Class
9/30/05 $ (0.55) $ -- $ (0.01) $ 11.14
9/30/04 (0.41) -- -- 11.42
9/30/03/16/ (0.29) (0.17) (0.07) 11.08
9/30/02/16/ (0.55) -- -- 10.54
9/30/01/16/ (1.36) -- -- 10.53
Investor A Class
9/30/05 $ (0.55) $ -- $ (0.01) $ 11.14
9/30/04 (0.40) -- -- 11.42
9/30/03/16/ (0.28) (0.17) (0.07) 11.07
9/30/02/16/ (0.53) -- -- 10.54
9/30/01/16/ (1.34) -- -- 10.53
See accompanying notes to financial statements.
134
BlackRock Funds
Ratio of net
expenses to
Net average net
assets Ratio of net assets
end of expenses to (excluding
Total period average net interest
return (000) assets expense)
----------- ---------- -------------- ------------
- ------------------------------------
Managed Income Portfolio (Continued)
- ------------------------------------
Service Class
9/30/05 2.45% $ 81,337 0.95% 0.95%
9/30/04 3.29 80,253 0.95 0.95
9/30/03/16/ 6.58 92,336 0.95 0.95
9/30/02/16/ 6.50 137,084 1.06 0.95
9/30/01/16/ 13.05 238,117 1.37 0.95
Investor A Class
9/30/05 2.45%/3/ $ 29,462 1.05% 1.05%
9/30/04 3.13/3/ 35,462 1.10 1.10
9/30/03/16/ 6.41/3/ 49,870 1.12 1.12
9/30/02/16/ 6.32/3/ 52,794 1.12 1.12
9/30/01/16/ 12.86/3/ 20,196 1.13 1.13
Investor B Class
9/30/05 1.69%/4/ $ 6,625 1.80% 1.80%
9/30/04 2.36/4/ 9,136 1.85 1.85
9/30/03/16/ 5.61/4/ 10,425 1.87 1.87
9/30/02/16/ 5.53/4/ 9,582 1.99 1.87
9/30/01/16/ 12.03/4/ 7,981 2.21 1.87
Investor C Class
9/30/05 1.69%/4/ $ 1,187 1.79% 1.79%
9/30/04 2.26/4/ 870 1.84 1.84
9/30/03/16/ 5.73/4/ 763 1.87 1.87
9/30/02/16/ 5.54/4/ 554 2.00 1.87
9/30/01/16/ 11.84/4/ 345 2.03 1.86
- ----------------------------
International Bond Portfolio
- ----------------------------
BlackRock Class
9/30/05 2.62%/8/ $ 98,721 0.78% 0.78%
5/18/04/1/ through 9/30/04 5.71 35,748 0.78/2/ 0.78/2/
Institutional Class
9/30/05 2.46%/8/ $ 346,746 0.94% 0.94%
9/30/04 7.20/8/ 133,544 0.94 0.94
9/30/03/16/ 10.78 64,038 0.94 0.94
9/30/02/16/ 5.79 35,425 1.05 0.90
9/30/01/16/ 12.30 73,636 2.43 0.88
Service Class
9/30/05 2.21%/8/ $ 107,402 1.19% 1.19%
9/30/04 6.89/8/ 80,024 1.23 1.23
9/30/03/16/ 10.55 48,584 1.24 1.24
9/30/02/16/ 5.47 27,131 1.30 1.20
9/30/01/16/ 11.97 11,045 2.74 1.20
Investor A Class
9/30/05 2.21%/3,8/ $ 182,321 1.18% 1.18%
9/30/04 6.84/3,8/ 123,145 1.31 1.31
9/30/03/16/ 10.27/3/ 74,821 1.41 1.41
9/30/02/16/ 5.29/3/ 39,727 1.47 1.37
9/30/01/16/ 11.79/3/ 16,827 2.88 1.36
Ratio of net
Ratio of total investment
expenses Ratio of net income
to average investment to average
net assets income net assets Portfolio
(excluding to average net (excluding turnover
waivers) assets/14/ waivers)/14/ rate
-------------- -------------- -------------- --------
- ------------------------------------
Managed Income Portfolio (Continued)
- ------------------------------------
Service Class
9/30/05 1.08% 4.13% 4.00% 252%
9/30/04 1.11 4.21 4.05 284
9/30/03/16/ 1.13 4.74 4.56 613/13/
9/30/02/16/ 1.19 5.30 5.17 290
9/30/01/16/ 1.48 5.69 5.57 262
Investor A Class
9/30/05 1.18% 4.06% 3.93% 252%
9/30/04 1.30 4.06 3.86 284
9/30/03/16/ 1.30 4.57 4.40 613/13/
9/30/02/16/ 1.38 5.14 5.00 290
9/30/01/16/ 1.61 5.47 5.35 262
Investor B Class
9/30/05 1.84% 3.34% 3.30% 252%
9/30/04 1.95 3.31 3.21 284
9/30/03/16/ 2.05 3.80 3.63 613/13/
9/30/02/16/ 2.11 4.43 4.30 290
9/30/01/16/ 2.33 4.71 4.60 262
Investor C Class
9/30/05 1.83% 3.27% 3.23% 252%
9/30/04 1.95 3.34 3.24 284
9/30/03/16/ 2.05 3.77 3.60 613/13/
9/30/02/16/ 2.14 4.44 4.30 290
9/30/01/16/ 2.14 4.60 4.49 262
- ----------------------------
International Bond Portfolio
- ----------------------------
BlackRock Class
9/30/05 0.83% 2.59% 2.54% 164%
5/18/04/1/ through 9/30/04 0.89/2/ 2.58/2/ 2.47/2/ 240
Institutional Class
9/30/05 0.95% 2.43% 2.42% 164%
9/30/04 0.96 2.44 2.41 240
9/30/03/16/ 0.94 2.69 2.69 209
9/30/02/16/ 1.05 3.89 3.89 206
9/30/01/16/ 2.43 5.54 5.54 111
Service Class
9/30/05 1.20% 2.19% 2.18% 164%
9/30/04 1.25 2.18 2.15 240
9/30/03/16/ 1.24 2.41 2.41 209
9/30/02/16/ 1.30 3.55 3.55 206
9/30/01/16/ 2.74 5.08 5.08 111
Investor A Class
9/30/05 1.29% 2.17% 2.06% 164%
9/30/04 1.43 2.06 1.93 240
9/30/03/16/ 1.41 2.21 2.21 209
9/30/02/16/ 1.47 3.36 3.36 206
9/30/01/16/ 2.88 4.85 4.85 111
135
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net gain
asset (loss) on
value Net investments
beginning investment (both realized
of period income/14/ and unrealized)/14/
--------- ------------- -------------------
- ----------------------------------------
International Bond Portfolio (Continued)
- ----------------------------------------
Investor B Class
9/30/05 $ 11.42 $ 0.17/7/ $ 0.02
9/30/04 11.07 0.15/7/ 0.51
9/30/03/16/ 10.54 0.16/7/ 0.81
9/30/02/16/ 10.53 0.27/7/ 0.19
9/30/01/16/ 10.69 0.39 0.71
Investor C Class
9/30/05 $ 11.45 $ 0.17/7/ $ 0.02
9/30/04 11.10 0.15/7/ 0.51
9/30/03/16/ 10.56 0.15/7/ 0.83
9/30/02/16/ 10.55 0.27/7/ 0.19
9/30/01/16/ 10.69 0.39 0.73
- -------------------------
High Yield Bond Portfolio
- -------------------------
BlackRock Class
9/30/05 $ 8.14 $ 0.64/7/ $ 0.05
9/30/04 7.74 0.62/7/ 0.37
9/30/03/16/ 6.75 0.71 1.03
9/30/02/16/ 7.39 0.85 (0.66)
9/30/01/16/ 8.92 0.99 (1.45)
Institutional Class
9/30/05 $ 8.14 $ 0.63/7/ $ 0.04
9/30/04 7.74 0.61/7/ 0.37
9/30/03/16/ 6.75 0.73 1.00
9/30/02/16/ 7.39 0.82 (0.64)
9/30/01/16/ 8.92 0.94 (1.41)
Service Class
9/30/05 $ 8.14 $ 0.61/7/ $ 0.04
9/30/04 7.74 0.59/7/ 0.37
9/30/03/16/ 6.75 0.73 0.98
9/30/02/16/ 7.39 0.86 (0.71)
9/30/01/16/ 8.92 0.88 (1.38)
Investor A Class
9/30/05 $ 8.14 $ 0.60/7/ $ 0.05
9/30/04 7.73 0.58/7/ 0.38
9/30/03/16/ 6.75 0.73 0.96
9/30/02/16/ 7.40 0.82 (0.69)
9/30/01/16/ 8.92 0.90 (1.40)
Investor B Class
9/30/05 $ 8.14 $ 0.55/7/ $ 0.04
9/30/04 7.73 0.52/7/ 0.38
9/30/03/16/ 6.75 0.65 0.98
9/30/02/16/ 7.39 0.74 (0.66)
9/30/01/16/ 8.91 0.83 (1.40)
Net
Distributions Distributions asset
from net Distributions from net value
investment from realized end of
income/6/ capital gains period
------------- ------------- ------------- -------
- ----------------------------------------
International Bond Portfolio (Continued)
- ----------------------------------------
Investor B Class
9/30/05 $ (0.46) $ -- $ (0.01) $ 11.14
9/30/04 (0.31) -- -- 11.42
9/30/03/16/ (0.20) (0.17) (0.07) 11.07
9/30/02/16/ (0.45) -- -- 10.54
9/30/01/16/ (1.26) -- -- 10.53
Investor C Class
9/30/05 $ (0.46) $ -- $ (0.01) $ 11.17
9/30/04 (0.31) -- -- 11.45
9/30/03/16/ (0.20) (0.17) (0.07) 11.10
9/30/02/16/ (0.45) -- -- 10.56
9/30/01/16/ (1.26) -- -- 10.55
- -------------
High Yield Bond Portfolio
- -------------
BlackRock Class
9/30/05 $ (0.60) $ -- $ (0.14) $ 8.09
9/30/04 (0.59) -- -- 8.14
9/30/03/16/ (0.75) -- -- 7.74
9/30/02/16/ (0.83) -- -- 6.75
9/30/01/16/ (1.07) -- -- 7.39
Institutional Class
9/30/05 $ (0.58) $ -- $ (0.14) $ 8.09
9/30/04 (0.58) -- -- 8.14
9/30/03/16/ (0.74) -- -- 7.74
9/30/02/16/ (0.82) -- -- 6.75
9/30/01/16/ (1.06) -- -- 7.39
Service Class
9/30/05 $ (0.56) $ -- $ (0.14) $ 8.09
9/30/04 (0.56) -- -- 8.14
9/30/03/16/ (0.72) -- -- 7.74
9/30/02/16/ (0.79) -- -- 6.75
9/30/01/16/ (1.03) -- -- 7.39
Investor A Class
9/30/05 $ (0.56) $ -- $ (0.14) $ 8.09
9/30/04 (0.55) -- -- 8.14
9/30/03/16/ (0.71) -- -- 7.73
9/30/02/16/ (0.78) -- -- 6.75
9/30/01/16/ (1.02) -- -- 7.40
Investor B Class
9/30/05 $ (0.50) $ -- $ (0.14) $ 8.09
9/30/04 (0.49) -- -- 8.14
9/30/03/16/ (0.65) -- -- 7.73
9/30/02/16/ (0.72) -- -- 6.75
9/30/01/16/ (0.95) -- -- 7.39
See accompanying notes to financial statements.
136
BlackRock Funds
Ratio of net
expenses to
Net average net
assets Ratio of net assets
end of expenses to (excluding
Total period average net interest
return (000) assets expense)
--------------- ---------- ------------ ------------
- ----------------------------------------
International Bond Portfolio (Continued)
- ----------------------------------------
Investor B Class
9/30/05 1.45%/4,8/ $ 19,705 1.93% 1.93%
9/30/04 6.04/4,8/ 16,780 2.06 2.06
9/30/03/16/ 9.45/4/ 13,087 2.16 2.16
9/30/02/16/ 4.51/4/ 11,470 2.25 2.11
9/30/01/16/ 10.96/4/ 7,393 3.63 2.10
Investor C Class
9/30/05 1.45%/4,8/ $ 65,555 1.93% 1.93%
9/30/04 6.03/4,8/ 36,947 2.04 2.04
9/30/03/16/ 9.53/4/ 17,777 2.15 2.15
9/30/02/16/ 4.50/4/ 8,427 2.23 2.11
9/30/01/16/ 11.15/4/ 4,182 3.64 2.10
- --------------------------
High Yield Bond Portfolio
- --------------------------
BlackRock Class
9/30/05 8.69%/8/ $ 169,532 0.55% 0.55%
9/30/04 13.20 126,976 0.55 0.55
9/30/03/16/ 27.17 57,207 0.61 0.55
9/30/02/16/ 2.15 32,240 0.73 0.55
9/30/01/16/ (5.52) 27,766 0.84 0.55
Institutional Class
9/30/05 8.53%/8/ $ 165,805 0.70% 0.70%
9/30/04 13.03/8/ 162,166 0.70 0.70
9/30/03/16/ 26.98 170,902 0.76 0.70
9/30/02/16/ 2.00 94,065 0.87 0.70
9/30/01/16/ (5.66) 95,663 1.06 0.70
Service Class
9/30/05 8.24%/8/ $ 158,083 0.96% 0.96%
9/30/04 12.71/8/ 112,004 0.99 0.99
9/30/03/16/ 26.61 85,247 1.06 1.00
9/30/02/16/ 1.69 29,344 1.17 1.00
9/30/01/16/ (5.95) 9 1.36 1.00
Investor A Class
9/30/05 8.24%/3,8/ $ 262,920 0.96% 0.96%
9/30/04 12.70/3,8/ 72,806 1.10 1.09
9/30/03/16/ 26.25/3/ 82,391 1.22 1.17
9/30/02/16/ 1.38/3/ 18,932 1.33 1.17
9/30/01/16/ (5.98)/3/ 8,980 1.52 1.17
Investor B Class
9/30/05 7.44%/4,8/ $ 110,420 1.71% 1.71%
9/30/04 11.87/4,8/ 92,243 1.85 1.84
9/30/03/16/ 25.34/4/ 107,078 1.98 1.92
9/30/02/16/ 0.75/4/ 57,612 2.09 1.92
9/30/01/16/ (6.71)/4/ 49,786 2.27 1.91
Ratio of net
Ratio of total investment
expenses Ratio of net income
to average investment to average
net assets income net assets Portfolio
(excluding to average net (excluding turnover
waivers) assets/14/ waivers)/14/ rate
-------------- -------------- ------------- ---------
- ----------------------------------------
International Bond Portfolio (Continued)
- ----------------------------------------
Investor B Class
9/30/05 1.95% 1.43% 1.41% 164%
9/30/04 2.09 1.32 1.29 240
9/30/03/16/ 2.16 1.51 1.51 209
9/30/02/16/ 2.25 2.64 2.64 206
9/30/01/16/ 3.63 4.17 4.17 111
Investor C Class
9/30/05 1.94% 1.42% 1.41% 164%
9/30/04 2.07 1.32 1.29 240
9/30/03/16/ 2.15 1.44 1.44 209
9/30/02/16/ 2.23 2.62 2.62 206
9/30/01/16/ 3.64 4.20 4.20 111
- -------------------------
High Yield Bond Portfolio
- -------------------------
BlackRock Class
9/30/05 0.77% 7.91% 7.69% 129%
9/30/04 0.73 7.71 7.53 172
9/30/03/16/ 0.77 9.83 9.67 212
9/30/02/16/ 0.89 11.15 11.01 301
9/30/01/16/ 1.10 5.54 5.29 331
Institutional Class
9/30/05 0.89% 7.75% 7.56% 129%
9/30/04 0.85 7.63 7.48 172
9/30/03/16/ 0.90 9.63 9.49 212
9/30/02/16/ 1.01 10.94 10.80 301
9/30/01/16/ 1.22 11.22 11.06 331
Service Class
9/30/05 1.14% 7.51% 7.33% 129%
9/30/04 1.14 7.30 7.16 172
9/30/03/16/ 1.20 9.31 9.17 212
9/30/02/16/ 1.34 11.37 11.20 301
9/30/01/16/ 1.52 11.82 11.66 331
Investor A Class
9/30/05 1.25% 7.41% 7.12% 129%
9/30/04 1.34 7.29 7.05 172
9/30/03/16/ 1.36 8.81 8.68 212
9/30/02/16/ 1.48 10.42 10.28 301
9/30/01/16/ 1.68 10.55 10.39 331
Investor B Class
9/30/05 1.89% 6.74% 6.56% 129%
9/30/04 1.99 6.49 6.35 172
9/30/03/16/ 2.12 8.39 8.25 212
9/30/02/16/ 2.23 9.81 9.66 301
9/30/01/16/ 2.43 10.01 9.85 331
137
BlackRock Funds
FINANCIAL HIGHLIGHTS (CONCLUDED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net gain
asset (loss) on Distributions
value Net investments from net
beginning investment (both realized investment
of period income/14/ and unrealized)/14/ income/6/
--------- ---------- ------------------- -------------
- -------------------------------------
High Yield Bond Portfolio (Continued)
- -------------------------------------
Investor C Class
9/30/05 $ 8.15 $ 0.55/7/ $ 0.04 $ (0.50)
9/30/04 7.74 0.52/7/ 0.38 (0.49)
9/30/03/16/ 6.75 0.67 0.97 (0.65)
9/30/02/16/ 7.40 0.76 (0.69) (0.72)
9/30/01/16/ 8.92 0.83 (1.40) (0.95)
Net
Distributions asset
Distributions from net value
from realized end of
capital gains period
------------- ------------- --------
- -------------------------------------
High Yield Bond Portfolio (Continued)
- -------------------------------------
Investor C Class
9/30/05 $ -- $ (0.14) $ 8.10
9/30/04 -- -- 8.15
9/30/03/16/ -- -- 7.74
9/30/02/16/ -- -- 6.75
9/30/01/16/ -- -- 7.40
See accompanying notes to financial statements.
138
BlackRock Funds
Ratio of net
expenses to
Net average net
assets Ratio of net assets
end of expenses to (excluding
Total period average net interest
return (000) assets expense)
------------- --------- -------------- ------------
- -------------------------------------
High Yield Bond Portfolio (Continued)
- -------------------------------------
Investor C Class
9/30/05 7.44%/4,8/ $ 49,939 1.72% 1.72%
9/30/04 11.86/4,8/ 61,983 1.85 1.85
9/30/03/16/ 25.48/4/ 73,246 1.97 1.92
9/30/02/16/ 0.61/4/ 21,939 2.08 1.91
9/30/01/16/ (6.70)/4/ 11,319 2.25 1.91
Ratio of net
Ratio of total investment
expenses Ratio of net income
to average investment to average
net assets income net assets Portfolio
(excluding) to average net (excluding turnover
waivers) assets/14/ waivers)/14/ rate
------------- -------------- --------------- ----------
- -------------------------------------
High Yield Bond Portfolio (Continued)
- -------------------------------------
Investor C Class
9/30/05 1.89% 6.77% 6.60% 129%
9/30/04 1.99 6.50 6.35 172
9/30/03/16/ 2.11 8.14 8.00 212
9/30/02/16/ 2.23 9.73 9.59 301
9/30/01/16/ 2.41 9.63 9.47 331
- ----------
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 Reissuance of shares.
6 Certain prior year amounts were reclassified to conform to current
year presentation (Note C).
7 Calculated using the average shares outstanding method.
8 Redemption fee of 2.00% is reflected in total return calculations.
9 Includes dollar roll transactions, excluding these transactions the
portfolio turnover would have been 257%.
10 Includes dollar roll transactions, excluding these transactions the
portfolio turnover would have been 319%.
11 Includes dollar roll transactions, excluding these transactions the
portfolio turnover would have been 371%.
12 Includes dollar roll transactions, excluding these transactions the
portfolio turnover would have been 268%.
13 Includes dollar roll transactions, excluding these transactions the
portfolio turnover would have been 206%.
14 Refer to Section C of the Notes to Financial Statements.
15 Non-annualized ratios were previously disclosed as annualized. Ratios
updated to reflect annualization.
16 Audited by other auditors.
139
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS
(A) Organization
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 50 portfolios, thirteen 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, mostly due to differences in distribution and service
fees.
Under the Fund's organizational documents, its officers and trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts with its vendors and others that provide for general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund.
However, based on experience, the Fund considers the risk of loss from such
claims to be remote.
(B) Fund Reorganization
On January 31, 2005, BlackRock, Inc., the parent of BlackRock Advisors,
Inc. ("BlackRock"), a wholly owned subsidiary of BlackRock, Inc., acquired SSRM
Holdings, Inc., the parent of State Street Research & Management Company
("SSRM"), the investment adviser to the former State Street Research mutual
funds.
On January 31, 2005, the BlackRock Intermediate Government Bond Portfolio
acquired all of the assets and certain stated liabilities of the State Street
Research Government Income Fund. The reorganization was pursuant to an Agreement
and Plan of Reorganization, which was approved by the State Street Research
shareholders on January 25, 2005. Under the Agreement and Plan of
Reorganization, 28,802,131 Class A shares, 1,440,271 Class B shares and 8,786
Class R shares of the State Street Research Government Income Fund were
exchanged for 34,230,267, 1,704,773 and 10,444 Investor A Class shares ,
respectively, of the BlackRock Intermediate Government Bond Portfolio; 6,655,830
Class B(1) shares of the State Street Research Government Income Fund were
exchanged for 7,860,023 Investor B Class shares of the BlackRock Intermediate
Government Bond Portfolio; 1,118,423 Class C shares of the State Street Research
Government Income Fund were exchanged for 1,326,873 Investor C Class shares of
the BlackRock Intermediate Government Bond Portfolio; and 506,641 Class S shares
of the State Street Research Government Income Fund were exchanged for 603,030
Institutional shares of the BlackRock Intermediate Government Bond Portfolio.
The assets of the State Street Research Government Income Fund, which consisted
of securities and related receivables less liabilities, were converted on a
tax-free basis. Upon the reorganization of such funds on January 31, 2005, the
value of the BlackRock Intermediate Government Bond Portfolio's net assets
(including $474,664,383 in net assets of the State Street Research Government
Income Fund, including $2,522,392 of unrealized depreciation, undistributed net
investment income of $68,232 and undistributed net realized loss on investments
of ($21,212,995), which was classified as paid-in-capital) was $771,988,963
before the open of business.
On January 31, 2005, the BlackRock High Yield Bond Portfolio acquired all
of the assets and certain stated liabilities of the State Street Research High
Income Fund. The reorganization was pursuant to an Agreement and Plan of
Reorganization, which was approved by the State Street Research shareholders on
January 25, 2005. Under the Agreement and Plan of Reorganization, 58,203,330
Class A shares and 8,812,212 Class B shares of the State Street Research High
Income Fund were exchanged for 24,943,276 and 3,736,993 Investor A Class shares,
respectively, of the BlackRock High Yield Bond Portfolio; 10,782,618 Class B(1)
shares of the State Street Research High Income Fund were exchanged for
4,562,480 Investor B Class shares of the BlackRock High Yield Bond Portfolio;
2,998,505 Class C shares of the State Street Research High Income Fund were
exchanged for 1,274,746 Investor C Class shares of the BlackRock High Yield Bond
Portfolio; and 1,179,029 Class S shares of the State Street Research High Income
Fund were exchanged for 499,336 Institutional shares of the BlackRock High Yield
Bond Portfolio. The assets of the State Street Research High Income Fund, which
consisted of securities and related receivables less liabilities, were converted
on a tax-free basis. Upon the reorganization of such funds on January 31, 2005,
the value of the BlackRock High Yield Bond Portfolio's net assets (including
$288,908,495 in net assets of the State Street Research High Income Fund,
including $1,371,468 of unrealized appreciation, undistributed net investment
loss of ($41,660) and undistributed net realized loss on investments of
($450,012,483), which was classified as paid-in-capital) was $944,088,761 before
the open of business.
140
BlackRock Funds
On April 25, 2005, the BlackRock Core Bond Total Return Portfolio acquired
all of the assets and certain stated liabilities of the CIGNA Investment
Securities Fund. The reorganization was pursuant to an Agreement and Plan of
Reorganization, which was approved by the CIGNA Investment Securities Fund
shareholders on April 15, 2005. Under the Agreement and Plan of Reorganization,
4,792,215 Class A shares of the CIGNA Investment Securities Fund were exchanged
for 9,164,715 Investor A Class shares of the BlackRock Core Bond Total Return
Portfolio. The assets of the CIGNA Investment Securities Fund, which consisted
of securities and related receivables less liabilities, were converted on a
tax-free basis. Upon the reorganization of such funds on April 25, 2005, the
value of the BlackRock Core Bond Total Return Portfolio's net assets (including
$88,882,541 in net assets of the CIGNA Investment Securities Fund, including
$873,954 of unrealized appreciation, undistributed net investment loss of
($21,863) and undistributed net realized loss on investments of ($1,612,651),
which was classified as paid-in-capital) was $2,662,804,984 before the open of
business.
(C) 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.
Investment Valuation -- Valuation of investments held by each Portfolio is
as follows: fixed income investments are valued by using market quotations or
prices provided by market makers; a portion of the fixed income investments are
valued utilizing one or more pricing services approved by the Board of Trustees
(the "Board"); an option or futures contract is valued at the last sales price
prior to 4:00 p.m. (Eastern time), as quoted on the principal exchange or board
of trade on which such option or futures contract is traded, or in the absence
of a sale, the mean between the last bid and asked prices prior to 4:00 p.m.
(Eastern time); the amortized cost method of valuation will be used with respect
to debt securities with sixty days or less remaining to maturity unless the
investment adviser and/or sub-adviser under the supervision of the Board
determines that such method does not represent fair value. Any assets which are
denominated in a non-U.S. currency are translated into U.S. dollars at the
prevailing market rates. In the event that application of these methods of
valuation results in a price for an investment which is deemed not to be
representative of the market value of such investment, the investment will be
valued by, under the direction of or in accordance with a method approved by the
Board as reflecting fair value ("Fair Value Assets"). The investment adviser
and/or sub-adviser will submit its recommendations regarding the valuation
and/or valuation methodologies for Fair Value Assets to a valuation committee.
Such valuation committee may accept, modify or reject any recommendations. The
pricing of all Fair Value Assets shall be subsequently reported to and ratified
by the Board.
When determining the price for a Fair Value Asset, the investment adviser
and/or sub-adviser shall seek to determine the price that the Portfolio might
reasonably expect to receive from the current sale of that asset in an
arm's-length transaction. Fair value determinations shall be based upon all
available factors that the adviser and/or sub-adviser deems relevant.
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) 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.
Foreign Currency Translation -- The books and records of the 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 -- Certain Portfolios may enter into
forward foreign currency contracts as a hedge against either specific
transactions or Portfolio positions. These contracts are adjusted by the daily
forward
141
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
exchange rate of the underlying currency and any gains or losses are recorded
as unrealized until the contract settlement date. Such contracts, which protect
the value of the Portfolio's investment securities against a decline in the
value of currency, do not eliminate fluctuations in the underlying prices of
the securities. They simply establish an exchange rate at a future date. Also,
although such contracts tend to minimize the risk of loss due to a decline in
the value of a hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of such foreign currency
increase. Risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar.
The aggregate principal amounts of the contracts are not recorded as the
Portfolios intend to settle the contracts prior to delivery. Under the terms of
foreign currency contracts open at September 30, 2005, the Portfolios are
obligated to deliver or receive currency in exchange for U.S. dollars as
indicated below:
142
BlackRock Funds
Net
Unrealized
Value at Foreign
Settlement Currency Currency Contract September 30, Exchange
Date Amount Sold Amount 2005 Gain/(Loss)
- ------------ -------------- --------------------------------- ------------ ------------- ------------
Low Duration Bond
10/20/05 11,610,911 European Currency Unit .......... $ 14,067,630 $ 14,017,177 $ 50,453
10/27/05 33,881,000 New Zealand Dollar .............. 23,140,723 23,379,110 (238,387)
------------ ------------ ------------
$ 37,208,353 $ 37,396,287 $ (187,934)
============ ============ ============
Intermediate PLUS Bond
10/20/05 198,103 European Currency Unit .......... $ 240,019 $ 239,158 $ 861
10/27/05 593,975 New Zealand Dollar .............. 405,685 409,864 (4,179)
------------ ------------ ------------
$ 645,704 $ 649,022 $ (3,318)
============ ============ ============
Core Bond Total Return
10/20/05 22,270,611 European Currency Unit .......... $ 26,982,783 $ 26,886,010 $ 96,773
10/27/05 37,286,500 New Zealand Dollar .............. 25,466,679 25,729,027 (262,348)
------------ ------------ ------------
$ 52,449,462 $ 52,615,037 $ (165,575)
============ ============ ============
Core PLUS Total Return
10/20/05 3,114,703 European Currency Unit .......... $ 3,773,734 $ 3,760,200 $ 13,534
10/26/05 23,498,423 Mexican Peso .................... 2,178,200 2,169,181 9,019
10/27/05 3,314,255 New Zealand Dollar .............. 2,263,636 2,286,955 (23,319)
------------ ------------ ------------
$ 8,215,570 $ 8,216,336 $ (766)
============ ============ ============
Inflation Protected Bond
10/20/05 517,478 European Currency Unit .......... $ 631,426 $ 624,721 $ 6,705
10/24/05 1,311,000 Great British Pound ............. 2,294,878 2,318,516 (23,638)
10/25/05 6,942,074 Swedish Krone ................... 894,205 900,306 (6,101)
10/28/05 926,300 Canadian Dollar ................. 771,898 798,630 (26,732)
------------ ------------ ------------
$ 4,592,407 $ 4,642,173 $ (49,766)
============ ============ ============
Managed Income
10/20/05 4,812,543 European Currency Unit .......... $ 5,830,815 $ 5,809,903 $ 20,912
============ ============ ============
International Bond
10/20/05 100,100,000 European Currency Unit .......... $122,460,336 $120,779,071 $ 1,681,265
10/24/05 12,253,497 Great British Pound ............. 21,720,650 21,676,395 44,255
10/24/05 3,275,406 European Currency Unit .......... 3,960,280 3,954,171 6,109
10/25/05 233,749,756 Swedish Krone ................... 30,112,135 30,242,264 (130,129)
10/25/05 7,113,918 European Currency Unit .......... 8,578,213 8,574,023 4,190
10/26/05 74,417,631 Mexican Peso .................... 6,898,186 6,876,863 21,323
10/27/05 1,273,737,800 Japanese Yen .................... 11,555,248 11,265,735 289,513
10/27/05 28,959,215 New Zealand Dollar .............. 19,732,844 20,033,602 (300,758)
10/28/05 34,464,206 Canadian Dollar ................. 28,588,062 29,715,183 (1,127,121)
10/28/05 65,584,007 Polish Zloty .................... 19,502,675 20,187,769 (685,094)
11/25/05 6,140,000 European Currency Unit .......... 7,492,922 7,402,674 90,248
------------ ------------ ------------
$280,601,551 $280,707,750 $ (106,199)
============ ============ ============
High Yield Bond
10/20/05 6,593,500 European Currency Unit .......... $ 7,976,009 $ 7,959,948 $ 16,061
============ ============ ============
143
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Net
Unrealized
Value at Foreign
Settlement Currency Currency Contract September 30, Exchange
Date Amount Bought Amount 2005 Gain/(Loss)
- ------------ -------------- --------------------------------- ------------- -------------- -------------
Low Duration Bond
10/20/05 991,153 European Currency Unit .......... $ 1,219,381 $ 1,196,561 $ (22,820)
10/27/05 13,208,156 New Zealand Dollar .............. 8,889,144 9,114,103 224,959
------------- -------------- -------------
$ 10,108,525 $ 10,310,664 $ 202,139
============= ============== =============
Intermediate PLUS Bond
10/20/05 21,971 European Currency Unit .......... $ 27,030 $ 26,524 $ (506)
10/27/05 97,528 New Zealand Dollar .............. 66,085 67,298 1,213
------------- -------------- -------------
$ 93,115 $ 93,822 $ 707
============= ============== =============
Core Bond Total Return
10/20/05 3,809,846 European Currency Unit .......... $ 4,687,120 $ 4,599,405 $ (87,715)
10/27/05 9,330,523 New Zealand Dollar .............. 6,354,979 6,438,397 83,418
------------- -------------- -------------
$ 11,042,099 $ 11,037,802 $ (4,297)
============= ============== =============
Core PLUS Total Return
10/20/05 696,040 European Currency Unit .......... $ 856,314 $ 840,289 $ (16,025)
10/26/05 8,526,690 Mexican Peso .................... 785,632 787,114 1,482
10/27/05 1,171,668 New Zealand Dollar .............. 789,906 808,493 18,587
------------- -------------- -------------
$ 2,431,852 $ 2,435,896 $ 4,044
============= ============== =============
Inflation Protected Bond
10/20/05 5,509 European Currency Unit .......... $ 6,778 $ 6,651 $ (127)
10/24/05 940,000 Great British Pound ............. 1,633,077 1,662,399 29,322
10/25/05 7,000,000 Swedish Krone ................... 895,713 907,819 12,106
10/27/05 365,262 Japanese Yen .................... 3,282 3,233 (49)
------------- -------------- -------------
$ 2,538,850 $ 2,580,102 $ 41,252
============= ============== =============
Managed Income
10/20/05 48,273 European Currency Unit .......... $ 59,389 $ 58,277 $ (1,112)
10/27/05 2,745 New Zealand Dollar .............. 1,847 1,894 47
------------- -------------- -------------
$ 61,236 $ 60,171 $ (1,065)
============= ============== =============
International Bond
10/20/05 156,752,355 European Currency Unit .......... $ 190,491,887 $ 189,131,069 $ (1,360,818)
10/21/05 4,812,760 Australian Dollar ............... 3,594,710 3,672,364 77,654
10/24/05 3,339,166 European Currency Unit .......... 4,143,522 4,031,144 (112,378)
10/24/05 4,692,900 Great British Pound ............. 8,272,214 8,302,061 29,847
10/25/05 14,276,456 Norwegian Krone ................. 2,173,845 2,190,380 16,535
10/25/05 9,573,653 Swiss Francs .................... 7,457,597 7,439,256 (18,341)
10/25/05 311,884,866 Swedish Krone ................... 40,348,346 40,392,003 43,657
10/26/05 9,161,047 Mexican Peso .................... 851,438 846,564 (4,874)
10/26/05 3,300,000 Singapore Dollar ................ 1,965,184 1,954,814 (10,370)
10/27/05 25,618,624,853 Japanese Yen .................... 231,367,404 226,587,167 (4,780,237)
10/27/05 9,116,261 New Zealand Dollar .............. 6,262,789 6,306,438 43,649
10/28/05 11,390,931 Canadian Dollar ................. 9,588,604 9,821,292 232,688
10/28/05 54,951,461 Danish Krone .................... 8,922,140 8,887,939 (34,201)
10/28/05 13,949,260 Polish Zloty .................... 4,227,693 4,293,797 66,104
11/25/05 15,140,000 Singapore Dollar ................ 9,107,041 8,979,994 (127,047)
11/25/05 2,101,330,760 Japanese Yen .................... 19,198,511 18,625,878 (572,633)
-------------- -------------- -------------
$ 547,972,925 $ 541,462,160 $ (6,510,765)
============== ============== =============
144
BlackRock Funds
Swap Agreements -- The Portfolios may invest in swap agreements for the
purpose of hedging against changes in interest rates or foreign currencies. Swap
agreements involve the exchange by the Portfolios with another party of their
respective commitments to pay or receive interest or a specified amount of a
currency (e.g., an exchange of floating rate payments for fixed rate payments)
with respect to a notional amount of principal. Swaps are marked to market daily
based upon quotations from market makers and the change, if any, is recorded as
an unrealized gain or loss in the Statements of Operations. Net payments of
interest are recorded as realized gain or loss. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess of
the amounts recognized on the Statements of Assets and Liabilities. Such risks
involve the possibility that there will be no liquid market for these
agreements, that the counter-party to the agreement may default on its
obligation to perform and that there may be unfavorable changes in the
fluctuation of interest and/or exchange rates.
At September 30, 2005, the following Portfolios had swap agreements
outstanding:
Interest Interest Unrealized
Termination Receivable Payable Notional amount Appreciation
Portfolio Counter-party Date Rate Rate (Local Currency) (Depreciation)
- ---------------------- -------------- ----------- ---------- ---------- ---------------- --------------
Enhanced Income Deutsche Bank 08/31/07 4.41% 3.86%/1/ $ 5,700,000 $ (12,478)
Deutsche Bank 09/30/10 4.55% 4.02%/1/ 700,000 (2,868)
Low Duration Bond Deutsche Bank 02/10/07 2.68% 3.76%/1/ 80,300,000 (2,094,400)
Goldman Sachs 09/27/07 4.38% 3.97%/1/ 65,300,000 (233,720)
Deutsche Bank 09/30/10 4.55% 4.02%/1/ 17,900,000 (73,346)
Intermediate Government Deutsche Bank 02/10/07 2.68% 3.76%/1/ 12,800,000 (333,852)
Bond Union Bank of 04/22/07 3.63%/1/ 3.04% 24,000,000 385,200
Switzerland
Deutsche Bank 08/02/07 4.39% 3.70%/1/ 29,200,000 (61,321)
Deutsche Bank 08/17/07 4.44% 3.80%/1/ 40,900,000 (59,208)
Goldman Sachs 09/27/07 4.38% 3.97%/1/ 11,600,000 (41,518)
Union Bank of 09/27/08 4.42% 3.97%/1/ 3,300,000 (16,129)
Switzerland
Morgan Stanley 06/17/10 4.31% 3.89%/1/ 4,100,000 (12,277)
Morgan Stanley 07/01/10 4.17% 3.50%/1/ 32,600,000 (617,098)
Morgan Stanley 06/14/14 3.85%/1/ 5.31% 4,700,000 (252,214)
JP Morgan 05/26/15 3.84%/1/ 4.50% 4,900,000 44,097
Chase
Morgan Stanley 07/01/15 3.50%/1/ 4.39% 17,000,000 480,327
Morgan Stanley 07/01/15 3.50%/1/ 4.39% 18,100,000 506,340
Intermediate Bond Union Bank of 04/22/07 3.63%/1/ 3.04% 76,000,000 1,219,800
Switzerland
Deutsche Bank 08/02/07 4.39% 3.70%/1/ 38,800,000 (81,481)
Deutsche Bank 08/17/07 4.44% 3.80%/1/ 45,400,000 (65,723)
Goldman Sachs 09/27/07 4.38% 3.97%/1/ 95,100,000 (340,380)
Union Bank of 09/27/08 4.42% 3.97%/1/ 7,400,000 (36,168)
Switzerland
Morgan Stanley 06/17/10 4.31% 3.89%/1/ 15,900,000 (47,612)
Union Bank of 08/31/10 3.86%/1/ 4.50% 17,800,000 104,842
Switzerland
Union Bank of 09/27/10 4.51% 3.97%/1/ 42,800,000 (257,946)
Switzerland
Morgan Stanley 06/14/14 3.85%/1/ 5.31% 14,400,000 (772,740)
Merrill Lynch 07/22/14 3.63%/1/ 4.93% 15,300,000 (230,265)
Goldman Sachs 10/01/14 3.50%/1/ 4.51% 16,100,000 76,106
JP Morgan 05/26/15 3.84%/1/ 4.50% 6,400,000 57,595
Chase
Morgan Stanley 07/01/15 3.50%/1/ 4.39% 22,000,000 621,600
Morgan Stanley 08/02/15 4.73% 3.70%/1/ 14,700,000 (38,935)
Intermediate PLUS Bond Deutsche Bank 08/02/07 4.39% 3.70%/1/ 1,100,000 (2,310)
Deutsche Bank 08/17/07 4.44% 3.80%/1/ 2,000,000 (2,895)
Union Bank of 09/27/10 4.51% 3.97%/1/ 1,200,000 (7,232)
Switzerland
JP Morgan 04/08/12 3.56%/1/ 4.72% 700,000 (10,956)
Chase
Union Bank of 11/26/14 3.84%/1/ 4.58% 1,000,000 (308)
Switzerland
JP Morgan 05/26/15 3.84%/1/ 4.50% 200,000 1,800
Chase
145
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Interest Interest Unrealized
Termination Receivable Payable Notional amount Appreciation
Portfolio Counter-party Date Rate Rate (Local Currency) (Depreciation)
- ---------------------- -------------- ----------- ---------- ---------- ---------------- --------------
Core Bond Total Return Morgan Stanley 06/14/06 3.22% 3.85%/1/ $ 114,465,000 $ (13,923)
Morgan Stanley 06/17/06 3.21% 3.89%/1/ 84,600,000 (10,526)
Deutsche Bank 08/02/07 4.39% 3.70%/1/ 111,900,000 (234,994)
Deutsche Bank 08/17/07 4.44% 3.80%/1/ 162,400,000 (235,096)
Union Bank of 09/27/08 4.42% 3.97%/1/ 29,700,000 (145,159)
Switzerland
Morgan Stanley 06/17/10 4.31% 3.89%/1/ 40,000,000 (119,779)
Merrill Lynch 07/15/10 4.37% 3.60%/1/ 64,480,000 (669,947)
Union Bank of 08/31/10 3.86%/1/ 4.50% 36,850,000 217,047
Switzerland
Union Bank of 09/27/10 4.51% 3.97%/1/ 33,100,000 (199,487)
Switzerland
Morgan Stanley 02/17/14 3.80%/1/ 4.41% 34,300,000 754,959
Goldman Sachs 04/22/14 3.63%/1/ 4.89% 30,000,000 (733,449)
Citibank 06/10/14 3.83%/1/ 5.24% 29,000,000 (1,428,479)
Morgan Stanley 06/14/14 3.85%/1/ 5.31% 37,300,000 (2,001,612)
Merrill Lynch 07/22/14 3.63%/1/ 4.93% 41,100,000 (618,555)
Goldman Sachs 10/01/14 3.50%/1/ 4.51% 10,200,000 48,216
Merrill Lynch 03/17/15 3.87%/1/ 4.90% 53,400,000 (566,574)
JP Morgan 05/26/15 3.84%/1/ 4.50% 18,400,000 165,587
Chase
Morgan Stanley 07/11/15 4.44% 3.55%/1/ 22,800,000 (553,090)
Morgan Stanley 08/02/15 4.73% 3.70%/1/ 39,100,000 (103,561)
Union Bank of 12/07/15 5.94%/2/ N/A/3/ 14,900,000 1,325,504
Switzerland
Merrill Lynch 07/29/19 3.68%/1/ 5.37% 6,150,000 (310,944)
Merrill Lynch 08/13/19 5.16% 3.79%/1/ 8,175,000 230,372
Merrill Lynch 10/27/19 4.78% 3.66%/1/ 5,100,000 10,506
Core PLUS Total Return Morgan Stanley 06/14/06 3.22% 3.85%/1/ 10,855,000 (1,320)
Morgan Stanley 06/17/06 3.21% 3.89%/1/ 8,000,000 (995)
Deutsche Bank 08/02/07 4.39% 3.70%/1/ 16,100,000 (33,811)
Deutsche Bank 08/17/07 4.44% 3.80%/1/ 21,500,000 (31,124)
JP Morgan 09/20/07 3.89%/1/ 4.35% 24,000,000 88,320
Chase
Union Bank of 09/27/08 4.42% 3.97%/1/ 2,300,000 (11,241)
Switzerland
Morgan Stanley 06/17/10 4.31% 3.89%/1/ 5,300,000 (15,871)
Merrill Lynch 07/15/10 4.37% 3.60%/1/ 8,205,000 (85,250)
Union Bank of 09/27/10 4.51% 3.97%/1/ 5,600,000 (33,750)
Switzerland
Morgan Stanley 02/17/14 3.80%/1/ 4.41% 3,500,000 77,037
Goldman Sachs 04/22/14 3.63%/1/ 4.89% 8,000,000 (195,586)
Morgan Stanley 06/14/14 3.85%/1/ 5.31% 4,300,000 (230,749)
Merrill Lynch 07/22/14 3.63%/1/ 4.93% 4,900,000 (73,745)
Merrill Lynch 03/17/15 3.87%/1/ 4.90% 6,200,000 (65,782)
Deutsche Bank 04/01/15 5.03% 3.50%/1/ 3,500,000 (70,275)
JP Morgan 05/26/15 3.84%/1/ 4.50% 2,400,000 21,598
Chase
Morgan Stanley 07/11/15 4.44% 3.55%/1/ 4,000,000 (97,033)
Morgan Stanley 08/02/15 4.73% 3.70%/1/ 4,700,000 (12,449)
JP Morgan 09/20/15 4.70% 3.89%/1/ 5,200,000 (32,552)
Chase
Union Bank of 12/07/15 5.94%/2/ N/A/3/ 1,400,000 124,544
Switzerland
Merrill Lynch 07/29/19 3.68%/1/ 5.37% 725,000 (36,656)
Merrill Lynch 08/13/19 5.16% 3.79%/1/ 1,000,000 28,180
Merrill Lynch 10/27/19 4.78% 3.66%/1/ 600,000 1,236
146
BlackRock Funds
Interest Interest Unrealized
Termination Receivable Payable Notional amount Appreciation
Portfolio Counter-party Date Rate Rate (Local Currency) (Depreciation)
- ---------------------- -------------- ----------- ---------- ---------- ---------------- ---------------
Government Income Morgan Stanley 06/14/06 3.22% 3.85%/1/ $ 8,190,000 $ (996)
Morgan Stanley 06/17/06 3.21% 3.89%/1/ 6,100,000 (759)
Deutsche Bank 03/23/07 4.53%/4/ N/A/5/ 160,000,000 (235,500)
Union Bank of 04/16/07 3.61%/1/ 3.00% 10,000,000 166,700
Switzerland
Deutsche Bank 08/02/07 4.39% 3.70%/1/ 22,500,000 (47,251)
Deutsche Bank 03/23/10 3.96%/1/ 4.60% 34,100,000 32,526
Morgan Stanley 06/17/10 4.31% 3.89%/1/ 5,900,000 (17,667)
Union Bank of 08/16/10 3.79%/1/ 4.56% 7,400,000 21,682
Switzerland
Union Bank of 09/27/10 4.51% 3.97%/1/ 1,500,000 (9,040)
Switzerland
Merrill Lynch 07/22/14 3.63%/1/ 4.93% 3,300,000 (49,665)
Morgan Stanley 10/01/14 3.50%/1/ 4.52% 3,400,000 13,178
Union Bank of 11/26/14 3.84%/1/ 4.58% 50,000,000 (15,385)
Switzerland
Union Bank of 03/21/15 4.88% 3.92%/1/ 6,000,000 55,320
Switzerland
Deutsche Bank 03/24/15 5.08% 3.96%/1/ 11,100,000 266,559
Deutsche Bank 03/29/15 5.11% 3.96%/1/ 11,000,000 289,140
Morgan Stanley 07/11/15 4.44% 3.55%/1/ 4,000,000 (97,033)
Morgan Stanley 08/02/15 4.73% 3.70%/1/ 3,100,000 (8,211)
Inflation Protected Bond JP Morgan 05/26/15 3.84%/1/ 4.50% 300,000 2,700
Chase
Deutsche Bank 09/29/15 4.05%/1/ 4.76% 300,000 511
GNMA Morgan Stanley 06/14/06 3.22% 3.85%/1/ 16,185,000 (1,969)
Morgan Stanley 06/17/06 3.21% 3.89%/1/ 12,000,000 (1,493)
Deutsche Bank 03/23/07 4.53%/4/ N/A/5/ 80,000,000 (117,750)
Union Bank of 04/16/07 3.61%/1/ 3.00% 15,000,000 250,050
Switzerland
Deutsche Bank 08/02/07 4.39% 3.70%/1/ 9,200,000 (19,320)
Deutsche Bank 03/23/10 3.96%/1/ 4.60% 17,100,000 16,311
Union Bank of 08/16/10 3.79%/1/ 4.56% 4,900,000 14,357
Switzerland
Union Bank of 09/27/10 4.51% 3.97%/1/ 3,000,000 (18,080)
Switzerland
Morgan Stanley 06/14/14 3.85%/1/ 5.31% 3,800,000 (203,918)
Merrill Lynch 07/22/14 3.63%/1/ 4.93% 4,300,000 (64,715)
Morgan Stanley 10/01/14 3.50%/1/ 4.52% 4,100,000 15,892
Morgan Stanley 07/11/15 4.44% 3.55%/1/ 1,800,000 (43,665)
Morgan Stanley 08/02/15 4.73% 3.70%/1/ 4,100,000 (10,859)
Managed Income Morgan Stanley 06/14/06 3.22% 3.85%/1/ 46,345,000 (5,637)
Morgan Stanley 06/17/06 3.21% 3.89%/1/ 34,200,000 (4,255)
Union Bank of 04/16/07 3.61%/1/ 3.00% 50,000,000 833,500
Switzerland
Deutsche Bank 08/02/07 4.39% 3.70%/1/ 30,700,000 (64,471)
Deutsche Bank 08/17/07 4.44% 3.80%/1/ 11,400,000 (16,503)
JP Morgan 09/20/07 3.89%/1/ 4.35% 78,000,000 287,040
Chase
Morgan Stanley 06/17/10 4.31% 3.89%/1/ 10,800,000 (32,340)
Merrill Lynch 07/15/10 4.37% 3.60%/1/ 17,020,000 (176,838)
Union Bank of 09/27/10 4.51% 3.97%/1/ 2,300,000 (13,862)
Switzerland
Goldman Sachs 10/04/10 4.66% 4.07%/1/ 37,000,000 (97,953)
Morgan Stanley 02/17/14 3.80%/1/ 4.41% 12,000,000 264,125
Goldman Sachs 04/22/14 3.63%/1/ 4.89% 20,000,000 (488,966)
Citibank 06/10/14 3.83%/1/ 5.24% 9,500,000 (467,950)
Morgan Stanley 06/14/14 3.85%/1/ 5.31% 12,100,000 (649,317)
Merrill Lynch 07/22/14 3.63%/1/ 4.93% 13,100,000 (197,155)
Merrill Lynch 03/17/15 3.87%/1/ 4.90% 17,000,000 (180,370)
Union Bank of 03/21/15 4.88% 3.92%/1/ 10,000,000 92,200
Switzerland
JP Morgan 05/26/15 3.84%/1/ 4.50% 4,900,000 44,097
Chase
Morgan Stanley 07/11/15 4.44% 3.55%/1/ 6,000,000 (145,550)
Morgan Stanley 08/02/15 4.73% 3.70%/1/ 12,500,000 (33,108)
JP Morgan 09/20/15 4.70% 3.89%/1/ 16,900,000 (105,794)
Chase
Union Bank of 12/07/15 5.94%/2/ N/A/3/ 5,900,000 524,864
Switzerland
Merrill Lynch 07/29/19 3.68%/1/ 5.37% 1,950,000 (98,592)
Merrill Lynch 08/13/19 5.16% 3.79%/1/ 2,550,000 71,859
Merrill Lynch 10/27/19 4.78% 3.66%/1/ 1,600,000 3,296
147
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Interest Interest Unrealized
Termination Receivable Payable Notional amount Appreciation
Portfolio Counter-party Date Rate Rate (Local Currency) (Depreciation)
- ---------------------- -------------- ----------- ---------- ---------- ---------------- -----------------
International Bond Morgan Stanley 06/14/06 3.22% 3.85%/1/ $ 11,050,000 $ (1,344)
Morgan Stanley 06/17/06 3.21% 3.89%/1/ 8,200,000 (1,020)
Deutsche Bank 04/01/07 4.28% 3.50%/1/ 20,000,000 (79,478)
Union Bank of 05/19/07 N/A/6/ 4.49%/7/ 20,000,000 GBP (30,428)
Switzerland
Citibank 08/15/07 2.26% 2.12%/8/ 139,000,000 SGD (124,253)
Morgan Stanley 07/01/10 4.17% 3.50%/1/ 36,900,000 (698,494)
Citibank 08/15/10 2.10%/8/ 2.63% 57,750,000 SGD 38,644
Morgan Stanley 08/26/10 1.67%/9/ 2.84% 135,000,000 SEK 23,620
Merrill Lynch 09/29/10 1.66%/9/ 2.86% 90,000,000 SEK 21,425
Deutsche Bank 08/02/12 6.42% 6.98%/10/ 3,100,000 NZD (22,162)
Morgan Stanley 02/17/14 3.80%/1/ 4.41% 4,100,000 90,243
Morgan Stanley 06/14/14 3.85%/1/ 5.31% 5,800,000 (311,243)
Deutsche Bank 04/01/15 5.03% 3.50%/1/ 11,000,000 (220,863)
Morgan Stanley 07/01/15 3.50%/1/ 4.39% 20,500,000 573,479
Union Bank of 08/25/15 6.47% 6.98%/10/ 10,000,000 NZD (40,703)
Switzerland
High Yield Bond Citibank 12/20/09 3.75% N/A/11/ 6,000,000 6,573
JP Morgan 12/20/09 N/A/12/ 3.75% 3,500,000 (69,635)
Chase
Citibank 03/20/10 4.74% N/A/13/ 6,000,000 120,968
Merrill Lynch 06/20/10 N/A/14/ 0.99% 2,000,000 3,116
Merrill Lynch 06/20/10 1.90% N/A/15/ 2,000,000 29,240
JP Morgan 12/20/10 N/A/16/ 2.33% 1,000,000 --
Chase
Merrill Lynch 12/20/10 2.45% N/A/17/ 3,000,000 29,354
Morgan Stanley 12/20/10 N/A/16/ 2.30% 1,000,000 --
- ----------
/1/ Rate shown is based on the 3 month LIBOR as of the most recent payment
date.
/2/ Per the terms of the agreement, rate becomes effective 12/07/05.
/3/ Rate to be determined based on the 3 month LIBOR on 12/07/05.
/4/ Per the terms of the agreement, rate becomes effective 03/23/06.
/5/ Rate to be determined based on the 3 month LIBOR on 03/23/06.
/6/ Rate to be determined based on the 6 month GBP LIBOR on 05/19/06.
/7/ Per the terms of the agreement, rate becomes effective 05/19/06.
/8/ Rate shown is based on the 6 month SIBOR as of the most recent payment
date.
/9/ Rate shown is based on the 3 month STIBOR as of the most recent payment
date.
/10/ Rate shown is based on the 3 month BBA NZD LIBOR as of the most recent
payment date.
/11/ Rate to be determined upon notice of event of default by The Goodyear Tire
& Rubber Company on 7.857% bond issue maturing 08/15/2011.
/12/ Rate to be determined upon notice of event of default by DJ CDX:NA.HY3.
/13/ Rate to be determined upon notice of event of default by Levi Strauss &
Company on 12.25% bond issue maturing 12/15/2012.
/14/ Rate to be determined upon notice of event of default by Teco Energy, Inc.
on 7.20% bond issue maturing 05/01/2011.
/15/ Rate to be determined upon notice of event of default by CMS Energy
Corporation on 8.50% bond issue maturing 04/15/2011.
/16/ Rate to be determined upon notice of event of default by NRG Energy, Inc.
on 8.00% bond issue maturing 12/15/2013.
/17/ Rate to be determined upon notice of event of default by Utilicorp Canada
Finance Corp. on 7.75% bond issue maturing 06/15/2011.
148
BlackRock Funds
As a result of recent changes in GAAP, the Portfolio's have previously
reclassified periodic payments made under interest rate swap agreements,
previously included within interest income or expense, as a component of
realized gain (loss) in the Statement of Operations. For consistency, similar
reclassifications have been made to amounts appearing in the per share amounts
in prior years financial highlights. Net investment income ratios in the
financial highlights (from 2001-2003), have also been modified accordingly.
This reclassification had no effect on the Portfolio's net asset value, either
in total or per share, or their total increase (decrease) in net assets from
operations during any period. The effects of these reclassifications in the
financial highlights are as follows:
Low Duration Bond
------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C
----------- ------------- ------------ ------------ ------------ ------------
Net Investment Income Ratio
9/30/2003 .................... --% (0.01)% (0.01)% (0.01)% (0.01)% (0.01)%
9/30/2002 .................... --% --% --% --% --% --%
9/30/2001 .................... --% --% (0.01)% (0.01)% --% (0.01)%
Net Investment Income per Share
9/30/2003 .................... $ -- $ -- $ -- $ -- $ -- $ --
9/30/2002 .................... $ -- $ -- $ -- $ -- $ -- $ --
9/30/2001 .................... $ -- $ -- $ -- $ -- $ -- $ --
Intermediate Government Bond
--------------------------------------------------------------------------
Institutional Service Investor A Investor B Investor C
--------------- ----------- ------------ ------------ ------------
Net Investment Income Ratio
9/30/2003 .................... 0.05% 0.05% 0.05% 0.05% 0.05%
9/30/2002 .................... 0.12% 0.11% 0.12% 0.12% 0.12%
9/30/2001 .................... 0.01% 0.01% 0.01% 0.01% 0.01%
Net Investment Income per Share
9/30/2003 .................... $ -- $ 0.01 $ 0.01 $ -- $ --
9/30/2002 .................... $ 0.01 $ 0.01 $ 0.02 $ 0.02 $ 0.01
9/30/2001 .................... $ -- $ -- $ -- $ 0.01 $ 0.01
Intermediate Bond
---------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C
------------ --------------- ----------- ------------ ------------ -------------
Net Investment Income Ratio
9/30/2003 .................... (0.08)% (0.07)% (0.08)% (0.08)% (0.07)% (0.07)%
9/30/2002 .................... (0.02)% (0.02)% (0.02)% (0.02)% (0.02)% (0.02)%
9/30/2001 .................... 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
Net Investment Income per Share
9/30/2003 .................... $ -- $ (0.01) $ (0.01) $ (0.01) $ (0.01) $ (0.01)
9/30/2002 .................... $ (0.01) $ (0.01) $ -- $ (0.01) $ -- $ --
9/30/2001 .................... $ -- $ 0.01 $ -- $ 0.01 $ -- $ --
Core Bond Total Return
---------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C
------------ --------------- ----------- ------------ ------------ -------------
Net Investment Income Ratio
9/30/2003 .................... 0.02% 0.01% 0.01% 0.01% 0.02% 0.01%
9/30/2002 .................... (0.10)% (0.10)% (0.10)% (0.10)% (0.10)% (0.10)%
9/30/2001 .................... 0.02% 0.01% 0.01% 0.01% 0.02% 0.01%
Net Investment Income per Share
9/30/2003 .................... $ -- $ -- $ -- $ -- $ -- $ --
9/30/2002 .................... $ (0.01) $ (0.01) $ -- $ (0.01) $ -- $ --
9/30/2001 .................... $ -- $ -- $ -- $ 0.01 $ -- $ --
149
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Core PLUS Total Return
-----------------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C
------------- ------------- ------------- ------------ ------------ -------------
Net Investment Income Ratio
9/30/2003 .................... (0.01)% (0.01)% (0.01)% (0.01)% (0.01)% (0.01)%
Net Investment Income per Share
9/30/2003 .................... $ -- $ -- $ -- $ -- $ -- $ --
Government Income
--------------------------------------------------------
BlackRock Investor A Investor B Investor C
----------- ------------ ------------ ------------
Net Investment Income Ratio
9/30/2003 .................... 0.07% 0.07% 0.07% 0.07%
9/30/2002 .................... --% 0.20% 0.20% 0.21%
9/30/2001 .................... --% 0.09% 0.10% 0.09%
Net Investment Income per Share
9/30/2003 .................... $ 0.01 $ 0.01 $ 0.01 $ 0.01
9/30/2002 .................... $ -- $ 0.02 $ 0.02 $ 0.02
9/30/2001 .................... $ -- $ 0.01 $ 0.01 $ --
GNMA
-----------------------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C
----------- --------------- ------------ ------------ ------------ ------------
Net Investment Income Ratio
9/30/2003 .................... 0.11% 0.12% 0.11% 0.12% 0.12% 0.11%
9/30/2002 .................... --% 0.37% 0.36% 0.37% 0.37% 0.36%
9/30/2001 .................... --% (0.10)% (0.10)% (0.10)% (0.10)% (0.10)%
Net Investment Income per Share
9/30/2003 .................... $ -- $ 0.02 $ 0.01 $ 0.01 $ 0.01 $ 0.01
9/30/2002 .................... $ -- $ 0.02 $ 0.01 $ 0.03 $ 0.02 $ 0.01
9/30/2001 .................... $ -- $ (0.01) $ (0.01) $ (0.01) $ -- $ --
Managed Income
----------------------------------------------------------------------------
Institutional Service Investor A Investor B Investor C
--------------- ------------- ------------ ------------ ------------
Net Investment Income Ratio
9/30/2003 .................... (0.03)% (0.03)% (0.03)% (0.02)% (0.02)%
9/30/2002 .................... (0.04)% (0.04)% (0.04)% (0.04)% (0.05)%
9/30/2001 .................... 0.01% 0.01% 0.01% 0.01% 0.01%
Net Investment Income per Share
9/30/2003 .................... $ -- $ -- $ -- $ -- $ --
9/30/2002 .................... $ (0.01) $ (0.01) $ (0.01) $ (0.01) $ (0.01)
9/30/2001 .................... $ -- $ -- $ -- $ -- $ --
Investment Transactions and Investment Income -- Investment transactions
are accounted for on the trade date. The cost of investments sold and the
related gain or loss is determined by use of the specific identification method,
generally first in first out, for both financial reporting and federal income
tax purposes. Interest income is recorded on the accrual basis. Discounts and
premiums on debt securities are accreted or amortized, respectively, for book
and tax purposes using the effective yield-to-maturity method over the term of
the instrument. Dividends are recorded on the ex-dividend date. Paydown gains
and losses on mortgage and asset-backed securities are presented as an
adjustment to interest income.
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
Portfolio's custodian or an authorized securities depository.
150
BlackRock Funds
Reverse Repurchase Agreements -- The Portfolios may enter into reverse
repurchase agreements with qualified third party brokers-dealers as determined
by and under the direction of the Board. Interest on the value of the reverse
repurchase agreements issued and outstanding is based upon competitive market
rates at the time of issuance and is included within the related liability on
the statement of assets and liabilities. At the time the Portfolios enter 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.
Futures Transactions -- The Portfolios use futures and options on futures
contracts typically as a substitute for taking a position in the underlying
asset and/or as part of a strategy designed to reduce exposure to other risks,
such as interest rate or currency risk. The Portfolio may also use these
instruments for leverage. These futures contracts obligate a Portfolio, at
maturity, to take or make delivery of securities, the cash value of a securities
index or a stated quantity of a foreign currency. Upon entering into a futures
contract, the Portfolios are required to deposit cash or pledge securities as
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 Portfolios each day (daily variation margin) and are recorded as
cumulative unrealized gains or losses until the contracts are closed. When the
contracts are closed, the Portfolios record a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Portfolios' 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
market, resulting in an inability to liquidate 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.
Stripped Mortgage Backed Securities -- The Portfolios may invest in
stripped mortgage-backed securities issued by the U.S. Government, its agencies
and instrumentalities. Stripped mortgage-backed securities are usually
structured with two classes that receive different proportions of the interest
and principal distributions on a pool of mortgage assets. In certain cases, one
class will receive all of the interest (the interest-only or "IO" class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on IOs is sensitive to the rate of principal
repayments (including pre-payments) on the related underlying mortgage assets,
and principal pre-payments may have a material effect on yield to maturity. If
the underlying mortgage assets experience greater than anticipated pre-payments
of principal, a Portfolio may not fully recoup its initial investment in IOs.
Such securities will be considered liquid only if so determined in accordance
with guidelines established by the Trustees. The Portfolios also may invest in
stripped mortgage-backed securities that are privately issued. These securities
will be considered illiquid for purposes of each Portfolio's limit on illiquid
securities.
Investing in Government Sponsored Enterprises -- The Portfolios invest in
securities issued by the Federal Home Loan Mortgage Corporation ("Freddie Mac")
and similar United States Government sponsored entities such as Federal National
Mortgage Association ("Fannie Mae") and the Federal Home Loan Banks ("FHLB's").
Freddie Mac, Fannie Mae, and FHLB's, although chartered and sponsored by
Congress, are not funded by Congressional appropriations and the debt and
mortgage-backed securities issued by Freddie Mac, Fannie Mae and FHLB's are
neither guaranteed nor insured by the United States Government.
Option Writing/Purchasing -- The Portfolios may write or purchase financial
options contracts for the purpose of hedging or earning additional income, which
may be deemed speculative. When the Portfolios write or purchase an option, an
amount equal to the premium received or paid by the Portfolios 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 Portfolios 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
Portfolios have realized a gain or a loss on investment transactions. The
Portfolios as writers 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.
Swaptions Writing -- The Portfolios may write swaption contracts to manage
exposure to fluctuations in interest rates and to enhance portfolio yield.
Swaption contracts wirtten by the Portfolios represent an option that gives the
purchaser the right, but not the obligation, to enter into a previously agreed
upon swap contract on a future date. If a written call swaption is exercised,
the writer will enter a swap and is obligated to pay the fixed rate and receive
a floating
151
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
rate in exchange. If a written put swaption is exercised, the writer will enter
a swap and is obligated to pay the floating rate and receive a fixed rate in
exchange. Swaptions are marked to market daily based upon quotations from
market makers.
When a Portfolio writes a swaption, the premium received is recorded as a
liability and is subsequently adjusted to the current market value of the
swaption. Changes in the value of the swaption are reported as unrealized gains
or losses in the Statements of Assets and Liabilities or Statements of Net
Assets. Gain or loss is recognized when the swaption contract expires or is
closed. Premiums received from writing swaptions that expire or are exercised
are treated by the Portfolio as realized gains from investments. The difference
between the premium and the amount paid on effecting a closing purchase
transaction is also treated as a realized gain, or if the premium is less than
the amount paid for the closing purchase, as a realized loss.
Entering into a swaption contract involves, to varying degrees, the
elements of credit, market and interest rate risk, associated with both option
contracts and swap contracts. To reduce credit risk from potential counterparty
default, the Portfolios enter into swaption contracts with counterparties whose
creditworthiness has been evaluated by BlackRock. The Portfolios bear the market
risk arising from any change in index values or interest rates.
Written or purchased option and swaption transactions entered into during
the year ended September 30, 2005 are summarized as follows:
Intermediate Intermediate Intermediate
Government Bond Bond PLUS Bond
----------------------------- ----------------------------- --------------------------
Number of Number of Number of
Contracts Premium Contracts Premium Contracts Premium
----------- --------------- ----------- -------------- ----------- ------------
Balance at 9/30/04 ......... 4,410 $ 568,835 11,512 $ 1,350,390 2 1,325
Purchased .................. (4,913) (412,289) (9,349) (814,019) (126) (12,592)
Written .................... 8,153 2,740,842 17,190 5,007,347 983 167,305
Expired .................... (1,169) (350,456) (2,994) (844,086) (310) (16,831)
Closed ..................... (1,601) (230,112) (8,599) (953,862) (329) (32,307)
----------- --------------- ----------- -------------- ----------- ------------
Balance at 9/30/05 ......... 4,880 $ 2,316,820 7,760 $ 3,745,770 220 $ 106,900
=========== =============== =========== ============== =========== ============
Core Bond Core Plus
Total Return Total Return Government Income
----------------------------- ---------------------------- --------------------------
Number of Number of Number of
Contracts Premium Contracts Premium Contracts Premium
----------- --------------- ---------- -------------- ----------- ------------
Balance at 9/30/04 ......... 37,600 $ 6,144,238 3,642 $ 552,320 (72) $ (30,885)
Purchased .................. (36,228) (2,655,999) (4,454) (332,054) (1,655) (284,276)
Written .................... 66,931 19,205,385 8,736 2,493,443 1,860 868,652
Expired .................... (8,979) (4,254,423) (506) (334,740) 10 30,196
Closed ..................... (22,361) (2,965,455) (2,535) (346,293) 575 (133,703)
----------- --------------- ----------- -------------- ----------- ------------
Balance at 9/30/05 ......... 36,963 $ 15,473,746 4,883 $ 2,032,676 718 $ 449,984
=========== =============== =========== ============== =========== ============
Inflation
Protected Bond GNMA Managed Income
----------------------------- ----------------------------- --------------------------
Number of Number of Number of
Contracts Premium Contracts Premium Contracts Premium
----------- --------------- ----------- -------------- ----------- ------------
Balance at 9/30/04 ......... 6 $ 4,032 (108) $ (47,058) 14,500 $ 2,500,874
Purchased .................. (300) (38,045) (742) (131,294) (10,701) (771,922)
Written .................... 812 308,209 1,724 434,560 18,132 5,446,674
Expired .................... 58 2,861 (712) 55,943 (4,241) (1,899,088)
Closed ..................... (75) (79,322) 248 (81,424) (7,356) (929,060)
----------- --------------- ----------- -------------- ----------- ------------
Balance at 9/30/05 ......... 501 $ 197,735 410 $ 230,727 10,334 $ 4,347,478
=========== =============== =========== ============== =========== ============
152
BlackRock Funds
International Bond High Yield Bond
----------------------------- ---------------------------
Number of Number of
Contracts Premium Contracts Premium
----------- --------------- ----------- -------------
Balance at 9/30/04 ......... 56 $ 37,002 302 $ 162,256
Purchased .................. (1,897) (226,388) -- --
Written .................... 9,282 3,420,699 822 463,612
Expired .................... (1,508) (139,886) (1,005) (536,315)
Closed ..................... 1,827 184,093 -- --
----------- --------------- ----------- -------------
Balance at 9/30/05 ......... 7,760 $ 3,275,520 119 $ 89,553
=========== =============== =========== =============
TBA Purchase Commitments -- The Portfolios may enter into to be announced
("TBA") commitments purchase or sell securities for a fixed price at a future
date. TBA commitments are considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased/sold
declines/increases prior to settlement date, which is in addition to the risk of
decline in the value of a Portfolios' other assets. Unsettled TBA commitments
are valued at the current market value of the underlying securities, according
to the procedures described under "Security Valuation".
Mortgage Dollar Rolls -- The Portfolios may enter into mortgage dollar
rolls (principally using TBA's) in which the Portfolios sell 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 Portfolios account for such dollar rolls as purchases and sales and receive
compensation, in either "fee" or "drop", 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 that 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.
Financing Transactions -- The Portfolios may enter into financing
transactions consisting of a sale by the Portfolio of securities, together with
a commitment to repurchase similar securities at a future date. The difference
between the selling price and the future purchase price is an adjustment to
interest income. If the counterparty to whom the Portfolio sells the security
becomes insolvent, a Portfolio's right to repurchase the security may be
restricted. The value of the security may change over the term of the financing
transaction.
Inflation-indexed Bonds -- Inflation-indexed bonds are fixed income
securities whose principal value is periodically adjusted according to the rate
of inflation. If the index measuring inflation falls, the principal value of
inflation-indexed bonds will be adjusted downward, and consequently the interest
payable on these securities (calculated with respect to a smaller principal
amount) will be reduced. Repayment of the original bond principal upon maturity
(as adjusted for inflation) is guaranteed in the case of U.S. Treasury
inflation-indexed bonds. For bonds that do not provide a similar guarantee, the
adjusted principal value of the bond repaid at maturity may be less than the
original principal.
Bridge Debt Commitments -- At September 30, 2005, the High Yield Bond
Portfolio had $65,541 in commitments outstanding to fund high yield bridge debt.
The High Yield Bond Portfolio is entitled to a fee upon the expiration of the
commitment period, generally within six months of the initial commitment date.
The bridge debt terms approximate market rates at the time the commitment is
entered into.
Securities Lending -- Through an agreement with PFPC Trust Co., the
Portfolios may lend portfolio securities to certain brokers, dealers or other
financial institutions that pay the Portfolios a negotiated fee. Prior to the
close of each business day, loans of U.S. securities are secured by collateral
at least equal to 102% of the market value of the securities on loan. Loans of
foreign securities are secured by collateral at least equal to 105% of the
market value of securities on loan. However, due to market fluctuations, the
value of the securities lent may exceed the value of the collateral. On the next
business day, the collateral is adjusted based on the prior day's market
fluctuations and the current day's lending activity. Cash collateral received in
connection with the securities lending is invested in short-term investments by
the lending agent. The lending agent has hired BlackRock Capital Management,
Inc. ("BCM"), a
153
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
wholly-owned subsidiary of BlackRock, Inc., and pays BCM to provide advisory
services with respect to the collateral of all of the clients of its securities
lending program. The lending agent may invest such collateral in short-term
investments, including the Institutional Money Market Trust (the "Trust"), a
portfolio of money market securities, or high-quality, short-term instruments
with a maturity date not to exceed 397 days. BCM serves as investment adviser
to the Trust, but receives no fees from the Trust for these services.
Administrative and accounting services are provided by PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of The PNC Financial Services Group, Inc. PFPC
is paid a fee from the Trust at an annual rate not to exceed 0.10% of the
Trust's average daily net assets.
At September 30, 2005, the market value of securities on loan, cash
collateral invested in the Trust and total value of collateral held in
connection with securities lending is summarized as follows:
Market Value Market Value of Total Market
of Securities Cash Collateral Value of
On Loan Invested in the Trust Collateral Received
--------------- ---------------------- -------------------
Core Bond Total Return ......... $ 137,423 $ 143,810 $ 143,810
High Yield Bond ................ 97,696,768 103,315,470 103,315,470
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.
Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("Generally Accepted Accounting Principles") requires the use of management
estimates. Actual results could differ from these estimates.
Transfers In-Kind -- During the current fiscal year, September 30, 2005,
there were no transfers In-kinds. During the period ended September 30, 2004,
certain shareholders of the Enhanced Income Portfolio, Core Bond Total Return
Portfolio and the Intermediate Plus Portfolio transferred cash and securities
with a value of $31,831,191, $183,623,838 and $22,630,997, respectively, in
exchange for Portfolio shares. The securities contributed were subject to a
taxable event prior to the in-kind transfers to the Portfolios and had the same
market value and cost basis as of the date of transfer. Accordingly, for
purposes of generally accepted accounting principles, the book cost of any
securities transferred in-kind to the Portfolios were equal to the market value
of such securities on their date of contribution to the Portfolios resulting in
no difference between book cost and tax cost.
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
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.
Expenses that are directly related to one of the Portfolios are charged
directly to that Portfolio. Other operating expenses are prorated to the
Portfolios on the basis of relative net assets. Class-specific expenses are
borne by that class. Differences in net expense ratios between classes of a
Portfolio are due to class-specific expenses, waivers and accrual adjustments.
Income, other expenses and realized and unrealized gains and losses of a
Portfolio are allocated to the respective class on the basis of the relative net
assets each day.
154
BlackRock Funds
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.
Class Specific Fee Arrangements
------------------------------------------------------------------------------
Portfolio Share Classes
------------------------------------------------------------------------------
Blackrock Institutional Service
---------------------- --------------------- -----------------------
Contractual Actual Contractual Actual Contractual Actual
Fees Fees(4) Fees Fees(4) Fees(1) Fees(4)
----------- -------- ------------- --------- ------------- ---------
Enhanced Income None None None None 0.25% 0.25%
Low Duration Bond None None None None 0.25% 0.25%
Intermediate Government Bond N/A N/A None None 0.25% 0.25%
Intermediate Bond None None None None 0.25% 0.25%
Intermediate PLUS Bond None None None None 0.25% 0.25%
Core Bond Total Return None None None None 0.25% 0.25%
Core PLUS Total Return None None None None 0.25% 0.25%
Government Income None None N/A N/A 0.25% 0.25%
Inflation Protected Bond None None None None 0.25% 0.25%
GNMA None None None None 0.25% 0.25%
Managed Income N/A N/A None None 0.25% 0.25%
International Bond None None None None 0.25% 0.25%
High Yield Bond None None None None 0.25% 0.25%
Class Specific Fee Arrangements
---------------------------------------------------------------------------
Portfolio Share Classes
---------------------------------------------------------------------------
Investor A Investor B Investor C
-------------------- -------------------- ------------------------
Contractual Actual Contractual Actual Contractual Actual
Fees(2) Fees(4) Fees(3) Fees(4) Fees(3) Fees(4)
---------- ------- ----------- -------- ------------- --------
Enhanced Income 0.35% 0.25% N/A N/A N/A N/A
Low Duration Bond 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
Intermediate Government Bond 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
Intermediate Bond 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
Intermediate PLUS Bond 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
Core Bond Total Return 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
Core PLUS Total Return 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
Government Income 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
Inflation Protected Bond 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
GNMA 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
Managed Income 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
International Bond 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
High Yield Bond 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
- ----------
(1) -- The maximum annual contractual fees are comprised of a 0.25% service
fee.
(2) -- The maximum annual contractual fees are comprised of a 0.10%
distribution fee and a 0.25% service fee.
(3) -- The maximum annual contractual fees are comprised of a 0.75%
distribution fee and a 0.25% service fee.
(4) -- The actual fees are as of September 30, 2005.
The BlackRock shares bear a transfer agent fee at an annual rate not to
exceed 0.005% of the average daily net assets plus per account fees and
disbursements. Institutional, Service, Investor A, Investor B and Investor C
share classes bear a tranfer agent fee at an annual rate not to exceed 0.018% of
the average daily net assets of such respective classes plus per account fees
and disbursements.
For the year ended September 30, 2005, the following shows the various
types of class specific expenses borne directly by each class of each Portfolio
and any associated waivers of those expenses.
Share Classes
Administration Fees ------------------------------------------
BlackRock Institutional Service
----------- --------------- -----------
Enhanced Income ...................... $ 8,027 $ 51,758 $ 44
Low Duration Bond .................... 220,785 629,260 538,457
Intermediate Government Bond ......... -- 335,153 1,739
Intermediate Bond .................... 156,911 467,106 135,466
Intermediate PLUS Bond ............... 9,133 208 --
Core Bond Total Return ............... 379,698 869,913 222,384
Core PLUS Total Return ............... 119,847 -- 39
Government Income .................... 3,860 -- 258,669
Inflation Protected Bond ............. 8,830 5,036 1
GNMA ................................. 3,780 194,647 8,669
Managed Income ....................... -- 875,805 110,407
International Bond ................... 28,017 415,017 148,548
High Yield Bond ...................... 49,882 237,298 206,083
Share Classes
Administration Fees -------------------------------------------------------------
Investor A Investor B Investor C Total
------------ ------------ ------------ -------------
Enhanced Income ...................... $ 2 $ -- $ -- $ 59,831
Low Duration Bond .................... 117,475 80,905 137,973 1,724,855
Intermediate Government Bond ......... 381,631 84,436 28,347 831,306
Intermediate Bond .................... 46,237 17,745 16,944 840,409
Intermediate PLUS Bond ............... 16 -- -- 9,357
Core Bond Total Return ............... 249,371 76,530 115,665 1,913,561
Core PLUS Total Return ............... 50 161 31 120,128
Government Income .................... 259,301 62,319 40,256 624,405
Inflation Protected Bond ............. 4,371 1,452 2,444 22,134
GNMA ................................. 23,525 33,487 47,095 311,203
Managed Income ....................... 48,743 11,347 1,653 1,047,955
International Bond ................... 248,124 29,219 80,878 949,803
High Yield Bond ...................... 307,106 158,874 84,640 1,043,883
155
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Share Classes
Administration Fees Waived ----------------------------------------------------------------
BlackRock Institutional Service Total
------------- --------------- ------------- --------------
Enhanced Income ...................... $ (8,027) $ (20,129) $ -- $ (28,156)
Low Duration Bond .................... (220,785) (34,327) -- (255,112)
Intermediate Government Bond ......... -- (335,153) (1,147) (336,300)
Intermediate Bond .................... (156,911) (26,053) -- (182,964)
Intermediate PLUS Bond ............... (9,133) -- -- (9,133)/1/
Core Bond Total Return ............... (379,698) (44,951) -- (424,649)
Core PLUS Total Return ............... (119,847) -- (7) (119,854)
Government Income .................... (3,860) -- -- (3,860)
Inflation Protected Bond ............. (8,830) (761) -- (9,591)/2/
GNMA ................................. (3,780) (10,076) -- (13,856)
Managed Income ....................... -- (875,805) (71,876) (947,681)
International Bond ................... (28,017) -- -- (28,017)
High Yield Bond ...................... (49,882) (10,135) -- (60,017)
- ----------
/1/ Fund also had a fund level administration fee waiver of $22,319
/2/ Fund also had a fund level administration fee waiver of $29,323
Share Classes
Transfer Agent Fees ---------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C Total
----------- -------------- --------- ------------ ------------ ------------ ----------
Enhanced Income ...................... $ 1,146 $ 6,425 $ 5 $ -- $ -- $ -- $ 7,576
Low Duration Bond .................... 34,157 78,115 66,843 14,552 10,043 17,128 220,838
Intermediate Government Bond ......... - 41,605 216 47,375 10,482 3,518 103,196
Intermediate Bond .................... 22,416 57,986 16,816 5,740 2,203 2,103 107,264
Intermediate PLUS Bond ............... 1,305 24 -- 2 -- -- 1,331
Core Bond Total Return ............... 76,566 109,322 27,606 30,956 9,500 14,359 268,309
Core PLUS Total Return ............... 17,121 -- 3 6 20 4 17,154
Government Income .................... 551 -- 32,111 32,189 7,735 4,997 77,583
Inflation Protected Bond ............. 1,261 625 -- 538 180 304 2,908
GNMA ................................. 540 24,163 1,080 2,920 4,157 5,847 38,707
Managed Income ....................... -- 110,107 13,706 6,051 1,408 206 131,478
International Bond ................... 4,003 51,519 18,440 30,802 3,627 10,040 118,431
High Yield Bond ...................... 7,126 29,458 25,583 38,124 19,722 10,506 130,519
156
BlackRock Funds
Share Classes
Shareholder Service Fees ----------------------------------------------------------------------
Service Investor A Investor B Investor C Total
---------- ----------- ----------- ------------ -------------
Enhanced Income ...................... $ 77 $ 2 $ -- $ -- $ 79
Low Duration Bond .................... 928,902 202,033 139,369 237,520 1,507,824
Intermediate Government Bond ......... 3,000 656,576 145,395 48,830 853,801
Intermediate Bond .................... 233,113 79,649 30,577 29,186 372,525
Intermediate PLUS Bond ............... -- 26 2 -- 28
Core Bond Total Return ............... 383,421 431,881 131,891 199,376 1,146,569
Core PLUS Total Return ............... 65 86 278 55 484
Government Income .................... 447,429 447,790 107,404 69,425 1,072,048
Inflation Protected Bond ............. 1 7,535 2,503 4,216 14,255
GNMA ................................. 14,999 40,558 57,713 81,097 194,367
Managed Income ....................... 190,563 84,022 19,546 2,855 296,986
International Bond ................... 254,988 428,695 50,444 139,760 873,887
High Yield Bond ...................... 351,919 528,721 273,837 145,666 1,300,143
Share Classes
Distribution Fees ---------------------------------------------------
Investor A Investor B Investor C Total
------------ ------------ ------------ ------------
Enhanced Income ..................... $ 2 $ -- $ -- $ 2
Low Duration Bond ................... 80,741 418,107 712,566 1,211,414
Intermediate Government Bond ........ 262,823 436,433 146,492 845,748
Intermediate Bond ................... 31,873 91,729 87,558 211,160
Intermediate PLUS Bond .............. 10 4 -- 14
Core Bond Total Return .............. 171,855 395,731 598,132 1,165,718
Core PLUS Total Return .............. 34 832 167 1,033
Government Income ................... 179,180 322,214 208,274 709,668
Inflation Protected Bond ............ 3,014 7,510 12,646 23,170
GNMA ................................ 16,192 173,140 243,290 432,622
Managed Income ...................... 33,586 58,639 8,567 100,792
International Bond .................. 171,698 151,353 419,283 742,334
High Yield Bond ..................... 211,597 821,561 437,451 1,470,609
Share Classes
Distribution Fees Waived --------------
Investor A
--------------
Enhanced Income ...................... $ (2)
Low Duration Bond .................... (80,741)
Intermediate Government Bond ......... (262,823)
Intermediate Bond .................... (31,873)
Intermediate PLUS Bond ............... (10)
Core Bond Total Return ............... (171,855)
Core PLUS Total Return ............... (34)
Government Income .................... (179,180)
Inflation Protected Bond ............. (3,014)
GNMA ................................. (16,192)
Managed Income ....................... (33,586)
International Bond ................... (171,698)
High Yield Bond ...................... (211,597)
(D) Transactions with Affiliates and Related Parties
Pursuant to an Investment Advisory Agreement, BlackRock 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.
157
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
For its advisory services, BlackRock is entitled to receive fees, computed
daily and payable monthly, at the following annual rates, based on each
Portfolio's average daily net assets:
Each Portfolio
Except the Enhanced Income,
International Bond, Inflation International Bond Inflation Protected
Protected Bond & GNMA & GNMA Bond
------------------------------- -------------------- --------------------
Investment Investment Investment
Average Daily Net Assets Advisory Fee Advisory Fee Advisory Fee
- ------------------------------- ------------------------------- -------------------- --------------------
first $1 billion .500% .550% .400%
$1 billion--$2 billion .450 .500 .375
$2 billion--$3 billion .425 .475 .350
greater than $3 billion .400 .450 .325
The investment advisory fee for the Enhanced Income Portfolio is .40%.
In the interest of limiting the expenses of the Portfolios, BlackRock and
the Fund have entered into a series of annual expense limitation agreements. The
agreements set a limit on certain of the operating expenses of each Portfolio
for the next year and require BlackRock to waive or reimburse fees or expenses
if these operating expenses exceed that limit. These expense limits apply to the
aggregate expenses incurred on a share class (excluding: interest, taxes,
brokerage commissions and other extraordinary expenses). At September 30, 2005,
the receivable from BlackRock in the Intermediate PLUS Bond Portfolio was $3,115
and Inflation Protected Bond Portfolio was $6,954.
BlackRock has contractually agreed to waive or reimburse fees or expenses
until February 1, 2006, in order to limit expenses as follows. This agreement is
reviewed annually by the Fund's Board.
Share Classes
Portfolio ---------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C
----------- --------------- --------- ------------ ------------ -----------
Enhanced Income ...................... 0.30% 0.40% 0.75% 0.80% NA NA
Low Duration Bond .................... 0.40% 0.55% 0.85% 0.90% 1.65% 1.65%
Intermediate Government Bond ......... NA 0.60% 0.90% 1.07% 1.82% 1.82%
Intermediate Bond .................... 0.45% 0.60% 0.90% 0.95% 1.70% 1.70%
Intermediate PLUS Bond ............... 0.40% 0.55% 0.85% 0.90% 1.65% 1.65%
Core Bond Total Return ............... 0.40% 0.55% 0.85% 0.90% 1.65% 1.65%
Core PLUS Total Return ............... 0.40% 0.55% 0.85% 0.90% 1.65% 1.65%
Government Income .................... 0.45% NA 0.90% 1.07% 1.82% 1.82%
Inflation Protected Bond ............. 0.30% 0.40% 0.75% 0.85% 1.60% 1.60%
GNMA ................................. 0.45% 0.60% 0.90% 1.07% 1.82% 1.82%
Managed Income ....................... NA 0.65% 0.95% 1.12% 1.87% 1.87%
International Bond ................... 0.78% 1.03% 1.33% 1.50% 2.25% 2.25%
High Yield Bond ...................... 0.55% 0.70% 1.00% 1.17% 1.92% 1.92%
If in the following two years the operating expenses of a share class that
previously received a waiver or reimbursement from BlackRock are less than the
expense limit for that share class, the share class is required to repay
BlackRock up to the amount of fees waived or expenses reimbursed under the
agreement if: (1) the Portfolio of which the share class is a part 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 at the previous quarterly meeting.
158
BlackRock Funds
At September 30, 2005, the amounts subject to possible future reimbursement
under the expense limitation agreement are as follows:
Total Waivers
Expiring Expiring Expiring subject to
January 31, 2006 January 31, 2007 January 31, 2008 Reimbursement
------------------ ------------------ ------------------ ----------------
Enhanced Income ................... $ -- $ 271,986 $ 153,323 $ 425,309
Low Duration Bond ................. 3,619,537 4,373,486 2,669,664 10,662,687
Intermediate Government Bond ...... 639,093 642,708 693,880 1,975,681
Intermediate Bond ................. 1,750,280 2,070,723 1,396,711 5,217,714
Intermediate PLUS Bond ............ -- 146,763 110,897 257,660
Core Bond Total Return ............ 5,029,818 5,428,876 3,841,291 14,299,985
Core PLUS Total Return ............ 606,696 941,716 749,877 2,298,289
Government Income ................. 361,714 363,760 549,200 1,274,674
Inflation Protected Bond .......... -- 182,698 154,557 337,255
GNMA .............................. 830,940 696,440 445,389 1,972,769
Managed Income .................... 1,600,137 1,236,727 793,353 3,630,217
International Bond ................ 16,453 26,818 32,530 75,801
High Yield Bond ................... 740,256 686,917 595,184 2,022,357
The following waivers previously incurred on the portfolios which were
subject to recoupment by BlackRock expired on January 31, 2005, in the amounts
of $1,912,708 for Low Duration Bond, $655,308 for Intermediate Government Bond,
$1,861,005 for Intermediate Bond, $4,450,377 for Core Bond Total Return,
$266,493, for Core PLUS Total Return, $170,412 for Government Income, $600,858
for GNMA, $1,721,558 for Managed Income, and $425,847 for High Yield Bond.
BlackRock pays BFM fees for its sub-advisory services.
PFPC 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: 0.085% of the first $500
million, 0.075% of the next $500 million and 0.065% of assets in excess of $1
billion. In addition, each of the share classes, except for the BlackRock Class,
is charged an administration fee based on the following percentage of average
daily net assets of each respective class: 0.145% of the first $500 million,
0.135% of the next $500 million and 0.125% of assets in excess of $1 billion.
The BlackRock Class is charged an administration fee of 0.035% of the first $500
million, 0.025% of the next $500 million and 0.015% of assets in excess of $1
billion based upon average daily net assets. In addition, PFPC and BlackRock may
have, at their discretion, voluntarily waived all or any portion of their
administration fees for any Portfolio or share class.
159
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Pursuant to the Fund's Amended and Restated Distribution and Service Plan
(the "Plan"), the Portfolio may pay BlackRock Distributors, Inc. (the
"Distributor") and/or BlackRock or any other affiliate of PNC Financial Services
Group, Inc. fees for distribution and sales support services. Currently, only
Investor A Shares, Investor B Shares and Investor C Shares bear the expense of
distribution fees under the Plan. In addition, the Portfolio may pay brokers,
dealers, financial institutions and industry professionals (including PNC
Financial Services Group, Inc. and its affiliates) ("service organizations")
fees for the provision of personal services to shareholders. BlackRock may
receive some of the service fees paid by the Portfolio in return for providing
services to shareholders. Currently, only Investor A Shares, Investor B Shares,
Investor C Shares and Service Shares bear the expense of service fees under the
Plan.
Since January 31, 2005, BlackRock has maintained a call center which is
responsible for providing certain shareholder services to the BlackRock Funds,
such as responding to shareholder inquiries and processing transactions based
upon instructions from shareholders with respect to the subscription and
redemption of fund shares. During the period February 1, 2005 through September
30, 2005, the following amounts have been accrued by each portfolio to reimburse
BlackRock for costs incurred running the call center, which are a component of
the Transfer Agent fees in the accompanying Statement of Operations.
BlackRock Institutional Service Investor A Investor B Investor C Total
----------- -------------- --------- ------------ ------------ ---------- ----------
Enhanced Income .................. $ 1,893 $ 1,851 $ 3 $ -- $ -- $ -- $ 3,747
Low Duration Bond ................ 50,332 31,316 28,379 5,789 3,903 6,289 126,008
Intermediate Government Bond ..... -- 17,062 82 27,908 6,130 1,703 52,885
Intermediate Bond ................ 34,362 23,724 7,368 2,268 873 775 69,370
Intermediate PLUS Bond ........... 1,929 -- -- 2 -- -- 1,931
Core Bond Total Return ........... 122,606 44,481 11,859 16,723 3,992 5,959 205,620
Core PLUS Total Return ........... 27,688 -- 2 3 9 3 27,705
Government Income ................ 901 -- 16,343 16,314 3,405 2,293 39,256
Inflation Protected Bond ......... 2,114 366 -- 377 145 226 3,228
GNMA ............................. 817 9,937 619 1,201 1,697 2,264 16,535
Managed Income ................... -- 45,869 5,971 2,570 557 93 55,060
International Bond ............... 7,278 25,081 8,476 14,256 1,622 4,877 61,590
High Yield Bond .................. 11,816 12,063 12,070 21,117 8,901 4,223 70,190
As of the fiscal year ended September 30, 2005, affiliated payables were as
follows:
PNC Bank
PFPC(1) BlackRock(2) Affiliates(3)
---------- -------------- ---------------
Enhanced Income ...................... $ 5,403 $ 8,435 $ 11
Low Duration Bond .................... 118,559 430,837 194,918
Intermediate Government Bond ......... 80,674 259,661 151,394
Intermediate Bond .................... 69,866 265,017 42,515
Intermediate PLUS Bond ............... 6,067 466 5
Core Bond Total Return ............... 185,574 674,550 179,655
Core PLUS Total Return ............... 29,065 60,344 169
Government Income .................... 61,385 129,449 155,008
Inflation Protected .................. 6,203 1,265 5,472
GNMA ................................. 22,274 36,580 44,049
Managed Income ....................... 62,575 298,236 29,083
International Bond ................... 104,611 507,758 132,744
High Yield Bond ...................... 109,378 333,811 221,396
- ----------
(1) -- payables to PFPC are for Accounting, Administration, Custody and
Transfer Agent services provided as of September 30, 2005.
(2) -- payables to BlackRock are for Advisory and Administration services
provided as of September 30, 2005, and for amounts due BlackRock for
costs incurred related to the BlackRock Funds Call Center.
(3) -- payables to PNC Bank affiliates are for distribution and sales support
services as described under the Plan. The total payable on behalf of the
Fund, as of September 30, 2005, was $5,313,103, a portion of which is
paid to service organizations, including other PNC Bank affiliates.
160
BlackRock Funds
(E) Purchases and Sales of Securities
For the year ended September 30, 2005, purchases and sales of securities,
other than short-term investments, dollar rolls and U.S. government securities,
were as follows:
Purchases Sales
---------------- ----------------
Enhanced Income ...................... $ 62,970,411 $ 17,164,003
Low Duration Bond .................... 1,258,891,609 493,878,838
Intermediate Government Bond ......... 458,553,526 315,255,283
Intermediate Bond .................... 626,608,581 499,001,850
Intermediate PLUS Bond ............... 31,787,826 28,833,739
Core Bond Total Return ............... 2,164,091,312 3,599,523,613
Core PLUS Total Return ............... 572,873,212 493,063,701
Government Income .................... 2,350,711,307 2,216,100,539
Inflation Protected Bond ............. 8,601,751 3,560,290
GNMA ................................. 1,008,625,877 907,059,897
Managed Income ....................... 837,675,531 915,296,235
International Bond ................... 1,235,909,342 730,841,519
High Yield Bond ...................... 1,096,090,099 1,041,394,519
For the year ended September 30, 2005, purchases and sales of U.S.
government securities were as follows:
Purchases Sales
---------------- ----------------
Enhanced Income ...................... $ 55,435,661 $ 73,802,083
Low Duration Bond .................... 1,479,624,228 2,011,603,856
Intermediate Government Bond ......... 892,318,936 944,429,434
Intermediate Bond .................... 1,606,306,941 1,338,218,245
Intermediate PLUS Bond ............... 54,282,393 44,669,637
Core Bond Total Return ............... 7,924,182,309 4,990,586,010
Core PLUS Total Return ............... 857,607,914 738,680,286
Government Income .................... 1,201,277,337 1,064,809,957
Inflation Protected Bond ............. 173,126,668 135,237,085
GNMA ................................. 444,676,129 364,482,524
Managed Income ....................... 1,361,207,094 1,328,994,473
International Bond ................... 1,394,044,388 691,493,261
High Yield Bond ...................... 109,988,534 3,197,477
161
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
(F) Capital Shares
Transactions in capital shares for each period were as follows:
Enhanced Income
------------------------------------------------------------------------
For the Year Ended For the Period 3/4/04/1/
9/30/05 Through 9/30/04
----------------------------------- ----------------------------------
Shares Value Shares Value
----------------- --------------- --------------- ----------------
Shares sold:
BlackRock Class ........................ 2,557,797 $ 25,360,401 5,073,642 $ 50,670,272/2/
Institutional Class .................... 4,696,240 46,518,977 4,224,099 42,063,617
Service Class .......................... 4,995 48,742 10 100
Investor A Class ....................... 226 2,230 10 100
Shares issued in reinvestment of dividends:
BlackRock Class ........................ 27,096 268,396 16,269 162,231
Institutional Class .................... 201 1,987 1,266 12,605
Service Class .......................... 4 43 -- --
Investor A Class ....................... 3 30 -- --
Shares redeemed:
BlackRock Class ........................ (2,066,288) (20,475,433) (3,211,406) (31,937,984)
Institutional Class .................... (5,002,721) (49,546,947) (608,083) (6,045,246)
Service Class .......................... (4) (39) -- --
----------------- --------------- --------------- ----------------
Net increase .............................. 217,549 $ 2,178,387 5,495,807 $ 54,925,695
================= =============== =============== ================
Low Duration Bond
------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------------- ----------------------------------
Shares Value Shares Value
----------------- --------------- --------------- ----------------
Shares sold:
BlackRock Class ............................. 23,677,584 $ 237,200,862 44,025,335 $ 446,498,575
Institutional Class ......................... 13,140,496 131,840,889 24,282,119 245,998,351
Service Class ............................... 15,491,086 155,287,978 16,906,063 171,124,176
Investor A Class ............................ 3,372,366 33,802,475 6,586,743 66,824,073
Investor B Class ............................ 305,370 3,060,506 1,237,328 12,527,828
Investor C Class ............................ 1,111,687 11,134,000 2,875,003 29,091,603
Shares issued in reinvestment of dividends:
BlackRock Class ............................. 1,577,075 15,770,232 1,397,157 14,141,528
Institutional Class ......................... 89,590 896,842 211,305 2,142,104
Service Class ............................... 1,015,873 10,161,607 632,774 6,408,949
Investor A Class ............................ 180,216 1,803,602 150,038 1,520,489
Investor B Class ............................ 55,823 558,285 49,840 505,072
Investor C Class ............................ 72,317 723,217 80,404 814,680
Shares redeemed:
BlackRock Class ............................. (47,103,065) (471,633,795) (29,993,094) (302,896,298)
Institutional Class ......................... (22,415,014) (224,670,022) (23,820,299) (241,181,632)
Service Class ............................... (12,747,828) (127,637,535) (7,559,029) (76,490,802)
Investor A Class ............................ (4,584,912) (45,968,058) (8,056,604) (81,466,569)
Investor B Class ............................ (2,299,034) (23,042,304) (2,925,422) (29,616,425)
Investor C Class ............................ (6,267,123) (62,832,733) (9,991,118) (101,156,376)
----------------- --------------- --------------- ----------------
Net increase (decrease) ........................ (35,327,493) $ (353,543,952) 16,088,543 $ 164,789,326
================= =============== =============== ================
- ----------
1 Commencement of operations.
2 Includes 3,183,119 shares issued in exchange for cash and securities
transferred in-kind with a value of $31,831,191. See Note (C).
162
BlackRock Funds
Intermediate Government Bond
------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------------- ----------------------------------
Shares Value Shares Value
----------------- --------------- --------------- ----------------
Shares issued from the reorganization:/1/
Institutional Class .................... 603,030 $ 6,247,476 -- $ --
Investor A Class ....................... 35,945,484 373,247,336 -- --
Investor B Class ....................... 7,860,023 81,415,016 -- --
Investor C Class ....................... 1,326,873 13,754,555 -- --
Shares sold:
Institutional Class .................... 4,935,111 50,660,534 7,030,782 73,254,751
Service Class .......................... 53,163 551,290 15,696 163,328
Investor A Class ....................... 2,301,849 23,697,849 1,938,301 20,278,933
Investor B Class ....................... 305,328 4,572,462 240,142 2,516,240
Investor C Class ....................... 166,254 3,465,591 498,526 5,220,024
Shares issued in reinvestment of dividends:
Institutional Class .................... 209,245 2,162,681 34,701 361,433
Service Class .......................... 1,790 18,467 1,200 12,556
Investor A Class ....................... 504,455 5,201,764 148,299 1,554,893
Investor B Class ....................... 140,188 1,443,361 18,053 188,928
Investor C Class ....................... 25,817 266,289 18,338 192,130
Shares redeemed:
Institutional Class .................... (7,281,755) (75,223,527) (6,165,653) (64,253,054)
Service Class .......................... (90,576) (933,270) (34,895) (360,371)
Investor A Class ....................... (9,159,278) (94,649,944) (3,069,832) (32,098,235)
Investor B Class ....................... (1,944,875) (20,013,613) (409,168) (4,270,645)
Investor C Class ....................... (902,590) (9,324,007) (855,357) (8,933,420)
----------------- --------------- --------------- ----------------
Net increase (decrease) ................... 34,999,536 $ 366,560,310 (590,867) $ (6,172,509)
================= =============== =============== ================
- ----------
/1/ See Note (B).
Intermediate Bond
------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------------- ----------------------------------
Shares Value Shares Value
----------------- --------------- --------------- ----------------
Shares sold:
BlackRock Class ............................. 10,943,920 $ 103,766,106 22,194,526 $ 212,446,272
Institutional Class ......................... 7,910,204 74,474,551 7,323,200 70,358,931
Service Class ............................... 4,061,951 38,342,245 4,484,117 42,898,126
Investor A Class ............................ 1,146,433 10,812,049 2,301,278 22,081,709
Investor B Class ............................ 168,492 1,587,038 514,527 4,943,361
Investor C Class ............................ 167,224 1,575,377 853,762 8,248,621
Shares issued in reinvestment of dividends:
BlackRock Class ............................. 1,503,241 14,177,881 2,117,759 20,302,155
Institutional Class ......................... 240,047 2,268,072 713,471 6,828,346
Service Class ............................... 367,148 3,460,910 380,166 3,646,160
Investor A Class ............................ 111,485 1,051,081 208,853 2,003,401
Investor B Class ............................ 17,501 165,066 26,753 256,573
Investor C Class ............................ 14,516 137,001 26,824 257,392
Shares redeemed:
BlackRock Class ............................. (12,225,385) (115,777,289) (17,474,823) (166,947,949)
Institutional Class ......................... (8,948,280) (84,224,943) (10,819,909) (103,213,183)
Service Class ............................... (3,068,291) (28,892,569) (1,812,220) (17,318,652)
Investor A Class ............................ (1,454,381) (13,699,059) (2,858,148) (27,250,206)
Investor B Class ............................ (523,981) (4,940,189) (366,749) (3,497,597)
Investor C Class ............................ (692,275) (6,522,781) (702,324) (6,704,679)
----------------- --------------- --------------- ----------------
Net increase (decrease) ........................ (260,431) $ (2,239,453) 7,111,063 $ 69,338,781
================= =============== =============== ================
163
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Intermediate PLUS Bond
------------------------------------------------------------------------
For the Year Ended For the Period 08/18/04/1/
09/30/05 Through 9/30/04
----------------------------------- ----------------------------------
Shares Value Shares Value
----------------- --------------- --------------- ----------------
Shares sold:
BlackRock Class ......................... 2,918,957 $ 28,908,265 2,587,024 $ 25,870,985/2/
Institutional Class ..................... 81,163 829,560 10 100
Service Class ........................... -- -- 10 100
Investor A Class ........................ 1,927 19,367 10 100
Investor B Class ........................ 187 1,879 10 100
Investor C Class ........................ -- -- 10 100
Shares issued in reinvestment of dividends:
BlackRock Class ......................... 82,753 820,654 10,755 107,683
Institutional Class ..................... -- 1 -- --
Investor A Class ........................ 37 373 -- --
Investor B Class ........................ 1 14 -- --
Shares redeemed:
BlackRock Class ......................... (2,532,276) (25,073,039) -- --
Institutional Class ..................... (30) (300) -- --
----------------- --------------- --------------- ----------------
Net increase .............................. 552,719 $ 5,506,774 2,597,829 $ 25,979,168
================= =============== =============== ================
- ----------
/1/ Commencement of operations.
/2/ Includes 2,263,100 shares issued in exchage for cash and securities
transferred in-kind with a value of $22,630,997. See Note (C).
Core Bond Total Return
------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------------- ----------------------------------
Shares Value Shares Value
----------------- --------------- --------------- ----------------
Proceeds from the CIGNA Merger/1/
Investor A Class ............................ 9,164,716 $ 88,882,541 -- $ --
Shares sold:
BlackRock Class ............................. 72,943,333 710,880,147 81,098,736 789,585,824/2/
Institutional Class ......................... 14,121,667 137,024,604 26,144,657 252,656,949
Service Class ............................... 3,124,016 30,340,448 3,697,122 35,865,812
Investor A Class ............................ 7,182,115 68,960,212 7,005,512 68,270,389
Investor B Class ............................ 838,821 8,145,914 890,516 8,667,236
Investor C Class ............................ 1,440,182 14,007,464 3,948,277 38,572,706
Shares issued in reinvestment of dividends:
BlackRock Class ............................. 5,151,864 50,150,246 6,196,050 60,273,505
Institutional Class ......................... 325,876 3,169,280 2,256,020 21,880,616
Service Class ............................... 393,907 3,828,505 639,548 6,211,063
Investor A Class ............................ 564,587 5,487,417 646,516 6,283,630
Investor B Class ............................ 66,679 647,871 146,718 1,427,283
Investor C Class ............................ 38,229 371,797 70,845 689,098
Shares redeemed:
BlackRock Class ............................. (61,453,820) (598,016,374) (47,023,192) (456,436,915)
Institutional Class ......................... (22,164,275) (215,691,754) (47,480,602) (458,774,449)
Service Class ............................... (2,684,772) (26,080,827) (2,662,425) (25,922,395)
Investor A Class ............................ (8,261,374) (80,230,420) (5,361,239) (51,943,127)
Investor B Class ............................ (1,596,836) (15,512,697) (2,259,950) (21,914,448)
Investor C Class ............................ (2,584,498) (25,136,361) (3,362,504) (32,566,267)
----------------- --------------- --------------- ----------------
Net increase .................................. 16,610,417 $ 161,228,013 24,590,605 $ 242,826,510
================= =============== =============== ================
- ----------
/1/ See Note (B).
/2/ Includes 19,013,204 shares issued in exchange for cash and securities
transferred in-kind with a value of $183,623,838. See Note (C).
164
BlackRock Funds
Core PLUS Total Return
------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------------- ----------------------------------
Shares Value Shares Value
----------------- --------------- --------------- ----------------
Shares sold:
BlackRock Class ............................ 20,067,484 $ 207,899,062 13,869,951 $ 142,757,694
Institutional Class ........................ 51 524 -- --
Service Class .............................. -- -- 2,781 28,000
Investor A Class ........................... 8,153 84,401 571 5,780
Investor B Class ........................... 4,032 41,806 3,938 40,392
Investor C Class ........................... 5,489 57,000 -- --
Shares issued in reinvestment of dividends:
BlackRock Class ............................ 1,082,570 11,199,468 1,158,111 11,907,717
Institutional Class ........................ 1 6 -- 5
Service Class .............................. 80 834 24 253
Investor A Class ........................... 111 1,147 35 365
Investor B Class ........................... 229 2,372 168 1,730
Investor C Class ........................... 62 636 -- 5
Shares redeemed:
BlackRock Class ............................ (16,967,035) (175,591,962) (8,898,892) (91,625,793)
Institutional Class ........................ (51) (527) -- --
Service Class .............................. (2,885) (29,944) -- --
Investor A Class ........................... (597) (6,181) (466) (4,737)
Investor B Class ........................... (937) (9,743) (1,792) (18,584)
Investor C Class ........................... (443) (4,595) -- --
----------------- --------------- --------------- ----------------
Net increase .................................. 4,196,314 $ 43,644,304 6,134,429 $ 63,092,827
================= =============== =============== ================
Government Income
------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------------- ----------------------------------
Shares Value Shares Value
----------------- --------------- --------------- ----------------
Shares sold:
BlackRock Class ............................ -- $ 1 962,906 $ 10,785,337
Service Class .............................. 20,018,360 224,095,636 -- --
Investor A Class ........................... 15,705,001 173,372,996 8,254,569 91,605,279
Investor B Class ........................... 1,054,848 11,666,233 813,536 9,028,628
Investor C Class ........................... 1,196,333 13,196,771 740,703 8,204,120
Shares issued in reinvestment of dividends:
BlackRock Class ............................ 48,339 534,250 16,934 186,475
Service Class .............................. 241,137 2,654,457 -- --
Investor A Class ........................... 471,025 5,201,492 310,038 3,440,580
Investor B Class ........................... 76,964 850,428 105,693 1,174,795
Investor C Class ........................... 51,223 564,964 54,418 603,660
Shares redeemed:
BlackRock Class ............................ (183,175) (2,002,148) (5,189) (58,352)
Service Class .............................. (720,236) (7,931,475) -- --
Investor A Class ........................... (4,798,560) (53,075,253) (4,903,988) (53,940,688)
Investor B Class ........................... (1,243,847) (13,757,205) (1,668,127) (18,404,329)
Investor C Class ........................... (656,734) (7,244,686) (1,072,691) (11,808,237)
----------------- --------------- --------------- ----------------
Net increase .................................. 31,260,678 $ 348,126,461 3,608,802 $ 40,817,268
================= =============== =============== ================
165
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Inflation Protected Bond
------------------------------------------------------------------------
For the Year Ended For the Period 06/28/04/1/
9/30/05 Through 9/30/04
----------------------------------- ----------------------------------
Shares Value Shares Value
----------------- --------------- --------------- ----------------
Shares sold:
BlackRock Class ............................ 1,114,622 $ 11,640,391 2,000,010 $ 20,000,102
Institutional Class ........................ 619,259 6,536,438 10 100
Service Class .............................. 143 1,498 10 100
Investor A Class ........................... 592,223 6,211,445 8,902 92,956
Investor B Class ........................... 217,150 2,273,598 5,844 61,094
Investor C Class ........................... 375,454 3,950,746 574 6,000
Shares issued in reinvestment of dividends:
BlackRock Class ............................ 6,148 63,843 -- 1
Institutional Class ........................ 7,358 77,671 -- --
Service Class .............................. 2 24 -- --
Investor A Class ........................... 12,079 126,662 -- 2
Investor B Class ........................... 2,444 25,643 2 19
Investor C Class ........................... 4,464 47,091 -- --
Shares redeemed:
BlackRock Class ............................ (900,905) (9,381,838) -- (1)
Institutional Class ........................ (77,288) (816,190) -- --
Investor A Class ........................... (231,656) (2,415,819) -- --
Investor B Class ........................... (30,328) (316,726) -- --
Investor C Class ........................... (24,467) (257,434) -- --
----------------- --------------- --------------- ----------------
Net increase .................................. 1,686,702 $ 17,767,043 2,015,352 $ 20,160,373
================= =============== =============== ================
- ----------
/1/ Commencement of operations.
GNMA
------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------------- ----------------------------------
Shares Value Shares Value
----------------- --------------- --------------- ----------------
Shares sold:
BlackRock Class ............................ 112 $ 1,100 7,743 $ 77,432
Institutional Class ........................ 1,224,881 12,039,086 2,753,451 27,123,287
Service Class .............................. 797,088 7,867,549 123,324 1,216,598
Investor A Class ........................... 479,134 4,725,445 896,224 8,911,508
Investor B Class ........................... 130,958 1,290,150 456,867 4,531,094
Investor C Class ........................... 315,345 3,095,297 1,208,682 11,999,511
Shares issued in reinvestment of dividends:
BlackRock Class ............................ 46,832 458,892 57,209 564,581
Institutional Class ........................ 6,790 66,675 18,460 182,613
Service Class .............................. 6,106 59,880 8,806 79,966
Investor A Class ........................... 41,656 410,176 57,839 574,179
Investor B Class ........................... 40,105 393,684 67,877 672,159
Investor C Class ........................... 25,500 250,129 49,441 488,662
Shares redeemed:
BlackRock Class ............................ (464) (4,588) (4,966,583) (49,690,525)
Institutional Class ........................ (4,038,772) (39,726,163) (4,626,153) (45,685,645)
Service Class .............................. (194,386) (1,902,805) (57,171) (554,739)
Investor A Class ........................... (773,584) (7,638,274) (1,017,767) (10,094,068)
Investor B Class ........................... (705,005) (6,925,054) (1,191,717) (11,738,181)
Investor C Class ........................... (1,593,289) (15,656,325) (2,356,064) (23,224,236)
----------------- --------------- --------------- ----------------
Net decrease .................................. (4,190,993) $ (41,195,146) (8,509,532) $ (84,565,804)
================= =============== =============== ================
166
BlackRock Funds
Managed Income
------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------------- ----------------------------------
Shares Value Shares Value
----------------- --------------- --------------- ----------------
Shares sold:
Institutional Class ........................ 4,721,056 $ 48,808,111 3,443,975 $ 35,951,136
Service Class .............................. 4,378,267 45,218,402 4,433,492 46,198,406
Investor A Class ........................... 620,512 6,408,922 570,805 5,950,344
Investor B Class ........................... 135,723 1,402,256 107,781 1,126,942
Investor C Class ........................... 41,170 426,350 34,767 362,960
Shares issued in reinvestment of dividends:
Institutional Class ........................ 243,639 2,523,415 1,668,069 17,415,674
Service Class .............................. 184,693 1,906,988 307,188 3,208,282
Investor A Class ........................... 136,893 1,415,011 275,744 2,884,964
Investor B Class ........................... 13,039 134,801 26,510 277,153
Investor C Class ........................... 1,097 11,310 1,107 11,516
Shares redeemed:
Institutional Class ........................ (9,318,309) (96,359,348) (18,238,033) (188,924,478)
Service Class .............................. (4,302,614) (44,536,765) (5,576,224) (58,216,243)
Investor A Class ........................... (1,277,114) (13,200,211) (2,055,845) (21,478,189)
Investor B Class ........................... (377,402) (3,896,421) (221,467) (2,301,380)
Investor C Class ........................... (9,506) (98,076) (22,880) (238,460)
----------------- --------------- --------------- ----------------
Net decrease .................................. (4,808,856) $ (49,835,255) (15,245,011) $ (157,771,373)
================= =============== =============== ================
International Bond
------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------------- ----------------------------------
Shares Value Shares Value
----------------- --------------- --------------- ----------------
Shares sold:
BlackRock Class ............................ 8,425,996 $ 99,741,689 3,438,204 $ 38,322,016
Institutional Class ........................ 25,836,761 307,795,012 12,598,557 143,701,530
Service Class .............................. 5,793,762 68,495,942 14,327,492 160,851,025
Investor A Class ........................... 10,809,908 128,016,737 7,379,261 83,985,204
Investor B Class ........................... 687,467 8,202,390 528,566 6,047,568
Investor C Class ........................... 3,605,149 42,794,722 2,102,139 24,069,974
Shares issued in reinvestment of dividends:
BlackRock Class ............................ 227,780 2,679,636 34,973 393,135
Institutional Class ........................ 267,437 3,147,143 135,936 1,537,371
Service Class .............................. 383,524 4,526,581 230,005 2,605,444
Investor A Class ........................... 541,901 6,399,493 300,294 3,398,972
Investor B Class ........................... 43,122 510,377 25,707 291,106
Investor C Class ........................... 115,886 1,369,607 45,702 518,500
Shares redeemed:
BlackRock Class ............................ (2,918,326) (33,604,277) (339,508) (3,810,564)
Institutional Class ........................ (6,661,800) (78,194,908) (6,813,808) (76,313,065)
Service Class .............................. (3,546,075) (41,217,400) (11,936,202) (133,411,074)
Investor A Class ........................... (5,773,239) (67,619,357) (3,650,626) (41,338,051)
Investor B Class ........................... (431,547) (5,024,195) (266,978) (3,022,485)
Investor C Class ........................... (1,080,369) (12,608,594) (521,630) (5,896,042)
----------------- --------------- --------------- ----------------
Net increase .................................. 36,327,337 $ 435,410,598 17,618,084 $ 201,930,564
================= =============== =============== ================
167
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
High Yield Bond
------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
----------------------------------- ----------------------------------
Shares Value Shares Value
----------------- --------------- --------------- ----------------
Shares issued from the reorganization:/1/
Institutional Class ........................ 499,336 $ 4,119,515 -- $ --
Investor A Class ........................... 28,680,269 236,635,082 -- --
Investor B Class ........................... 4,562,480 37,633,102 -- --
Investor C Class ........................... 1,274,746 10,520,796 -- --
Shares sold:
BlackRock Class ............................ 7,315,006 59,096,944 10,537,232 84,539,437
Institutional Class ........................ 7,571,836 65,363,033 8,671,443 69,329,774
Service Class .............................. 9,805,652 79,698,157 7,643,139 61,340,427
Investor A Class ........................... 3,642,531 34,582,933 7,416,713 59,235,980
Investor B Class ........................... 1,252,655 10,272,635 2,067,712 16,574,993
Investor C Class ........................... 1,027,665 10,387,994 1,996,826 16,006,791
Shares issued in reinvestment of dividends:
BlackRock Class ............................ 1,426,346 11,649,664 830,734 6,662,361
Institutional Class ........................ 375,742 3,087,049 152,431 1,221,478
Service Class .............................. 411,312 3,347,060 126,014 1,010,749
Investor A Class ........................... 1,267,862 10,294,391 351,549 2,811,695
Investor B Class ........................... 549,068 4,479,462 363,924 2,910,188
Investor C Class ........................... 253,565 2,075,165 250,916 2,008,325
Shares redeemed:
BlackRock Class ............................ (3,386,198) (27,517,060) (3,165,692) (25,563,660)
Institutional Class ........................ (7,873,773) (64,362,195) (10,991,762) (88,005,527)
Service Class .............................. (4,437,678) (35,963,148) (5,028,290) (39,768,982)
Investor A Class ........................... (10,042,859) (81,611,317) (9,479,104) (75,936,201)
Investor B Class ........................... (4,047,039) (44,405,828) (4,946,611) (39,306,922)
Investor C Class ........................... (3,996,445) (32,517,967) (4,101,802) (32,861,840)
----------------- --------------- --------------- ----------------
Net increase .................................. 36,132,079 $ 296,865,467 2,695,372 $ 22,209,066
================= =============== =============== ================
- ----------
1 See Note (B).
On September 30, 2005, two shareholders held approximately 92% of the
outstanding shares of the Enhanced Income Portfolio, two shareholders held
approximately 43% of the outstanding shares of the Low Duration Bond Portfolio,
two shareholders held approximately 40% of the outstanding shares of the
Intermediate Government Portfolio, five shareholders held approximately 66% of
the outstanding shares of the Intermediate Bond Portfolio, four shareholders
held 95% of the Intermediate PLUS Portfolio, two shareholders held approximately
27% of the outstanding shares of the Core Bond Total Return Portfolio, six
shareholders held approximately 70% of the outstanding shares of the Core PLUS
Total Return Portfolio, three shareholders held approximately 59% of the
outstanding shares of the Government Income Portfolio, four shareholder held
approximately 70% of the outstanding shares of the Inflation Protected
Portfolio, three shareholders held approximately 71% of the outstanding shares
of the GNMA Portfolio, two shareholders held approximately 87% of the
outstanding shares of the Managed Income Portfolio, two shareholders held
approximately 29% of the outstanding shares of the International Bond Portfolio
and two shareholders held approximately 23% of the outstanding shares of the
High Yield Bond Portfolio. Some of the shareholders are comprised of omnibus
accounts, which are held on behalf of several individual shareholders.
168
BlackRock Funds
(G) At September 30, 2005, net assets consisted of:
Low Intermediate Intermediate
Enhanced Duration Government Intermediate PLUS
Income Bond Bond Bond Bond
--------------- ------------------ ---------------- ---------------- ---------------
Capital paid-in ........................ $ 57,104,082 $ 1,531,596,033 $ 680,822,417 $ 902,813,028 $ 31,485,942
End of period undistributed net
investment income
(distributions in excess of net
investment income) .................... 14,165 4,928,237 (751,511) 3,098,801 9,476
Accumulated net realized gain
(loss) on investment
transactions, futures, options,
swaptions, swap contracts and
foreign currency related
transactions .......................... (429,077) (27,034,815) (14,172,529) (238,449) (172,450)
Net unrealized depreciation on
investment transactions
futures, options, swaptions,
swap contracts and foreign
currency related transactions ......... (350,965) (16,585,239) (9,608,744) (7,994,017) (342,005)
--------------- ------------------ ---------------- ---------------- ---------------
$ 56,338,205 $ 1,492,904,216 $ 656,289,633 $ 897,679,363 $ 30,980,963
=============== ================== ================ ================ ===============
Core Bond Core PLUS Government Inflation
Total Return Total Return Income Protected Bond GNMA
----------------- ---------------- ---------------- ---------------- ----------------
Capital paid-in ................ $ 2,658,581,959 $ 326,743,419 $ 553,253,985 $ 37,927,416 $ 211,009,379
End of period undistributed net
investment income
(distributions in excess of net
investment income) ............ 846,059 609,923 215,576 141,690 1,825,109
Accumulated net realized gain
(loss) on investment
transactions, futures, options,
swaptions, swap contracts and
foreign currency related
transactions .................. 10,329,970 1,295,286 (4,373,570) 141,986 (8,824,937)
Net unrealized appreciation
(depreciation) on investment
transactions, futures, options,
swaptions, swap contracts and
foreign currency related
transactions .................. (15,457,698) (2,338,059) (5,270,988) 341,661 (1,622,705)
----------------- ----------------- ---------------- --------------- ---------------
$ 2,654,300,290 $ 326,310,569 $ 543,825,003 $ 38,552,753 $ 202,386,846
================= ================= ================ =============== ===============
169
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Managed International High Yield
Income Bond Bond
---------------- ----------------- ----------------
Capital paid-in ........................ $ 700,032,465 $ 843,104,515 $ 977,230,170
End of period undistributed net
investment income
(distributions in excess of net
investment income) .................... 1,816,732 (18,600,877) 3,568,504
Accumulated net realized gain
on investment transactions,
futures, options, swaptions,
swap contracts and foreign
currency related transactions ......... 2,164,442 (1,353,258) (45,789,878)
Net unrealized appreciation
(depreciation) on investment
transactions, futures, options,
swaptions, swap contracts and
foreign currency related
transactions .......................... 1,658,261 (2,699,771) (18,309,936)
---------------- ----------------- ----------------
$ 705,671,900 $ 820,450,609 $ 916,698,860
================ ================= ================
(H) Federal Tax Information
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. Short-term capital gain and foreign currency distributions that
are reported in the Statement of Changes in Net Assets are reported as ordinary
income for federal tax purposes. There were no short term or long term capital
gain distributions for the year ended September 30, 2005.
Dividends from net investment income and distributions from net realized
capital gains are determined in accordance with U.S. Federal income tax
regulations, which may differ from those amounts determined under accounting
principles generally accepted in the United States. These book/tax differences
are either temporary or permanent in nature. To the extent these differences are
permanent, they are charged or credited to paid-in-capital or accumulated net
realized gain, as appropriate, in the period that the differences arise. The
following permanent differences as of September 30, 2005, attributable to
interest rate swaps, realized foreign currency gains/(losses), foreign futures
realized gains/(losses), return of capital, bond bifurcation and paydown
adjustments were reclassified to the following accounts:
Increase/ Increase/
(Decrease) (Decrease)
Increase/ Accumulated Undistributed
(Decrease) Net Realized Net Investment
Paid in-capital Gain (Loss) Income
----------------- ---------------- ---------------
Enhanced Income ...................... $ -- $ (51,131) $ 51,131
Low Duration Bond .................... -- (3,252,408) 3,252,408
Intermediate Government Bond ......... 14,045,612 (11,456,886) (2,588,726)
Intermediate Bond .................... -- 181,173 (181,173)
Intermediate PLUS Bond ............... -- (26,622) 26,622
Core Bond Total Return ............... 1,621,953 (1,013,015) (608,938)
Core PLUS Total Return ............... -- 16,750 (16,750)
Government Income .................... (807,396) (740,753) 1,548,149
Inflation Protected Bond ............. 70,256 (492,745) 422,489
GNMA ................................. (79,852) (1,367,013) 1,446,865
Managed Income ....................... -- (1,091,856) 1,091,856
International Bond ................... -- 5,183,392 (5,183,392)
High Yield Bond ...................... 68,815,630 (69,371,941) 556,311
170
BlackRock Funds
Dividends from net investment income and distributions from net realized
capital gains are determined in accordance with U.S. Federal income tax
regulations, which may differ from those amounts determined under accounting
principles generally accepted in the United States.
The estimated tax character of distributions paid during the year ended
September 30, 2005, and the tax character of distributions paid during the year
ended September 30, 2004, were as follows:
Ordinary Tax Return Long-Term Total
Income of Capital Capital Gain Distributions
---------- ------------ -------------- --------------
Enhanced Income .........................
9/30/05 ................................ $ 1,677,786 $ -- $ -- $ 1,677,786
9/30/04 ................................ 367,031 -- -- 367,031
Low Duration Bond .......................
9/30/05 ................................ 49,855,929 -- -- 49,855,929
9/30/04 ................................ 42,369,674 -- -- 42,369,674
Intermediate Government Bond ............
9/30/05 ................................ 13,795,146 3,929,278 1,396,396 19,120,820
9/30/04 ................................ 10,931,963 -- -- 10,931,963
Intermediate Bond .......................
9/30/05 ................................ 30,447,058 -- 7,337,926 37,784,984
9/30/04 ................................ 35,663,787 -- 17,198,461 52,862,248
Intermediate PLUS Bond ..................
9/30/05 ................................ 1,007,615 -- 7,371 1,014,986
9/30/04 ................................ 121,847 -- -- 121,847
Core Bond Total Return ..................
9/30/05 ................................ 99,908,300 -- 4,346,486 104,254,786
9/30/04 ................................ 126,658,867 -- 28,012,571 154,671,438
Core PLUS Total Return ..................
9/30/05 ................................ 13,253,887 -- -- 13,253,887
9/30/04 ................................ 11,165,451 -- 1,428,975 12,594,426
Government Income .......................
9/30/05 ................................ 18,372,241 807,397 -- 19,179,638
9/30/04 ................................ 6,519,101 -- 1,394,662 7,913,763
Inflation Protected Bond ................
9/30/05 ................................ 1,977,061 -- 2,434 1,979,495
9/30/04 ................................ 245,093 -- -- 245,093
GNMA ....................................
9/30/05 ................................ 8,498,850 -- -- 8,498,850
9/30/04 ................................ 14,309,697 -- -- 14,309,697
Managed Income ..........................
9/30/05 ................................ 31,584,376 -- 2,759,862 34,344,238
9/30/04 ................................ 47,616,005 -- 16,559,285 64,175,290
International Bond ......................
9/30/05 ................................ 31,309,603 -- 1,447,289 32,756,892
9/30/04 ................................ 12,218,083 -- -- 12,218,083
High Yield Bond .........................
9/30/05 ................................ 67,406,689 -- 799,441 68,206,130
9/30/04 ................................ 41,802,100 -- -- 41,802,100
171
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Concluded)
As of September 30, 2005, the estimated tax components of distributable
earnings/(accumulated losses) were as follows:
Undistributed Undistributed Accumulated Post-
Ordinary Long-Term Capital October
Income Capital Gain Losses Losses
--------------- --------------- ------------- -----------
Enhanced Income ...................... $ 193,354 $ -- $ (311,997) $ (95,535)
Low Duration Bond .................... 6,453,666 -- (11,482,103) (15,687,185)
Intermediate Government Bond ......... -- -- (18,555,724) --
Intermediate Bond .................... 3,647,106 -- -- (5,763)
Intermediate PLUS Bond ............... 26,076 -- (9,328) (141,079)
Core Bond Total Return ............... 11,088,556 7,736,766 -- --
Core PLUS Total Return ............... 1,759,781 606,211 -- --
Government Income .................... -- -- (1,797,794) (2,753,539)
Inflation Protected Bond ............. 661,715 242,436 -- (18,704)
GNMA ................................. 2,083,429 -- (6,717,752) (1,930,311)
Managed Income ....................... 7,096,909 -- -- --
International Bond ................... -- -- -- (23,597,374)
High Yield Bond ...................... 10,105,699 11,484,690 (60,670,785) --
The estimated Post-October losses represent losses realized on investment
transactions from November 1, 2004 through September 30, 2005 that, in
accordance with Federal income tax regulations, the Portfolios may defer and
treat as having arisen in the following fiscal year. For Federal income tax
purposes, capital loss carryforwards may be carried forward and applied against
future capital gains.
At September 30, 2005, the Portfolios had capital loss carryforwards
available to offset future realized capital gains through the indicated
expiration dates:
Expiring September 30
---------------------------------------------------
2007 2008 2009 2010
------------- -------- ------------- --------------
Enhanced Income ...................... $ -- $ -- $ -- $ --
Low Duration Bond .................... -- -- -- --
Intermediate Government Bond ......... 6,551,479 -- 2,367,580 --
Intermediate PLUS Bond ............... -- -- -- --
Government Income .................... -- -- -- --
GNMA ................................. -- -- -- 603,989
High Yield Bond ...................... -- -- -- 60,670,785
Expiring September 30
--------------------------------------------------------
2011 2012 2013 Total
------------- ------------ -------------- --------------
Enhanced Income ...................... $ -- $ 240,751 $ 71,246 $ 311,997
Low Duration Bond .................... -- 440,690 11,041,413 11,482,103
Intermediate Government Bond ......... 9,601,882 34,783 -- 18,555,724
Intermediate PLUS Bond ............... -- -- 9,328 9,328
Government Income .................... -- 74,687 1,723,107 1,797,794
GNMA ................................. 1,576,264 2,473,978 2,063,521 6,717,752
High Yield Bond ...................... -- -- -- 60,670,785
$1,159,407, $8,144,845 and $1,525,253 of its capital loss carryforward was
used to offset net taxable gains realized in the fiscal year ended September 30,
2005 for the Intermediate Government Bond, High Yield Bond and Core Bond Total
Return, respectively.
172
BlackRock Funds
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
BlackRock Funds:
We have audited the accompanying statements of net assets of the Enhanced
Income, Low Duration, Intermediate Government Bond, Intermediate Bond, Inflation
Protected Bond, International Bond, and High Yield Bond Portfolios [seven of the
fifty portfolios constituting BlackRock Funds (the "Fund")], and the statements
of assets and liabilities, including the schedules of investments, of
Intermediate PLUS Bond, Core Bond Total Return, Core PLUS Total Return,
Government Income, GNMA, and Managed Income Portfolios [six of the fifty
portfolios constituting the Fund, collectively the "Portfolios"] as of September
30, 2005 and the related statements of operations for the year then ended, the
statements of cash flows of the Enhanced Income, Low Duration, and Intermediate
Government Portfolios for the year then ended, and the statements of changes in
net assets and financial highlights for each of the two years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights of the Portfolios for the periods ended
September 30, 2003, September 30, 2002 and September 30, 2001, before the
adjustments for the Low Duration Bond, Intermediate Government Bond,
Intermediate Bond, Core Bond Total Return, Core PLUS Total Return, Government
Income, GNMA and Managed Income Portfolios, described in Note C to the financial
statements, were audited by other auditors whose report, dated November 26,
2003, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Portfolios are not required to have, nor were we engaged to perform, an
audit of their internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Portfolios'
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of September 30, 2005, by
correspondence with the custodians and brokers; where replies were not received
from brokers, we performed other auditing procedures. We believe that our audits
provide a reasonable basis for our opinion.
We also audited the adjustments described in Note C that were applied to restate
the financial highlights of the Portfolios named above for the periods ended
September 30, 2003, 2002, and 2001. In our opinion, such adjustments are
appropriate and have been properly applied.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of the
Portfolios as of September 30, 2005, the results of their operations and their
cash flows for the year then ended, and the changes in their net assets and
their financial highlights for each of the two years in the period then ended,
in conformity with accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
November 25, 2005
173
BlackRock Funds
FUND MANAGEMENT (Unaudited)
Information pertaining to the Trustees and officers of the Fund is set forth
below. The statement of additional information (SAI) includes additional
information about the Trustees and is available without charge, upon request,
by calling (888) 825-2257. Institutional and service share class investors
should call (800) 441-7450.
Number of
Term of Portfolios Total Fund
Office/(1)/ in Fund Other Compensation
Position(s) and Length Complex/(2)/ Directorships for the
Name, Address Held with of Time Principal Occupation(s) Overseen Held by Year Ending
and Age Fund Served During Past Five Years by Trustee Trustee 9/30/05
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
Richard Trustee Since 2005 Managing Director, BlackRock, Inc. 55 None N/A
S. Davis/(3)/ (since 2005); Chief Executive (includes
BlackRock, Inc. Officer, State Street Research & 50
40 E. 52nd Street Management Company (2000-2005); Portfolios
New York, Chairman of the Board of Trustees, of the Fund
NY 10022 State Street Research mutual funds and 5
Age: 59 ("SSR Funds") (2000-2005); Senior Portfolios
Vice President, Metropolitan Life of
Insurance Company (1999-2000); BlackRock
Chairman, SSR Realty (2000-2004). Bond
Allocation
Target
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
Laurence Trustee Since 2000 Director, Chairman and Chief 55 Director, N/A
D. Fink/(4)/ Executive Officer of BlackRock, (includes BlackRock, Inc.
BlackRock, Inc. Inc. since its formation in 1998 50
40 E. 52nd Street and of BlackRock, Inc.'s predecessor Portfolios
New York, NY 10022 entities since 1988; Chairman of of the Fund
Age: 52 the Management Committee; formerly, and 5
Managing Director of the First Portfolios
Boston Corporation, Member of its of
Management Committee, Co-head of BlackRock
its Taxable Fixed Income Division Bond
and Head of its Mortgage and Real Allocation
Estate Products Group; Chairman of Target
the Board of Nomura BlackRock Shares)
Asset Management and several of
BlackRock's alternative investment
vehicles; Director of several of
BlackRock's offshore funds;
Co-Chairman of the Board of
Trustees of Mount Sinai-NYU;
Co-Chairman of the Board of
Trustees of NYU Hospitals Center;
member of the Board of Trustees of
NYU; member of the Board of
Executives of the New York Stock
Exchange, and Trustee of the
American Folk Art Museum.
174
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Continued)
Number of
Term of Portfolios Total Fund
Office/(1)/ in Fund Other Compensation
Position(s) and Length Complex/(2)/ Directorships for the
Name, Address Held With of Time Principal Occupation(s) Overseen Held by Year Ending
and Age Fund Served During Past Five Years by Trustee Trustee 9/30/05
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce R. Bond Trustee Since 2005 Retired; Trustee and member of 55 Director, Avaya, $ 84,600
c/o BlackRock the Governance Committee, SSR (includes Inc. (information
Funds Funds (1997-2005). 50 technology).
100 Bellevue Portfolios
Parkway of the Fund
Wilmington, DE and 5
19809 Portfolios
Age: 59 of
BlackRock
Bond
Allocation
Target
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
Peter S. Drotch Trustee Since 2005 Retired; Trustee and member of 55 Director, First $ 84,600
c/o BlackRock the Audit Committee, SSR Funds (includes Marblehead Corp.
Funds (2003-2005); Partner, Pricewater- 50 (student loan
100 Bellevue houseCoopers LLP (accounting Portfolios processing and
Parkway firm)(1964-2000). of the Fund securitization);
Wilmington, and 5 Trustee,
DE 19809 Portfolios University of
Age: 64 of Connecticut;
BlackRock Trustee,
Bond Huntington
Allocation Theatre.
Target
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
Honorable Trustee and Since 2001 Partner, Covington & Burling (law 55 Director, Mirant $ 130,100
Stuart Chairman of firm) (2001-Present); Deputy (includes Corporation;
E. Eizenstat the Secretary of the Treasury 50 Advisory Board
Covington & Nominating (1999-2001); Under Secretary of Portfolios member, The
Burling Committee State for Economic, Business and of the Fund Coca-Cola Company;
1201 Pennsylvania Agricultural Affairs (1997-1999); and 5 Advisory Board
Avenue, Under Secretary of Commerce for Portfolios member, Group
NW Washington, International Trade (1996-1997); of Menatep; Advisory
DC 20004 U.S. Ambassador to the European BlackRock Board member, BT
Age: 62 Union (1993-1996); Chairman, Bond Americas.
International Board of Governors, Allocation
Weizmann Institute of Science. Target
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
Robert M. Trustee, Since 1996 Retired; Director (1991-2001), 55 Lead Director, ACE $ 140,100
Hernandez Vice Vice Chairman and Chief Financial (includes Limited (insurance
c/o BlackRock Chairman of Officer (1994-2001), Executive Vice 50 company); Director
Funds the Board President-Accounting and Finance Portfolios and Chairman of the
100 Bellevue and Chairman and Chief Financial Officer of the Fund Board, RTI
Parkway of the Audit (1991-1994), USX Corporation (a and 5 International Metals,
Wilmington, Committee diversified company principally Portfolios Inc.: Director,
DE 19809 engaged in energy and steel of Eastman Chemical
Age: 61 businesses). BlackRock Company.
Bond
Allocation
Target
Shares)
175
BlackRock Funds
Fund Management (Unaudited) (Continued)
Number of
Term of Portfolios Total Fund
Office/(1)/ in Fund Other Compensation
Position(s) and Length Complex/(2)/ Directorships for the
Name, Address and Held with of Time Principal Occupation(s) Overseen Held by Year Ending
Age Fund Served During Past Five Years by Trustee Trustee 9/30/05
- ------------------------------------------------------------------------------------------------------------------------------------
Dr. Matina Horner Trustee and Since 2004 Retired; Executive Vice 55 Chair of the Board of $ 104,550
c/o BlackRock Funds Chairperson of President of Teachers (includes the Massachusetts
100 Bellevue Parkway the Governance Insurance and Annuity 50 General Hospital
Wilmington, DE 19809 Committee Association and College Portfolios Institute of Health
Age: 66 Retirement Equities Fund of the Fund Professions; Chair of
(TIAA-CREF) (1989-2003). and 5 the Board of the
Portfolios Greenwall Foundation;
of Trustee, Century
BlackRock Foundation (formerly
Bond The Twentieth Century
Allocation Fund); Director, N
Target STAR (formerly called
Shares) Boston Edison);
Director, The Neiman
Marcus Group;
Honorary Trustee,
Massachusetts
General Hospital
Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Since 2005 President, Founders 55 Director, A.P. Pharma, $ 84,600
c/o BlackRock Funds Investment Ltd. (private (includes Inc.
100 Bellevue Parkway investments) (since 50
Wilmington, DE 19809 1999); Trustee, SSR Portfolios
Age: 67 Funds (1993-2003). of the Fund
and 5
Portfolios
of
BlackRock
Bond
Allocation
Target
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
David R. Wilmerding, Jr. Trustee and Since 1996 Chairman, Wilmerding & 56 None $ 135,100
c/o BlackRock Funds Chairperson of Associates, Inc. (includes
100 Bellevue Parkway the Board (investment advisers) 50
Wilmington, DE 19809 (since 1989); Chairman, Portfolios
Age: 70 Coho Partners, Ltd. of the Fund,
(investment advisers) 5 Portfolios
Corporation (land of
management (since BlackRock
2003); Director, Beaver Bond
Management corporation); Allocation
Managing General Partner, Target
Chestnut Street Exchange Shares and
Fund. 1 Portfolio
of Chestnut
Street
Exchange
Fund, which
is managed
by
BlackRock
Financial
Management
Inc. and
BlackRock
Institutional
Management
Corporation.)
- ------------------------------------------------------------------------------------------------------------------------------------
176
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Continued)
Term of Total Fund
Office/(5)/ Compensation
Position(s) and Length for the
Name, Address and Held with of Time Principal Occupation(s) Year Ending
Age Fund Served During Past Five Years 9/30/05
- ----------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES
Anne Ackerley Vice President Since 2003 Managing Director, BlackRock, Inc. (since May N/A
BlackRock, Inc. (previously 2000); First Vice President and Operating
40 E. 52nd Street served as Officer, Mergers and Acquisitions Group
New York, NY 10022 Assistant (1997-2000), First Vice President and
Age: 43 Secretary Operating Officer, Public Finance Group
since (1995-1997), and First Vice President,
2000) Emerging Markets Fixed Income Research
(1994-1995), Merrill Lynch & Co.
- ----------------------------------------------------------------------------------------------------------------------
Edward Baer Assistant Since 2005 Director and Senior Counsel of BlackRock, Inc. N/A
BlackRock, Inc. Secretary (since 2004); Associate, Willkie Farr &
40 E. 52nd Street Gallagher LLP (2000-2004); Associate, Morgan
New York, NY 10022 Lewis & Bockius LLP (1995-2000).
Age: 37
- ----------------------------------------------------------------------------------------------------------------------
Bart Battista Chief Since 2004 Chief Compliance Officer and Anti-Money $ 368,547
BlackRock, Inc. Compliance Laundering Compliance Officer of BlackRock,
40 E. 52nd Street Officer and Inc. (since 2004); Managing Director (since
New York, NY 10022 Anti-Money 2003), and Director (1998-2002) of BlackRock,
Age: 46 Laundering Inc.; Compliance Officer at Moore Capital
Compliance Management (1995-1998).
Officer
- ----------------------------------------------------------------------------------------------------------------------
Ellen L. Corson Assistant Since 1998 Senior Director and Vice President of Fund N/A
PFPC Inc. Treasurer Accounting and Administration, PFPC Inc.
103 Bellevue Parkway (since 2003); Vice President and Director of
Wilmington, DE 19809 Mutual Fund Accounting and Administration,
Age: 41 PFPC Inc. (since November 1997); Assistant
Vice President, PFPC Inc. (March
1997-November 1997); Senior Accounting
Officer, PFPC Inc. (March 1993-March 1997).
- ----------------------------------------------------------------------------------------------------------------------
Henry Gabbay President Since 2005 Managing Director, BlackRock, Inc. (since N/A
BlackRock, Inc. 1989).
40 E. 52nd Street
New York, NY 10022
Age: 57
- ----------------------------------------------------------------------------------------------------------------------
Brian P. Kindelan Secretary Since 1997 Managing Director and Senior Counsel (since N/A
BlackRock Advisors, Inc. January 2005), Director and Senior Counsel
100 Bellevue Parkway (2001-2004) and Vice President and Senior
Wilmington, DE 19809 Counsel (1998-2000), BlackRock Advisors,
Age: 46 Inc.; Senior Counsel, PNC Bank Corp. May
1995-April 1998).
- ----------------------------------------------------------------------------------------------------------------------
William McGinley Treasurer Since 2005 Managing Director of BlackRock, Inc. (since N/A
BlackRock, Inc. 2004); Partner, PricewaterhouseCoopers LLP
100 Bellevue Parkway (1990-2004).
Wilmington, DE 19809
Age: 38
- ----------------------------------------------------------------------------------------------------------------------
Vincent Tritto Assistant Since 2003 Managing Director and Assistant Secretary N/A
BlackRock, Inc. Secretary (since January 2005) and Director and Senior
40 E. 52nd Street Counsel (2002-2004) of BlackRock, Inc.
New York, NY 10022 Executive Director (2000-2002) and Vice
Age: 44 President (1998-2000), Morgan Stanley & Co.
Incorporated and Morgan Stanley Asset
Management Inc. and officer of various Morgan
Stanley-sponsored investment vehicles:
Counsel (1998); Associate (1988-1997),
Rogers & Wells LLP, New York, NY.
- ----------------------------------------------------------------------------------------------------------------------
177
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Concluded)
(1) Each Trustee holds office for an indefinite term until the earlier of (1)
the next meeting of shareholders at which Trustees are elected and until
his or her successor is elected and qualified and (2) such time as such
Trustee resigns or his or her term as a Trustee is terminated in
accordance with the Fund's code of regulations and Declaration of Trust.
(2) A Fund Complex means two or more registered investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, that have a common investment adviser or
that have an investment adviser that is an affiliated person of the
investment adviser of any of the other registered investment companies.
(3) Mr. Davis is an interested person of the Fund due to his position at
BlackRock, Inc.
(4) Mr. Fink is an interested person of the Fund due to his position at
BlackRock, Inc.
(5) Each officer holds office for an indefinite term until the earlier of (1)
the next meeting of trustees at which his or her successor is appointed
and (2) such time as such officer resigns or his or her term as an officer
is terminated in accordance with the Fund's code of regulations and
Declaration of Trust.
178
BlackRock Funds
ADDITIONAL INFORMATION (Unaudited)
(A) A proxy statement was sent to shareholders of all portfolios of the Fund
asking them to consider and vote upon the election of nine trustees to the
Board of Trustees of the Fund (the "Board"). Five of the nine nominees were
already serving as trustees of the Fund and the additional nominees had
previously served as trustees of the State Street Research Funds. Due to
the increased size and complexity of the Fund resulting from the
reorganization with the State Street Research Funds, and an increase in the
responsibilities of boards of trustees of funds generally, the Board
believed it was in the best interest of the Fund to increase the size of
the Board. On April 29, 2005, the special meeting of shareholders was held,
at which all of the nominees included in the proxy were duly elected to the
Board.
The votes for the election of trustees were as follows:
Affirmative Negative
-------------- ----------
Bruce R. Bond ...................... 3,006,153,475 9,427,152
Richard S. Davis ................... 3,006,504,966 9,075,661
Peter S. Drotch .................... 3,006,391,368 9,189,259
Stuart E. Eizenstat ................ 3,005,972,578 9,608,049
Laurence D. Fink ................... 3,006,652,923 8,927,704
Robert M. Hernandez ................ 3,006,095,141 9,485,487
Dr Matina Horner ................... 3,005,916,103 9,664,525
Toby Rosenblatt .................... 3,006,157,679 9,422,948
David R. Wilmerding, Jr. ........... 3,006,022,868 9,557,759
(B) PricewaterhouseCoopers LLP ("PwC"), the Fund's former independent auditor,
has been hired as an internal audit supporting service provider by The PNC
Financial Services Group, Inc. ("PNC"), the parent company of the Fund's
investment adviser and certain other service providers. In order to provide
certain services to PNC and its affiliates which would have caused PwC to
no longer be independent with respect to the Fund, PwC declined to stand
for re-election as independent auditor of the Fund after the completion of
the fiscal 2003 audit.
The Fund's Audit Committee approved engaging Deloitte & Touche LLP as the
independent registered public accounting firm to audit the Fund's financial
statements for fiscal year 2006. A majority of the Fund's Board of
Trustees, including a majority of the independent Trustees, approved the
appointment of Deloitte & Touche LLP as the Fund's independent registered
public accounting firm for the Fund's fiscal 2005 audit on November 29,
2005, subject to the right of the Fund, by a majority vote of the
shareholders at any meeting called for that purpose, to terminate the
appointment without penalty.
(C) As previously disclosed, BlackRock has received subpoenas from various
federal and state governmental and regulatory authorities and various
information requests from the Securities and Exchange Commission in
connection with ongoing industry-wide investigations of mutual fund
matters.
179
BlackRock Funds
Investment Adviser
BlackRock Advisors, Inc.
Wilmington, Delaware 19809
Sub-Adviser
BlackRock Financial Management, Inc.
New York, New York 10022
Custodian
PFPC Trust Co.
Philadelphia, Pennsylvania 19153
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Distributor
BlackRock Distributors, Inc.
King of Prussia, Pennsylvania 19406
Co-Administrator
BlackRock Advisors, Inc.
Wilmington, Delaware 19809
Counsel
Simpson Thacher & Bartlett LLP
New York, New York 10017
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Philadelphia, Pennsylvania 19103
The Fund will mail only one copy of shareholder documents, including
prospectuses, annual and semi-annual reports and proxy statements, to
shareholders with multiple accounts at the same address. This practice is
commonly called "householding" and it is intended to reduce expenses and
eliminate duplicate mailings of shareholder documents. Mailings of your
shareholder documents may be householded indefinitely unless you instruct us
otherwise. If you do not want the mailing of these documents to be combined with
those for other members of your household, please contact the Fund at (800)
441-7762.
The Fund has delegated proxy voting responsibilities to BlackRock and its
affiliates, subject to the general oversight of the Fund's Board of Trustees. A
description of the policies and procedures that BlackRock and its affiliates use
to determine how to vote proxies relating to portfolio securities is available
without charge, upon request, by calling (800) 441-7762, or on the website of
the Securities and Exchange Commission (the "Commission") at http://www.sec.gov.
Information on how proxies relating to the Fund's voting securities were voted
(if any) by BlackRock during the most recent 12-month period ended June 30th is
available, upon request and without charge, by calling (800) 441-7762 or on the
website of the Commission at http://www.sec.gov.
The Fund files its complete schedule of portfolio holdings for the first and
third quarters of its fiscal year with the Commission on Form N-Q. The Fund's
Form N-Q is available on the Commission's website at http://www.sec.gov and may
be reviewed and copied at the Commission's Public Reference Room in Washington,
D.C. Information regarding the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The Fund's Form N-Q may also be obtained
upon request, without charge, by calling (800) 441-7762.
BlackRock Funds
FUND SPECTRUM
BlackRock Funds is a leading mutual fund company currently managing
approximately $26 billion in the following 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.
STOCK PORTFOLIOS
Investment Trust Small Cap Core Equity
Large Cap Value Equity Small Cap Growth Equity
Large Cap Growth Equity Global Science & Technology Opportunities
Dividend AchieversTM Global Resources
Legacy All-Cap Global Resources
Mid-Cap Value Equity Health Sciences
Mid-Cap Growth Equity U.S. Opportunities
Aurora International Opportunities
Small/Mid-Cap Growth Index Equity
Small Cap Value Equity
STOCK & BOND PORTFOLIOS
Asset Allocation
BOND PORTFOLIOS
Enhanced Income Government Income
Low Duration Bond Inflation Protected Bond
Intermediate Government Bond GNMA
Intermediate Bond Managed Income
Intermediate PLUS Bond International Bond
Core Bond Total Return High Yield Bond
Core PLUS Total Return
TAX-FREE BOND PORTFOLIOS
UltraShort Municipal Ohio Tax-Free Income
Tax-Free Income Delaware Tax-Free Income
Pennsylvania Tax-Free Income Kentucky Tax-Free Income
New Jersey 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
Account Information
Call us at 1-800-441-7762 to get information about your account balances, recent
transactions and share prices. You can also reach us on the web at
www.blackrock.com.
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 $50 or more from their BlackRock portfolios, as
long as their account is at least $10,000.
Retirement Plans
Shareholders may make investments in conjunction with Traditional, Rollover,
Roth, Coverdell and Simple IRA's.
Additional Information About The BlackRock Funds
For additional reports or additional information, as well as more current
information about portfolio holdings and characteristics, BlackRock Fund
shareholders and prospective investors may call 1-800-441-7762.
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.
BND-ANN1 11/05 [LOGO OF BLACKROCK]
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock Funds
Tax-Free Bond Portfolios
Annual Report
September 30, 2005
[GRAPHIC APPEARS HERE]
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE BlackRock
BlackRock Funds
TAX-FREE BOND PORTFOLIOS
*UltraShort Municipal *New Jersey Tax-Free Income
*Tax-Free Income *Ohio Tax-Free Income
*Pennsylvania Tax-Free Income *Delaware Tax-Free Income
*Kentucky Tax-Free Income
TABLE OF CONTENTS
Shareholder Letter ............................................................1
Portfolio Summaries
UltraShort Municipal ......................................................2-3
Tax-Free Income ...........................................................4-5
Pennsylvania Tax-Free Income ..............................................6-7
New Jersey Tax-Free Income ................................................8-9
Ohio Tax-Free Income ....................................................10-11
Delaware Tax-Free Income ................................................12-13
Kentucky Tax-Free Income ................................................14-15
Note on Performance Information ............................................16
Statements of Net Assets ..................................................17-36
Key to Investment Abbreviations ............................................37
Portfolio Financial Statements
Statements of Operations ...................................................38
Statements of Changes in Net Assets .....................................40-41
Financial Highlights ....................................................42-51
Notes to Financial Statements .............................................52-66
Report of Independent Registered Public Accounting Firm ......................67
Fund Management .............................. ............................68-72
Additional Information .......................................................73
PRIVACY PRINCIPLES OF BLACKROCK FUNDS
BlackRock Funds is committed to maintaining the privacy of its shareholders and
to safeguarding their nonpublic personal information. The following information
is provided to help you understand what personal information BlackRock Funds
collects, how we protect that information, and why in certain cases we may share
such information with select other parties.
BlackRock Funds does not receive any nonpublic personal information relating to
its shareholders who purchase shares through their broker-dealers. In the case
of shareholders who are record owners of BlackRock Funds, BlackRock Funds
receives nonpublic personal information on account applications or other forms.
With respect to these shareholders, BlackRock Funds also has access to specific
information regarding their transactions in BlackRock Funds.
BlackRock Funds does not disclose any nonpublic personal information about its
shareholders or former shareholders to anyone, except as permitted by law or as
is necessary in order to service our shareholders' accounts (for example, to a
transfer agent).
BlackRock Funds restricts access to nonpublic personal information about its
shareholders to BlackRock employees with a legitimate business need for the
information. BlackRock Funds maintains physical, electronic and procedural
safeguards designed to protect the nonpublic personal information of our
shareholders.
BlackRock Funds
September 30, 2005
Dear Shareholder:
We are pleased to present the Annual Report of the BlackRock Funds'
Tax-Free Bond Portfolios for the year ended September 30, 2005. On January 31,
2005, the State Street Research Funds reorganized into BlackRock Funds and we
at BlackRock would like to welcome the former State Street Research Funds
shareholders and our new shareholders to the BlackRock Funds Family.
The Annual Report includes important information on each Portfolio:
.. Portfolio Summary - discusses recent portfolio management activity and
highlights total returns.
.. Fund Profile - displays characteristics of each Portfolio's holdings as of
September 30, 2005.
.. Expense Example - discusses costs in a shareholder account and provides
information for a shareholder to estimate his or her expenses by share
class and to compare expenses of each share class to other funds.
.. Statement of Net Assets - lists portfolio holdings and includes each
holding's market value and par amount/number of shares as of September 30,
2005. The Statement of Net Assets also contains the net asset value for
each share class of a Portfolio.
.. Statement of Operations - displays the components of each Portfolio's
investment income and provides a detailed look at each Portfolio's
expenses. The Statement of Operations also lists the aggregate change in
value of a Portfolio's securities due to market fluctuations and security
sales.
.. Statements of Changes in Net Assets - compare Portfolio information from
the prior period to the current period. Specifically, it details
shareholder distributions by share class, aggregate realized gains and
losses, and the change in net assets from the beginning of the period to
the end of the period.
.. Financial Highlights - include each Portfolio's expense ratios, net asset
values, total returns, distributions per share, and turnover ratios for the
last five years or since inception.
.. Notes to Financial Statements - provide additional information on fees, a
summary of significant accounting policies, a list of affiliated
transactions, and a summary of purchases and sales of securities.
.. Fund Management Table - lists information regarding BlackRock Funds'
Trustees and Officers.
In addition to these items, a summary of shareholder privileges is listed
on the inside back cover of the report. Shareholders can find information on
this page describing how to access account balances, recent transactions, and
share prices. It also includes a summary of the Fund's various investment plans.
At BlackRock, we maintain an unwavering commitment to placing our clients
first and we value the trust you have placed in us. We hope you find the report
informative, and we thank you for making BlackRock part of your investment
strategy. Should you have questions concerning this report, please contact your
financial advisor or contact us at 1-800-441-7762 or visit us at
www.blackrock.com/funds.
Sincerely,
[GRAPHIC APPEARS HERE]
Anne Ackerley
Managing Director
BlackRock Advisors,Inc.
1
UltraShort Municipal Portfolio
Total Net Assets (9/30/05): $42.9 million
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management. The Portfolio invests primarily in bonds issued
by or on behalf of states, possessions and territories of the United States,
their political subdivisions and their agencies or authorities (and related
tax-exempt derivative securities), the interest on which is exempt from Federal
income tax ("municipal securities"). These municipal securities may not be
exempt from the Federal Alternative Minimum Tax. The Portfolio normally invests
at least 80% of its assets in municipal securities, including both general
obligation and revenue bonds, from a diverse range of issuers.
Recent Portfolio Management Activity:
. All share classes of the Portfolio outperformed the Lipper Peer Group
(Short Municipal Debt Funds) for the annual period.
. During the annual period, municipal bonds outperformed taxable bonds.
Historically municipal bonds have lagged behind taxable bonds in rallying bond
markets and outperformed them in higher rate environments. The attractive
municipal bond relative values compared to Treasury securities during the first
half of the annual period attracted new buyers into the market. It was the
combination of strong demand from traditional buyers, especially insurance
companies, and opportunistic purchases from the non-traditional buyers that
drove municipal returns. During the annual period, the 2-year to 10-year portion
of the municipal yield curve flattened by approximately 84 basis points versus
the Treasury marketplace, where the curve flattened by 136 basis points. This
trend is partially the result of a renewed interest in municipal bonds toward
the end of the annual period from retail investors who have been mostly absent
from the market due to the historic low interest rate environment in the past
couple of years.
. The municipal market remains fundamentally strong. While hurricanes
Katrina and Rita have struck the Gulf Coast, it is too early to determine the
extent of the damage and the immediate and long term effects on the economy.
Despite the hurricanes and rising interest rates, the municipal bond market
continued to perform well to the end of the annual period. In general, the
credit quality of the states have significantly improved over the past year as
the more robust national economy produced higher state tax flows and revenues in
conjunction with modestly restrained increases in state spending. Year-to-date,
in 2005, only 5 states have seen revenue receipts come in under their
projections. One example of such strength is California, which continues to
benefit from an expanding economy, resulting in a revenue increase of 11.64%
year over year.
. The municipal new issue market continues on a record setting pace with
approximately $310.0 billion issued year-to-date 2005, a 15% increase over last
year's pace. It is on track to surpass the record set in 2003. Despite a higher
interest rate environment, which typically slows new issue supply, the
flattening of the Treasury yield curve has created more advance refunding
opportunities. Refunding issuance stands at $106.6 billion, or 55% greater than
2004 year-to-date.
. During the annual period, the 200 basis points increase of the Fed
Funds rate resulted in the outperformance of cash equivalent securities over one
year maturities. The Portfolio continues to hold slightly more than 50% of its
assets in maturities under 60 days, which has led to the Portfolio's
outperformance versus the Lipper Peer Group and Lehman Brothers One Year
Municipal Bond Index.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
ULTRASHORT MUNICIPAL PORTFOLIO,
THE LEHMAN BROTHERS 1 YEAR MUNICIPAL BOND INDEX AND THE
LIPPER SHORT MUNICIPAL DEBT FUNDS FROM INCEPTION.
[LINE CHART]
Institutional Investor A Lehman Brothers 1 Year Municipal Bond Index Lipper Short Municipal Debt Funds
------------- ---------- ------------------------------------------- ---------------------------------
03/03/2004 $ 10,000 $ 9,699 $ 10,000 $ 10,000
03/31/2004 10,000 9,690 10,001 9,989
06/30/2004 9,955 9,682 9,971 9,916
09/30/2004 10,009 9,721 10,047 10,017
12/31/2004 10,044 9,741 10,049 10,040
03/31/2005 10,060 9,752 10,048 10,023
06/30/2005 10,121 9,800 10,122 10,097
09/30/2005 10,162 9,842 10,163 10,136
For period ending September 30, 2005
Average Annual Total Return
From
1 Year Inception
------------ ------------
BlackRock Class 1.64% 1.14%
Institutional Class 1.54% 1.03%
Service Class 1.23% 0.67%
Investor A Class (Load Adjusted) (1.81)% (1.01)%
Investor A Class (NAV) 1.25% 0.93%
The performance of the Lehman Brothers 1 Year Municipal Bond Index (the
"Benchmark") is presented for comparative purposes in response to requirements
of the Securities and Exchange Commission. However, BlackRock believes that
differences between the ways in which the portfolio is managed and the Benchmark
is constructed may make comparisons between the portfolio and Benchmark
performance less meaningful to investors. Therefore, the performance of the
Lipper Short Municipal Debt Funds is also presented.
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, 3/3/04; Institutional Shares,
3/19/04; Service Shares, 3/19/04; and Investor a shares, 3/19/04. See "Note on
Performance Information" on page 16 for further information on how performance
data was calculated, including important information on the line graph+ above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
2
UltraShort Municipal Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 9.8%
AA 33.9
A 30.0
BBB 16.7
Unrated 9.6
-----
Total 100.0%
=====
Largest State Concentration (% of portfolio, excluding money market investments)
Ohio 12.6%
Kentucky 10.8
Texas 10.7
New York 7.5
North Carolina 5.9
Washington 4.8
Colorado 4.4
Pennsylvania 4.1
Tennessee 4.0
Virginia 3.2
-----
Total 68.0%
=====
Portfolio Statistics
Average maturity (years) 0.35
Modified Duration/2/ 0.34
1 Using the highest of Standard & Poor's ("S&P's"), Fitch Ratings ("Fitch"),
or Moody's Investors Service ("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration represents
an expected 1% change in the net asset value of the fund for every 1% change
in interest rates. Modified duration assumes that cash flows remain constant
as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) where
applicable; and (2) ongoing costs, including advisory fees, distribution
(12b-1) and service fees, where applicable; and other Portfolio expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Portfolio and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
---------------------------------------------------------------
BlackRock Institutional Service Investor
Class Class Class A Class
--------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,010.70 1,010.20 1,009.00 1,009.20
Expenses Incurred
During Period
(4/01/05 -
9/30/05) 1.76 2.27 3.68 3.68
Hypothetical Expenses
(5% return before expenses)
---------------------------------------------------------------
BlackRock Institutional Service Investor
Class Class Class A Class
--------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,023.22 1,022.72 1,021.29 1,021.29
Expenses Incurred
During Period
(4/01/05 -
9/30/05) 1.78 2.28 3.71 3.71
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.35%, 0.45%, 0.73%, and 0.73% for the BlackRock, Institutional,
Service, and Investor A share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
3
Tax-Free Income Portfolio
Total Net Assets (9/30/05): $399.7 million
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management. The Portfolio invests primarily in bonds issued
by or on behalf of states, possessions and territories of the United States,
their political subdivisions and their agencies and authorities (and related
tax-exempt derivative securities), the interest on which the portfolio manager
believes is exempt from Federal income tax, including the Federal Alternative
Minimum Tax ("municipal securities"). The Portfolio normally invests at least
80% of its assets in municipal securities, including both general obligation
and revenue bonds, from a diverse range of issuers. The Portfolio emphasizes
securities in the ten to twenty year maturity range.
Recent Portfolio Management Activity:
. All share classes of the Portfolio underperformed the Lipper Peer
Group (General Municipal Debt Funds) for the annual period.
. During the annual period, municipal bonds outperformed taxable bonds.
Historically municipal bonds have lagged behind taxable bonds in rallying bond
markets and outperformed them in higher rate environments. The attractive
municipal bond relative values compared to Treasury securities during the first
half of the annual period attracted new buyers into the market. It was the
combination of strong demand from traditional buyers, especially insurance
companies, and opportunistic purchases from the non-traditional buyers that
drove municipal returns. During the annual period, the 2-year to 10-year portion
of the municipal yield curve flattened by approximately 84 basis points versus
the Treasury marketplace, where the curve flattened by 136 basis points. This
trend is partially the result of a renewed interest in municipal bonds toward
the end of the annual period from retail investors who have been mostly absent
from the market due to the historic low interest rate environment in the past
couple of years.
. The municipal market remains fundamentally strong. While hurricanes
Katrina and Rita have struck the Gulf Coast, it is too early to determine the
extent of the damage and the immediate and long term effects on the economy.
Despite the hurricanes and rising interest rates, the municipal bond market
continued to perform well to the end of the annual period. In general, the
credit quality of the states have significantly improved over the past year as
the more robust national economy produced higher state tax flows and revenues in
conjunction with modestly restrained increases in state spending. Year-to-date,
in 2005, only 5 states have seen revenue receipts come in under their
projections. One example of such strength is California, which continues to
benefit from an expanding economy, resulting in a revenue increase of 11.64%
year over year.
. The municipal new issue market continues on a record setting pace with
approximately $310.0 billion issued year-to-date 2005, a 15% increase over last
year's pace. It is on track to surpass the record set in 2003. Despite a higher
interest rate environment, which typically slows new issue supply, the
flattening of the Treasury yield curve has created more advance refunding
opportunities. Refunding issuance stands at $106.6 billion, or 55% greater than
2004 year-to-date.
. During the annual period, the 2-year, 5-year and 10-year portions of
the municipal yield curve rose by 110, 58 and 30 basis points, respectively,
while the 30-year portion declined 11 basis points. The Portfolio's overall bias
towards a higher interest rate environment, and investments in the short to
intermediate portion of the yield curve, detracted from performance as the
longer portions of the municipal yield curve were the best performers during the
annual period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
TAX-FREE INCOME PORTFOLIO,
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND THE
LIPPER GENERAL MUNICIPAL DEBT FUNDS FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A Lehman Brothers Municipal Bond Index Lipper General Municipal Debt Funds
------------- ---------- ------------------------------------ -----------------------------------
09/30/1995 $ 10,000 $ 9,602 $ 10,000 $ 10,000
12/31/1995 10,458 10,020 10,412 10,466
03/31/1996 10,369 9,933 10,287 10,279
06/30/1996 10,466 10,013 10,366 10,332
09/30/1996 10,745 10,268 10,604 10,569
12/31/1996 11,056 10,553 10,875 10,821
03/31/1997 11,047 10,532 10,849 10,770
06/30/1997 11,445 10,899 11,223 11,146
09/30/1997 11,829 11,252 11,562 11,492
12/31/1997 12,176 11,568 11,875 11,814
03/31/1998 12,336 11,706 12,012 11,927
06/30/1998 12,516 11,862 12,194 12,086
09/30/1998 12,876 12,190 12,569 12,439
12/31/1998 12,957 12,252 12,645 12,450
03/31/1999 13,025 12,302 12,757 12,512
06/30/1999 12,798 12,073 12,531 12,227
09/30/1999 12,660 11,929 12,481 12,058
12/31/1999 12,418 11,687 12,383 11,870
03/31/2000 12,774 12,008 12,746 12,209
06/30/2000 12,938 12,148 12,939 12,341
09/30/2000 13,268 12,444 13,252 12,625
12/31/2000 13,778 12,907 13,832 13,167
03/31/2001 14,046 13,143 14,139 13,422
06/30/2001 14,169 13,231 14,231 13,488
09/30/2001 14,570 13,602 14,630 13,833
12/31/2001 14,436 13,461 14,541 13,682
03/31/2002 14,573 13,560 14,678 13,792
06/30/2002 14,947 13,904 15,215 14,258
09/30/2002 15,310 14,226 15,938 14,884
12/31/2002 15,302 14,201 15,938 14,827
03/31/2003 15,305 14,188 16,129 14,930
06/30/2003 15,848 14,674 16,545 15,321
09/30/2003 15,830 14,640 16,558 15,315
12/31/2003 16,022 14,800 16,785 15,537
03/31/2004 16,185 14,933 17,075 15,756
06/30/2004 15,888 14,642 16,671 15,386
09/30/2004 16,378 15,095 17,320 15,930
12/31/2004 16,621 15,295 17,537 16,115
03/31/2005 16,672 15,332 17,531 16,080
06/30/2005 16,951 15,579 18,044 16,512
09/30/2005 16,897 15,519 18,022 16,484
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------------ ---------- ---------- ----------
BlackRock Class 3.23% 3.40% 4.99% 5.40%
Institutional Class 3.17% 3.34% 4.95% 5.39%
Service Class 2.91% 3.02% 4.63% 5.07%
Investor A Class (Load Adjusted) (1.28)% 1.56% 3.66% 4.49%
Investor A Class (NAV) 2.81% 2.94% 4.52% 4.92%
Investor B Class (Load Adjusted) (2.32)% 1.08% 3.39% 4.20%
Investor B Class (NAV) 2.14% 2.18% 3.74% 4.20%
Investor C Class (Load Adjusted) 1.15% 2.18% 3.72% 4.20%
Investor C Class (NAV) 2.14% 2.18% 3.72% 4.20%
The performance of the Lehman Brothers Municipal Bond Index (the "Benchmark") is
presented for comparative purposes in response to requirements of the Securities
and Exchange Commission. However, BlackRock believes that differences between
the ways in which the portfolio is managed and the Benchmark is constructed may
make comparisons between the portfolio and Benchmark performance less meaningful
to investors. Therefore, the performance of the Lipper General Municipal Debt
Funds is also presented.
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio, rather than
the date such class was introduced. The inception dates of the Portfolio's share
classes were as follows: Investor A Shares, 5/14/90; Institutional Shares,
1/21/93; Service Shares, 7/29/93; Investor B Shares, 7/18/96, Investor C Shares,
2/28/97 and BlackRock Shares, 12/22/03. See "Note on Performance Information" on
page 16 for further information on how performance data was calculated,
including important information on the line graph+ above.
Past performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is actively
managed and its composition will vary.
4
Tax-Free Income Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 65.0%
AA 18.2
A 7.6
BBB 6.6
<BBB 1.4
Unrated 1.2
-----
Total 100.0%
=====
Largest State Concentration (% of long-term investments)
Pennsylvania 9.6%
New York 8.8
Texas 8.0
Washington 7.9
California 7.4
New Jersey 7.3
Georgia 6.8
Puerto Rico 6.6
Massachusetts 5.1
Florida 4.7
-----
Total 72.2%
=====
Portfolio Statistics
Average maturity (years) 8.42
Modified Duration/2/ 7.33
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors Service
("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration represents
an expected 1% change in the net asset value of the fund for every 1% change
in interest rates. Modified duration assumes that cash flows remain constant
as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) where
applicable; and (2) ongoing costs, including advisory fees, distribution
(12b-1) and service fees, where applicable; and other Portfolio expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Portfolio and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
-----------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,013.30 1,013.50 1,012.20 1,012.20 1,008.40 1,008.40
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.27 3.03 4.34 4.34 8.11 8.11
Hypothetical Expenses
(5% return before expenses)
-----------------------------------------------------------------------------------------------
BlackRock Institutional Service Investor Investor Investor
Class Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,022.72 1,021.95 1,020.63 1,020.63 1,016.83 1,016.83
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 2.28 3.05 4.37 4.37 8.17 8.17
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.45%, 0.60%, 0.86%, 0.86%, 1.61%, and 1.61% for the BlackRock,
Institutional, Service, Investor A, B, and C share classes, respectively,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period).
5
Pennsylvania Tax-Free Income Portfolio
Total Net Assets (9/30/05): $660.3 million
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management. The Portfolio invests primarily in bonds issued
by or on behalf of states, possessions and territories of the United States,
their political subdivisions and their agencies or authorities (and related
tax-exempt derivative securities), the interest on which the portfolio manager
believes is exempt from Federal income tax (including the Federal Alternative
Minimum Tax) and Pennsylvania state income tax ("municipal securities"). The
Portfolio normally invests at least 80% of its assets in municipal securities,
including both general obligation and revenue bonds, from a diverse range of
issuers (including issuers located outside of Pennsylvania). The Portfolio
emphasizes securities in the ten to twenty year maturity range.
Recent Portfolio Management Activity:
. All share classes of the Portfolio underperformed the Lipper Peer
Group (Pennsylvania Municipal Debt Funds) for the annual period.
. During the annual period, municipal bonds outperformed taxable bonds.
Historically municipal bonds have lagged behind taxable bonds in rallying bond
markets and outperformed them in higher rate environments. The attractive
municipal bond relative values compared to Treasury securities during the first
half of the annual period attracted new buyers into the market. It was the
combination of strong demand from traditional buyers, especially insurance
companies, and opportunistic purchases from the non-traditional buyers that
drove municipal returns. During the annual period, the 2-year to 10-year portion
of the municipal yield curve flattened by approximately 84 basis points versus
the Treasury marketplace, where the curve flattened by 136 basis points. This
trend is partially the result of a renewed interest in municipal bonds toward
the end of the annual period from retail investors who have been mostly absent
from the market due to the historic low interest rate environment in the past
couple of years.
. The municipal market remains fundamentally strong. While hurricanes
Katrina and Rita have struck the Gulf Coast, it is too early to determine the
extent of the damage and the immediate and long term effects on the economy.
Despite the hurricanes and rising interest rates, the municipal bond market
continued to perform well to the end of the annual period. In general, the
credit quality of the states have significantly improved over the past year as
the more robust national economy produced higher state tax flows and revenues in
conjunction with modestly restrained increases in state spending. Year-to-date,
in 2005, only 5 states have seen revenue receipts come in under their
projections. One example of such strength is California, which continues to
benefit from an expanding economy, resulting in a revenue increase of 11.64%
year over year.
. The municipal new issue market continues on a record setting pace with
approximately $310.0 billion issued year-to-date 2005, a 15% increase over last
year's pace. It is on track to surpass the record set in 2003. New issue volume
in Pennsylvania year-to-date at $13.2 billion is running approximately 33% ahead
of last year's pace. Despite a higher interest rate environment, which typically
slows new issue supply, the flattening of the Treasury yield curve has created
more advance refunding opportunities. Refunding issuance stands at $106.6
billion, or 55% greater than 2004 year-to-date.
. During the annual period, the 2-year, 5-year and 10-year portions of
the municipal yield curve rose by 110, 58 and 30 basis points, respectively,
while the 30-year portion declined 11 basis points. The Portfolio's overall bias
towards a higher interest rate environment, and investments in the short to
intermediate portion of the yield curve, detracted from performance as the
longer portions of the municipal yield curve were the best performers during the
annual period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
PA TAX-FREE INCOME PORTFOLIO,
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND THE
LIPPER PENNSYLVANIA MUNICIPAL DEBT FUNDS FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A Lehman Brothers Municipal Bond Index Lipper Pennsylvania Municipal Debt Funds
------------- ---------- ------------------------------------ ----------------------------------------
09/30/1995 $ 10,000 $ 9,600 $ 10,000 $ 10,000
12/31/1995 10,420 9,992 10,412 10,465
03/31/1996 10,299 9,865 10,287 10,279
06/30/1996 10,391 9,941 10,366 10,350
09/30/1996 10,629 10,158 10,604 10,589
12/31/1996 10,900 10,406 10,875 10,831
03/31/1997 10,860 10,356 10,849 10,793
06/30/1997 11,193 10,662 11,223 11,148
09/30/1997 11,525 10,966 11,562 11,475
12/31/1997 11,848 11,262 11,875 11,793
03/31/1998 11,993 11,387 12,012 11,912
06/30/1998 12,184 11,555 12,194 12,075
09/30/1998 12,506 11,848 12,569 12,377
12/31/1998 12,573 11,898 12,645 12,389
03/31/1999 12,674 11,981 12,757 12,464
06/30/1999 12,464 11,769 12,531 12,228
09/30/1999 12,404 11,700 12,481 12,033
12/31/1999 12,285 11,574 12,383 11,814
03/31/2000 12,596 11,855 12,746 12,130
06/30/2000 12,779 12,013 12,939 12,256
09/30/2000 13,086 12,288 13,252 12,558
12/31/2000 13,508 12,670 13,832 13,041
03/31/2001 13,814 12,929 14,139 13,279
06/30/2001 13,857 12,954 14,231 13,368
09/30/2001 14,218 13,289 14,630 13,749
12/31/2001 14,146 13,194 14,541 13,630
03/31/2002 14,257 13,282 14,678 13,731
06/30/2002 14,733 13,722 15,215 14,184
09/30/2002 15,146 14,091 15,938 14,806
12/31/2002 15,180 14,093 15,938 14,763
03/31/2003 15,325 14,223 16,129 14,906
06/30/2003 15,710 14,552 16,545 15,277
09/30/2003 15,625 14,455 16,558 15,254
12/31/2003 15,824 14,622 16,785 15,474
03/31/2004 15,925 14,711 17,075 15,684
06/30/2004 15,647 14,438 16,671 15,305
09/30/2004 16,066 14,809 17,320 15,819
12/31/2004 16,249 14,962 17,537 16,023
03/31/2005 16,249 14,934 17,531 16,028
06/30/2005 16,498 15,162 18,044 16,449
09/30/2005 16,452 15,105 18,022 16,426
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------------ ---------- ---------- ----------
Institutional Class 2.41% 2.79% 4.68% 5.10%
Service Class 2.10% 2.49% 4.38% 4.78%
Investor A Class (Load Adjusted) (2.12)% 0.97% 3.37% 4.21%
Investor A Class (NAV) 2.00% 2.35% 4.22% 4.64%
Investor B Class (Load Adjusted) (3.14)% 0.55% 3.14% 3.89%
Investor B Class (NAV) 1.25% 1.62% 3.48% 3.89%
Investor C Class (Load Adjusted) 0.27% 1.62% 3.47% 3.92%
Investor C Class (NAV) 1.24% 1.62% 3.47% 3.92%
The performance of the Lehman Brothers Municipal Bond Index (the "Benchmark") is
presented for comparative purposes in response to requirements of the Securities
and Exchange Commission. However, BlackRock believes that differences between
the ways in which the portfolio is managed and the Benchmark is constructed may
make comparisons between the portfolio and Benchmark performance less meaningful
to investors. Therefore, the performance of the Lipper Pennsylvania Municipal
Debt Funds is also presented.
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio, rather than
the date such class was introduced. The inception dates of the Portfolio's share
classes were as follows: Investor A Shares, 5/14/90; Institutional Shares,
1/21/93; Service Shares, 7/29/93; Investor B Shares, 7/18/96, Investor C Shares,
2/28/97 and BlackRock Shares, 12/22/03. See "Note on Performance Information" on
page 16 for further information on how performance data was calculated,
including important information on the line graph+ above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
6
Pennsylvania Tax-Free Income Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 74.9%
AA 10.0
A 11.1
BBB 3.9
Unrated 0.1
-----
Total 100.0%
=====
Portfolio Statistics
Average maturity (years) 6.59
Modified Duration/2/ 5.55
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors Service
("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration represents
an expected 1% change in the net asset value of the fund for every 1% change
in interest rates. Modified duration assumes that cash flows remain constant
as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) where
applicable; and (2) ongoing costs, including advisory fees, distribution
(12b-1) and service fees, where applicable; and other Portfolio expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Portfolio and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
-------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,012.50 1,011.00 1,011.50 1,007.70 1,007.70
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 3.03 4.54 5.04 8.86 8.81
Hypothetical Expenses
(5% return before expenses)
-------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,021.95 1,020.43 1,019.92 1,016.07 1,016.12
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 3.05 4.57 5.08 8.93 8.88
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.60%, 0.90%, 1.00%, 1.76%, and 1.75% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
7
New Jersey Tax-Free Income Portfolio
Total Net Assets (9/30/05): $172.7 million
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management. The Portfolio invests primarily in bonds issued
by or on behalf of states, possessions and territories of the United States,
their political subdivisions and their agencies or authorities (and related
tax-exempt derivative securities), the interest on which the portfolio manager
believes is exempt from Federal income tax (including the Federal Alternative
Minimum Tax) and New Jersey state income tax ("municipal securities"). The
Portfolio normally invests at least 80% of its assets in municipal securities,
including both general obligation and revenue bonds, from a diverse range of
issuers (including issuers located outside of New Jersey). The Portfolio
emphasizes securities in the ten to twenty year maturity range.
Recent Portfolio Management Activity:
. All share classes of the Portfolio underperformed the Lipper Peer
Group (New Jersey Municipal Debt Funds) for the annual period.
. During the annual period, municipal bonds outperformed taxable bonds.
Historically municipal bonds have lagged behind taxable bonds in rallying bond
markets and outperformed them in higher rate environments. The attractive
municipal bond relative values compared to Treasury securities during the first
half of the annual period attracted new buyers into the market. It was the
combination of strong demand from traditional buyers, especially insurance
companies, and opportunistic purchases from the non-traditional buyers that
drove municipal returns. During the annual period, the 2-year to 10-year portion
of the municipal yield curve flattened by approximately 84 basis points versus
the Treasury marketplace, where the curve flattened by 136 basis points. This
trend is partially the result of a renewed interest in municipal bonds toward
the end of the annual period from retail investors who have been mostly absent
from the market due to the historic low interest rate environment in the past
couple of years.
. The municipal market remains fundamentally strong. While hurricanes
Katrina and Rita have struck the Gulf Coast, it is too early to determine the
extent of the damage and the immediate and long term effects on the economy.
Despite the hurricanes and rising interest rates, the municipal bond market
continued to perform well to the end of the annual period. In general, the
credit quality of the states have significantly improved over the past year as
the more robust national economy produced higher state tax flows and revenues in
conjunction with modestly restrained increases in state spending. Year-to-date,
in 2005, only 5 states have seen revenue receipts come in under their
projections. One example of such strength is California, which continues to
benefit from an expanding economy, resulting in a revenue increase of 11.64%
year over year.
. The municipal new issue market continues on a record setting pace with
approximately $310.0 billion issued year-to-date 2005, a 15% increase over last
year's pace. It is on track to surpass the record set in 2003. New issue volume
in New Jersey year-to-date at $12.0 billion is running approximately 9% ahead of
last year's pace. Despite a higher interest rate environment, which typically
slows new issue supply, the flattening of the Treasury yield curve has created
more advance refunding opportunities. Refunding issuance stands at $106.6
billion, or 55% greater than 2004 year-to-date.
. During the annual period, the 2-year, 5-year and 10-year portions of
the municipal yield curve rose by 110, 58 and 30 basis points, respectively,
while the 30-year portion declined 11 basis points. The Portfolio's overall bias
towards a higher interest rate environment, and investments in the short to
intermediate portion of the yield curve, detracted from performance as the
longer portions of the municipal yield curve were the best performers during the
annual period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
NJ TAX-FREE INCOME PORTFOLIO,
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND THE
LIPPER NEW JERSEY MUNICIPAL DEBT FUNDS FOR THE PAST TEN YEARS.
[LINE CHART]
Service Investor A Lehman Brothers Municipal Bond Index Lipper New Jersey Municipal Debt Funds
---------- ---------- ------------------------------------ --------------------------------------
09/30/1995 $ 10,000 $ 9,599 $ 10,000 $ 10,000
12/31/1995 10,353 9,937 10,412 10,423
03/31/1996 10,261 9,840 10,287 10,243
06/30/1996 10,289 9,864 10,366 10,313
09/30/1996 10,468 10,031 10,604 10,539
12/31/1996 10,730 10,278 10,875 10,780
03/31/1997 10,701 10,247 10,849 10,751
06/30/1997 11,000 10,529 11,223 11,079
09/30/1997 11,318 10,828 11,562 11,401
12/31/1997 11,616 11,109 11,875 11,701
03/31/1998 11,712 11,195 12,012 11,808
06/30/1998 11,883 11,354 12,194 11,970
09/30/1998 12,255 11,705 12,569 12,323
12/31/1998 12,310 11,752 12,645 12,366
03/31/1999 12,350 11,785 12,757 12,434
06/30/1999 12,097 11,539 12,531 12,188
09/30/1999 12,053 11,492 12,481 12,019
12/31/1999 11,967 11,406 12,383 11,820
03/31/2000 12,206 11,628 12,746 12,117
06/30/2000 12,382 11,790 12,939 12,264
09/30/2000 12,637 12,029 13,252 12,551
12/31/2000 13,129 12,492 13,832 13,081
03/31/2001 13,437 12,779 14,139 13,364
06/30/2001 13,508 12,831 14,231 13,466
09/30/2001 13,868 13,179 14,630 13,735
12/31/2001 13,709 13,021 14,541 13,620
03/31/2002 13,918 13,203 14,678 13,760
06/30/2002 14,397 13,664 15,215 14,210
09/30/2002 14,859 14,084 15,938 14,730
12/31/2002 14,871 14,101 15,938 14,720
03/31/2003 15,018 14,223 16,129 14,800
06/30/2003 15,394 14,586 16,545 15,185
09/30/2003 15,280 14,471 16,558 15,161
12/31/2003 15,472 14,635 16,785 15,404
03/31/2004 15,667 14,813 17,075 15,605
06/30/2004 15,324 14,494 16,671 15,220
09/30/2004 15,859 14,996 17,320 15,750
12/31/2004 16,059 15,182 17,537 15,962
03/31/2005 16,028 15,136 17,531 15,985
06/30/2005 16,371 15,469 18,044 16,411
09/30/2005 16,283 15,383 18,022 16,382
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------------ ---------- ---------- ----------
Institutional Class 2.99% 3.41% 5.51% 5.23%
Service Class 2.68% 3.10% 5.20% 5.00%
Investor A Class (Load Adjusted) (1.54)% 1.60% 4.19% 4.40%
Investor A Class (NAV) 2.58% 2.98% 5.04% 4.83%
Investor B Class(Load Adjusted) (2.63)% 1.13% 3.92% 4.11%
Investor B Class (NAV) 1.81% 2.21% 4.26% 4.11%
Investor C Class(Load Adjusted) 0.82% 2.18% 4.29% 4.12%
Investor C Class (NAV) 1.81% 2.18% 4.29% 4.12%
The performance of the Lehman Brothers Municipal Bond Index (the "Benchmark") is
presented for comparative purposes in response to requirements of the Securities
and Exchange Commission. However, BlackRock believes that differences between
the ways in which the portfolio is managed and the Benchmark is constructed may
make comparisons between the portfolio and Benchmark performance less meaningful
to investors. Therefore, the performance of the Lipper New Jersey Municipal
Debt Funds is also presented.
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio, rather than
the date such class was introduced. The inception dates of the Portfolio's share
classes were as follows: Investor A Shares, 5/14/90; Institutional Shares,
1/21/93; Service Shares, 7/29/93; Investor B Shares, 7/18/96, Investor C Shares,
2/28/97 and BlackRock Shares, 12/22/03. See "Note on Performance Information" on
page 16 for further information on how performance data was calculated,
including important information on the line graph* above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
8
New Jersey Tax-Free Income Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 61.0%
AA 12.1
A 6.6
BBB 18.3
Unrated 2.0
-----
Total 100.0%
=====
Portfolio Statistics
Average maturity (years) 7.29
Modified Duration/2/ 6.70
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors Service
("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration represents
an expected 1% change in the net asset value of the fund for every 1% change
in interest rates. Modified duration assumes that cash flows remain constant
as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) where
applicable; and (2) ongoing costs, including advisory fees, distribution
(12b-1) and service fees, where applicable; and other Portfolio expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Portfolio and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
-------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,018.30 1,015.90 1,016.30 1,011.70 1,011.60
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 3.04 4.55 5.00 8.83 8.93
Hypothetical Expenses
(5% return before expenses)
-------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,021.95 1,020.43 1,019.97 1,016.12 1,016.01
Expenses Incurred
During Period
(4/01/05 - 9/30/05) 3.05 4.57 5.03 8.88 8.99
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.60%, 0.90%, 0.99%, 1.75%, and 1.77% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
9
Ohio Tax-Free Income Portfolio
Total Net Assets (9/30/05): $126.6 million
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management. The Portfolio invests primarily in bonds issued
by or on behalf of states, possessions and territories of the United States,
their political subdivisions and their agencies or authorities (and related
tax-exempt derivative securities), the interest on which the portfolio manager
believes is exempt from Federal income tax (including the Federal Alternative
Minimum Tax) and Ohio state income tax ("municipal securities"). The Portfolio
normally invests at least 80% of its assets in municipal securities, including
both general obligation and revenue bonds, from a diverse range of issuers
(including issuers located outside of Ohio). The Portfolio emphasizes
securities in the ten to twenty year maturity range.
Recent Portfolio Management Activity:
. All share classes of the Portfolio underperformed the Lipper Peer
Group (Ohio Municipal Debt Funds) for the annual period.
. During the annual period, municipal bonds outperformed taxable bonds.
Historically municipal bonds have lagged behind taxable bonds in rallying bond
markets and outperformed them in higher rate environments. The attractive
municipal bond relative values compared to Treasury securities during the first
half of the annual period attracted new buyers into the market. It was the
combination of strong demand from traditional buyers, especially insurance
companies, and opportunistic purchases from the non-traditional buyers that
drove municipal returns. During the annual period, the 2-year to 10-year portion
of the municipal yield curve flattened by approximately 84 basis points versus
the Treasury marketplace, where the curve flattened by 136 basis points. This
trend is partially the result of a renewed interest in municipal bonds toward
the end of the annual period from retail investors who have been mostly absent
from the market due to the historic low interest rate environment in the past
couple of years.
. The municipal market remains fundamentally strong. While hurricanes
Katrina and Rita have struck the Gulf Coast, it is too early to determine the
extent of the damage and the immediate and long term effects on the economy.
Despite the hurricanes and rising interest rates, the municipal bond market
continued to perform well to the end of the annual period. In general, the
credit quality of the states have significantly improved over the past year as
the more robust national economy produced higher state tax flows and revenues in
conjunction with modestly restrained increases in state spending. Year-to-date,
in 2005, only 5 states have seen revenue receipts come in under their
projections. One example of such strength is California, which continues to
benefit from an expanding economy, resulting in a revenue increase of 11.64%
year over year.
. The municipal new issue market continues on a record setting pace with
approximately $310.0 billion issued year-to-date 2005, a 15% increase over last
year's pace. It is on track to surpass the record set in 2003. New issue volume
in Ohio year-to-date at $9.0 billion is running approximately 12% ahead of last
year's pace. Despite a higher interest rate environment, which typically slows
new issue supply, the flattening of the Treasury yield curve has created more
advance refunding opportunities. Refunding issuance stands at $106.6 billion, or
55% greater than 2004 year-to-date.
. During the annual period, the 2-year, 5-year and 10-year portions of
the municipal yield curve rose by 110, 58 and 30 basis points, respectively,
while the 30-year portion declined 11 basis points. The Portfolio's overall bias
towards a higher interest rate environment through most of the annual period
detracted from performance as the longer portions of the municipal yield curve
were the best performers during the annual period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
OH TAX-FREE INCOME PORTFOLIO,
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND THE
LIPPER OHIO MUNICIPAL DEBT FUNDS FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A Lehman Brothers Municipal Bond Index Lipper Ohio Municipal Debt Funds
------------- ---------- ------------------------------------ --------------------------------
09/30/1995 $ 10,000 $ 9,599 $ 10,000 $ 10,000
12/31/1995 10,444 10,017 10,412 10,425
03/31/1996 10,276 9,845 10,287 10,243
06/30/1996 10,364 9,916 10,366 10,317
09/30/1996 10,612 10,142 10,604 10,551
12/31/1996 10,879 10,385 10,875 10,797
03/31/1997 10,850 10,346 10,849 10,757
06/30/1997 11,186 10,654 11,223 11,090
09/30/1997 11,517 10,956 11,562 11,395
12/31/1997 11,821 11,232 11,875 11,691
03/31/1998 11,929 11,321 12,012 11,801
06/30/1998 12,119 11,488 12,194 11,952
09/30/1998 12,503 11,838 12,569 12,275
12/31/1998 12,572 11,890 12,645 12,315
03/31/1999 12,661 11,960 12,757 12,393
06/30/1999 12,359 11,661 12,531 12,162
09/30/1999 12,330 11,620 12,481 12,019
12/31/1999 12,192 11,476 12,383 11,837
03/31/2000 12,532 11,783 12,746 12,163
06/30/2000 12,717 11,955 12,939 12,303
09/30/2000 13,010 12,204 13,252 12,583
12/31/2000 13,557 12,702 13,832 13,089
03/31/2001 13,921 13,028 14,139 13,340
06/30/2001 14,015 13,101 14,231 13,395
09/30/2001 14,495 13,533 14,630 13,723
12/31/2001 14,351 13,384 14,541 13,633
03/31/2002 14,522 13,527 14,678 13,742
06/30/2002 15,112 14,060 15,215 14,179
09/30/2002 15,712 14,602 15,938 14,783
12/31/2002 15,696 14,557 15,938 14,732
03/31/2003 15,852 14,697 16,129 14,871
06/30/2003 16,270 15,067 16,545 15,255
09/30/2003 16,150 14,939 16,558 15,203
12/31/2003 16,369 15,124 16,785 15,408
03/31/2004 16,571 15,292 17,075 15,605
06/30/2004 16,438 15,151 16,671 15,240
09/30/2004 16,929 15,588 17,320 15,781
12/31/2004 17,098 15,728 17,537 15,967
03/31/2005 17,111 15,738 17,531 15,923
06/30/2005 17,428 15,999 18,044 16,340
09/30/2005 17,360 15,921 18,022 16,274
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year 10 Year
------------ ---------- ---------- ----------
Institutional Class 2.55% 3.38% 5.94% 5.67%
Service Class 2.24% 3.10% 5.64% 5.37%
Investor A Class (Load Adjusted) (1.92)% 1.54% 4.60% 4.76%
Investor A Class (NAV) 2.14% 2.93% 5.46% 5.19%
Investor B Class (Load Adjusted) (3.02)% 1.07% 4.34% 4.41%
Investor B Class (NAV) 1.38% 2.16% 4.68% 4.41%
Investor C Class (Load Adjusted) 0.40% 2.19% 4.70% 4.42%
Investor C Class (NAV) 1.38% 2.19% 4.70% 4.42%
The performance of the Lehman Brothers Municipal Bond Index (the "Benchmark") is
presented for comparative purposes in response to requirements of the Securities
and Exchange Commission. However, BlackRock believes that differences between
the ways in which the portfolio is managed and the Benchmark is constructed may
make comparisons between the portfolio and Benchmark performance less meaningful
to investors. Therefore, the performance of the Lipper Ohio Municipal Debt Funds
is also presented.
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio, rather than
the date such class was introduced. The inception dates of the Portfolio's share
classes were as follows: Investor A Shares, 5/14/90; Institutional Shares,
1/21/93; Service Shares, 7/29/93; Investor B Shares, 7/18/96, Investor C Shares,
2/28/97 and BlackRock Shares, 12/22/03. See "Note on Performance Information" on
page 16 for further information on how performance data was calculated,
including important information on the line graph+ above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
10
Ohio Tax-Free Income Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 75.0%
AA 11.5
A 3.3
BBB 10.2
-----
Total 100.0%
=====
Portfolio Statistics
Average maturity (years) 5.52
Modified Duration/2/ 5.09
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors Service
("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration represents
an expected 1% change in the net asset value of the fund for every 1% change
in interest rates. Modified duration assumes that cash flows remain constant
as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) where
applicable; and (2) ongoing costs, including advisory fees, distribution
(12b-1) and service fees, where applicable; and other Portfolio expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Portfolio and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
-------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,014.60 1,012.10 1,011.70 1,007.80 1,008.80
Expenses Incurred
During Period
(4/01/05 -
9/30/05) 3.03 4.54 4.99 8.81 8.76
Hypothetical Expenses
(5% return before expenses)
-------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,021.95 1,020.43 1,019.97 1,016.12 1,016.17
Expenses Incurred
During Period
(4/01/05 -
9/30/05) 3.05 4.57 5.03 8.88 8.83
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.60%, 0.90%, 0.99%, 1.75%, and 1.74% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
11
Delaware Tax-Free Income Portfolio
Total Net Assets (9/30/05): $82.0 million
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management. The Portfolio invests primarily in bonds issued
by or on behalf of states, possessions and territories of the United States,
their political subdivisions and their agencies or authorities (and related
tax-exempt derivative securities), the interest on which the portfolio manager
believes is exempt from Federal income tax (including the Federal Alternative
Minimum Tax) and Delaware state income tax ("municipal securities"). The
Portfolio normally invests at least 80% of its assets in municipal securities,
including both general obligation and revenue bonds, from a diverse range of
issuers (including issuers located outside of Delaware). The Portfolio
emphasizes securities in the ten to twenty year maturity range.
Recent Portfolio Management Activity:
. All share classes of the Portfolio underperformed the Lipper Peer
Group (Other States Municipal Debt Funds) for the annual period.
. During the annual period, municipal bonds outperformed taxable bonds.
Historically municipal bonds have lagged behind taxable bonds in rallying bond
markets and outperformed them in higher rate environments. The attractive
municipal bond relative values compared to Treasury securities during the first
half of the annual period attracted new buyers into the market. It was the
combination of strong demand from traditional buyers, especially insurance
companies, and opportunistic purchases from the non-traditional buyers that
drove municipal returns. During the annual period, the 2-year to 10-year portion
of the municipal yield curve flattened by approximately 84 basis points versus
the Treasury marketplace, where the curve flattened by 136 basis points. This
trend is partially the result of a renewed interest in municipal bonds toward
the end of the annual period from retail investors who have been mostly absent
from the market due to the historic low interest rate environment in the past
couple of years.
. The municipal market remains fundamentally strong. While hurricanes
Katrina and Rita have struck the Gulf Coast, it is too early to determine the
extent of the damage and the immediate and long term effects on the economy.
Despite the hurricanes and rising interest rates, the municipal bond market
continued to perform well to the end of the annual period. In general, the
credit quality of the states have significantly improved over the past year as
the more robust national economy produced higher state tax flows and revenues in
conjunction with modestly restrained increases in state spending. Year-to-date,
in 2005, only 5 states have seen revenue receipts come in under their
projections. One example of such strength is California, which continues to
benefit from an expanding economy, resulting in a revenue increase of 11.64%
year over year.
. The municipal new issue market continues on a record setting pace with
approximately $310.0 billion issued year-to-date 2005, a 15% increase over last
year's pace. It is on track to surpass the record set in 2003. New issue volume
in Delaware year-to-date has been just under $980 million. Despite a higher
interest rate environment, which typically slows new issue supply, the
flattening of the Treasury yield curve has created more advance refunding
opportunities. Refunding issuance stands at $106.6 billion, or 55% greater than
2004 year-to-date.
. During the annual period, the 2-year, 5-year and 10-year portions of
the municipal yield curve rose by 110, 58 and 30 basis points, respectively,
while the 30-year portion declined 11 basis points. The Portfolio's overall bias
towards a higher interest rate environment, and exposure to securities with
maturities of 15 years or shorter, detracted from performance as the longer
portions of the municipal yield curve were the best performers during the annual
period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
DE TAX-FREE INCOME PORTFOLIO,
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND THE
LIPPER OTHER STATES MUNICIPAL DEBT FUNDS FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A Lehman Brothers Municipal Bond Index* Lipper Other States Municipal Debt Funds
------------- ---------- ------------------------------------ ----------------------------------------
05/11/1998 $ 10,000 $ 9,597 $ 10,000 $ 10,000
06/30/1998 10,165 9,749 10,039 10,156
09/30/1998 10,516 10,074 10,348 10,439
12/31/1998 10,582 10,125 10,410 10,463
03/31/1999 10,673 10,200 10,502 10,528
06/30/1999 10,436 9,962 10,317 10,330
09/30/1999 10,400 9,916 10,275 10,192
12/31/1999 10,332 9,839 10,195 10,038
03/31/2000 10,612 10,094 10,494 10,303
06/30/2000 10,758 10,222 10,653 10,415
09/30/2000 10,972 10,413 10,910 10,666
12/31/2000 11,384 10,791 11,387 11,103
03/31/2001 11,638 11,019 11,640 11,301
06/30/2001 11,686 11,052 11,716 11,358
09/30/2001 12,087 11,418 12,044 11,651
12/31/2001 11,933 11,258 11,971 11,577
03/31/2002 12,059 11,364 12,084 11,658
06/30/2002 12,564 11,827 12,526 12,034
09/30/2002 13,145 12,359 13,121 12,524
12/31/2002 13,085 12,277 13,121 12,475
03/31/2003 13,187 12,370 13,279 12,576
06/30/2003 13,586 12,730 13,621 12,860
09/30/2003 13,490 12,625 13,632 12,836
12/31/2003 13,654 12,775 13,818 13,000
03/31/2004 13,783 12,881 14,057 13,129
06/30/2004 13,448 12,553 13,725 12,880
09/30/2004 14,005 13,047 14,259 13,269
12/31/2004 14,139 13,172 14,437 13,396
03/31/2005 14,078 13,101 14,432 13,369
06/30/2005 14,398 13,386 14,855 13,644
09/30/2005 14,308 13,289 14,837 13,632
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year From Inception
------------ ---------- ---------- ---------------
Institutional Class 2.16% 2.87% 5.45% 4.97%
Investor A Class (Load Adjusted) (2.20)% 1.06% 4.15% 3.92%
Investor A Class (NAV) 1.85% 2.45% 5.00% 4.50%
Investor B Class (Load Adjusted) (3.41)% 0.61% 3.88% 3.73%
Investor B Class (NAV) 0.99% 1.68% 4.22% 3.73%
Investor C Class (Load Adjusted) 0.12% 1.68% 4.22% 3.73%
Investor C Class (NAV) 1.10% 1.68% 4.22% 3.73%
* The performance of the Lehman Brothers Municipal Bond Index in the chart
starts on june 1, 1998.
The performance of the Lehman Brothers Municipal Bond Index (the "Benchmark") is
presented for comparative purposes in response to requirements of the Securities
and Exchange Commission. However, BlackRock believes that differences between
the ways in which the portfolio is managed and the Benchmark is constructed may
make comparisons between the portfolio and Benchmark performance less meaningful
to investors. Therefore, the performance of the Lipper Other States Municipal
Debt Funds is also presented.
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio, rather than
the date such class was introduced. The inception dates of the Portfolio's share
classes were as follows: Investor A Shares, 5/14/90; Institutional Shares,
1/21/93; Service Shares, 7/29/93; Investor B Shares, 7/18/96, Investor C Shares,
2/28/97 and BlackRock Shares, 12/22/03. See "Note on Performance Information" on
page 16 for further information on how performance data was calculated,
including important information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
12
Delaware Tax-Free Income Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 65.3%
AA 3.5
A 17.9
BBB 13.3
-----
Total 100.0%
=====
Portfolio Statistics
Average maturity (years) 7.03
Modified Duration/2/ 7.49
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors Service
("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration represents
an expected 1% change in the net asset value of the fund for every 1% change
in interest rates. Modified duration assumes that cash flows remain constant
as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) where
applicable; and (2) ongoing costs, including advisory fees, distribution
(12b-1) and service fees, where applicable; and other Portfolio expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Portfolio and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
---------------------------------------------------------------
Institutional Investor Investor Investor
Class A Class B Class C Class
--------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,016.30 1,014.30 1,010.50 1,011.50
Expenses Incurred
During Period
(4/01/05 -
9/30/05) 3.54 5.50 9.32 9.33
Hypothetical Expenses
(5% return before expenses)
---------------------------------------------------------------
Institutional Investor Investor Investor
Class A Class B Class C Class
--------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,021.45 1,019.47 1,015.61 1,015.61
Expenses Incurred
During Period
(4/01/05 -
9/30/05) 3.55 5.53 9.39 9.39
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.70%, 1.09%, 1.85%, and 1.85% for the Institutional, Investor A, B,
and C share classes, respectively, multiplied by the average account value over
the period, multiplied by 183/365 (to reflect the one-half year period).
13
Kentucky Tax-Free Income Portfolio
Total Net Assets (9/30/05): $82.3 million
Investment Approach:
Seeks to maximize total return, consistent with income generation and
prudent investment management. The Portfolio invests primarily in bonds issued
by or on behalf of states, possessions and territories of the United States,
their political subdivisions and their agencies or authorities (and related
tax-exempt derivative securities), the interest on which the portfolio manager
believes is exempt from Federal income tax (including the Federal Alternative
Minimum Tax) and Kentucky state income tax ("municipal securities"). The
Portfolio normally invests at least 80% of its assets in municipal securities,
including both general obligation and revenue bonds, from a diverse range of
issuers (including issuers located outside of Kentucky). The Portfolio
emphasizes securities in the ten to twenty year maturity range.
Recent Portfolio Management Activity:
. All share classes of the Portfolio underperformed the Lipper Peer
Group (Kentucky Municipal Debt Funds) with the exception of the Institutional
share class, which outperformed for the annual period.
. During the annual period, municipal bonds outperformed taxable bonds.
Historically municipal bonds have lagged behind taxable bonds in rallying bond
markets and outperformed them in higher rate environments. The attractive
municipal bond relative values compared to Treasury securities during the first
half of the annual period attracted new buyers into the market. It was the
combination of strong demand from traditional buyers, especially insurance
companies, and opportunistic purchases from the non-traditional buyers that
drove municipal returns. During the annual period, the 2-year to 10-year portion
of the municipal yield curve flattened by approximately 84 basis points versus
the Treasury marketplace, where the curve flattened by 136 basis points. This
trend is partially the result of a renewed interest in municipal bonds toward
the end of the annual period from retail investors who have been mostly absent
from the market due to the historic low interest rate environment in the past
couple of years.
. The municipal market remains fundamentally strong. While hurricanes
Katrina and Rita have struck the Gulf Coast, it is too early to determine the
extent of the damage and the immediate and long term effects on the economy.
Despite the hurricanes and rising interest rates, the municipal bond market
continued to perform well to the end of the annual period. In general, the
credit quality of the states have significantly improved over the past year as
the more robust national economy produced higher state tax flows and revenues in
conjunction with modestly restrained increases in state spending. Year-to-date,
in 2005, only 5 states have seen revenue receipts come in under their
projections. One example of such strength is California, which continues to
benefit from an expanding economy, resulting in a revenue increase of 11.64%
year over year.
. The municipal new issue market continues on a record setting pace with
approximately $310.0 billion issued year-to-date 2005, a 15% increase over last
year's pace. It is on track to surpass the record set in 2003. New issue volume
in Kentucky year-to-date is $2.8 billion, which is slightly ahead of last year's
pace. Despite a higher interest rate environment, which typically slows new
issue supply, the flattening of the Treasury yield curve has created more
advance refunding opportunities. Refunding issuance stands at $106.6 billion, or
55% greater than 2004 year-to-date.
. During the annual period, the 2-year, 5-year and 10-year portions of
the municipal yield curve rose by 110, 58 and 30 basis points, respectively,
while the 30-year portion declined 11 basis points. The Portfolio's overall bias
towards a higher interest rate environment detracted from performance as the
longer portions of the municipal yield curve were the best performers during the
annual period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
KY TAX-FREE INCOME PORTFOLIO,
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND THE
LIPPER KENTUCKY MUNICIPAL DEBT FUNDS FOR THE PAST TEN YEARS.
[LINE CHART]
Institutional Investor A Lehman Brothers Municipal Bond Index* Lipper Kentucky Municipal Debt Funds
------------- ---------- ------------------------------------ ------------------------------------
05/11/1998 $ 10,000 $ 9,597 $ 10,000 $ 10,000
06/30/1998 10,176 9,759 10,039 10,153
09/30/1998 10,495 10,053 10,348 10,416
12/31/1998 10,552 10,096 10,410 10,447
03/31/1999 10,609 10,139 10,502 10,509
06/30/1999 10,414 9,941 10,317 10,335
09/30/1999 10,366 9,883 10,275 10,228
12/31/1999 10,297 9,806 10,195 10,106
03/31/2000 10,500 9,988 10,494 10,334
06/30/2000 10,629 10,110 10,653 10,412
09/30/2000 10,849 10,296 10,910 10,633
12/31/2000 11,199 10,616 11,387 11,001
03/31/2001 11,469 10,859 11,640 11,196
06/30/2001 11,548 10,921 11,716 11,264
09/30/2001 11,815 11,160 12,044 11,504
12/31/2001 11,692 11,031 11,971 11,432
03/31/2002 11,868 11,173 12,084 11,544
06/30/2002 12,208 11,491 12,526 11,886
09/30/2002 12,453 11,708 13,121 12,270
12/31/2002 12,490 11,729 13,121 12,277
03/31/2003 12,600 11,819 13,279 12,398
06/30/2003 12,915 12,088 13,621 12,693
09/30/2003 12,872 12,045 13,632 12,674
12/31/2003 13,037 12,173 13,818 12,845
03/31/2004 13,197 12,321 14,057 13,023
06/30/2004 12,977 12,101 13,725 12,769
09/30/2004 13,387 12,471 14,259 13,196
12/31/2004 13,609 12,665 14,437 13,346
03/31/2005 13,638 12,679 14,432 13,333
06/30/2005 13,849 12,863 14,855 13,644
09/30/2005 13,836 12,839 14,837 13,603
For period ending September 30, 2005
Average Annual Total Return
1 Year 3 Year 5 Year From Inception
------------ ---------- ---------- ---------------
Institutional Class 3.35% 3.57% 4.98% 4.49%
Service Class 3.04% 3.29% 4.69% 4.19%
Investor A Class (Load Adjusted) (1.22)% 1.74% 3.66% 3.44%
Investor A Class (NAV) 2.95% 3.12% 4.51% 4.02%
Investor B Class (Load Adjusted) (2.30)% 1.25% 3.39% 3.24%
Investor B Class (NAV) 2.18% 2.35% 3.74% 3.24%
Investor C Class (Load Adjusted) 1.18% 2.38% 3.75% 3.28%
Investor C Class (NAV) 2.17% 2.38% 3.75% 3.28%
* The performance of the Lehman Brothers Municipal Bond Index in the chart
starts on june 1, 1998.
The performance of the Lehman Brothers Municipal Bond Index (the "Benchmark") is
presented for comparative purposes in response to requirements of the Securities
and Exchange Commission. However, BlackRock believes that differences between
the ways in which the portfolio is managed and the Benchmark is constructed may
make comparisons between the portfolio and Benchmark performance less meaningful
to investors. Therefore, the performance of the Lipper Kentucky Municipal Debt
Funds is also presented.
The performance information above includes information relating to each class of
the Portfolio since the commencement of operations of the Portfolio, rather than
the date such class was introduced. The inception dates of the Portfolio's share
classes were as follows: Investor A Shares, 5/14/90; Institutional Shares,
1/21/93; Service Shares, 7/29/93; Investor B Shares, 7/18/96, Investor C Shares,
2/28/97 and BlackRock Shares, 12/22/03. See "Note on Performance Information" on
page 16 for further information on how performance data was calculated,
including important information on the line graph above.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
14
Kentucky Tax-Free Income Portfolio
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 53.6%
AA 17.0
A 1.3
BBB 28.1
-----
Total 100.0%
=====
Portfolio Statistics
Average maturity (years) 5.00
Modified Duration/2/ 5.19
1 Using the higher of Standard & Poor's ("S&P's") or Moody's Investors Service
("Moody's") rating.
2 Duration measures a Portfolio's price risk. Each year of duration represents
an expected 1% change in the net asset value of the fund for every 1% change
in interest rates. Modified duration assumes that cash flows remain constant
as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur two types of costs: (1)
transaction costs, including front and back end sales charges (loads) where
applicable; and (2) ongoing costs, including advisory fees, distribution
(12b-1) and service fees, where applicable; and other Portfolio expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Portfolio and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
Actual Expenses
-------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,014.50 1,014.10 1,012.60 1,008.80 1,009.80
Expenses Incurred
During Period
(4/01/05 -
9/30/05) 3.54 5.05 5.55 9.37 9.47
Hypothetical Expenses
(5% return before expenses)
-------------------------------------------------------------------------------
Institutional Service Investor Investor Investor
Class Class A Class B Class C Class
--------------- --------------- --------------- --------------- ---------------
Beginning Account
Value (4/01/05) $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Ending Account Value
(9/30/05) 1,021.45 1,019.92 1,019.42 1,015.56 1,015.46
Expenses Incurred
During Period
(4/01/05 -
9/30/05) 3.55 5.08 5.58 9.44 9.54
For each class of the Portfolio, expenses are equal to the annualized expense
ratio of 0.70%, 1.00%, 1.10%, 1.86%, and 1.88% for the Institutional, Service,
Investor A, B, and C share classes, respectively, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the one-half
year period).
15
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/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. Additionally, the performance information above does not
reflect accounting adjustments required under accounting principles generally
accepted in the United States of America and as a result there may be variances
between what is reported within this section and that reported in the total
return calculation in the Financial Highlights.
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:
UltraShort Municipal - 3.00% and Tax-Free Income, Pennsylvania Tax-Free Income,
New Jersey Tax-Free Income, Ohio Tax-Free Income, Delaware Tax-Free Income and
Kentucky Tax-Free Income - 4.00%. 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 and reimbursements
that subsidize and reduce the total operating expenses of each Portfolio. The
Portfolios' returns would have been lower if there were not such waivers and
reimbursements. BlackRock Advisors, Inc. is under no obligation to waive or
continue waiving its fees after February 1, 2006. 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.
The performance information for the Lipper Short Municipal Debt Funds,
Lipper General Municipal Debt Funds, Lipper Pennsylvania Municipal Debt Funds,
Lipper New Jersey Municipal Debt Funds, Lipper Ohio Municipal Debt Funds,
Lipper Other States Municipal Debt Funds and Lipper Kentucky Municipal Debt
Funds represents the average of the total returns reported by all of the mutual
funds designated by Lipper, Inc. as falling into the respective category. These
total returns are reported net of expenses and other fees that the Securities
and Exchange Commission requires to be reflected in a mutual fund's
performance.
+ The performance shown in the line graph is that of Institutional Shares and
Investor A Shares of the Portfolios. The actual performance of Investor B,
Investor C and Service Shares is lower than the performance of Institutional
Shares because Investor B, Investor C and Service Shares have higher
expenses than Institutional Shares. Excluding the effects of sales charges,
the actual performance of Investor B and Investor C Shares is lower than the
performance of Investor A Shares because Investor B and Investor C Shares
have higher expenses than Investor A Shares. Purchasers of Investor A Shares
generally pay a front-end sales charge, while purchasers of Investor B and
Investor C Shares may pay a contingent deferred sales charge (depending on
how long they hold their shares) when they sell their shares.
* The performance shown in the line graph is that of Service Shares and
Investor A Shares of the Portfolios. The actual performance of Investor B
and Investor C Shares is lower than the performance of Service Shares
because Investor B and Investor C Shares have higher expenses than Service
Shares. Excluding the effects of sales charges, the actual performance of
Investor B and Investor C Shares is lower than the performance of Investor A
Shares because Investor B and Investor C Shares have higher expenses than
Investor A Shares. Purchasers of Investor A Shares generally pay a front-end
sales charge, while purchasers of Investor B and Investor C Shares may pay a
contingent deferred sales charge (depending on how long they hold their
shares) when they sell their shares.
Important Tax Information for Shareholders of the BlackRock Tax-Free Bond
Portfolios
During the fiscal year ended September 30, 2005, 100% of the income
dividends paid by the UltraShort Municipal, Tax-Free Income, Pennsylvania
Tax-Free Income, New Jersey Tax-Free Income, Ohio Tax-Free Income, Delaware
Tax-Free Income and Kentucky Tax-Free Income Portfolios were exempt-interest
dividends for purposes of federal income taxes and accordingly, were exempt
from such taxes.
In January 2006, you will be furnished with a schedule showing the annual
percentage breakdown by state or U.S. possession of the source of interest
earned by each Portfolio in 2005.
16
BlackRock Funds
STATEMENT OF NET ASSETS
ULTRASHORT MUNICIPAL PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS -- 91.1%
Alaska -- 2.3%
Anchorage Wtr. Rev., Wachovia
Merlots Tr. Receipts, Ser. 04C-32
2.85%(b)(c) 05/01/34 $1,000 $1,000,127
----------
Colorado -- 3.5%
Colorado Hsg. & Fin. Auth., Ser. 1B-4
AMT
2.80% 07/05/06 1,500 1,498,589
----------
Florida -- 4.7%
Putnam Cnty. Poll. Ctrl. Rev., Ser. 04
2.80%(b) 03/15/14 2,000 1,999,746
----------
Indiana -- 4.7%
Indiana St. Dev. Fin. Auth. Econ.
Dev. Rev., IVC Coatings Prj., Ser.
00 AMT VRDN
2.93%(b) 08/01/16 500 500,000
North Vernon Ind. Econ. Dev. Rev.,
Adj.-Oak Meadows Apts. Prj., Ser.
95 VRDN
2.85%(b) 12/01/26 1,510 1,510,000
----------
2,010,000
----------
Kentucky -- 8.5%
Kentucky Econ. Dev. Fin. Auth., Ser.
04 VRDN
3.10%(b) 07/01/35 1,900 1,900,000
Pulaski Cnty. Solid Waste Disp. Rev.,
National Rural Utilities Eastern
Kentucky Power Prj., Class B
2.85%(b) 08/15/23 1,750 1,749,966
----------
3,649,966
----------
Michigan -- 6.7%
Michigan St. Strategic - Kay Screen
Printing Ltd. Oblig. Rev., (Bank
One LOC), Ser. 05 VRDN
2.93%(b) 05/01/20 1,300 1,300,000
Oakland Cnty. Econ. Dev. Corp. Ltd.
Oblig. Rev., Exhibit Enterprises,
Inc. Prj., Ser. 04 AMT VRDN
2.91%(b) 06/01/34 965 965,000
Zeeland Hosp. Fin. Auth. Rev.,
Zeeland Cmnty. Hosp. Prj. VRDN,
Ser. 04
2.91%(b) 09/01/31 625 625,000
----------
2,890,000
----------
Minnesota -- 1.2%
Minneapolis & St. Paul Met. Arpts.
Comm. Arpt. Rev., Ser. 99B AMT
5.50% 01/01/10 500 534,970
----------
Multi-State -- 1.8%
Charter Mac Equity Issuer Tr. Rev.,
Ser. 04 AMT VRDN
2.88%(b)(c) 11/15/24 300 300,000
Mun. Securities Pool Tr. Receipts
Rev., Ser. 04 PG-18 VRDN
2.90%(b)(c) 01/01/35 485 485,000
----------
785,000
----------
New Jersey -- 0.9%
Newark GO, Ser. 03
4.00% 07/15/08 385 394,348
----------
New Mexico -- 2.3%
Farmington Poll. Ctrl. Rev., Pub.
Svcs. San Juan Prj., Ser. 03B
2.10%(b) 04/01/33 1,000 992,880
----------
New York -- 5.9%
New York City GO, Ser. 04I
5.00% 08/01/09 500 528,610
New York St. Pwr. Auth. Rev., Ser. 05
2.80% 03/01/20 2,000 2,000,545
----------
2,529,155
----------
North Carolina -- 4.7%
Charlotte Wtr. & Swr. Sys., Ser. 05
2.90% 04/29/06 1,000 1,000,372
North Carolina Mun. Pwr. Agcy. No. 1
Catawba Elec. Prj. Rev., P-Floats-
PT-757, Ser. 03
2.40%(b)(c) 01/01/11 1,000 1,000,000
----------
2,000,372
----------
Ohio -- 9.9%
Cincinnati Sch. Dist. Bond GO, Ser.
05
3.00% 12/01/05 290 290,128
Clipper Tax-Exempt Cert. Tr., Ser.
04-08 VRDN
2.87%(b)(c) 07/01/08 781 781,000
Clipper Tax-Exempt Cert. Tr., Ser.
04-9 VRDN
2.95%(b)(c) 06/01/08 1,963 1,963,000
Columbus City Sch. Dist. GO
Wachovia Merlots Tr. Receipts,
Ser. 04C-29
2.85%(b)(c) 04/20/06 1,000 984,561
Ohio Bldg. Auth. Rev., St. Fac.
Admin. Bldg. Fd. Prj., Ser. 03A
4.50% 04/01/08 220 227,269
----------
4,245,958
----------
Oklahoma -- 2.3%
Oklahoma Dev. Fin. Auth. Rev.,
ConocoPhillips Co. Prj., AMT, Ser.
04
2.42% 12/01/38 1,000 999,285
----------
Oregon -- 2.5%
Metro GO, Ref., Ser. 02A
4.38% 01/01/08 1,045 1,074,020
----------
Pennsylvania -- 3.3%
Pennsylvania Econ. Dev. Fin. Auth.
Wastewater Treatment Rev.,
Sunoco Inc.-R&M Prj., Ser. 04A
VRDN
2.88%(b) 10/01/34 1,400 1,400,000
----------
South Carolina -- 1.9%
Greenwood Cnty. Exempt Fac. Ind.
Rev., Fuji Photo Film Prj., Ser. 04
VRDN
2.91%(b) 09/01/11 800 800,000
----------
See accompanying notes to financial statements
17
BlackRock Funds
STATEMENT OF NET ASSETS
ULTRASHORT MUNICIPAL PORTFOLIO (Concluded)
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS (Continued)
Tennessee -- 3.2%
Coffee Cnty. Ind. Bd. Inc., Ind. Dev.
Rev., Comtec Polymers, Inc. Prj.,
Ser. 97 AMT VRDN
2.95%(b) 05/01/12 $1,355 $ 1,355,000
-----------
Texas -- 8.4%
Brazos Hbr. Ind. Dev. Corp.
Environmental Facs. Rev.,
Conocophillips Co. Prj., Ser. 05
2.98% 08/01/38 1,200 1,200,890
Houston Texas Hsg. Fin. Corp. Rev.,
Ser. 04 PT-2101 AMT VRDN
2.88%(b)(c) 06/01/17 2,000 2,000,000
Texas St. Tpke. Auth. Ctr. Tpke. Sys.
Rev., Ser. 02
5.00% 06/01/08 385 402,891
-----------
3,603,781
-----------
Utah -- 1.2%
Utah Associated Mun. Pwr. Sys.
Rev., Payson Pwr. Prj., Ser. 03A
5.00% 04/01/08 500 521,855
-----------
Virginia -- 2.5%
Fairfax Cnty. Ref., Pub. Import, Ser.
01A
4.25% 06/01/08 1,050 1,082,413
-----------
Washington -- 8.7%
Energy Northwest Washington Wind
Prj., Rev., Ser. 01A
4.55% 07/01/06 1,600 1,615,936
Seattle Hsg. Auth. Rev., (Key Corp.
Bank N.A. LOC), Ser. 03 VRDN
2.82%(b) 12/01/36 2,100 2,100,000
-----------
3,715,936
-----------
TOTAL MUNICIPAL BONDS
(Cost $39,190,351) 39,083,401
-----------
SHORT TERM INVESTMENTS -- 8.2%
Tennessee State TECP, Ser. 05
2.70% 12/06/05 2,000 1,999,725
Venango Ind. Dev. Rev., Ser. 05
2.80% 10/07/05 1,500 1,500,021
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $3,500,000) 3,499,746
-----------
Number
of Shares
-----------
MONEY MARKET FUND -- 0.3%
Wilmington Trust
Tax-Free Money Market Fund
(Cost $136,898) 136,898 136,898
-----------
TOTAL INVESTMENTS IN SECURITIES -- 99.6%
(Cost $42,827,249(a)) 42,720,045
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.4% 165,793
-----------
NET ASSETS -- 100.0%
(Applicable to 3,266,052
BlackRock shares, 1,052,683
Institutional shares, 10 Service
shares and 86 Investor A shares
outstanding) $42,885,838
===========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
BLACKROCK SHARE
($32,439,137/3,266,052) $ 9.93
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($10,445,730/1,052,683) $ 9.92
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($101/10)(d) $ 10.06
=======
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($870/86)(e) $ 10.09
=======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.09/0.970) $ 10.40
=======
- ----------
(a) Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 1,957
Gross unrealized depreciation (109,161)
----------
$ (107,204)
==========
(b) Rates shown are the rates as of September 30, 2005.
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 19.9% of its net assets, with a current market
value of $8,513,688 in securities restricted as to resale.
(d) Exact net assets and shares outstanding at September 30, 2005 were $100.89
and 10.028, respectively.
(e) Exact net assets and shares outstanding at September 30, 2005 were $870.35
and 86.30, respectively.
See accompanying notes to financial statements
18
BlackRock Funds
STATEMENT OF NET ASSETS
TAX-FREE INCOME PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS -- 100.6%
Alabama -- 3.5%
Alabama Rev., Priv. Coll. & Tuskegee
Univ. Prj., Ser. 96A
5.90% 09/01/16 $1,000 $ 1,045,240
Alabama St. Pub. Sch. & Coll. Auth.
Cap. Imp. Rev., Ser. 99C
5.75% 07/01/18 3,000 3,278,400
Courtland Ind. Dev. Solid Waste
Disp. Rev., Champion Intl. Corp.
Prj., Ser. 99 AMT
6.00% 08/01/29 1,500 1,565,490
Jefferson Cnty. Swr. Rev., Ref.
Warrants, Ser. 03B-8
5.25% 02/01/13 7,725 8,252,849
-----------
14,141,979
-----------
Alaska -- 0.7%
Alaska Ind. Dev. & Expt. Auth.
Revolving Fd. Rev., Ser. 97A AMT
6.00% 04/01/07 2,500 2,605,050
-----------
Arizona -- 2.1%
Salt River Ariz. Agric. Impt. & Pwr.
Dist. Elec. Sys. Rev., Salt River
Prj., Ser. 02B
5.00% 01/01/31 8,000 8,319,440
-----------
California -- 7.4%
California St. Econ. Recovery GO,
Ser. 04A
5.25% 07/01/13 7,500 8,291,625
California St. GO, Ser. 90
6.50% 11/01/06 340 352,930
Foothill Eastern Corridor Agcy. Toll
Rd. Rev., Ser. 99
5.75% 01/15/40 8,500 8,651,385
Los Altos Sch. Dist. Cap. Apprec.
GO, Ser. 01B
5.87%(b) 08/01/21 3,380 1,510,150
Sacramento Cnty. Sanit. Dist. Fing.
Auth. Rev., Ser. 04A
5.00% 12/01/35 8,510 8,917,033
Sacramento Mun. Util. Dist. Elec.
Rev., Prerefunded Ser. 92C
5.75%(c) 11/15/09 430 431,583
Stockton-East Wtr. Dist. Rev., Ser.
02B
6.12%(b) 04/01/28 4,495 1,234,192
-----------
29,388,898
-----------
District of Columbia -- 0.0%
District of Columbia GO, Prerefunded
Ser. 93A-1
6.00%(c) 06/01/11 50 56,690
-----------
Florida -- 4.7%
Broward Cnty. Wtr. & Swr. Util. Rev.,
Ser. 05A
5.00% 10/01/30 5,000 5,240,350
Florida St. Bd. of Ed. Cap. Outlay
GO, Ser. 00D
5.75% 06/01/22 7,800 8,557,458
Hillsborough Cnty. Ind. Dev. Auth.
Exempt Fac. Rev., Nat. Gypsum
Prj., Ser. 00A AMT
7.12% 04/01/30 2,000 2,219,160
Tampa Wtr. & Swr. Rev., Ser. 02
10/01/14-
6.00% 10/01/16 2,455 2,897,741
-----------
18,914,709
-----------
Georgia -- 6.8%
Atlanta Arpt. Fac. Rev., Ser. 94A
6.50% 01/01/10 1,000 1,128,090
Atlanta Arpt. Passenger. Fac. Rev.,
Ser. 04J
5.00% 01/01/34 5,000 5,198,450
Augusta Wtr. & Swr. Rev., Ser. 04
5.25% 10/01/39 3,000 3,217,560
Cobb Cnty. & Marietta Wtr. Auth.
Rev., Ser. 02
5.50% 11/01/14 1,000 1,129,190
Forsyth Cnty. Sch. Dist. GO, Ser. 92
6.70% 07/01/12 1,000 1,135,620
Fulton Cnty. Fac. Corp., Fulton Cnty.
Pub. Purp. Prj., Ser. 99
5.50% 11/01/18 1,000 1,074,010
Fulton Cnty. Wtr. & Swr. Rev., Ser. 04
5.00% 01/01/35 5,000 5,201,600
5.25% 01/01/35 7,500 8,037,825
Georgia Mun. Elec. Auth. Pwr. Rev.,
Ser. 93B
5.70% 01/01/19 1,000 1,134,710
-----------
27,257,055
-----------
Hawaii -- 1.0%
Hawaii St. Hbr. Cap. Imp. Rev., Ser.
97 AMT
5.50% 07/01/27 3,750 3,873,525
-----------
Illinois -- 3.4%
Chicago Wtr. Rev., Prerefunded Ser.
97
5.50%(c) 11/01/07 8,885 9,509,793
Chicago Wtr. Rev., Ser. 97
5.50% 11/01/22 1,020 1,084,474
Cook Cnty. GO, Prerefunded Ser. 96
5.88%(c) 11/15/06 2,000 2,085,240
Illinois Hsg. Dev. Auth. Rev.,
Multi-Fam. Prj., Ser. 94-5
6.65% 09/01/14 815 823,525
-----------
13,503,032
-----------
Kentucky -- 1.4%
Kentucky St. Property & Bldgs.
Comm. Revenues, Ref-PJ No. 84.,
Ser. 05
5.00% 08/01/18 5,000 5,486,900
-----------
Louisiana -- 0.6%
Orleans Rev., Levee Dist. Pub. Imp.
Prj., Ser. 86
5.95% 11/01/15 2,170 2,244,930
-----------
Maryland -- 0.0%
Maryland St. Hlth. & Hgr. Edl. Fac.
Auth. Rev., Ser. 94D VRDN
2.74%(d) 01/01/29 80 80,000
-----------
See accompanying notes to financial statements
19
BlackRock Funds
STATEMENT OF NET ASSETS
TAX-FREE INCOME PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS (Continued)
Massachusetts -- 5.1%
Massachusetts St. Hlth. & Edl. Facs.
Auth. Rev., Harvard Univ. Prj., Ser.
01DD
5.00% 07/15/35 $ 8,570 $ 8,886,833
Massachusetts St. Hlth. & Edl. Facs.
Auth. Rev., Harvard Univ. Prj., Ser.
05B
5.00% 07/15/32 5,000 5,280,750
Massachusetts St. Hlth. & Edl. Facs.
Auth. Rev., Newton-Wellesley
Hosp. Prj., Ser. 97G
6.12% 07/01/15 1,000 1,064,610
Massachusetts St. Tpke. Auth. Met.
Hwy. Sys. Rev., Ser. 97A
5.00% 01/01/37 5,000 5,122,700
-----------
20,354,893
-----------
Michigan -- 0.5%
Huron Vy. Sch. Dist. GO,
Prerefunded Ser. 96
5.88%(c) 05/01/07 2,000 2,091,380
-----------
Missouri -- 0.4%
Missouri St. Env. Imp. & Energy Res.
Auth. Wtr. Poll. Rev., Drinking Wtr.
Prj., Ser. 02B
5.25% 07/01/11 1,540 1,686,485
-----------
Multi-State -- 4.5%
Charter Mac Equity Issue Tr., Ser. 99
6.62%(e) 06/30/09 3,000 3,244,560
Charter Mac Equity Issue Tr., Ser. 00
7.60%(e) 11/30/10 9,000 10,278,540
MuniMae Tax-Exempt Bond Subs.,
LLC, Ser. 00
6.88%(e) 06/30/09 4,000 4,365,080
-----------
17,888,180
-----------
Nebraska -- 0.3%
Omaha Pub. Pwr. Dist. Elec. Rev.,
Ser. 92B
6.15% 02/01/12 1,000 1,114,490
-----------
Nevada -- 1.7%
Clark Cnty. Arpt. Rev., Ser. 04A-1
5.50% 07/01/15 1,780 1,947,676
Univ. of Nevada Univ. Revs. Cmnty.
College Sys. Prj., Ser. 05A
5.00% 07/01/30 4,685 4,916,767
-----------
6,864,443
-----------
New Jersey -- 7.3%
New Jersey Econ. Dev. Auth. Rev.,
Seeing Eye Inc. Prj., Ser. 05
5.00% 12/01/24 2,340 2,481,477
New Jersey St. Edl. Fac. Auth. Rev.,
Princeton Univ. Prj., Ser. 05A
5.00% 07/01/30 2,500 2,650,150
New Jersey St. GO, Ser. 05L
5.25% 07/15/15 5,000 5,561,300
New Jersey St. Tpke. Auth. Rev.,
Prerefunded, Ser. 00A
5.75%(c) 01/01/10 2,820 3,098,080
New Jersey St. Tpke. Auth. Rev.,
Ser. 00A
5.75%(c) 01/01/16 1,180 1,296,360
New Jersey St. Trans. Tr. Fd. Auth.
Trans. Sys. Rev., Prerefunded Ser.
00A
6.00%(c) 06/15/10 10,000 11,174,000
Port Auth. New York & New Jersey
SO, JFK Intl. Arpt. Term. Prj., Ser.
97-6 AMT
6.25% 12/01/09 2,680 2,921,441
-----------
29,182,808
-----------
New York -- 8.9%
New York City GO, Prefunded Ser.
03I
5.75%(c) 03/01/13 520 592,451
New York City GO, Ser. 05O
06/01/30-
5.00% 06/01/33 8,355 8,640,421
New York City GO, Unrefunded Ser.
03I
5.75% 03/01/19 4,480 4,968,947
New York City Ind. Dev. Agcy. Rev.,
Term. One Grp. Assoc. Prj., Ser.
94 AMT
01/01/08-
6.00% 01/01/19 860 867,319
New York City Transitional Fin. Auth.
Rev., Ser. 02A
5.25% 11/01/11 3,300 3,615,249
Sales Tax Asset Rcvbl. Corp. Rev.,
Ser. 04A
10/15/29-
5.00% 10/15/32 10,000 10,545,850
Tobacco Settlement Fin. Corp. Rev.,
Ser. 03A-1
5.50% 06/01/14 6,075 6,492,535
-----------
35,722,772
-----------
North Carolina -- 1.4%
North Carolina Mun. Pwr. Agcy. Rev.,
Catawba Elec. Prj., Ser. 92A
6.00% 01/01/10 300 331,905
Univ. of North Carolina Rev., Ser. 05
5.00% 12/01/34 5,000 5,255,850
-----------
5,587,755
-----------
Ohio -- 1.1%
Cleveland-Cuyahoga Cnty. Port Auth.
Rev., Ser. 97 AMT
6.00%(c) 03/01/07 440 452,113
Greene Cnty. Swr. Sys. Rev.
Ref-Govt. Enterprise, Ser. 05
5.00% 12/01/17 3,500 3,783,500
-----------
4,235,613
-----------
Oregon -- 0.9%
Clackamas Cnty. GO, Sch. Dist. No.
62 Oregon City Prj., Prerefunded
Ser. 00C
5.50%(c) 06/15/10 3,185 3,490,155
-----------
Pennsylvania -- 9.6%
Beaver Cnty. GO, Prerefunded Ser.
96A
5.75%(c) 10/01/06 1,000 1,028,180
See accompanying notes to financial statements
20
BlackRock Funds
STATEMENT OF NET ASSETS
TAX-FREE INCOME PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS (Continued)
Pennsylvania (Continued)
Central Bucks Sch. Dist. GO, Ser. A
5.00% 05/15/20 $ 3,000 $ 3,160,170
Delaware Cnty. Auth. Rev., Mercy
Hlth. Corp. Prj., Ser. 96
5.75% 12/15/20 2,400 2,515,512
Delaware Vy. Regl. Fin. Auth. LOC
Govt. Rev., Ser. 98A
5.50% 08/01/28 10,500 12,135,480
Delaware Vy. Regl. Fin. Auth. LOC
Govt. RITES PA-1041 Rev., Ser.
02B
01/01/26 1,000 2,775,400
Lehigh Cnty. Gen. Purp. Auth. Rev.,
Kidspeace Oblig. Prj., Ser. 98
6.00% 11/01/23 2,650 2,770,946
Pennsylvania Con. Ctr. Auth. Rev.,
Ser. 94A
6.60% 09/01/09 3,535 3,598,665
Pennsylvania St. Hgr. Ed. Fac. Auth.
Hlth. Svcs. Rev., Univ. of
Pennsylvania Hlth. Svcs. Prj., Ser.
96A
5.88% 01/01/15 3,450 3,508,995
Philadelphia Ind. Dev. Auth. Arpt.
Fac. Rev., Aero Philadelphia LLC
Prj., Ser. 99 AMT
5.25% 01/01/09 600 604,386
Philadelphia Ind. Dev. Auth. Rev.,
PGH Dev. Corp. Prj., Ser. 93
5.25% 07/01/17 1,935 1,940,109
Philadelphia Sch. Dist. GO, Ser. 99C
5.75% 03/01/29 4,000 4,400,360
-----------
38,438,203
-----------
Puerto Rico -- 6.6%
Puerto Rico Cmwlth. Hwy. Rev., Ser.
05L
5.25% 07/01/38 10,000 11,504,700
Puerto Rico Cmwlth. Infra. Fin. Auth.
Spec. RITES PA-782 Rev., Ser.
01G
10/01/40 3,985 5,432,033
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 94S
7.00% 07/01/06 1,000 1,028,430
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 05RR
5.00% 07/01/35 4,000 4,214,120
Puerto Rico Pub. Fin. Corp. Cmwlth.
Approp. Rev., Prerefunded Ser.
02E
5.50%(c) 02/01/12 2,990 3,312,083
Puerto Rico Pub. Fin. Corp. Cmwlth.
Approp. Rev., Ser. 02E
5.50% 08/01/29 1,010 1,087,982
-----------
26,579,348
-----------
Rhode Island -- 0.7%
Rhode Island Depositors Econ.
Protection Corp. SO, Prerefunded
Ser. 93
5.62%(c) 08/01/09 190 206,087
Rhode Island Depositors Econ.
Protection Corp. SO, Ser. 93
5.62% 08/01/09 515 535,415
Rhode Island St. Hlth. & Ed. Bldg.
Corp. Rev., Hosp. Fin. Lifespan
Oblig. Grp. Prj., Ser. 96
5.50% 05/15/16 2,000 2,094,060
-----------
2,835,562
-----------
South Carolina -- 1.3%
South Carolina Trans. Infra. Rev.,
Ser. 04A
5.00% 10/01/33 5,000 5,200,200
-----------
Texas -- 8.1%
Brazos River Auth. Poll. Ctrl. Rev.,
Texas Util. Elec. Co. Prj.,
Prerefunded Ser. 95C AMT
5.55%(c) 04/01/08 5,000 5,375,100
Dallas Ind. Dev. Corp. Rev., CR/PL,
Inc. Prj., Ser. 87 AMT
7.50% 08/01/17 1,350 1,372,734
Frisco Indpt. Sch. Dist. GO, Ser. 05A
5.00% 07/15/30 4,600 4,792,050
Grand Prairie Indpt. Sch. Dist. GO,
Prerefunded Ser. 00A
5.80%(c) 08/15/11 4,925 5,553,676
Harlandale Tex. Indpt. Sch. Dist. Ref.,
Ser. 05
5.00% 08/15/30 3,490 3,650,191
Texas Affordable Hsg. Corp.
Multi-Fam. Hsg. Rev., Arborstone
Prj., Ser. 01A
4.75%(f) 11/01/11 6,635 5,661,513
Texas Wtr. Fin. Assist. GO, Ser. 00
5.75% 08/01/22 3,445 3,768,417
Travis Cnty. Hlth. Fac. Dev. Corp.
Rev., Ascension Hlth. Credit Prj.,
Prerefunded Ser. 99A
5.88%(c) 11/15/09 1,980 2,196,572
-----------
32,370,253
-----------
Utah -- 0.0%
Salt Lake City Hosp. Rev., Ser. 88A
8.12%(c) 05/15/15 100 123,131
-----------
Virginia -- 2.7%
Pocahontas Pkwy. Toll Rd. Rev., Ser.
98B
5.85%(b) 08/15/23 14,300 5,140,993
Virginia St. Pub. Sch. Auth. Rev.,
Sch. Fing Prj., Ser. 05B
5.25% 08/01/16 5,000 5,586,350
-----------
10,727,343
-----------
Washington -- 7.8%
King Cnty. GO, Sch. Dist. No. 414
Lake Washington Prj., Ser. 00
5.75% 12/01/10 500 557,365
Pierce Cnty. GO, Sch. Dist. No. 416
White River Prj., Ser. 00
6.00% 12/01/13 5,345 6,007,620
See accompanying notes to financial statements
21
BlackRock Funds
STATEMENT OF NET ASSETS
TAX-FREE INCOME PORTFOLIO (Concluded)
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS (Continued)
Washington (Continued)
Port Seattle Washington Rev., Ser.
05A
5.00% 03/01/35 $ 6,000 $ 6,255,780
Washington St. GO, Ser. 00B
6.00% 01/01/25 14,000 15,488,900
Washington St. Pub. Pwr. Sply. Sys.
Rev., Nuclear Prj. No. 3, Ser. 96A
6.00% 07/01/06 3,000 3,066,660
------------
31,376,325
------------
West Virginia -- 0.1%
West Virginia Pub. Energy Auth.
Rev., Morgantown Energy Assoc.
Prj., Ser. 90A AMT
5.05% 07/01/08 280 285,891
------------
TOTAL MUNICIPAL BONDS
(Cost $384,449,108) 402,027,438
------------
TAXABLE MUNICIPAL BONDS -- 3.3%
New York - 2.0%
New York St. Environmental Fac.
Corp. Clean Wtr. & Drinking Rev.,
New York City Mun. Wtr. Fin. Prj.,
Ser. 04
5.00% 06/15/34 7,600 7,954,008
------------
Texas -- 1.3%
Univ. of Texas Permanent Univ. Fd.
Rev., Ser. 05A, Class B
5.00% 07/01/35 5,000 5,215,100
------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $13,092,613) 13,169,108
------------
MORTGAGE PASS-THROUGHS -- 0.0%
Government National Mortgage
Association
6.00%
(Cost $4,704) 11/15/31 5 4,641
------------
TOTAL INVESTMENTS IN SECURITIES -- 103.9%
(Cost $397,546,425(a)) 415,201,187
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (3.9)% (15,494,167)
------------
NET ASSETS -- 100.0%
(Applicable to 7,781,574
BlackRock shares, 26,892,726
Institutional shares, 210,381
Service shares, 814,928 Investor
A shares, 439,928 Investor B
shares and 209,371 Investor C
shares outstanding) $399,707,020
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
BLACKROCK SHARE
($85,552,636/7,781,574) $ 10.99
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($295,736,733/26,892,726) $ 11.00
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($2,311,643/210,381) $ 10.99
=======
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($8,964,504/814,928) $ 11.00
=======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($11.00/0.960) $ 11.46
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($4,838,831/439,928) $ 11.00
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($2,302,673/209,371) $ 11.00
=======
- ----------
(a) Cost for Federal income tax purposes is $397,548,925. The
gross unrealized appreciation (depreciation) on a tax basis is as
follows:
Gross unrealized appreciation $ 19,502,358
Gross unrealized depreciation (1,850,096)
------------
$ 17,652,262
============
(b) The rate shown is the effective yield on the zero coupon bonds at the time
of purchase.
(c) This bond is prerefunded. U.S. government securities, held in escrow,
are used to pay interest on this security, as well as refund the bond in
full at date indicated, typically at a premium to par.
(d) Rates shown are the rates as of September 30, 2005.
(e) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 4.5% of its net assets, with a current market
value of $17,888,180 in securities restricted as to resale.
(f) Security is illiquid. As of September 30, 2005, the Portfolio held 1.4%
of its net assets, with a current market value of $5,661,513 in these
securities.
See accompanying notes to financial statements
22
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS -- 101.8%
Multi-State -- 8.2%
Charter Mac Equity Issue Tr., Ser. 99
6.62%(b) 06/30/09 $25,000 $27,038,000
Charter Mac Equity Issue Tr., Ser. 00
7.60%(b) 11/30/10 10,000 11,420,600
MuniMae Tax-Exempt Bond Subs.,
LLC, Ser. 00
6.88%(b) 06/30/09 4,000 4,365,080
7.75%(b) 11/01/10 10,000 11,404,300
-----------
54,227,980
-----------
Pennsylvania -- 81.2%
Allegheny Cnty. Hosp. Dev. Auth.
Rev., Hlth. Ctr. Univ. of Pittsburgh
Med. Ctr. Prj., Ser. 97B
6.00% 07/01/25 7,000 8,445,920
Allegheny Cnty. Hosp. Dev. Auth.
Rev., Prerefunded Ser. 95A
6.00%(c) 09/01/07 5,000 5,283,250
6.20%(c) 09/01/07 1,000 1,060,330
Allegheny Cnty. Hosp. Dev. Auth.
Rev., Univ. of Pittsburgh Med. Ctr.
Prj., Ser. 95
5.35% 12/01/17 10,000 10,224,300
Beaver Cnty. Hosp. Auth. Rev.,
Prerefunded Ser. 96A
5.80%(c) 10/01/06 5,830 5,997,088
Berks Cnty. GO, Ser. 98
5.38% 11/15/28 6,685 6,919,443
Bradford Area Sch. Dist. GO,
Prerefunded Ser. 95
5.80%(c) 10/01/05 1,465 1,465,000
Central Bucks Sch. Dist. GO, Ser. A
5.00% 05/15/20 4,570 4,813,992
Dauphin Cnty. Gen. Auth. Hlth. Sys.
Rev., Pinnacle Hlth. Sys. Prj., Ser.
97
5.50% 05/15/17 3,500 3,648,995
Dauphin Cnty. Gen. Auth. Hosp.
Rev., Hapsco Western
Pennsylvania Hosp. Prj., Ser. 92
6.25% 07/01/16 1,000 1,154,770
Delaware Cnty. Auth. Arpt. Fac. Rev.,
UTD Parcel Svc. Prj., Ser. 85
VRDN
2.87%(d) 12/01/15 70 70,000
Delaware Cnty. Auth. Coll. Rev.,
Haverford Coll. Prj., Ser. 00
5.75% 11/15/25 6,795 7,467,705
Delaware Cnty. Auth. Hosp. Rev.,
Ser. 95
5.50% 08/15/15 6,480 6,662,671
Delaware Cnty. Auth. Rev., Mercy
Hlth. Corp. Prj., Ser. 96
5.75% 12/15/20 3,735 3,914,765
Delaware Cnty. Ind. Dev. Auth. Rev.,
Ser. 99 AMT
6.00% 06/01/29 3,400 3,705,592
Delaware Cnty. Mem. Hosp. Auth.
Rev., Ser. 95
5.50% 08/15/19 3,000 3,084,570
Delaware Cnty. Rev., Prerefunded
Ser. 95
5.50%(c) 10/01/05 1,075 1,075,000
Delaware River Port Auth.
Pennsylvania & New Jersey Rev.,
Port Dist. Prj., Ser. 99B
5.70% 01/01/22 8,930 9,708,160
Delaware River Port Auth.
Pennsylvania & New Jersey Rev.,
Ser. 99
5.75% 01/01/16 8,000 8,712,800
Delaware River Port Auth.
Pennsylvania & New Jersey RITES
Rev., Ser. 99
07/01/16 10,000 13,498,000
Delaware Vy. Regl. Fin. Auth. LOC
Govt. Rev., Ser. 96A
5.90% 04/15/16 2,540 2,579,726
Delaware Vy. Regl. Fin. Auth. LOC
Govt. Rev., Ser. 97B
5.60% 07/01/17 2,000 2,253,300
Delaware Vy. Regl. Fin. Auth. LOC
Govt. Rev., Ser. 98A
5.50% 08/01/28 33,050 38,197,868
Delaware Vy. Regl. Fin. Auth. LOC
Govt. RITES PA-1041 Rev., Ser.
02A
01/01/26 2,000 5,550,800
Dover Area Sch. Dist. GO,
Prerefunded Ser. 96
5.75%(c) 04/01/06 2,445 2,480,232
Geisinger Auth. Hlth. Sys., Ser. 05C
VRDN
2.81%(d) 08/01/28 6,600 6,600,000
Indiana Cnty. Ind. Dev. Auth. Poll.
Ctrl. Rev., New York St. Elec. &
Gas Corp. Prj., Ser. 95A
6.00% 06/01/06 1,000 1,019,940
Kennett Cons. Sch. Dist. GO, Ser.
02A
5.50% 02/15/14 1,245 1,373,895
Lancaster Cnty. Hosp. Auth. Rev.,
Hlth. Ctr. Masonic Homes Prj., Ser.
94
5.30% 11/15/08 500 506,580
Lancaster Swr. Auth. Sply. SO, Ser.
98
5.25% 04/01/21 8,480 8,581,760
Lehigh Cnty. Gen. Purp. Auth. Rev.,
Kidspeace Oblig. Prj., Ser. 98
5.70% 11/01/09 3,000 3,132,480
6.00% 11/01/18 2,000 2,099,360
Luzerne Cnty. Flood Prot. Auth. Gtd.
Rev., Prerefunded Ser. 96
5.60%(c) 07/15/06 4,720 4,819,262
Lycoming Cnty. Auth. Hosp. Rev.,
Divine Providence Hosp. Prj., Ser.
95
5.38% 11/15/10 6,480 6,625,606
McKeesport Area Sch. Dist. GO,
Prerefunded Ser. 96A
5.75%(c) 10/01/06 1,750 1,799,315
Methacton Sch. Dist. Auth. Rev.,
Prerefunded Ser. 78
6.50%(c) 10/01/06 475 491,596
See accompanying notes to financial statements
23
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS (Continued)
Pennsylvania (Continued)
Montgomery Cnty. Hgr. Ed. & Hlth.
Auth. Coll. Rev., Beaver Coll. Prj.,
Ser. 96
5.75% 04/01/12 $ 1,690 $ 1,746,615
Montgomery Cnty. Hgr. Ed. & Hlth.
Auth. Rev., Holy Redeemer Hosp.
Prj., Ser. 97A
5.25% 10/01/27 9,000 9,359,280
Montgomery Cnty. Hgr. Ed. & Hlth.
Auth. Rev., Pottstown Hlth. Care
Corp. Prj., Prerefunded Ser. 98
5.00%(c) 01/01/09 6,235 6,649,565
Northeastern Hosp. & Ed. Auth. Rev.,
Luzerne Cnty. Coll. Prj., Ser. 97
5.15% 08/15/16 3,245 3,361,885
Northeastern Hosp. & Ed. Auth. Rev.,
Wyoming Vy. Hlth. Care Prj., Ser.
94A
6.50% 01/01/07 1,000 1,019,630
Northgate Sch. Auth. Bldg. Rev., Ser.
78
6.38% 02/15/07 825 863,181
Parkland Sch. Dist. Rev.,
Prerefunded Ser. 96
5.75%(c) 03/01/06 2,910 2,944,716
Pennsbury Sch. Dist. GO, Ser. 02
01/15/18-
5.50% 01/15/19 4,625 5,068,986
Pennsylvania Con. Ctr. Auth. Rev.,
Ser. 89A
6.70% 09/01/16 1,000 1,184,280
Pennsylvania Con. Ctr. Auth. Rev.,
Ser. 94A
6.60% 09/01/09 10,330 10,531,799
Pennsylvania Hgr. Ed. Assistance
Agcy. Rev., Cap. Acquisition Prj.,
Prerefunded Ser. 00
5.88%(c) 12/15/10 16,400 18,391,616
Pennsylvania Hgr. Ed. Fac. Auth.
Rev., Univ. of Pennsylvania Prj.,
Ser. 98
5.75% 01/01/06 8,165 8,302,254
Pennsylvania Hsg. Fin. Agcy.
Multi-Fam. FHA Ins. Rev., Ser. 92
8.10% 07/01/13 630 630,850
Pennsylvania Hsg. Fin. Agcy. Rev.,
Ser. 98 AMT
5.50%(e) 04/01/30 13,155 3,558,822
Pennsylvania Hsg. Fin. Agcy. Rev.,
Sgl. Fam. Mtg. Prj., Ser. 99-66A
AMT
5.65% 04/01/29 9,545 9,707,838
Pennsylvania Infra. Investment Auth.
Rev., Pennvest Ln. Pool Prj., Ser.
94
6.00% 09/01/06 1,930 1,983,036
Pennsylvania Intergovtl. Coop. Auth.
Spec. Tax Rev., City of
Philadelphia Fdg. Prj., Ser. 96
5.60% 06/15/12 1,000 1,018,310
06/15/16-
5.50% 06/15/20 10,500 10,683,190
Pennsylvania St. Dept. Gen. Svcs.
COP, Ser. 01
4.25% 11/01/05 1,860 1,862,027
05/01/14-
5.00% 11/01/14 5,560 5,903,108
05/01/15-
5.25% 05/01/16 7,740 8,308,634
Pennsylvania St. Hgr. Ed. Assist.
Agcy. Stud. Ln. Rev., Ser. 94A
VRDN
2.79%(d) 12/01/24 1,700 1,700,000
Pennsylvania St. Hgr. Ed. Fac. Auth.
Coll. & Univ. Rev., Bryn Mawr Coll.
Prj., Prerefunded Ser. 95
6.00%(c) 12/01/05 1,200 1,230,120
Pennsylvania St. Hgr. Ed. Fac. Auth.
Coll. & Univ. Rev., Lafayette Coll.
Prj., Ser. 00
6.00% 05/01/30 155 170,550
Pennsylvania St. Hgr. Ed. Fac. Auth.
Coll. & Univ. Rev., Trustees Univ.
Prj., Ser. 98
5.50% 07/15/38 9,500 10,114,935
Pennsylvania St. Hgr. Ed. Fac. Auth.
Hlth. Svcs. Rev., Univ. of
Pennsylvania Hlth. Svcs. Prj., Ser.
96A
5.75% 01/01/17 12,250 12,455,922
Pennsylvania St. Hgr. Ed. Fac. Auth.
Rev., Trustees Univ. of
Pennsylvania, Ser. 05C
4.75% 07/15/35 6,700 6,777,988
5.00% 07/15/38 10,725 11,187,891
Pennsylvania St. Ind. Dev. Auth.
Rev., Econ. Dev. Prj., Ser. 94
7.00% 01/01/06 1,000 1,009,770
Pennsylvania St. Ind. Dev. Auth.
Rev., Econ. Dev. Prj., Ser. 02
5.50% 07/01/16 8,000 8,883,600
Pennsylvania St. Pub. Sch. Bldg.
Auth. Rev., Philadelphia Sch. Dist.
Lease Prj., Ser. 03
5.00% 06/01/33 7,500 7,764,750
Pennsylvania St. Univ. Rev., Ser. 05A
09/01/29-
5.00% 09/01/35 13,500 14,180,355
Philadelphia Gas Works Rev., Ser. 94
5.25% 08/01/24 2,900 2,942,920
Philadelphia Gas Works Rev., Ser. 01
08/01/14-
5.50% 08/01/18 7,415 8,049,894
Philadelphia GO, Ser. 94
5.90% 11/15/09 980 993,534
Philadelphia Hosp. & Hgr. Ed. Fac.
Auth. Hosp. Rev., Frankford Hosp.
Prj., Ser. 95
5.50% 01/01/07 1,235 1,255,390
5.60% 01/01/08 1,245 1,265,729
See accompanying notes to financial statements
24
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (Continued)
As of september 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS (Continued)
Pennsylvania (Continued)
Philadelphia Hosp. & Hgr. Ed. Fac.
Auth. Hosp. Rev., Nazareth Hosp.
Franciscan Prj., Prerefunded Ser.
96B
5.00%(c) 07/01/06 $ 4,590 $ 4,751,706
Philadelphia Ind. Dev. Auth. Rev.,
American Coll. of Physicians Prj.,
Ser. 00
06/15/20-
5.50% 06/15/25 14,685 15,788,350
Philadelphia Ind. Dev. Auth. Rev.,
Girard Estate Coal Mining Prj., Ser.
96
5.38% 11/15/12 3,945 4,051,318
5.50% 11/15/16 1,650 1,693,230
Philadelphia Ind. Dev. Auth. Rev.,
PGH Dev. Corp. Prj., Ser. 93
5.50% 07/01/10 1,035 1,040,786
Philadelphia Pk. Auth. Rev., Arpt. Pk.
Prj., Ser. 99
5.62% 09/01/18 4,430 4,782,406
Philadelphia Pk. Auth. Rev., Ser. 97
5.40% 09/01/15 5,900 6,151,045
Philadelphia Pk. Auth. Rev., Ser. 99
09/01/13-
5.62% 09/01/17 5,885 6,376,009
Philadelphia Sch. Dist. GO, Ser. 95A
6.25% 09/01/06 2,255 2,321,951
Philadelphia Sch. Dist. GO, Ser. 99C
5.75% 03/01/29 11,000 12,100,990
Philadelphia Sch. Dist. GO, Ser. 00A
02/01/12-
5.75% 02/01/13 10,215 11,405,763
Philadelphia Wtr. & Waste Wtr. Rev.,
Ser. 93
5.50% 06/15/07 6,780 7,057,641
Philadelphia Wtr. & Waste Wtr. Rev.,
Ser. 05A
5.00% 07/01/28 6,000 6,291,960
Pleasant Vy. Sch. Dist. GO,
Prerefunded Ser. 95
5.60%(c) 11/15/05 1,180 1,183,847
Pleasant Vy. Sch. Dist. GO, Ser. 95
5.60% 11/15/14 205 205,668
Pottstown Borough Auth. Swr. Rev.,
Ser. 96
5.50% 11/01/16 1,360 1,396,162
Riverside Beaver Cnty. Sch. Dist.
Rev., Prerefunded Ser. 96
5.50%(c) 02/15/06 3,725 3,761,207
Riverside Sch. Dist. GO, Prerefunded
Ser. 00
5.50%(c) 10/15/10 3,300 3,620,958
South Fork Mun. Auth. Hosp. Rev.,
Good Samaritan Med. Ctr. Prj.,
Ser. 96B
5.38% 07/01/16 4,000 4,142,160
Southeastern Pennsylvania Trans.
Auth. Rev., Ser. 97
5.55% 03/01/13 3,500 3,683,960
5.38% 03/01/17 6,270 6,580,177
Springford Sch. Dist. GO, Ser. 97
5.15% 02/01/18 10,010 10,271,625
Washington Cnty. Auth. Rev., Ser. 99
6.15% 12/01/29 6,340 6,625,871
MUNICIPAL BONDS (Continued)
Pennsylvania (Continued)
Washington Cnty. Ind. Dev. Auth.
Poll. Ctrl. Rev., West Penn Pwr.
Co. Prj., Ser. 95G
6.05% 04/01/14 2,500 2,556,725
West Mifflin Sanit. Swr. Mun. Auth.
Swr. Rev., Prerefunded Ser. 96
5.70%(c) 08/01/06 1,445 1,478,293
Westview Mun. Auth. SO, Ser. 85
9.25% 11/15/05 195 196,394
Williamsport Area Sch. Dist. Auth.
Rev., Ser. 78
6.00% 03/01/07 70 72,302
Wilson Sch. Dist. GO, Prerefunded
Ser. 97
5.50%(c) 05/15/07 8,015 8,343,054
------------
536,018,599
------------
Puerto Rico -- 12.4%
Puerto Rico Cmwlth. GO, Ser. 02
5.50% 07/01/12 20,000 22,407,200
Puerto Rico Cmwlth. Hwy. Rev., Ser.
05L
5.25% 07/01/38 16,000 18,407,520
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00A
10/01/16 400 554,624
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00B
10/01/17 500 701,760
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00C
10/01/18 500 697,900
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00D
10/01/19 690 960,425
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00E
10/01/20 250 347,020
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00F
10/01/24 250 344,710
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 05RR
5.00% 07/01/35 6,000 6,321,180
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 05SS
5.00% 07/01/30 10,000 10,600,600
Puerto Rico Mun. Fin. Agy. Rev., Ser.
99
5.50% 08/01/18 6,500 7,027,605
Puerto Rico Pub. Fin. Corp. Cmwlth.
Approp. Rev., Prerefunded Ser.
02E
5.50%(c) 02/01/12 9,340 10,346,105
Puerto Rico Pub. Fin. Corp. Cmwlth.
Approp. Rev., Ser. 02E
5.50% 08/01/29 3,160 3,403,983
------------
82,120,632
------------
TOTAL MUNICIPAL BONDS
(Cost $627,453,748) 672,367,211
------------
See accompanying notes to financial statements
25
BlackRock Funds
STATEMENT OF NET ASSETS
PENNSYLVANIA TAX-FREE INCOME PORTFOLIO (Concluded)
As of September 30, 2005
Number
of Shares Value
----------- ------------
MONEY MARKET FUND -- 0.1%
Wilmington Trust
Tax-Free Money
Market Fund
(Cost $676,826) 676,826 $ 676,826
------------
TOTAL INVESTMENTS IN SECURITIES -- 101.9%
(Cost $628,130,574(a)) 673,044,037
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (1.9)% (12,711,281)
-------------
NET ASSETS -- 100.0%
(Applicable to
58,633,721 Institutional
shares, 454,401 Service
shares, 2,870,346 Investor A
shares, 1,296,387 Investor B
shares and 170,958 Investor C
shares outstanding) $660,332,756
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($610,549,756/58,633,721) $ 10.41
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($4,727,434/454,401) $ 10.40
=======
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR
A SHARE
($29,875,385/2,870,346) $ 10.41
=======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($10.41/0.960) $ 10.84
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($13,407,502/1,296,387) $ 10.34
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($1,772,679/170,958) $ 10.37
=======
- ----------
(a) Cost for Federal income tax purposes is $628,269,159. The
gross unrealized appreciation (depreciation) on a tax basis is as
follows:
Gross unrealized appreciation $ 45,876,612
Gross unrealized depreciation (1,101,734)
------------
$ 44,774,878
============
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 8.2% of its net assets, with a current market
value of $54,227,980 in securities restricted as to resale.
(c) This bond is prerefunded. U.S. government securities, held in escrow,
are used to pay interest on this security, as well as refund the bond in
full at date indicated, typically at a premium to par.
(d) Rates shown are the rates as of September 30, 2005.
(e) The rate shown is the effective yield on the zero coupon bonds at the time
of purchase.
See accompanying notes to financial statements
26
BlackRock Funds
STATEMENT OF NET ASSETS
NEW JERSEY TAX-FREE INCOME PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS -- 98.7%
Multi-State -- 7.1%
Charter Mac Equity Issue Tr., Ser. 99
6.62%(b) 06/30/09 $ 1,000 $ 1,081,520
Charter Mac Equity Issue Tr., Ser. 00
7.60%(b) 11/30/10 4,000 4,568,240
MuniMae Tax-Exempt Bond Subs.,
LLC, Ser. 00
6.88%(b) 06/30/09 4,000 4,365,080
7.75%(b) 11/01/10 2,000 2,280,860
-----------
12,295,700
-----------
New Jersey -- 72.8%
Delaware River Port Auth.
Pennsylvania & New Jersey RITES
PA-611 Rev., Ser. 00
01/01/26 5,000 6,293,300
Garden St. Preservation Tr. Cap.
Apprec. Rev., Ser. 03B
5.17%(c) 11/01/24 10,000 4,169,300
Gloucester Cnty. Srs. Hsg. Dev.
Corp. Rev., Sect. 8 Colonial Pk.
Prj., Ser. 94A
6.20% 09/15/11 1,250 1,261,412
Hopatcong Boro GO, Ser. 03
5.75% 08/01/33 2,300 2,571,193
Jersey City GO, Ser. 96A
6.00% 10/01/05 1,655 1,655,000
Knowlton Twp. Bd. of Ed. GO, Ser.
91
6.60% 08/15/11 169 196,341
Middlesex Cnty. Imp. Auth. Rev.,
Heldrich Center Hotel Prj., Ser. A
01/01/15-
5.00% 01/01/20 2,000 2,039,440
Middlesex Cnty. Imp. Auth. Rev.,
Monroe Twp., Ser. 96
5.80% 09/15/13 1,725 1,786,048
Middlesex Cnty. Imp. Auth. Rev., New
Brunswick Apts. Rental Hsg. Prj.,
Ser. 02 AMT
5.15% 02/01/24 3,000 3,070,770
New Jersey Econ. Dev. Auth. Lease
Rev., Ser. 00
6.00% 06/01/21 4,780 5,293,372
New Jersey Econ. Dev. Auth. Rev.,
Kapkowski Rd. Landfill Prj., Ser. 02
6.50% 04/01/28 2,500 2,909,525
New Jersey Econ. Dev. Auth. Rev.,
Cigarette Tax, Ser. 04
5.75% 06/15/34 3,615 3,815,126
New Jersey Econ. Dev. Auth. Rev.,
Motor Vehicle Comm. Prj., Ser.
03A
3.52%(c) 07/01/12 4,000 3,065,400
New Jersey Econ. Dev. Auth. Rev.,
Performing Arts Ctr. Prj., Ser. 96C
5.75% 06/15/08 4,440 4,589,539
New Jersey Econ. Dev. Auth. Rev.,
Sch. Fac. Const. Prj., Ser. 03F
5.25% 06/15/13 5,000 5,462,050
New Jersey Econ. Dev. Auth. Rev.,
Seeing Eye Inc. Prj., Ser. 05
5.00% 12/01/24 6,500 6,892,990
New Jersey Econ. Dev. Auth. Rev.,
Ser. 99
6.20% 12/01/09 3,000 3,388,740
New Jersey Econ. Dev. Auth. Rev.,
St. Barnabas Med. Ctr. Prj., Ser.
97A
5.63%(c) 07/01/23 4,000 1,763,680
New Jersey Econ. Dev. Auth. Solid
Waste Rev., Waste Management
New Jersey Prj., Ser. 04A AMT
5.30% 06/01/15 1,000 1,055,740
New Jersey Edl. Facs. Auth. Rev.,
Rowan Coll. Prj., Prerefunded Ser.
96E
5.88%(d) 07/01/06 2,185 2,254,439
New Jersey Hlth. Care Fac. Fin.
Auth. Rev., Kennedy Hlth. Sys.
Prj., Ser. 01
5.50% 07/01/21 2,000 2,131,240
5.62% 07/01/31 455 482,491
New Jersey Hlth. Care Fac. Fin.
Auth. Rev., Robert Wood Johnson
Univ. Prj., Ser. 96C
5.75% 07/01/07 2,595 2,669,892
New Jersey Sports & Expo. Auth.
Rev., Ser. 00A
5.50% 03/01/20 5,000 5,360,500
New Jersey St. Edl. Fac. Auth. Rev.,
Institute of Tech. Prj., Ser. 04B
5.00% 07/01/16 4,150 4,477,892
New Jersey St. Edl. Facs. Auth. Rev.,
Fairleigh Dickinson Univ. Prj., Ser.
D
5.25% 07/01/32 3,000 3,080,340
New Jersey St. GO, Ser. 00
5.75% 05/01/12 2,500 2,810,450
New Jersey St. GO, Ser. 01H
5.25% 07/01/14 4,975 5,499,066
New Jersey St. Hsg. & Mtg. Fin.
Agcy. Rev., Ser. 00B
6.25% 11/01/26 1,435 1,513,753
New Jersey St. Hwy. Auth. Rev.,
Garden St. Pkwy. Prj., Ser. 92
6.20% 01/01/10 750 817,972
New Jersey St. Tpke. Auth. Rev.,
Ser. 91C
6.50% 01/01/16 625 736,747
New Jersey St. Tpke. Auth. Rev.,
Prerefunded Ser. 91C
6.50%(d) 01/01/16 3,375 3,994,970
New Jersey St. Trans. Tr. Fd. Admin.
Grant Rev., Prerefunded Ser. 00A
6.12%(d) 09/15/09 2,500 2,764,025
New Jersey St. Trans. Tr. Fd. Auth.
Trans. Sys. Rev., Prerefunded Ser.
00A
6.00%(d) 06/15/10 2,500 2,793,500
New Jersey St. Trans. Tr. Fd. Auth.
Trans. Sys. Rev., Prerefunded Ser.
01B
6.00%(d) 12/15/11 2,500 2,854,175
New Jersey St. Trans. Tr. Fd. Auth.
Trans. Sys. Rev., Ser. 99A
5.75% 06/15/20 2,820 3,235,189
New Jersey St. Waste Wtr. Trtmnt.
Tr. Rev., Ser. 96C
6.25% 05/15/06 3,455 3,525,966
See accompanying notes to financial statements
27
BlackRock Funds
STATEMENT OF NET ASSETS
NEW JERSEY TAX-FREE INCOME PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS (Continued)
New Jersey (Continued)
North Hudson Swr. Auth. Rev., Ser.
01A
5.41%(c) 08/01/21 $5,000 $ 2,446,100
Port Auth. New York & New Jersey
SO Rev., JFK Intl. Arpt. Term. Prj.,
Ser. 97-6 AMT
5.75% 12/01/22 2,000 2,129,660
Port Auth. New York & New Jersey
SO, JFK Intl. Arpt. Term. Prj., Ser.
97-6 AMT
6.25% 12/01/09 7,000 7,630,630
Summit Cnty. GO, Ser. 01
5.25% 06/01/14 1,145 1,280,763
------------
125,768,726
------------
Puerto Rico -- 18.8%
Puerto Rico Cmwlth. GO, Pub. Imp.
Prj., Ser. 01
5.50% 07/01/19 5,000 5,769,300
Puerto Rico Cmwlth. Hwy. & Trans.
Auth. Rev., Prerefunded Ser. 00B
6.00%(d) 07/01/10 3,000 3,373,950
Puerto Rico Cmwlth. Hwy. & Trans.
Auth. Rev., Ser. 00C
6.00% 07/01/29 2,000 2,249,300
Puerto Rico Cmwlth. Hwy. & Trans.
Auth. Rev., Ser. 02D
5.38% 07/01/36 1,000 1,107,210
Puerto Rico Cmwlth. Infra. Fin. Auth.
Rev., Ser. 05B
5.00% 07/01/41 5,000 5,139,400
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00A
10/01/16 400 554,624
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00B
10/01/17 500 701,760
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00C
10/01/18 500 697,900
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00D
10/01/19 650 904,748
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00E
10/01/20 250 347,020
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00F
10/01/24 250 344,710
Puerto Rico Cmwlth. Infra. Fin. Auth.
Spec. RITES PA-569 Rev., Ser. 99
07/01/07 2,000 2,317,820
Puerto Rico Pub. Bldgs. Auth. Rev.,
Govt. Facs. Prj., Ser. 02
5.25% 07/01/25 3,000 3,376,380
Puerto Rico Pub. Fin. Corp. Cmwlth.
Approp. Rev., Prerefunded Ser.
02E
5.50%(d) 02/01/12 3,740 4,142,873
Puerto Rico Pub. Fin. Corp. Cmwlth.
Approp. Rev., Ser. 02E
5.50% 08/01/29 1,260 1,357,284
------------
32,384,279
------------
TOTAL MUNICIPAL BONDS
(Cost $158,889,609) $170,448,705
------------
Number
of Shares
-----------
MONEY MARKET FUND -- 0.2%
Wilmington Trust Tax-Free Money
Market Fund
(Cost $463,059) 463,059 463,059
------------
TOTAL INVESTMENTS IN SECURITIES -- 98.9%
(Cost $159,352,668(a)) 170,911,764
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.1% 1,816,202
------------
NET ASSETS -- 100.0%
(Applicable to 11,897,968
Institutional shares, 1,286,226
Service shares, 670,023
Investor A shares, 944,021
Investor B shares and 174,121
Investor C shares outstanding) $172,727,966
============
See accompanying notes to financial statements
28
BlackRock Funds
STATEMENT OF NET ASSETS
NEW JERSEY TAX-FREE INCOME PORTFOLIO (Concluded)
As of September 30, 2005
Value
-----------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($137,255,851/11,897,968) $ 11.54
========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SERVICE SHARE
($14,838,851/1,286,226) $ 11.54
========
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($7,729,018/670,023) $ 11.54
========
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($11.54/0.960) $ 12.02
========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($10,891,406/944,021) $ 11.54
========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($2,012,840/174,121) $ 11.56
========
- ----------
(a) Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 12,315,062
Gross unrealized depreciation (755,966)
------------
$ 11,559,096
============
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 7.1% of its net assets, with a current market
value of $12,295,700 in securities restricted as to resale.
(c) The rate shown is the effective yield on the zero coupon bonds at the
time of purchase.
(d) This bond is prerefunded. U.S. government securities, held in escrow, are
used to pay interest on this security, as well as refund the bond in
full at date indicated, typically at a premium to par.
See accompanying notes to financial statements
29
BlackRock Funds
STATEMENT OF NET ASSETS
OHIO TAX-FREE INCOME PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS -- 100.0%
Multi-State -- 5.3%
Charter Mac Equity Issue Tr., Ser. 99
6.62%(b) 06/30/09 $1,000 $ 1,081,520
Charter Mac Equity Issue Tr., Ser. 00
7.60%(b) 11/30/10 1,000 1,142,060
MuniMae Tax-Exempt Bond Subs.,
LLC, Ser. 00
6.88%(b) 06/30/09 2,000 2,182,540
7.75%(b) 11/01/10 2,000 2,280,860
------------
6,686,980
------------
Ohio -- 69.3%
Akron GO, Ser. 01
5.50% 12/01/21 1,000 1,111,410
Akron Swr. Sys. Rev., Ser. 96
5.88% 12/01/16 500 520,900
Brunswick GO, Ser. 94
6.30% 12/01/14 210 213,224
Butler Cnty. Trans. Imp. Dist. Rev.,
Ser. 97A
6.00% 04/01/11 600 649,464
Cleveland COP, Cleveland Stadium
Prj., Ser. 97
5.25% 11/15/10 2,500 2,653,675
Cleveland Pkg. Fac. Rev., Ser. 96
6.00% 09/15/06 1,275 1,311,656
Cleveland St. Univ. Gen. Receipts
Rev., Ser. 04
5.00% 06/01/34 3,000 3,134,820
Cleveland-Cuyahoga Cnty. Port Auth.
Rev., Ser. 97 AMT
6.00%(c) 03/01/07 290 297,984
Columbus GO, Ser. 86
7.38% 07/01/06 1,000 1,032,340
Columbus GO, Ser. 02
5.00% 06/15/09 2,975 3,191,907
Cuyahoga Cnty. Multi-Fam. Rev., Ser.
02 AMT
5.35% 09/20/27 1,000 1,027,910
Fairfield City Sch. Dist. GO, Ser. 94
7.45% 12/01/14 1,000 1,232,540
Greater Cleveland Regl. Trans. Auth.
Cap. Imp. Rev., Ser. 01A
5.12% 12/01/21 1,000 1,057,440
Greater Cleveland Regl. Trans. Auth.
GO, Ser. 96
6.25% 12/01/06 2,935 3,044,094
Hamilton Cnty. Hosp. Fac. Rev., Ser.
02A VRDN
2.75%(d) 06/01/27 5,300 5,300,000
Hamilton Cnty. Sales Tax Rev., Ser.
01B
5.25% 12/01/32 5,000 5,298,800
Jackson Loc. Sch. Dist., Stark &
Summit Cntys. Construction & Imp.
GO, Ser. 04
5.00% 12/01/33 2,105 2,191,894
Kent St. Univ. Rev., Ser. 01 VRDN
2.79%(d) 05/01/31 4,000 4,000,000
Kings Sch. Dist. GO, Prerefunded
Ser. 94
7.60%(c) 12/01/05 200 201,528
Lucas Cnty. GO, Ser. 96
6.00% 12/01/05 500 502,520
Marysville Sch. Dist. GO,
Prerefunded Ser. 98
6.00%(c) 12/01/10 1,910 2,167,716
Mason City Sch. Dist. GO, Ser. 01
5.38% 12/01/18 3,000 3,289,770
New Albany Cmnty. Auth. Fac. Rev.,
Ser. 01B
5.12% 10/01/21 2,750 2,915,578
North Royalton City Sch. Dist. GO,
Ser. 94
6.62% 12/01/06 100 104,140
Northwestern Sch. Dist. Rev., Wayne
& Ashland Cntys. Prj., Ser. 94
7.20% 12/01/10 300 340,527
Ohio Hsg. Fin. Agcy. Rev., Wind
River Prj., Ser. 94A AMT
5.55% 11/01/18 300 309,675
Ohio St. Bldg. Auth. Data Ctr. Rev.,
Ser. 93A
5.90% 10/01/07 450 474,656
Ohio St. Bldg. Auth. Disalle Govt. Ctr.
Rev., Ser. 96A
6.00% 10/01/05 1,000 1,000,000
Ohio St. Comm. Sch. Cap. Fac. Rev.,
Prerefunded Ser. 94A
5.75%(c) 06/15/09 1,000 1,088,140
Ohio St. Env. Imp. Rev., USX Corp.
Prj., Ser. 99
5.62% 05/01/29 1,000 1,069,880
Ohio St. Hgr. Ed. Fac. Denison Univ.
Rev., Ser. 01
5.12% 11/01/21 3,000 3,202,170
Ohio St. Univ. GO, Ser. 02A
5.25% 12/01/18 3,290 3,569,091
Ohio St. Wtr. Dev. Auth. Poll. Ctrl.
Fac. Rev., Republic Steel Prj., Ser.
95
6.38% 06/01/07 835 863,540
Ohio St. Wtr. Dev. Auth. Poll. Ctrl.
Rev., Ser. 02
5.25% 06/01/12 3,415 3,762,681
Ohio St. Wtr. Dev. Auth. Rev., Fresh
Water. Imp. Prj., Ser. 04
5.00% 12/01/34 3,000 3,128,220
Ohio St. Wtr. Dev. Auth. Rev.,
Steel-Cargill North Star Broken Hill
Prj., Ser. 95 AMT
6.30% 09/01/20 500 513,560
Pickerington Loc. Sch. Dist. Fac.
Construction & Imp. Rev., Ser. 01
5.25% 12/01/20 1,000 1,077,160
Scioto Cnty. Rev., Marine Term.
Norfolk Southern Corp. Prj., Ser.
98
5.30%(d) 08/15/13 3,000 3,083,250
Springboro Wtr. Sys. Rev., Ser. 98
5.00% 12/01/18 2,500 2,599,900
Toledo GO, Ser. 96
6.00% 12/01/06 500 517,175
See accompanying notes to financial statements
30
BlackRock Funds
STATEMENT OF NET ASSETS
OHIO TAX-FREE INCOME PORTFOLIO (Continued)
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS (Continued)
Ohio (Continued)
Trotwood-Madison City Sch. Dist.
GO, Ser. 02
5.00% 12/01/30 $2,000 $ 2,076,600
Univ. of Cincinnati Rev., Ser. 01A
5.00% 06/01/31 2,000 2,068,480
Univ. of Toledo Rev., Ser. 02
5.25% 06/01/18 1,195 1,273,607
University of Akron Gen. Receipts.
Rev., Ser. 04 VRDN
2.75%(d) 01/01/29 3,500 3,500,000
West Muskingum Loc. Sch. Dist.,
Sch. Fac. Constr. & Imp. GO, Ser.
03
5.00% 12/01/24 3,000 3,162,000
Westerville City Sch. Dist. GO, Ser.
87
6.25% 12/01/05 1,000 1,005,380
Westlake GO, Ser. 96
6.40% 12/01/08 1,560 1,644,614
------------
87,781,616
------------
Puerto Rico -- 25.4%
Puerto Rico Cmwlth. GO, Ser. 02
5.50% 07/01/11 5,000 5,567,800
Puerto Rico Cmwlth. Hwy. & Trans.
Auth. RITES Rev., Ser. 98
07/01/18 5,000 5,631,100
Puerto Rico Cmwlth. Hwy. Rev., Ser.
05L
5.25% 07/01/38 2,800 3,221,316
Puerto Rico Cmwlth. Infra. Fin. Auth.
Rev., Ser. 05B
5.00% 07/01/41 3,000 3,083,640
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00A
10/01/16 400 554,624
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00B
10/01/17 500 701,760
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00C
10/01/18 500 697,900
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00D
10/01/19 650 904,748
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00E
10/01/20 250 347,020
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00F
10/01/24 250 344,710
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 05RR
5.00% 07/01/35 2,000 2,107,060
Puerto Rico Pub. Bldgs. Auth. RITES
PA-577 Rev., Ser. 99
07/01/21 4,000 4,590,760
Puerto Rico Pub. Fin. Corp. Cmwlth.
Approp. Rev., Prerefunded Ser.
02E
5.50%(c) 02/01/12 2,990 3,312,083
Puerto Rico Pub. Fin. Corp. Cmwlth.
Approp. Rev., Ser. 02E
5.50% 08/01/29 1,010 1,087,982
------------
32,152,503
------------
TOTAL MUNICIPAL BONDS
(Cost $118,035,225) 126,621,099
------------
Number
of Shares
-----------
MONEY MARKET FUND -- 1.5%
Wilmington Trust Tax-Free Money Market
Fund
(Cost $1,922,945) 1,922,945 1,922,945
------------
TOTAL INVESTMENTS IN SECURITIES -- 101.5%
(Cost $119,958,170(a)) 128,544,044
LIABILITIES IN EXCESS OF
OTHER ASSETS -- (1.5)% (1,947,319)
------------
NET ASSETS -- 100.0%
(Applicable to 9,444,286
Institutional shares, 69,051
Service shares, 833,722
Investor A shares, 885,418
Investor B shares and 663,297
Investor C shares outstanding) $126,596,725
============
See accompanying notes to financial statements
31
BlackRock Funds
STATEMENT OF NET ASSETS
OHIO TAX-FREE INCOME PORTFOLIO (Concluded)
As of September 30, 2005
VALUE
------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER INSTITUTIONAL SHARE
($100,500,513/9,444,286) $ 10.64
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SERVICE SHARE
($735,600/69,051) $ 10.65
=======
NET ASSET VALUE AND REDEMPTION PRICE PER
INVESTOR A SHARE
($8,873,351/833,722) $ 10.64
=======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($10.64/0.960) $ 11.08
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE (subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($9,423,807/885,418) $ 10.64
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE (subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($7,063,454/663,297) $ 10.65
=======
- ----------
(a) Also cost for Federal income tax purposes. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 8,644,477
Gross unrealized depreciation (58,603)
-----------
$ 8,585,874
===========
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 5.3% of its net assets, with a current market
value of $6,686,980 in securities restricted as to resale.
(c) This bond is prerefunded. U.S. government securities, held in escrow,
are used to pay interest on this security, as well as refund the bond in
full at date indicated, typically at a premium to par.
(d) Rates shown are the rates as of September 30, 2005.
See accompanying notes to financial statements
32
BlackRock Funds
STATEMENT OF NET ASSETS
DELAWARE TAX-FREE INCOME PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS -- 100.8%
Delaware -- 67.7%
Delaware River & Bay Auth. Rev.,
Ser. 96
6.00% 01/01/06 $1,160 $ 1,168,804
Delaware River & Bay Auth. Rev.,
Ser. 03
5.25% 01/01/13 1,000 1,104,940
Delaware St. Econ. Dev. Auth. Poll.
Ctrl. Rev., Delmarva Pwr. Prj., Ser.
02B
5.20% 02/01/19 1,000 1,068,700
Delaware St. Econ. Dev. Auth. Rev.,
Del. Tech. Pk. Univ. Del. Prj., Ser.
00
6.00% 02/01/21 1,000 1,110,580
Delaware St. Econ. Dev. Auth. Rev.,
Delmarva Pwr. Prj., Ser. 00 AMT
5.65% 07/01/28 3,850 4,008,428
Delaware St. Econ. Dev. Auth. Rev.,
First Mtg. Gilpin ACA CBI Prj., Ser.
98
5.62% 07/01/19 2,000 2,079,120
Delaware St. Econ. Dev. Auth. Rev.,
United Wtr. Delaware, Inc. Prj.,
Ser. 95 AMT
6.20% 06/01/25 2,000 2,051,540
Delaware St. Econ. Dev. Auth. Rev.,
Wtr. Dev. Prj., Ser. 92B
6.45% 12/01/07 1,165 1,241,191
Delaware St. GO, Ser. 03A
5.00% 01/01/10 1,000 1,072,000
Delaware St. GO, Ser. 03B
07/01/08-
5.00% 07/01/11 2,600 2,788,944
Delaware St. GO, Ser. 04A
5.00% 01/01/09 2,000 2,117,420
Delaware St. Hlth. Fac. Auth. Rev.,
Beebe Med. Ctr. Prj., Ser. 04A
5.50% 06/01/24 1,000 1,059,940
Delaware St. Hlth. Fac. Auth. Rev.,
Beebe Med. Ctr. Prj., Ser. 05A
06/01/24-
5.00% 06/01/30 2,500 2,564,235
Delaware St. Hlth. Fac. Auth. Rev.,
Catholic Hlth. East Prj., Ser. 03D
5.12% 11/15/24 1,750 1,810,322
5.25% 11/15/28 2,225 2,312,710
Delaware St. Hlth. Fac. Auth. Rev.,
Christiana Care Hlth. Svcs. Prj.,
Ser. 03
5.25% 10/01/12 3,000 3,287,910
Delaware St. Hlth. Fac. Auth. Rev.,
Med. Ctr. of Delaware Prj., Ser. 92
6.25% 10/01/05 1,875 1,875,000
Delaware St. Hsg. Auth. Rev.,
Multi-Fam. Mtg. Prj., Ser. 92C
7.38% 01/01/15 2,000 2,002,660
Delaware St. Hsg. Auth. Rev.,
Multi-Fam. Mtg. Prj., Ser. 01A
5.40% 07/01/24 2,835 2,892,465
Delaware St. Hsg. Auth. Rev., Sr.
Sgl. Fam. Mtg. Prj., Ser. 00 AMT
5.90% 07/01/20 1,410 1,465,244
Delaware St. Hsg. Auth. Rev., Sr.
Sgl. Fam. Mtg. Prj., Ser. 02A AMT
5.40% 01/01/34 1,070 1,087,302
Delaware St. Trans. Auth. Trans. Sys.
Rev., Ser. 97
5.00% 07/01/08 1,000 1,043,610
Kent Cnty. Stud. Hsg. Rev., Delaware
St. Univ. Prj., Ser. 04A
07/01/25-
5.00% 07/01/30 2,100 2,116,563
New Castle Cnty. GO, Ser. 02A
5.25% 10/01/12 1,745 1,937,439
New Castle Cnty. GO, Ser. 04
5.00% 10/01/20 2,695 2,908,309
Sussex Cnty. GO, Ser. 03
5.00% 10/15/08 2,270 2,391,695
Wilmington GO, Ser. 02
5.38% 06/01/17 1,500 1,637,700
Wilmington Pk. Auth. Gtd. Pk. Rev.,
Ser. 92A
6.00% 09/15/06 25 25,082
Wilmington Pk. Auth. Gtd. Pk. Rev.,
Ser. 02
09/15/14-
5.25% 09/15/15 2,965 3,299,639
------------
55,529,492
------------
Multi-State -- 8.1%
Charter Mac Equity Issue Tr., Ser. 99
6.62%(b) 06/30/09 1,000 1,081,520
Charter Mac Equity Issue Tr., Ser. 00
7.60%(b) 11/30/10 1,000 1,142,060
MuniMae Tax-Exempt Bond Subs.,
LLC, Ser. 00
6.88%(b) 06/30/09 2,000 2,182,540
7.75%(b) 11/01/10 2,000 2,280,860
------------
6,686,980
------------
Puerto Rico -- 25.0%
Puerto Rico Cmwlth. GO, Ser. 02
5.50% 07/01/11 1,000 1,113,560
Puerto Rico Cmwlth. Hwy. Rev., Ser.
05L
5.25% 07/01/38 2,000 2,300,940
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00A
10/01/16 400 554,624
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00B
10/01/17 500 701,760
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00C
10/01/18 500 697,900
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00D
10/01/19 650 904,748
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00E
10/01/20 250 347,020
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00F
10/01/24 250 344,710
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 05RR
5.00% 07/01/35 1,500 1,580,295
See accompanying notes to financial statements
33
BlackRock Funds
STATEMENT OF NET ASSETS
DELAWARE TAX-FREE INCOME PORTFOLIO (Concluded)
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS (Continued)
Puerto Rico (Continued)
Puerto Rico Pub. Fin. Corp. Cmwlth.
Approp. Rev., Ser. 98A
5.38% 06/01/14 $ 50 $ 56,428
Puerto Rico Pub. Fin. Corp. RITES
Rev., Ser. 98
06/01/09 5,000 6,362,350
Puerto Rico Pub. Fin. Corp. RITES
Rev., Ser. 99
06/01/14 4,025 5,503,463
------------
20,467,798
------------
TOTAL MUNICIPAL BONDS
(Cost $77,852,477) 82,684,270
------------
Number
of Shares
-----------
MONEY MARKET FUND -- 0.6%
Wilmington Trust Tax-Free Money Market
Fund
(Cost $466,137) 466,137 466,137
------------
TOTAL INVESTMENTS IN SECURITIES -- 101.4%
(Cost $78,318,614(a)) 83,150,407
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (1.4)% (1,130,812)
------------
NET ASSETS -- 100.0%
(Applicable to 4,713,842 Institutional
shares, 1,452,268 Investor A shares,
757,670 Investor B shares and
1,338,977 Investor C shares outstanding) $ 82,019,595
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($46,781,758/4,713,842) $ 9.92
=======
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($14,420,784/1,452,268) $ 9.93
=======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.93/0.960) $ 10.34
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($7,523,933/757,670) $ 9.93
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($13,293,120/1,338,977) $ 9.93
=======
- ----------
(a) Cost for Federal income tax purposes is $78,381,554. The gross
unrealized appreciation (depreciation) on a tax basis is as
follows:
Gross unrealized appreciation $ 5,152,306
Gross unrealized depreciation (383,453)
-----------
$ 4,768,853
===========
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 8.1% of its net assets, with a current market
value of $6,686,980 in securities restricted as to resale.
See accompanying notes to financial statements
34
BlackRock Funds
STATEMENT OF NET ASSETS
KENTUCKY TAX-FREE INCOME PORTFOLIO
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS -- 98.0%
Kentucky -- 64.2%
Boone Cnty. Sch. Dist. Fin. Corp.
Sch. Bldg. Rev., Ser. 00B
5.38% 08/01/20 $2,500 $ 2,671,050
Bowling Green Sch. Dist. Fin. Corp.
Rev., Ser. 00
01/01/18-
5.75% 01/01/20 2,185 2,384,388
Breckinridge Cnty. Lease Prg. Tr.
Rev., Ser 99 VRDN
2.74%(b) 12/01/29 820 820,000
Frankfort Elec. & Wtr. Plant Bd. Rev.,
Ser. 99
5.60% 12/01/19 1,045 1,138,183
Grayson Cnty. Sch. Dist. Fin. Corp.
Sch. Bldg. Rev., Prerefunded Ser.
95B
5.95%(c) 01/01/08 830 845,222
Hardin Cnty. Sch. Dist. Fin. Corp.
Sch. Bldg. Rev., Ser. 00
5.50% 02/01/16 1,675 1,841,026
Hopkins Cnty. GO, Detention Fac.
Prj., Ser. 00
5.75% 02/01/10 1,800 1,996,434
Jefferson Cnty. Sch. Dist. Fin. Corp.
Sch. Bldg. Rev., Ser. 99A
5.25% 01/01/14 2,000 2,148,600
Kenton Cnty. Arpt. Bd. Arpt. Rev.,
Cincinnati Northern Kentucky Prj.,
Ser. 97A AMT
5.95% 03/01/07 1,730 1,796,276
6.30% 03/01/15 1,000 1,056,940
Kentucky Econ. Dev. Fin. Auth. Hlth.
Sys. Rev., Norton Healthcare, Inc.
Prj., Ser. 00A
6.62% 10/01/28 1,750 1,923,600
Kentucky Hsg. Corp. Hsg. Rev., Ser.
96D
5.80% 07/01/13 2,790 2,790,000
Kentucky Hsg. Corp. Hsg. Rev., Ser.
01F AMT
5.45% 01/01/32 2,990 3,079,132
Kentucky St. Econ. Dev. Fin. Auth.
Hosp. Fac. Rev., Ser 97C VRDN
2.73%(b) 01/01/22 1,550 1,550,000
Kentucky St. Property & Bldg.
Comm. Rev., Prj. 65, Prerefunded
Ser. 00
5.95%(c) 02/01/10 2,325 2,577,100
Kentucky St. Tpke. Auth. Econ. Dev.
Rev., Revitalization Prj., Ser. 95
6.50% 07/01/08 3,000 3,261,570
Kentucky St. Tpke. Auth. Econ. Dev.
Rev., Revitalization Prj., Ser. 01A
5.50% 07/01/15 1,000 1,131,150
Lexington-Fayette Urban Cnty. Govt.
GO, Ser. 00A
5.75% 02/01/20 1,500 1,642,695
Lexington-Fayette Urban Cnty. Govt.
Swr. Sys. Rev., Ser. 01A
07/01/20-
5.00% 07/01/21 3,775 3,998,707
Louisville & Jefferson Cnty. Met. Swr.
& Drain Sys. Rev., Ser. 97A
6.25% 05/15/07 1,015 1,078,133
Louisville & Jefferson Cnty. Met. Swr.
& Drain Sys. Rev., Ser. 99A
5.75% 05/15/33 3,750 4,096,800
Louisville & Jefferson Cnty. Regl.
Arpt. Auth. Arpt. Sys. Rev., Ser.
01A AMT
5.75% 07/01/15 1,755 1,924,954
Louisville & Jefferson Cnty. Regl.
Arpt. Auth. Spec. Fac. Rev., Ser.
99 AMT
5.50% 03/01/19 4,285 4,322,579
Louisville Wtrwks. Brd. Wtr. Sys.
Rev., Louisville Wtr. Co. Prj., Ser.
00
5.25% 11/15/16 2,590 2,787,047
-----------
52,861,586
-----------
Multi-State -- 9.6%
Charter Mac Equity Issue Tr., Ser. 99
6.62%(d) 06/30/09 1,000 1,081,520
Charter Mac Equity Issue Tr., Ser. 00
7.60%(d) 11/30/10 4,000 4,568,240
MuniMae Tax-Exempt Bond Subs.,
LLC, Ser. 00
7.75%(d) 11/01/10 2,000 2,280,860
-----------
7,930,620
-----------
Puerto Rico -- 24.2%
Puerto Rico Cmwlth. Hwy. & Trans.
Auth. Rev., Ser. 00C
6.00% 07/01/29 5,000 5,623,250
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00A
10/01/16 400 554,624
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00B
10/01/17 500 701,760
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00C
10/01/18 500 697,900
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00D
10/01/19 650 904,748
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00E
10/01/20 250 347,020
Puerto Rico Cmwlth. Infra. Fin. Auth.
SO RITES, Ser. 00F
10/01/24 250 344,710
Puerto Rico Cmwlth. Infra. Fin. Auth.
Spec. RITES PA-569 Rev., Ser. 99
07/01/07 1,335 1,547,145
Puerto Rico Cmwlth. Pub. Imp. GO,
Ser. 04A
5.00% 07/01/29 2,000 2,067,080
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 05RR
5.00% 07/01/35 1,500 1,580,295
Puerto Rico Pub. Fin. Corp. Cmwlth.
Approp. Rev., Prerefunded Ser.
02E
5.50%(c) 02/01/12 3,740 4,142,873
See accompanying notes to financial statements
35
BlackRock Funds
STATEMENT OF NET ASSETS
KENTUCKY TAX-FREE INCOME PORTFOLIO (Concluded)
As of September 30, 2005
Par
Maturity (000) Value
-------- --------- ------------
MUNICIPAL BONDS (Continued)
Puerto Rico (Continued)
Puerto Rico Pub. Fin. Corp. Cmwlth.
Approp. Rev., Ser. 02E
5.50% 08/01/29 $1,260 $ 1,357,284
-----------
19,868,689
-----------
TOTAL MUNICIPAL BONDS
(Cost $73,924,435) 80,660,895
-----------
Number
of Shares
----------
MONEY MARKET FUND -- 0.6%
Wilmington Trust Tax-Free Money
Market Fund
(Cost $533,849) 533,849 533,849
-----------
TOTAL INVESTMENTS IN SECURITIES -- 98.6%
(Cost $74,458,284(a)) 81,194,744
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.4% 1,133,956
-----------
NET ASSETS -- 100.0%
(Applicable to 7,344,051 Institutional
shares, 25,594 Service shares,
658,014 Investor A shares, 369,103
Investor B shares and 96,557
Investor C shares outstanding) $82,328,700
===========
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER INSTITUTIONAL SHARE
($71,187,735/7,344,051) $ 9.69
=======
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SERVICE SHARE
($248,240/25,594) $ 9.70
=======
NET ASSET VALUE AND REDEMPTION PRICE PER
INVESTOR A SHARE
($6,377,095/658,014) $ 9.69
=======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.69/0.960) $ 10.09
=======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE
($3,577,736/369,103) $ 9.69
=======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE
($937,895/96,557) $ 9.71
=======
- ----------
(a) Cost for Federal income tax purposes is $74,486,001. The gross
unrealized appreciation (depreciation) on a tax basis is as
follows:
Gross unrealized appreciation $ 6,708,743
Gross unrealized depreciation 0
-----------
$ 6,708,743
===========
(b) Rates shown are the rates as of September 30, 2005.
(c) This bond is prerefunded. U.S. government securities, held in escrow,
are used to pay interest on this security, as well as refund the bond in
full at date indicated, typically at a premium to par.
(d) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors. As of September 30,
2005, the Portfolio held 9.6% of its net assets, with a current market
value of $7,930,620 in securities restricted as to resale.
See accompanying notes to financial statements
36
BlackRock Funds
Key to Investment Abbreviations
AMT Alternative Minimum Tax
COP Certificates of Participation
GO General Obligations
LOC Letter of Credit
RITES Residual Interest Tax-Exempt Security
SO Special Obligations
VRDN Variable Rate Demand Notes
37
BlackRock Funds
STATEMENTS OF OPERATIONS
For the Year Ended September 30, 2005
Pennsylvania New Jersey
UltraShort Tax-Free Tax-Free Tax-Free
Municipal Income Income Income
Portfolio Portfolio Portfolio Portfolio
---------- ----------- ------------ --------------
Investment income:
Interest ................................ $ 934,986 $20,483,253 $ 35,835,630 $ 9,322,413
--------- ----------- ------------ ------------
Expenses:
Investment advisory fee ................. 195,478 2,114,853 3,373,547 912,954
Administration fee ...................... 36,924 359,525 556,032 155,202
Administration fee - class specific ..... 28,437 501,684 966,594 264,791
Custodian fee ........................... 7,610 51,924 67,470 25,781
Transfer agent fee ...................... 6,040 59,132 101,832 41,186
Transfer agent fee - class specific ..... 3,737 62,942 121,470 32,871
Shareholder servicing fees - class
specific ............................... 5 47,677 141,217 91,402
Distribution fees - class specific ...... 2 66,651 169,907 114,581
Legal and audit fees .................... 27,193 71,879 111,708 44,287
Printing fees ........................... 4,867 57,939 79,338 21,653
Registration fees ....................... 42,938 51,254 20,811 15,798
Trustees' fees .......................... 1,452 14,847 23,728 6,409
Other ................................... 1,396 45,097 52,659 21,019
--------- ----------- ------------ ------------
Total expenses ........................ 356,079 3,505,404 5,786,313 1,747,934
--------- ----------- ------------ ------------
Less investment advisory
fees waived ......................... (172,253) (937,506) (444,733) (176,862)
Less administration fees waived -
class specific ...................... (17,834) (58,458) (892,940) (226,515)
Less distribution fees waived -
class specific ...................... (2) (8,837) (32,065) (6,614)
Less transfer agent fees waived....... (1,112) (4,988) (9,692) (3,360)
Less custodian fees waived -
class specific ...................... (801) (2,819) (3,816) (1,339)
--------- ----------- ------------ ------------
Net expenses .......................... 164,077 2,492,796 4,403,067 1,333,244
--------- ----------- ------------ ------------
Net investment income .................... 770,909 17,990,457 31,432,563 7,989,169
--------- ----------- ------------ ------------
Realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from:
Investment transactions ................ (26,601) 1,971,413 1,714,742 705,504
Futures contracts ...................... -- (3,376,314) (3,763,778) (1,027,406)
--------- ----------- ------------ ------------
(26,601) (1,404,901) (2,049,036) (321,902)
--------- ----------- ------------ ------------
Change in unrealized appreciation/
depreciation from:
Investments ............................ (40,862) (3,796,578) (14,671,547) (2,731,779)
Futures contracts ...................... -- 529,042 944,039 263,370
--------- ----------- ------------ ------------
(40,862) (3,267,536) (13,727,508) (2,468,409)
--------- ----------- ------------ ------------
Net loss on investments .................. (67,463) (4,672,437) (15,776,544) (2,790,311)
--------- ----------- ------------ ------------
Net increase in net assets resulting from
operations .............................. $ 703,446 $13,318,020 $ 15,656,019 $ 5,198,858
========= =========== ============ ===========
Ohio Delaware Kentucky
Tax-Free Tax-Free Tax-Free
Income Income Income
Portfolio Portfolio Portfolio
------------ ------------ ------------
Investment income:
Interest ................................ $ 6,275,269 $ 4,382,652 $ 4,581,771
----------- ----------- -----------
Expenses:
Investment advisory fee ................. 619,640 487,503 467,708
Administration fee ...................... 105,339 75,341 72,282
Administration fee - class specific ..... 179,608 128,548 123,305
Custodian fee ........................... 17,963 15,666 13,616
Transfer agent fee ...................... 21,865 17,479 14,004
Transfer agent fee - class specific ..... 22,297 15,959 15,306
Shareholder servicing fees - class
specific ............................... 59,021 88,970 27,936
Distribution fees - class specific ...... 128,514 180,175 45,270
Legal and audit fees .................... 33,839 34,919 31,432
Printing fees ........................... 16,535 12,219 9,991
Registration fees ....................... 13,303 12,578 14,864
Trustees' fees .......................... 4,321 3,136 3,012
Other ................................... 18,919 13,958 12,364
----------- ----------- -----------
Total expenses ........................ 1,241,164 1,086,451 851,090
----------- ----------- -----------
Less investment advisory
fees waived ......................... (127,833) (66,090) (57,002)
Less administration fees waived -
class specific ...................... (146,100) (76,329) (107,327)
Less distribution fees waived -
class specific ...................... (6,628) (13,851) (5,667)
Less transfer agent fees waived....... (1,959) (1,472) (1,245)
Less custodian fees waived -
class specific ...................... (1,053) (811) (997)
----------- ----------- -----------
Net expenses .......................... 957,591 927,898 678,852
----------- ----------- -----------
Net investment income .................... 5,317,678 3,454,754 3,902,919
----------- ----------- -----------
Realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from:
Investment transactions ................ 2,678 158,990 725,565
Futures contracts ...................... (625,139) (432,035) (526,131)
----------- ----------- -----------
(622,461) (273,045) 199,434
----------- ----------- -----------
Change in unrealized appreciation/
depreciation from:
Investments ............................ (1,987,509) (1,637,176) (1,486,391)
Futures contracts ...................... 139,061 103,289 142,609
----------- ----------- -----------
(1,848,448) (1,533,887) (1,343,782)
----------- ----------- -----------
Net loss on investments .................. (2,470,909) (1,806,932) (1,144,348)
----------- ----------- -----------
Net increase in net assets resulting from
operations .............................. $ 2,846,769 $ 1,647,822 $ 2,758,571
=========== =========== ===========
See accompanying notes to financial statements.
38
[THIS PAGE INTENTIONALLY LEFT BLANK.]
BlackRock Funds
STATEMENTS OF CHANGES IN NET ASSETS
UltraShort
Municipal Tax-Free
Portfolio Income Portfolio
----------------------------------- ------------------------------------
For the
For the Period 03/03/04 /1/ For the For the
Year Ended Through Year Ended Year Ended
9/30/05 9/30/04 9/30/05 9/30/04
--------------- ------------------- ----------------- -----------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 770,909 $ 228,525 $ 17,990,457 $ 18,245,677
Net realized gain (loss) on investments, futures
contracts .............................................. (26,601) (34,465) (1,404,901) (5,920,604)
Net unrealized appreciation/depreciation on
investments, futures contracts ......................... (40,862) (66,342) (3,267,536) 875,457
------------ ------------ ------------- -------------
Net increase in net assets resulting from operations..... 703,446 127,718 13,318,020 13,200,530
------------ ------------ ------------- -------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ......................................... (568,745) (179,446) (4,340,396) (3,389,118)
Institutional Class ..................................... (202,128) (49,079) (12,460,254) (14,335,425)
Service Class ........................................... -- -- (96,764) (117,019)
Investor A Class ........................................ (36) -- (341,312) (315,503)
Investor B Class ........................................ -- -- (163,810) (210,750)
Investor C Class ........................................ -- -- (76,008) (107,913)
------------ ------------ ------------- -------------
Total distributions from net investment income .......... (770,909) (228,525) (17,478,544) (18,475,728)
------------ ------------ ------------- -------------
Capital share transactions (Note E) ....................... (3,250,004) 46,304,112 (23,943,492) 77,137,177
------------ ------------ ------------- -------------
Total increase (decrease) in net assets ................. (3,317,467) 46,203,305 (28,104,016) 71,861,979
Net assets:
Beginning of period ..................................... 46,203,305 -- 427,811,036 355,949,057
------------ ------------ ------------- -------------
End of period ........................................... $ 42,885,838 $ 46,203,305 $ 399,707,020 $ 427,811,036
============ ============ ============= =============
End of period undistributed net investment
income (distributions in excess of net investment
income) ................................................ $ -- $ -- $ 900,332 $ 411,169
Pennsylvania
Tax-Free
Income Portfolio
----------------------------------
For the For the
Year Ended Year Ended
9/30/05 9/30/04
----------------- ----------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 31,432,563 $ 35,471,728
Net realized gain (loss) on investments, futures
contracts .............................................. (2,049,036) (10,787,108)
Net unrealized appreciation/depreciation on
investments, futures contracts ......................... (13,727,508) (4,661,640)
------------- --------------
Net increase in net assets resulting from operations..... 15,656,019 20,022,980
------------- --------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ......................................... -- --
Institutional Class ..................................... (30,597,699) (33,207,760)
Service Class ........................................... (240,170) (265,934)
Investor A Class ........................................ (1,460,868) (1,523,244)
Investor B Class ........................................ (633,056) (805,047)
Investor C Class ........................................ (68,761) (74,099)
------------- --------------
Total distributions from net investment income .......... (33,000,554) (35,876,084)
------------- --------------
Capital share transactions (Note E) ....................... (12,059,182) (115,369,997)
------------- --------------
Total increase (decrease) in net assets ................. (29,403,717) (131,223,101)
Net assets:
Beginning of period ..................................... 689,736,473 820,959,574
------------- --------------
End of period ........................................... $ 660,332,756 $ 689,736,473
============= ==============
End of period undistributed net investment
income (distributions in excess of net investment
income) ................................................ $ 188,150 $ 1,789,206
- ----------
/1/ Commencement of operations.
See accompanying notes to financial statements
40
BlackRock Funds
New Jersey Tax-Free Ohio Tax-Free
Income Portfolio Income Portfolio
---------------------------- ----------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
9/30/05 9/30/04 9/30/05 9/30/04
------------ ------------ ------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 7,989,169 $ 7,867,767 $ 5,317,678 $ 5,683,096
Net realized gain (loss) on investments, futures
contracts .............................................. (321,902) (886,203) (622,461) (969,457)
Net unrealized appreciation/depreciation on
investments, futures contracts ......................... (2,468,409) (686,024) (1,848,448) 598,508
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations..... 5,198,858 6,295,540 2,846,769 5,312,147
------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ......................................... -- -- -- --
Institutional Class ..................................... (6,311,762) (6,863,373) (4,763,333) (4,470,836)
Service Class ........................................... (628,369) (744,479) (33,600) (22,292)
Investor A Class ........................................ (259,210) (261,877) (287,220) (227,306)
Investor B Class ........................................ (362,564) (446,053) (359,459) (360,029)
Investor C Class ........................................ (94,449) (94,055) (225,923) (192,153)
------------ ------------ ------------ ------------
Total distributions from net investment income .......... (7,656,354) (8,409,837) (5,669,535) (5,272,616)
------------ ------------ ------------ ------------
Capital share transactions (Note E) ....................... (13,800,815) 29,571,028 11,255,221 (3,878,630)
------------ ------------ ------------ ------------
Total increase (decrease) in net assets ................. (16,258,311) 27,456,731 8,432,455 (3,839,099)
Net assets:
Beginning of period ..................................... 188,986,277 161,529,546 118,164,270 122,003,369
------------ ------------ ------------ ------------
End of period ........................................... $172,727,966 $188,986,277 $126,596,725 $118,164,270
============ ============ ============ ============
End of period undistributed net investment
income (distributions in excess of net investment
income) ................................................ $ (226,463) $ (536,553) $ (142,938) $ 258,189
Delaware Tax-Free Kentucky Tax-Free
Income Portfolio Income Portfolio
---------------------------- -----------------------------
For the For the For the For the
Year Ended Year Ended Year Ended Year Ended
9/30/05 9/30/04 9/30/05 9/30/04
------------ ------------ ------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 3,454,754 $ 3,808,807 $ 3,902,919 $ 5,002,658
Net realized gain (loss) on investments, futures
contracts .............................................. (273,045) (679,225) 199,434 (351,331)
Net unrealized appreciation/depreciation on
investments, futures contracts ......................... (1,533,887) (63,970) (1,343,782) (759,112)
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations..... 1,647,822 3,065,612 2,758,571 3,892,215
------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ......................................... -- -- -- --
Institutional Class ..................................... (2,228,062) (2,658,162) (2,743,762) (4,386,451)
Service Class ........................................... -- -- (8,278) (6,946)
Investor A Class ........................................ (530,720) (477,990) (187,856) (207,211)
Investor B Class ........................................ (252,824) (312,260) (100,374) (124,106)
Investor C Class ........................................ (431,096) (548,634) (35,193) (41,249)
------------ ------------ ------------ ------------
Total distributions from net investment income .......... (3,442,702) (3,997,046) (3,075,463) (4,765,963)
------------ ------------ ------------ ------------
Capital share transactions (Note E) ....................... (6,637,756) 5,180,305 (6,928,937) (34,434,107)
------------ ------------ ------------ ------------
Total increase (decrease) in net assets ................. (8,432,636) 4,248,871 (7,245,829) (35,307,855)
Net assets:
Beginning of period ..................................... 90,452,231 86,203,360 89,574,529 124,882,384
------------ ------------ ------------ ------------
End of period ........................................... $ 82,019,595 $ 90,452,231 $ 82,328,700 $ 89,574,529
============ ============ ============ ============
End of period undistributed net investment
income (distributions in excess of net investment
income) ................................................ $ (179,327) $ (190,807) $ 577,813 $ (240,247)
41
BlackRock Funds
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net gain Net
asset (loss) on Distributions asset
value Net investments from net value
beginning investment (both realized investment end of
of period income and unrealized) income period
----------- ------------ ----------------- --------------- -----------
------------------------------
UltraShort Municipal Portfolio
------------------------------
BlackRock Class
9/30/05 $ 9.95 $ 0.18/7/ $ (0.02) $ (0.18) $ 9.93
3/03/04 /1/ through 9/30/04 10.00 0.07/7/ (0.05) (0.07) 9.95
Institutional Class
9/30/05 $ 9.94 $ 0.17/7/ $ (0.02) $ (0.17) $ 9.92
3/19/04 /1/ through 9/30/04 10.00 0.05/7/ (0.06) (0.05) 9.94
Service Class
9/30/05 $ 9.94 $ 0.26/7/ $ (0.14) $ --/8/ $ 10.06
3/19/04 /1/ through 9/30/04 10.00 0.03/7/ (0.07) (0.02) 9.94
Investor A Class
9/30/05 $ 9.98 $ 0.17/7/ $ (0.05) $ (0.01) $ 10.09
3/19/04 /1/ through 9/30/04 10.00 0.07/7/ (0.07) (0.02) 9.98
-------------------------
Tax-Free Income Portfolio
-------------------------
BlackRock Class
9/30/05 $ 11.11 $ 0.49/7/ $ (0.17) $ (0.44) $ 10.99
12/22/03 /1/ through 9/30/04 11.22 0.37/7/ (0.10) (0.38) 11.11
Institutional Class
9/30/05 $ 11.11 $ 0.47/7/ $ (0.12) $ (0.46) $ 11.00
9/30/04 11.22 0.48/7/ (0.10) (0.49) 11.11
9/30/03 /10/ 11.38 0.54 (0.17) (0.53) 11.22
9/30/02 /10/ 11.38 0.57 (0.01) (0.56) 11.38
9/30/01 /10/ 10.92 0.57 0.48 (0.59) 11.38
Service Class
9/30/05 $ 11.10 $ 0.44/7/ $ (0.12) $ (0.43) $ 10.99
9/30/04 11.21 0.45/7/ (0.10) (0.46) 11.10
9/30/03 /10/ 11.38 0.49 (0.16) (0.50) 11.21
9/30/02 /10/ 11.38 0.55 (0.02) (0.53) 11.38
9/30/01 /10/ 10.92 0.54 0.47 (0.55) 11.38
Investor A Class
9/30/05 $ 11.12 $ 0.44/7/ $ (0.13) $ (0.43) $ 11.00
9/30/04 11.22 0.44/7/ (0.10) (0.44) 11.12
9/30/03 /10/ 11.38 0.48 (0.16) (0.48) 11.22
9/30/02 /10/ 11.38 0.52 (0.01) (0.51) 11.38
9/30/01 /10 10.92 0.52 0.48 (0.54) 11.38
Investor B Class
9/30/05 $ 11.11 $ 0.36/7/ $ (0.12) $ (0.35) $ 11.00
9/30/04 11.22 0.36/7/ (0.11) (0.36) 11.11
9/30/03 /10/ 11.38 0.40 (0.16) (0.40) 11.22
9/30/02 /10/ 11.38 0.43 (0.01) (0.42) 11.38
9/30/01 /10/ 10.92 0.42 0.49 (0.45) 11.38
Investor C Class
9/30/05 $ 11.12 $ 0.36/7/ $ (0.13) $ (0.35) $ 11.00
9/30/04 11.21 0.35/7/ (0.08) (0.36) 11.12
9/30/03 /10/ 11.38 0.41 (0.18) (0.40) 11.21
9/30/02 /10/ 11.38 0.43 (0.01) (0.42) 11.38
9/30/01 /10/ 10.93 0.41 0.49 (0.45) 11.38
See accompanying notes to financial statements.
42
BlackRock Funds
Net Ratio of
assets Ratio of net total expenses to Ratio of net
end of expenses to average net assets investment income
Total period average net (excluding to average net
return (000) assets waivers) assets
---------------- ---------- -------------- -------------------- -------------------
------------------------------
UltraShort Municipal Portfolio
------------------------------
BlackRock Class
9/30/05 1.64% $ 32,439 0.35% 0.79% 1.81%
3/03/04 /1/ through 9/30/04 0.16 32,027 0.35/2/ 0.92/2/ 1.14/2/
Institutional Class
9/30/05 1.54% $ 10,446 0.45% 0.91% 1.68%
3/19/04 /1/ through 9/30/04 (0.09) 14,176 0.45/2/ 1.04/2/ 0.96/2/
Service Class
9/30/05 1.23% $ --/11/ 0.68% 1.30% 2.59%
3/19/04 /1/ through 9/30/04 (0.34) -- 0.75/2/ 1.33/2/ 0.66/2/
Investor A Class
9/30/05 1.25%/3/ $ 1 0.71% 1.24% 1.74%
3/19/04 /1/ through 9/30/04 0.04/3,9/ -- 0.80/2/ 1.38/2/ 0.61/2/
-------------------------
Tax-Free Income Portfolio
-------------------------
BlackRock Class
9/30/05 3.23% $ 85,552 0.45% 0.71% 4.39%
12/22/03 /1/ through 9/30/04 2.46/9/ 100,489 0.452 0.69/2/ 4.34/2/
Institutional Class
9/30/05 3.17% $295,737 0.60% 0.83% 4.24%
9/30/04 3.46 308,122 0.60 0.82 4.34
9/30/03 /10/ 3.40 334,685 0.60 0.83 4.80
9/30/02 /10/ 5.08 360,392 0.60 0.81 5.10
9/30/01 /10/ 9.81 351,551 0.60 0.81 5.06
Service Class
9/30/05 2.91% $ 2,312 0.86% 1.08% 3.99%
9/30/04 3.16 2,702 0.86 1.08 4.09
9/30/03 /10/ 2.99 2,971 0.90 1.13 4.46
9/30/02 /10/ 4.77 3,103 0.90 1.11 4.81
9/30/01 /10/ 9.49 3,651 0.90 1.11 4.77
Investor A Class
9/30/05 2.81%/3/ $ 8,965 0.86% 1.18% 3.99%
9/30/04 3.10/3/ 7,711 1.00 1.31 3.95
9/30/03 /10/ 2.91/3/ 8,573 1.07 1.30 4.31
9/30/02 /10/ 4.59/3/ 8,179 1.07 1.29 4.62
9/30/01 /10 9.30/3/ 7,309 1.07 1.28 4.61
Investor B Class
9/30/05 2.14%/4/ $ 4,839 1.61% 1.84% 3.24%
9/30/04 2.24/4/ 5,869 1.75 1.97 3.21
9/30/03 /10/ 2.14/4/ 7,161 1.82 2.05 3.57
9/30/02 /10/ 3.81/4/ 6,211 1.82 2.03 3.87
9/30/01 /10/ 8.49/4/ 4,884 1.81 2.02 3.82
Investor C Class
9/30/05 2.05%/4/ $ 2,303 1.62% 1.85% 3.26%
9/30/04 2.33/4/ 2,918 1.73 1.95 3.17
9/30/03 /10/ 2.05/4/ 2,559 1.82 2.05 3.59
9/30/02 /10/ 3.81/4/ 2,857 1.82 2.03 3.89
9/30/01 /10/ 8.39/4/ 2,604 1.81 2.02 3.80
Ratio of net
investment income
to average
net assets Portfolio
(excluding turnover
waivers) rate
------------------ -----------
------------------------------
UltraShort Municipal Portfolio
------------------------------
BlackRock Class
9/30/05 1.37% 89%
3/03/04 /1/ through 9/30/04 0.57/2/ 14
Institutional Class
9/30/05 1.22% 89%
3/19/04 /1/ through 9/30/04 0.37/2/ 14
Service Class
9/30/05 1.97% 89%
3/19/04 /1/ through 9/30/04 0.08/2/ 14
Investor A Class
9/30/05 1.21% 89%
3/19/04 /1/ through 9/30/04 0.03/2/ 14
-------------------------
Tax-Free Income Portfolio
-------------------------
BlackRock Class
9/30/05 4.13% 91%
12/22/03 /1/ through 9/30/04 4.10/2/ 73
Institutional Class
9/30/05 4.01% 91%
9/30/04 4.12 73
9/30/03 /10/ 4.57 76
9/30/02 /10/ 4.89 47
9/30/01 /10/ 4.85 38
Service Class
9/30/05 3.77% 91%
9/30/04 3.87 73
9/30/03 /10/ 4.23 76
9/30/02 /10/ 4.60 47
9/30/01 /10/ 4.55 38
Investor A Class
9/30/05 3.67% 91%
9/30/04 3.64 73
9/30/03 /10/ 4.08 76
9/30/02 /10/ 4.41 47
9/30/01 /10 4.39 38
Investor B Class
9/30/05 3.01% 91%
9/30/04 2.99 73
9/30/03 /10/ 3.34 76
9/30/02 /10/ 3.66 47
9/30/01 /10/ 3.60 38
Investor C Class
9/30/05 3.03% 91%
9/30/04 2.96 73
9/30/03 /10/ 3.36 76
9/30/02 /10/ 3.68 47
9/30/01 /10/ 3.59 38
43
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net gain Net
asset (loss) on Distributions asset
value Net investments from net value
beginning investment (both realized investment end of
of period income and unrealized) income period
-------------------------------------------------------------------------------
- --------------------------------------
Pennsylvania Tax-Free Income Portfolio
- --------------------------------------
Institutional Class
9/30/05 $10.68 $0.50/7/ $(0.25) $(0.52) $10.41
9/30/04 10.90 0.51/7/ (0.21) (0.52) 10.68
9/30/03 /10/ 11.06 0.53 (0.19) (0.50) 10.90
9/30/02 /10/ 10.89 0.53 0.16 (0.52) 11.06
9/30/01 /10/ 10.56 0.55 0.34 (0.56) 10.89
Service Class
9/30/05 $10.67 $0.47/7/ $(0.25) $(0.49) $10.40
9/30/04 10.89 0.48/7/ (0.21) (0.49) 10.67
9/30/03 /10/ 11.05 0.49 (0.18) (0.47) 10.89
9/30/02 /10/ 10.88 0.50 0.16 (0.49) 11.05
9/30/01 /10/ 10.55 0.52 0.34 (0.53) 10.88
Investor A Class
9/30/05 $10.68 $0.46/7/ $(0.25) $(0.48) $10.41
9/30/04 10.89 0.46/7/ (0.20) (0.47) 10.68
9/30/03 /10/ 11.06 0.48 (0.20) (0.45) 10.89
9/30/02 /10/ 10.89 0.48 0.16 (0.47) 11.06
9/30/01 /10/ 10.56 0.49 0.35 (0.51) 10.89
Investor B Class
9/30/05 $10.61 $0.38/7/ $(0.25) $(0.40) $10.34
9/30/04 10.82 0.39/7/ (0.21) (0.39) 10.61
9/30/03 /10/ 10.98 0.40 (0.19) (0.37) 10.82
9/30/02 /10/ 10.81 0.40 0.16 (0.39) 10.98
9/30/01 /10/ 10.48 0.42 0.34 (0.43) 10.81
Investor C Class
9/30/05 $10.64 $0.38/7/ $(0.25) $(0.40) $10.37
9/30/04 10.85 0.39/7/ (0.21) (0.39) 10.64
9/30/03 /10/ 11.01 0.39 (0.18) (0.37) 10.85
9/30/02 /10/ 10.84 0.41 0.15 (0.39) 11.01
9/30/01 /10/ 10.51 0.41 0.35 (0.43) 10.84
- ------------------------------------
New Jersey Tax-Free Income Portfolio
- ------------------------------------
Institutional Class
9/30/05 $11.70 $0.53/7/ $(0.18) $(0.51) $11.54
9/30/04 11.80 0.53/7/ (0.06) (0.57) 11.70
9/30/03 /10/ 12.10 0.62 (0.29) (0.63) 11.80
9/30/02 /10/ 11.83 0.61 0.28 (0.62) 12.10
9/30/01 /10/ 11.31 0.60 0.52 (0.60) 11.83
Service Class
9/30/05 $11.70 $0.49/7/ $(0.18) $(0.47) $11.54
9/30/04 11.80 0.50/7/ (0.07) (0.53) 11.70
9/30/03 /10/ 12.10 0.58 (0.29) (0.59) 11.80
9/30/02 /10/ 11.83 0.58 0.28 (0.59) 12.10
9/30/01 /10/ 11.31 0.57 0.51 (0.56) 11.83
See accompanying notes to financial statements.
44
BlackRock Funds
Net Ratio of
assets Ratio of net total expenses to Ratio of net
end of expenses to average net assets investment income
Total period average net (excluding to average net
return (000) assets waivers) assets
--------------------------------------------------------------------------------------------
- --------------------------------------
Pennsylvania Tax-Free Income Portfolio
- --------------------------------------
Institutional Class
9/30/05 2.41% $610,550 0.60% 0.81% 4.71%
9/30/04 2.82 628,714 0.60 0.80 4.76
9/30/03 /10/ 3.16 752,199 0.60 0.80 4.80
9/30/02 /10/ 6.53 890,070 0.60 0.79 4.90
9/30/01 /10/ 8.65 903,225 0.60 0.79 5.10
Service Class
9/30/05 2.10% $ 4,727 0.90% 1.11% 4.41%
9/30/04 2.51 5,733 0.90 1.10 4.48
9/30/03 /10/ 2.86 6,118 0.90 1.11 4.51
9/30/02 /10/ 6.22 6,005 0.90 1.09 4.62
9/30/01 /10/ 8.33 6,911 0.90 1.09 4.81
Investor A Class
9/30/05 2.00%/3/ $ 29,875 1.00% 1.17% 4.32%
9/30/04 2.44/3/ 33,769 1.05 1.29 4.32
9/30/03 /10/ 2.59/3/ 35,874 1.08 1.28 4.34
9/30/02 /10/ 6.04/3/ 37,344 1.08 1.27 4.44
9/30/01 /10/ 8.14/3/ 39,306 1.07 1.26 4.62
Investor B Class
9/30/05 1.25%/4/ $ 13,408 1.76% 1.82% 3.60%
9/30/04 1.69/4/ 19,604 1.75 1.89 3.66
9/30/03 /10/ 1.93/4/ 24,795 1.82 2.03 3.63
9/30/02 /10/ 5.28/4/ 28,346 1.82 2.02 3.72
9/30/01 /10/ 7.40/4/ 26,062 1.82 2.01 3.90
Investor C Class
9/30/05 1.24%/4/ $ 1,773 1.75% 1.82% 3.59%
9/30/04 1.69/4/ 1,916 1.80 1.94 3.60
9/30/03 /10/ 1.92/4/ 1,974 1.82 2.03 3.61
9/30/02 /10/ 5.27/4/ 1,615 1.81 2.00 3.69
9/30/01 /10/ 7.38/4/ 875 1.81 2.00 3.84
- ------------------------------------
New Jersey Tax-Free Income Portfolio
- ------------------------------------
Institutional Class
9/30/05 2.99% $137,256 0.60% 0.84% 4.51%
9/30/04 4.10 151,808 0.60 0.83 4.54
9/30/03 /10/ 2.80 124,713 0.60 0.83 5.17
9/30/02 /10/ 7.82 128,553 0.60 0.82 5.20
9/30/01 /10/ 10.07 129,635 0.60 0.82 5.12
Service Class
9/30/05 2.68% $ 14,839 0.90% 1.09% 4.21%
9/30/04 3.79 15,940 0.90 1.11 4.27
9/30/03 /10/ 2.50 16,534 0.90 1.13 4.87
9/30/02 /10/ 7.49 17,506 0.90 1.12 4.89
9/30/01 /10/ 9.75 16,530 0.90 1.12 4.82
Ratio of net
investment income
to average
net assets Portfolio
(excluding turnover
waivers) rate
-------------------------------
- --------------------------------------
Pennsylvania Tax-Free Income Portfolio
- --------------------------------------
Institutional Class
9/30/05 4.50% 13%
9/30/04 4.56 2
9/30/03 /10/ 4.60 3
9/30/02 /10/ 4.71 22
9/30/01 /10/ 4.91 13
Service Class
9/30/05 4.20% 13%
9/30/04 4.28 2
9/30/03 /10/ 4.30 3
9/30/02 /10/ 4.43 22
9/30/01 /10/ 4.62 13
Investor A Class
9/30/05 4.15% 13%
9/30/04 4.09 2
9/30/03 /10/ 4.13 3
9/30/02 /10/ 4.25 22
9/30/01 /10/ 4.43 13
Investor B Class
9/30/05 3.54% 13%
9/30/04 3.52 2
9/30/03 /10/ 3.42 3
9/30/02 /10/ 3.53 22
9/30/01 /10/ 3.72 13
Investor C Class
9/30/05 3.52% 13%
9/30/04 3.46 2
9/30/03 /10/ 3.40 3
9/30/02 /10/ 3.50 22
9/30/01 /10/ 3.66 13
- ------------------------------------
New Jersey Tax-Free Income Portfolio
- ------------------------------------
Institutional Class
9/30/05 4.27% 17%
9/30/04 4.31 15
9/30/03 /10/ 4.94 22
9/30/02 /10/ 4.98 14
9/30/01 /10/ 4.90 28
Service Class
9/30/05 4.02% 17%
9/30/04 4.06 15
9/30/03 /10/ 4.64 22
9/30/02 /10/ 4.67 14
9/30/01 /10/ 4.60 28
45
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net gain Net
asset (loss) on Distributions asset
value Net investments from net value
beginning investment (both realized investment end of
of period income and unrealized) income period
-------------------------------------------------------------------------------
- -----------------------------------------------
New Jersey Tax-Free Income Portfolio (Continued)
- -----------------------------------------------
Investor A Class
9/30/05 $11.70 $0.48/7/ $(0.18) $(0.46) $11.54
9/30/04 11.80 0.48/7/ (0.06) (0.52) 11.70
9/30/03 /10/ 12.10 0.56 (0.29) (0.57) 11.80
9/30/02 /10/ 11.83 0.55 0.29 (0.57) 12.10
9/30/01 /10/ 11.31 0.53 0.53 (0.54) 11.83
Investor B Class
9/30/05 $11.70 $0.39/7/ $(0.18) $(0.37) $11.54
9/30/04 11.80 0.39/7/ (0.06) (0.43) 11.70
9/30/03 /10/ 12.10 0.47 (0.29) (0.48) 11.80
9/30/02 /10/ 11.83 0.46 0.29 (0.48) 12.10
9/30/01 /10/ 11.31 0.43 0.54 (0.45) 11.83
Investor C Class
9/30/05 $11.72 $0.40/7/ $(0.19) $(0.37) $11.56
9/30/04 11.82 0.39/7/ (0.06) (0.43) 11.72
9/30/03 /10/ 12.13 0.46 (0.29) (0.48) 11.82
9/30/02 /5,10/ 11.85 0.45 0.31 (0.48) 12.13
2/6/01 /5,10/ through 9/30/01 11.70 0.29 0.15 (0.29) 11.85
- ------------------------------
Ohio Tax-Free Income Portfolio
- ------------------------------
Institutional Class
9/30/05 $10.88 $0.48/7/ $(0.21) $(0.51) $10.64
9/30/04 10.87 0.54/7/ (0.03) (0.50) 10.88
9/30/03 /10/ 11.09 0.52 (0.22) (0.52) 10.87
9/30/02 /10/ 10.80 0.52 0.35 (0.58) 11.09
9/30/01 /10/ 10.22 0.57 0.57 (0.56) 10.80
Service Class
9/30/05 $10.89 $0.45/7/ $(0.21) $(0.48) $10.65
9/30/04 10.87 0.51/7/ (0.02) (0.47) 10.89
9/30/03 /10/ 11.09 0.52 (0.26) (0.48) 10.87
9/30/02 /10/ 10.80 0.48 0.36 (0.55) 11.09
9/30/01 /10/ 10.22 0.54 0.57 (0.53) 10.80
Investor A Class
9/30/05 $10.88 $0.44/7/ $(0.21) $(0.47) $10.64
9/30/04 10.87 0.49/7/ (0.03) (0.45) 10.88
9/30/03 /10/ 11.09 0.46 (0.21) (0.47) 10.87
9/30/02 /10/ 10.80 0.46 0.36 (0.53) 11.09
9/30/01 /10/ 10.22 0.52 0.57 (0.51) 10.80
Investor B Class
9/30/05 $10.88 $0.36/7/ $(0.21) $(0.39) $10.64
9/30/04 10.87 0.41/7/ (0.03) (0.37) 10.88
9/30/03 /10/ 11.09 0.39 (0.23) (0.38) 10.87
9/30/02 /10/ 10.80 0.39 0.35 (0.45) 11.09
9/30/01 /10/ 10.22 0.42 0.59 (0.43) 10.80
Investor C Class
9/30/05 $10.89 $0.36/7/ $ (0.21) $(0.39) $10.65
9/30/04 10.87 0.41/7/ (0.02) (0.37) 10.89
9/30/03 /10/ 11.09 0.40 (0.24) (0.38) 10.87
9/30/02 /10/ 10.80 0.39 0.35 (0.45) 11.09
9/30/01 10.22 0.41 0.60 (0.43) 10.80
See accompanying notes to financial statements.
46
BlackRock Funds
Net Ratio of
assets Ratio of net total expenses to Ratio of net
end of expenses to average net assets investment income
Total period average net (excluding to average net
return (000) assets waivers) assets
-----------------------------------------------------------------------------------------------
- -----------------------------------------------
New Jersey Tax-Free Income Portfolio (Continued)
- -----------------------------------------------
Investor A Class
9/30/05 2.58%/3/ $ 7,729 0.99% 1.19% 4.11%
9/30/04 3.63/3/ 6,193 1.05 1.31 4.12
9/30/03 /10/ 2.32/3/ 5,995 1.08 1.30 4.70
9/30/02 /10/ 7.31/3/ 5,812 1.07 1.29 4.66
9/30/01 /10/ 9.56/3/ 3,207 1.07 1.29 4.64
Investor B Class
9/30/05 1.81%/4/ $ 10,891 1.75% 1.85% 3.36%
9/30/04 2.85/4/ 11,696 1.80 1.97 3.37
9/30/03 /10/ 1.55/4/ 12,411 1.82 2.04 3.93
9/30/02 /10/ 6.52/4/ 9,066 1.81 2.03 3.92
9/30/01 /10/ 8.75/4/ 5,707 1.79 2.01 3.85
Investor C Class
9/30/05 1.81%/4/ $ 2,013 1.76% 1.86% 3.37%
9/30/04 2.85/4/ 3,350 1.78 1.94 3.31
9/30/03 /10/ 1.47/4/ 1,877 1.82 2.04 3.91
9/30/02 /5,10/ 6.59/4/ 1,106 1.80 2.01 3.75
2/6/01 /5,10/ through 9/30/01 3.80/4,9/ 157 1.78/2/ 2.00/2/ 3.82/2/
- ------------------------------
Ohio Tax-Free Income Portfolio
- ------------------------------
Institutional Class
9/30/05 2.55% $100,501 0.60% 0.85% 4.47%
9/30/04 4.82 96,730 0.60 0.84 4.97
9/30/03 /10/ 2.79 97,589 0.60 0.83 4.78
9/30/02 /10/ 8.40 96,974 0.60 0.81 4.93
9/30/01 /10/ 11.41 92,047 0.60 0.84 5.42
Service Class
9/30/05 2.24% $ 736 0.90% 1.10% 4.16%
9/30/04 4.60 700 0.81 1.02 4.74
9/30/03 /10/ 2.48 727 0.90 1.12 4.58
9/30/02 /10/ 8.08 205 0.90 1.12 4.59
9/30/01 /10/ 11.08 40 0.89 1.13 5.13
Investor A Class
9/30/05 2.14%/3/ $ 8,873 0.99% 1.20% 4.05%
9/30/04 4.34/3/ 5,043 1.07 1.34 4.56
9/30/03 /10/ 2.31/3/ 7,494 1.08 1.31 4.32
9/30/02 /10/ 7.90/3/ 15,587 1.06 1.28 4.37
9/30/01 /10/ 10.89/3/ 3,674 1.07 1.31 4.97
Investor B Class
9/30/05 1.38%/4/ $ 9,424 1.75% 1.85% 3.32%
9/30/04 3.57/4/ 10,280 1.79 1.97 3.78
9/30/03 /10/ 1.54/4/ 10,453 1.82 2.05 3.55
9/30/02 /10/ 7.10/4/ 8,740 1.81 2.03 3.65
9/30/01 /10/ 10.08/4/ 4,277 1.80 2.04 4.20
Investor C Class
9/30/05 1.38%/4/ $ 7,063 1.74% 1.84% 3.30%
9/30/04 3.66/4/ 5,411 1.77 1.95 3.80
9/30/03 /10/ 1.54/4/ 5,740 1.82 2.05 3.55
9/30/02 /10/ 7.09/4/ 3,632 1.80 2.01 3.60
9/30/01 10.08/4/ 1,496 1.80 2.04 4.05
Ratio of net
investment income
to average
net assets Portfolio
(excluding turnover
waivers) rate
---------------------------------
- -----------------------------------------------
New Jersey Tax-Free Income Portfolio (Continued)
- -----------------------------------------------
Investor A Class
9/30/05 3.91% 17%
9/30/04 3.86 15
9/30/03 /10/ 4.48 22
9/30/02 /10/ 4.44 14
9/30/01 /10/ 4.42 28
Investor B Class
9/30/05 3.26% 17%
9/30/04 3.20 15
9/30/03 /10/ 3.71 22
9/30/02 /10/ 3.71 14
9/30/01 /10/ 3.64 28
Investor C Class
9/30/05 3.27% 17%
9/30/04 3.15 15
9/30/03 /10/ 3.69 22
9/30/02 /5,10/ 3.54 14
2/6/01 /5,10/ through 9/30/01 3.62/2/ 28
- ------------------------------
Ohio Tax-Free Income Portfolio
- ------------------------------
Institutional Class
9/30/05 4.22% 10%
9/30/04 4.73 6
9/30/03 /10/ 4.55 18
9/30/02 /10/ 4.71 28
9/30/01 /10/ 5.18 19
Service Class
9/30/05 3.96% 10%
9/30/04 4.52 6
9/30/03 /10/ 4.36 18
9/30/02 /10/ 4.37 28
9/30/01 /10/ 4.89 19
Investor A Class
9/30/05 3.84% 10%
9/30/04 4.29 6
9/30/03 /10/ 4.09 18
9/30/02 /10/ 4.16 28
9/30/01 /10/ 4.73 19
Investor B Class
9/30/05 3.22% 10%
9/30/04 3.60 6
9/30/03 /10/ 3.32 18
9/30/02 /10/ 3.44 28
9/30/01 /10/ 3.97 19
Investor C Class
9/30/05 3.20% 10%
9/30/04 3.62 6
9/30/03 /10/ 3.32 18
9/30/02 /10/ 3.39 28
9/30/01 3.82 19
47
BlackRock Funds
FINANCIAL HIGHLIGHTS (Continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net gain Net
asset (loss) on Distributions asset
value Net investments from net value
beginning investment (both realized investment end of
of period income and unrealized) income period
-------------------------------------------------------------------------------
- ----------------------------------
Delaware Tax-Free Income Portfolio
- ----------------------------------
Institutional Class
9/30/05 $10.13 $0.43/7/ $(0.21) $(0.43) $ 9.92
9/30/04 10.23 0.47/7/ (0.08) (0.49) 10.13
9/30/03 /10/ 10.54 0.52 (0.27) (0.56) 10.23
9/30/02 /10/ 10.20 0.55 0.31 (0.52) 10.54
9/30/01 /10/ 9.68 0.50 0.46 (0.44) 10.20
Service Class
10/1/01 /10/ through 5/2/02 $10.20 $0.29/7/ $(0.09) $(0.28) $10.12
9/30/01 /10/ 9.68 0.48 0.45 (0.41) 10.20
Investor A Class
9/30/05 $10.13 $0.39/7/ $(0.20) $(0.39) $ 9.93
9/30/04 10.24 0.42/7/ (0.09) (0.44) 10.13
9/30/03 /10/ 10.54 0.45 (0.24) (0.51) 10.24
9/30/02 /10/ 10.20 0.49 0.32 (0.47) 10.54
9/30/01 /10/ 9.68 0.45 0.47 (0.40) 10.20
Investor B Class
9/30/05 $10.14 $0.31/7/ $(0.21) $(0.31) $ 9.93
9/30/04 10.24 0.35/7/ (0.08) (0.37) 10.14
9/30/03 /10/ 10.54 0.37 (0.23) (0.44) 10.24
9/30/02 /10/ 10.20 0.42 0.32 (0.40) 10.54
9/30/01 /10/ 9.68 0.37 0.47 (0.32) 10.20
Investor C Class
9/30/05 $10.13 $0.31/7/ $(0.20) $(0.31) $ 9.93
9/30/04 10.24 0.35/7/ (0.09) (0.37) 10.13
9/30/03 /10/ 10.54 0.37 (0.23) (0.44) 10.24
9/30/02 /10/ 10.20 0.38 0.36 (0.40) 10.54
9/30/01 /10/ 9.68 0.36 0.48 (0.32) 10.20
See accompanying notes to financial statements.
48
BlackRock Funds
Net Ratio of
assets Ratio of net total expenses to Ratio of net
end of expenses to average net assets investment income
Total period average net (excluding to average net
return (000) assets waivers) assets
----------------------------------------------------------------------------------------------
- ----------------------------------
Delaware Tax-Free Income Portfolio
- ----------------------------------
Institutional Class
9/30/05 2.16% $46,782 0.70% 0.92% 4.24%
9/30/04 3.92 54,451 0.70 0.89 4.61
9/30/03 /10/ 2.53 54,512 0.70 0.90 5.06
9/30/02 /10/ 8.75 71,516 0.70 0.89 5.40
9/30/01 /10/ 10.16 79,535 0.70 0.90 4.99
Service Class
10/1/01 /10/ through 5/2/02 1.95%/9/ $ --/6/ 1.00%/2/ 1.17%/2/ 5.32%/2/
9/30/01 /10/ 9.83 -- 0.87 1.02 4.83
Investor A Class
9/30/05 1.85%/3/ $14,421 1.09% 1.26% 3.86%
9/30/04 3.35/3/ 12,895 1.14 1.40 4.16
9/30/03 /10/ 2.15/3/ 8,634 1.17 1.36 4.48
9/30/02 /10/ 8.25/3/ 5,106 1.18 1.36 4.90
9/30/01 /10/ 9.65/3/ 4,304 1.17 1.37 4.53
Investor B Class
9/30/05 0.99%/4/ $ 7,524 1.84% 1.92% 3.10%
9/30/04 2.68/4/ 8,606 1.89 2.02 3.42
9/30/03 /10/ 1.38/4/ 8,528 1.92 2.09 3.70
9/30/02 /10/ 7.45/4/ 3,130 1.92 2.11 4.14
9/30/01 /10/ 8.84/4/ 2,505 1.91 2.11 3.79
Investor C Class
9/30/05 1.10%/4/ $13,293 1.85% 1.92% 3.11%
9/30/04 2.58/4/ 14,500 1.89 2.02 3.43
9/30/03 /10/ 1.38/4/ 14,529 1.91 2.08 3.56
9/30/02 /10/ 7.45/4/ 3,149 1.90 2.09 3.96
9/30/01 /10/ 8.84/4/ 638 1.92 2.12 3.78
Ratio of net
investment income
to average
net assets Portfolio
(excluding turnover
waivers) rate
---------------------------------
- -------------------------------
Delaware Tax-Free Income Portfo
- -------------------------------
Institutional Class
9/30/05 4.02% 10%
9/30/04 4.42 3
9/30/03 /10/ 4.86 34
9/30/02 /10/ 5.22 17
9/30/01 /10/ 4.79 14
Service Class
10/1/01 /10/ through 5/2/02 5.14%/2/ 17%
9/30/01 /10/ 4.68 14
Investor A Class
9/30/05 3.69% 10%
9/30/04 3.90 3
9/30/03 /10/ 4.30 34
9/30/02 /10/ 4.71 17
9/30/01 /10/ 4.34 14
Investor B Class
9/30/05 3.02% 10%
9/30/04 3.29 3
9/30/03 /10/ 3.52 34
9/30/02 /10/ 3.96 17
9/30/01 /10/ 3.60 14
Investor C Class
9/30/05 3.04% 10%
9/30/04 3.30 3
9/30/03 /10/ 3.40 34
9/30/02 /10/ 3.77 17
9/30/01 /10/ 3.59 14
49
BlackRock Funds
FINANCIAL HIGHLIGHTS (Concluded)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Net Net gain Net
asset (loss) on Distributions asset
value Net investments from net value
beginning investment (both realized investment end of
of period income and unrealized) income period
- ------------------------------------------------------------------------------------------------------
- ----------------------------------
Kentucky Tax-Free Income Portfolio
- ----------------------------------
Institutional Class
9/30/05 $ 9.73 $0.46/7/ $(0.14) $(0.36) $ 9.69
9/30/04 9.77 0.45/7/ (0.07) (0.42) 9.73
9/30/03 /10/ 9.99 0.48 (0.20) (0.50) 9.77
9/30/02 /10/ 9.94 0.49 0.07 (0.51) 9.99
9/30/01 /10/ 9.60 0.50 0.34 (0.50) 9.94
Service Class
9/30/05 $ 9.74 $0.43/7/ $(0.14) $(0.33) $ 9.70
9/30/04 9.78 0.43/7/ (0.08) (0.39) 9.74
9/30/03 /10/ 9.99 0.45 (0.19) (0.47) 9.78
9/30/02 /10/ 9.95 0.46 0.06 (0.48) 9.99
9/30/01 /10/ 9.60 0.47 0.35 (0.47) 9.95
Investor A Class
9/30/05 $ 9.73 $0.42/7/ $(0.14) $(0.32) $ 9.69
9/30/04 9.77 0.41/7/ (0.07) (0.38) 9.73
9/30/03 /10/ 9.99 0.44 (0.20) (0.46) 9.77
9/30/02 /10/ 9.94 0.44 0.07 (0.46) 9.99
9/30/01 /10/ 9.60 0.45 0.34 (0.45) 9.94
Investor B Class
9/30/05 $ 9.73 $0.35/7/ $(0.14) $(0.25) $ 9.69
9/30/04 9.77 0.33/7/ (0.07) (0.30) 9.73
9/30/03 /10/ 9.99 0.36 (0.20) (0.38) 9.77
9/30/02 /10/ 9.94 0.37 0.07 (0.39) 9.99
9/30/01 /10/ 9.60 0.37 0.35 (0.38) 9.94
Investor C Class
9/30/05 $ 9.76 $0.35/7/ $(0.15) $(0.25) $ 9.71
9/30/04 9.79 0.33/7/ (0.06) (0.30) 9.76
9/30/03 /10/ 10.02 0.36 (0.21) (0.38) 9.79
9/30/02 /10/ 9.97 0.37 0.07 (0.39) 10.02
9/30/01 /10/ 9.62 0.37 0.36 (0.38) 9.97
/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, 2000.
/6/ There were no Service shares outstanding as of September 30, 2002.
See accompanying notes to financial statements.
50
BlackRock Funds
Net Ratio of
assets Ratio of net total expenses to Ratio of net
end of expenses to average net assets investment income
Total period average net (excluding to average net
return (000) assets waivers) assets
---------------------------------------------------------------------------------------------
- ----------------------------------
Kentucky Tax-Free Income Portfolio
- ----------------------------------
Institutional Class
9/30/05 3.35% $ 71,188 0.70% 0.91% 4.69%
9/30/04 4.01 78,549 0.70 0.89 4.61
9/30/03 /10/ 2.95 115,104 0.70 0.88 4.94
9/30/02 /10/ 5.82 135,938 0.70 0.87 4.99
9/30/01 /10/ 8.91 146,620 0.70 0.86 5.09
Service Class
9/30/05 3.04% $ 248 1.00% 1.17% 4.38%
9/30/04 3.69 247 1.00 1.17 4.40
9/30/03 /10/ 2.74 103 1.00 1.18 4.57
9/30/02 /10/ 5.40 92 1.00 1.17 4.69
9/30/01 /10/ 8.69 91 1.00 1.16 4.79
Investor A Class
9/30/05 2.95%/3/ $ 6,377 1.09% 1.26% 4.28%
9/30/04 3.53/3/ 5,482 1.15 1.36 4.19
9/30/03 /10/ 2.46/3/ 4,701 1.17 1.35 4.42
9/30/02 /10/ 5.33/3/ 3,612 1.18 1.35 4.52
9/30/01 /10/ 8.40/3/ 3,214 1.17 1.33 4.64
Investor B Class
9/30/05 2.18%/4/ $ 3,578 1.85% 1.92% 3.55%
9/30/04 2.76/4/ 3,897 1.89 2.02 3.44
9/30/03 /10/ 1.70/4/ 3,795 1.92 2.09 3.64
9/30/02 /10/ 4.55/4/ 2,311 1.91 2.08 3.71
9/30/01 /10/ 7.60/4/ 978 1.89 2.05 3.79
Investor C Class
9/30/05 2.07%/4/ $ 938 1.86% 1.92% 3.55%
9/30/04 2.86/4/ 1,399 1.88 2.00 3.43
9/30/03 /10/ 1.59/4/ 1,179 1.92 2.10 3.69
9/30/02 /10/ 4.53/4/ 1,036 1.90 2.08 3.61
9/30/01 /10/ 7.69/4/ 236 1.91 2.07 3.75
Ratio of net
investment income
to average
net assets Portfolio
(excluding turnover
waivers) rate
-----------------------------------
- ------------------------
Kentucky Tax-Free Income
- ------------------------
Institutional Class
9/30/05 4.48% 4%
9/30/04 4.42 8
9/30/03 /10/ 4.76 37
9/30/02 /10/ 4.81 12
9/30/01 /10/ 4.93 32
Service Class
9/30/05 4.21% 4%
9/30/04 4.22 8
9/30/03 /10/ 4.39 37
9/30/02 /10/ 4.52 12
9/30/01 /10/ 4.63 32
Investor A Class
9/30/05 4.11% 4%
9/30/04 3.97 8
9/30/03 /10/ 4.24 37
9/30/02 /10/ 4.35 12
9/30/01 /10/ 4.47 32
Investor B Class
9/30/05 3.48% 4%
9/30/04 3.31 8
9/30/03 /10/ 3.46 37
9/30/02 /10/ 3.54 12
9/30/01 /10/ 3.62 32
Investor C Class
9/30/05 3.49% 4%
9/30/04 3.31 8
9/30/03 /10/ 3.50 37
9/30/02 /10/ 3.44 12
9/30/01 /10/ 3.57 32
/7/ Calculated using the average shares outstanding method.
/8/ Less than $(.01) per share.
/9/ Not Annualized.
/10/ Audited by other auditors.
/11/ Less than $1,000.
51
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS
(A) Organization
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 50 registered portfolios, seven 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, mostly due to differences in distribution and
service fees. As of September 30, 2005, no Hilliard Lyons Shares were
outstanding.
Under the Fund's organizational documents, its officers and trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts with its vendors and others that provide for general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund.
However, based on experience, the Fund considers the risk of loss from such
claims to be remote.
(B) 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.
Investment Valuation -- Valuation of investments held by each Portfolio is
as follows: fixed income investments are valued by using market quotations or
prices provided by market makers; a portion of the fixed income investments are
valued utilizing one or more pricing services approved by the Board of Trustees
(the "Board"); an option or futures contract is valued at the last sales price
prior to 4:00 p.m. (Eastern time), as quoted on the principal exchange or board
of trade on which such option or futures contract is traded, or in the absence
of a sale, the mean between the last bid and asked prices prior to 4:00 p.m.
(Eastern time); the amortized cost method of valuation will be used with
respect to debt obligations with sixty days or less remaining to maturity
unless the investment adviser and/or sub-adviser under the supervision of the
Board determines that such method does not represent fair value. In the event
that application of these methods of valuation results in a price for an
investment which is deemed not to be representative of the market value of such
investment, the investment will be valued by, under the direction of, or in
accordance with a method approved by the Board as reflecting fair value ("Fair
Value Assets"). The investment adviser and/or sub-adviser will submit its
recommendations regarding the valuation and/or valuation methodologies for Fair
Value Assets to a valuation committee. Such valuation committee may accept,
modify or reject any recommendations. The pricing of all Fair Value Assets
shall be subsequently reported to and ratified by the Board.
When determining the price for a Fair Value Asset, the investment adviser
and/or sub-adviser shall seek to determine the price that the Portfolio might
reasonably expect to receive from the current sale of that asset in an
arm's-length transaction. Fair value determinations shall be based upon all
available factors that the advisor and/or subadvisor deems relevant.
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) 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.
Swap Agreements -- The Portfolios may invest in swap agreements for the
purpose of hedging against changes in interest rates. Swap agreements involve
the exchange by the Portfolios with another party of their respective
commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed rate payments) with respect to a notional amount of
principal. Swaps are marked to market daily based upon quotations from market
makers and the change, if any, is recorded as an unrealized gain or loss in the
Statements of Operations. Net payments of interest are recorded as interest
income or expense. Entering into these agreements involves, to varying degrees,
elements of credit and market risk in excess of the amounts recognized on the
Statements of Net Assets. Such risks involve the possibility that there will be
no liquid market for these agreements, that the counter-party to the agreement
may default on its obligation to perform and that there may be unfavorable
change in the fluctuation of interest and/or exchange rates. There were no swap
agreements held by the Portfolios for the year ending September 30, 2005.
52
BlackRock Funds
As a result of changes in GAAP, the Portfolio's have previously
reclassified periodic payments made under interest rate swap agreements,
previously included within interest income or expense, as a component of
realized gain (loss) in the Statement of Operations. For consistency, similar
reclassifications have been made to amounts appearing in the per share amounts
in prior years financial highlights. Prior year net investment income ratios
in the financial highlights have also been modified accordingly. This
reclassification had no effect on the Portfolio's net asset value, either in
total or per share, or their total increase (decrease) in net assets from
operations during any period. The effects of these reclassifications in the
financial highlights are as follows:
Tax-Free Income
---------------------------------------------------------------
Institutional Service Investor A Investor B Investor C
--------------- --------- ------------ ------------ -----------
Net Investment Income Ratio
9/30/2002 ........................... 0.08% 0.07% 0.07% 0.07% 0.07%
Net Investment Income per Share
9/30/2002 ........................... $0.00 $0.01 $0.00 $0.00 $0.00
Pennsylvania Tax-Free Income
---------------------------------------------------------------
Institutional Service Investor A Investor B Investor C
--------------- --------- ------------ ------------ -----------
Net Investment Income Ratio
9/30/2002 ........................... 0.06% 0.06% 0.06% 0.07% 0.07%
Net Investment Income per Share
9/30/2002 ........................... $0.00 $0.00 $0.00 $0.00 $0.01
New Jersey Tax-Free Income
---------------------------------------------------------------
Institutional Service Investor A Investor B Investor C
--------------- --------- ------------ ------------ -----------
Net Investment Income Ratio
9/30/2002 ........................... 0.06% 0.05% 0.05% 0.05% 0.05%
Net Investment Income per Share
9/30/2002 ........................... $0.01 $0.01 $0.01 $0.01 $0.01
Ohio Tax-Free Income
---------------------------------------------------------------
Institutional Service Investor A Investor B Investor C
--------------- --------- ------------ ------------ -----------
Net Investment Income Ratio
9/30/2002 ........................... 0.04% 0.05% 0.05% 0.05% 0.05%
Net Investment Income per Share
9/30/2002 ........................... $0.00 $0.01 $0.00 $0.01 $0.01
Delaware Tax-Free Income
---------------------------------------------------------------
Institutional Service Investor A Investor B Investor C
--------------- --------- ------------ ------------ -----------
Net Investment Income Ratio
9/30/2002 ........................... 0.06% 0.06% 0.05% 0.06% 0.05%
Net Investment Income per Share
9/30/2002 ........................... $0.00 $0.00 $0.01 $0.01 $0.00
Kentucky Tax-Free Income
---------------------------------------------------------------
Institutional Service Investor A Investor B Investor C
--------------- --------- ------------ ------------ -----------
Net Investment Income Ratio
9/30/2002 ........................... 0.05% 0.06% 0.06% 0.06% 0.06%
Net Investment Income per Share
9/30/2002 ........................... $0.00 $0.00 $0.00 $0.01 $0.01
53
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Investment Transactions and Investment Income -- Investment transactions
are accounted for on the trade date. The cost of investments sold and the
related gain or loss is determined by use of the specific identification
method, generally first-in first-out, for both financial reporting and federal
income tax purposes. Interest income is recorded on the accrual basis.
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.
Futures Transactions -- The Portfolios may invest in financial futures
contracts for the purpose of hedging their existing portfolio securities, or
securities that the Portfolios intend to purchase, against fluctuations in
value caused by changes in prevailing market interest rates or for leverage.
Upon entering into a futures contract, a Portfolio is required to deposit cash
or pledge securities as 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 cumulative 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 market, resulting in an inability to
liquidate 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. There were
no futures held by the Portfolios at September 30, 2005.
Tender Option Bonds -- A tender option bond is a synthetic floating or
variable rate security issued when long term bonds are purchased in the primary
or secondary market and are then deposited into a trust. Custodial receipts are
then issued to investors, such as the Portfolios, evidencing ownership
interests in the trust. The remarketing agent for the trust sets a floating or
variable rate on typically a weekly basis. The creation of tender option bond
trusts fulfills two objectives which municipal securities are deposited into
the trusts: (i) the creation of the P-floats, the terms of which mimic, in
certain respects, the variable rate demand securities issued in the primary
municipal securities market, and (ii) the creation of a residual interest,
which establishes an economically leveraged position in the municipal
securities. Tender option bonds may be considered to be derivatives.
Derivatives involve special risks, including possible default by the other
party to the transaction, illiquidity and, to the extent the adviser's view as
to certain market movements is incorrect, the risk that the use of derivatives
could result in significantly greater losses than if they had not been used.
Option Writing/Purchasing -- The Portfolios may write or purchase financial
options contracts for the purpose of hedging or earning additional income,
which may be deemed speculative. When the Portfolios write or purchase an
option, an amount equal to the premium received or paid by the Portfolios 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
Portfolios 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 Portfolios have realized a gain or a loss on investment
transactions. The Portfolios, as writers of options, may have no control over
whether the underlying securities may be sold (call) or purchased (put) and as
a result bear the market risk of unfavorable change in the price of the
security underlying the written options. There were no options held by the
Portfolios at September 30, 2005.
Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("generally accepted accounting principles") requires the use of management
estimates. Actual results could differ from these estimates.
Transfers In-Kind -- For the period ended September 30, 2004, certain
shareholders of the UltraShort Municipal Portfolio and the Tax-Free Income
Portfolio transferred cash and securities with a value of $26,907,505 and
$93,607,559, respectively, in exchange for Portfolio shares. The securities
contributed were subject to a taxable event prior to the in-kind transfers to
the Portfolios and had the same market value and cost basis as of the date of
transfer. Accordingly, for purposes of generally accepted accounting
principles, the book cost of any securities transferred in-kind to the
Portfolios were equal to the market value of such securities on their date of
contribution to the Portfolios resulting in no difference between book cost and
tax cost. There were no securities transferred in-kind to the Portfolios during
the year ended September 30, 2005.
54
BlackRock Funds
Other -- Expenses that are directly related to one of the Portfolios are
charged directly to that Portfolio. Other operating expenses are prorated to
the Portfolios on the basis of relative net assets. Class-specific expenses are
borne by that class. Differences in net expense ratios between classes of a
Portfolio are due to class-specific expenses, waivers and accrual adjustments.
Income, other expenses and realized and unrealized gains and losses of a
Portfolio are allocated to the respective class on the basis of the relative
net assets each day.
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.
Class-Specific Fee Arrangements
Portfolio Share Classes
--------- ---------------------------------------------------------------------
BlackRock Institutional Service
--------------------- ---------------------- ---------------------
Contractual Actual Contractual Actual Contractual Actual
Fees Fees(4) Fees Fees(4) Fees(1) Fees(4)
----------- ------- ----------- ------- ----------- -------
UltraShort Municipal None None None None 0.25% 0.25%
Tax-Free Income None None None None 0.25% 0.25%
Pennsylvania Tax-Free Income N/A N/A None None 0.25% 0.25%
New Jersey Tax-Free Income N/A N/A None None 0.25% 0.25%
Ohio Tax-Free Income N/A N/A None None 0.25% 0.25%
Delaware Tax-Free Income N/A N/A None None 0.25% N/A
Kentucky Tax-Free Income N/A N/A None None 0.25% 0.25%
Portfolio Share Classes
--------- ---------------------------------------------------------------------
Investor A Investor B Investor C
--------------------- ---------------------- ---------------------
Contractual Actual Contractual Actual Contractual Actual
Fees Fees(4) Fees Fees(4) Fees(1) Fees(4)
----------- ------- ----------- ------- ----------- -------
UltraShort Municipal 0.35% 0.25% N/A N/A N/A N/A
Tax-Free Income 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
Pennsylvania Tax-Free Income 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
New Jersey Tax-Free Income 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
Ohio Tax-Free Income 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
Delaware Tax-Free Income 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
Kentucky Tax-Free Income 0.35% 0.25% 1.00% 1.00% 1.00% 1.00%
(1) - the maximum annual contractual fees are comprised of a .25% service fee.
(2) - the maximum annual contractual fees are comprised of a .10% distribution
fee and a .25% service fee.
(3) - the maximum annual contractual fees are comprised of a .75% distribution
fee and a .25% service fee.
(4) - the actual fees are as of September 30, 2005.
The BlackRock share class bears a transfer agent fee at an annual rate not
to exceed 0.005% of its average daily net assets plus per account fees and
disbursements, and each of the Institutional, Service, Investor A, Investor B
and Investor C share classes bear a tranfer agent fee at an annual rate not to
exceed 0.018% of the average daily net assets of such respective classes plus
per account fees and disbursements.
For the year ended September 30, 2005, the following shows the various
types of class-specific expenses borne directly by each class of each Portfolio
and any associated waivers of those expenses.
Share Classes
Administration Fees ----------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C Total
----------- --------------- --------- ------------ ------------ ------------ ----------
UltraShort Municipal ................... $ 10,991 $ 17,443 $ -- $ 3 $ -- $ -- $28,437
Tax-Free Income ........................ 35,552 438,502 3,631 12,818 7,637 3,544 501,684
Pennsylvania Tax-Free Income ........... -- 885,840 7,500 46,584 24,052 2,618 966,594
New Jersey Tax-Free Income ............. -- 211,701 22,651 9,569 16,549 4,321 264,791
Ohio Tax-Free Income ................... -- 145,390 1,096 9,559 14,470 9,093 179,608
Delaware Tax-Free Income ............... -- 76,329 -- 20,061 11,889 20,269 128,548
Kentucky Tax-Free Income ............... -- 107,095 352 8,203 5,663 1,992 123,305
55
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Administration Fees Waived Share Classes
----------------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C Total
------------- --------------- ----------- -------------- ------------ ------------ -------------
UltraShort Municipal ............. $(10,991) $ (6,843) $ -- $ -- $ -- $ -- $ (17,834)
Tax-Free Income .................. (35,552) (22,906) -- -- -- -- (58,458)
Pennsylvania Tax-Free Income ..... -- (885,840) (7,100) -- -- -- (892,940)
New Jersey Tax-Free Income ....... -- (211,701) (14,814) -- -- -- (226,515)
Ohio Tax-Free Income ............. -- (145,390) (710) -- -- -- (146,100)
Delaware Tax-Free Income ......... -- (76,329) -- -- -- -- (76,329)
Kentucky Tax-Free Income ......... -- (107,095) (232) -- -- -- (107,327)
Transfer Agent Fees Share Classes
----------------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C Total
------------- --------------- ----------- -------------- ------------ ------------ ---------------
UltraShort Municipal ............. $1,570 $ 2,167 $ -- $ -- $ -- $ -- $ 3,737
Tax-Free Income .................. 5,079 54,434 450 1,591 948 440 62,942
Pennsylvania Tax-Free Income ..... -- 111,445 931 5,783 2,986 325 121,470
New Jersey Tax-Free Income ....... -- 26,280 2,812 1,188 2,055 536 32,871
Ohio Tax-Free Income ............. -- 18,048 137 1,187 1,796 1,129 22,297
Delaware Tax-Free Income ......... -- 9,476 -- 2,491 1,476 2,516 15,959
Kentucky Tax-Free Income ......... -- 13,294 44 1,018 703 247 15,306
Shareholder Service Fees Share Classes
------------------------------------------------------
Service Investor A Investor B Investor C Total
--------- ------------ ------------ ------------ ----------
UltraShort Municipal ............. $ -- $ 5 $ -- $ -- $ 5
Tax-Free Income .................. 6,258 22,148 13,164 6,107 47,677
Pennsylvania Tax-Free Income ..... 15,027 80,297 41,380 4,513 141,217
New Jersey Tax-Free Income ....... 39,022 16,391 28,539 7,450 91,402
Ohio Tax-Free Income ............. 1,892 16,501 24,946 15,682 59,021
Delaware Tax-Free Income ......... -- 33,669 20,357 34,944 88,970
Kentucky Tax-Free Income ......... 606 14,129 9,768 3,433 27,936
Distribution Fees Share Classes
------------------------------------------
Investor A Investor B Investor C Total
------------ ------------ ------------ ----------
UltraShort Municipal ............. $ 2 $ -- $ -- $ 2
Tax-Free Income .................. 8,837 39,492 18,322 66,651
Pennsylvania Tax-Free Income ..... 32,065 124,305 13,537 169,907
New Jersey Tax-Free Income ....... 6,614 85,615 22,352 114,581
Ohio Tax-Free Income ............. 6,628 74,838 47,048 128,514
Delaware Tax-Free Income ......... 13,851 61,491 104,833 180,175
Kentucky Tax-Free Income ......... 5,667 29,304 10,299 45,270
Distribution Fees Waived Share Class
-----------
Investor A Total
----------- --------
UltraShort Municipal ............. $ (2) $ (2)
Tax-Free Income .................. (8,837) (8,837)
Pennsylvania Tax-Free Income ..... (32,065) (32,065)
New Jersey Tax-Free Income ....... (6,614) (6,614)
Ohio Tax-Free Income ............. (6,628) (6,628)
Delaware Tax-Free Income ......... (13,851) (13,851)
Kentucky Tax-Free Income ......... (5,667) (5,667)
56
BlackRock Funds
(C) 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.
For its advisory services, BlackRock is entitled to receive fees, computed
daily and payable monthly, at the following annual rates, based on each
Portfolio's average daily net assets:
Tax-free Income, Pennsylvania Delaware Tax-Free
Tax-Free Income, New Jersey Tax-Free Income Income and Kentucky
and Ohio Tax-Free Income Portfolios Tax-Free Income Portfolios
--------------------------------------------- ---------------------------
Investment Investment
Average Daily Net Assets Advisory Fee Advisory Fee
- --------------------------- --------------------------------------------- ---------------------------
first $1 billion 0.500% 0.550%
$1 billion -- $2 billion 0.450 0.500
$2 billion -- $3 billion 0.425 0.475
greater than $3 billion 0.400 0.450
The investment advisory fee for the UltraShort Municipal Portfolio is
..45%.
For the year ended September 30, 2005, advisory fees and waivers for each
Portfolio were as follows:
Gross Net
Advisory Advisory
Fee Waiver Fee
------------ ------------ ------------
UltraShort Municipal ................. $ 195,478 $ 172,253 $ 23,225
Tax-Free Income ...................... 2,114,853 937,506 1,177,347
Pennsylvania Tax-Free Income ......... 3,373,547 444,733 2,928,814
New Jersey Tax-Free Income ........... 912,954 176,862 736,092
Ohio Tax-Free Income ................. 619,640 127,833 491,807
Delaware Tax-Free Income ............. 487,503 66,090 421,413
Kentucky Tax-Free Income ............. 467,708 57,002 410,706
In the interest of limiting the expenses of the Portfolios, BlackRock and
the Fund have entered into a series of annual expense limitation agreements.
The agreements set a limit on certain 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 the
aggregate expenses incurred on a share class (excluding: interest, taxes,
brokerage commissions and other extraordinary expenses).
BlackRock has contractually agreed to waive or reimburse fees or expenses
until February 1, 2006, in order to limit expenses as follows. This agreement
is reviewed annually by the Fund's Board.
Portfolio Share Classes
---------------------------------------------------------------------------
BlackRock Institutional Service Investor A Investor B Investor C
----------- --------------- --------- ------------ ------------ -----------
UltraShort Municipal ................. 0.35% 0.45% 0.75% 0.80% NA NA
Tax-Free Income ...................... 0.45% 0.60% 0.90% 1.07% 1.82% 1.82%
Pennsylvania Tax-Free Income ......... NA 0.60% 0.90% 1.07% 1.82% 1.82%
New Jersey Tax-Free Income ........... NA 0.60% 0.90% 1.07% 1.82% 1.82%
Ohio Tax-Free Income ................. NA 0.60% 0.90% 1.07% 1.82% 1.82%
Delaware Tax-Free Income ............. NA 0.70% NA 1.17% 1.92% 1.92%
Kentucky Tax-Free Income ............. NA 0.70% 1.00% 1.17% 1.91% 1.91%
57
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
If in the following three years the operating expenses of a share class
that previously received a waiver or reimbursement from BlackRock are less than
the expense limit for that share class, the share class is required to repay
BlackRock up to the amount of fees waived or expenses reimbursed under the
agreement if: (1) the Portfolio of which the share class is a part 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 at the previous quarterly meeting.
At September 30, 2005, the amounts subject to possible future
reimbursement under the expense limitation agreement are as follows:
Expiring Expiring Expiring Total Waivers Subject
Janaury 31, 2006 January 31, 2007 January 31, 2008 to Reimbursement
------------------ ------------------ ------------------ ----------------------
UltraShort Municipal ................. $ -- $ 269,648 $ 120,858 $ 390,506
Tax-Free Income ...................... 623,251 983,261 621,432 2,227,944
Pennsylvania Tax-Free Income ......... 1,383,044 1,357,799 834,314 3,575,157
New Jersey Tax-Free Income ........... 278,302 406,182 248,274 932,758
Ohio Tax-Free Income ................. 174,280 259,458 168,380 602,118
Delaware Tax-Free Income ............. 91,563 138,237 68,112 297,912
Kentucky Tax-Free Income ............. 138,922 171,865 110,262 421,049
The following waivers previously incurred on the portfolios which were
subject to recoupment by BlackRock expired on January 31, 2005, in the amounts
of $610,832 for Tax-Free Income, $1,493,625 for Pennsylvania Tax-Free Income,
$281,833 for New Jersey Tax-Free Income, $167,924 for Ohio Tax-Free Income,
$124,793 for Delaware Tax-Free Income, and $185,455 for Kentucky Tax-Free
Income.
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:
0.085% of the first $500 million, 0.075% of the next $500 million and 0.065% of
assets in excess of $1 billion. In addition, each of the classes, with the
exception of the BlackRock Class, is charged an administration fee based on the
following percentage of average daily net assets of each respective class:
0.145% of the first $500 million, 0.135% of the next $500 million and 0.125% of
assets in excess of $1 billion. The BlackRock Class is charged an
administration fee based on the following percentage of average daily net
assets: 0.035% of the first $500 million, 0.025% of the next $500 million and
0.015% of assets in excess of $1 billion. In addition, PFPC and BlackRock may
have, at their discretion, voluntarily waived all or any portion of their
administration fees for any Portfolio or share class.
PFPC Trust Co., an indirect subsidiary of The PNC Financial Services
Group, Inc., serves as custodian for each of the Fund's Portfolios. PFPC serves
as transfer and dividend disbursing agent. The custodian and the transfer agent
have voluntarily agreed to waive a portion of their fees during the period.
Since January 31, 2005, BlackRock has maintained a call center which is
responsible for providing certain shareholder services to the BlackRock Funds,
such as responding to shareholder inquiries and processing transactions based
upon instructions from shareholders with respect to the subscription and
redemption of fund shares. During the period February 1, 2005 through September
30, 2005, the following amounts have been accrued by each portfolio to
reimburse BlackRock for costs incurred running the call center, which are a
component of the Transfer Agent fees in the accompanying Statement of
Operations.
58
BlackRock Funds
BlackRock Institutional Service Investor A Investor B Investor C Total
----------- --------------- --------- ------------ ------------ ------------ ----------
UltraShort Municipal ................. $2,479 $ 907 $ -- $ -- $ -- $ -- $ 3,386
Tax-Free Income ...................... 7,895 23,108 192 847 396 194 32,632
Pennsylvania Tax-Free Income ......... -- 44,126 366 2,294 1,149 126 48,061
New Jersey Tax-Free Income ........... -- 10,990 1,182 502 864 227 13,765
Ohio Tax-Free Income ................. -- 7,915 60 583 766 492 9,816
Delaware Tax-Free Income ............. -- 3,662 -- 1,096 614 1,055 6,427
Kentucky Tax-Free Income ............. -- 5,590 19 440 299 116 6,464
Pursuant to the Fund's Amended and Restated Distribution and Service Plan
(the "Plan"), the Fund may pay BlackRock Distributors, Inc. (the "Distributor")
and/or BlackRock or any other affiliate of PNC Financial Services Group, Inc.
fees for distribution and sales support services. Currently, only Investor A
Shares, Investor B Shares, and Investor C Shares bear the expense of
distribution fees under the Plan. In addition, the Fund may pay brokers,
dealers, financial institutions and industry professionals (including PNC
Financial Services Group, Inc. and its affiliates) ("service organizations")
fees for the provision of personal services to shareholders. BlackRock may
receive some of the service fees paid by the Fund in return for providing
services to shareholders. Currently, only Investor A Shares, Investor B Shares,
Investor C Shares and Service Shares bear the expense of service fees under the
Plan.
At September 30, 2005, affiliated payables were as follows:
PNC Bank
PFPC(1) BlackRock(2) Affiliates(3)
--------- -------------- --------------
UltraShort Municipal ................. $ 3,529 $ 2,411 $ 4
Tax-Free Income ...................... 33,766 136,370 8,265
Pennsylvania Tax-Free Income ......... 53,090 282,147 19,769
New Jersey Tax-Free Income ........... 15,550 68,774 15,510
Ohio Tax-Free Income ................. 10,962 46,930 15,425
Delaware Tax-Free Income ............. 7,398 33,757 20,166
Kentucky Tax-Free Income ............. 7,117 35,261 5,061
(1) - payables to PFPC are for Accounting, Administration, Custody and Transfer
Agent services provided.
(2) - payables to BlackRock are for Advisory and Administration services
provided and for amounts due BlackRock for costs incurred related to the
BlackRock Funds Call Center.
(3) - payables to PNC affiliates are for distribution and sales support
services as described under the Plan. The total payable on behalf of the
Fund was $5,313,103, a portion of which is paid to service organizations,
including other PNC Bank affiliates.
(D) Purchases and Sales of Securities
For the year ended September 30, 2005, purchases and sales of securities,
other than short-term and U.S. government securities, were as follows:
Purchases Sales
--------------- ---------------
UltraShort Municipal ................. $ 18,781,493 $ 10,038,600
Tax-Free Income ...................... 370,097,202 356,338,059
Pennsylvania Tax-Free Income ......... 99,610,584 82,400,528
New Jersey Tax-Free Income ........... 29,848,587 30,775,360
Ohio Tax-Free Income ................. 13,660,187 699,500
Delaware Tax-Free Income ............. 9,708,145 4,114,260
Kentucky Tax-Free Income ............. 3,604,330 9,763,612
59
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
(E) Capital Shares
Transactions in capital shares for each period were as follows:
UltraShort Municipal
-----------------------------------------------------------------------
For the year ended for the period 3/3/04 /1/
9/30/05 through 9/30/04
----------------------------------- ---------------------------------
Shares Value Shares Value
--------------- ----------------- --------------- ---------------
Shares sold:
BlackRock Class ......................... 2,236,236 $ 22,229,904 4,724,012 $ 47,096,162
Institutional Class ..................... 531,983 5,283,813 2,199,629 21,849,294
Service Class ........................... -- -- 10 100
Investor A Class ........................ 4,970 50,016 10 100
Shares issued in reinvestment of dividends:
BlackRock Class ......................... 59,428 590,642 14,923 148,416
Institutional Class ..................... 1,684 16,722 -- --
Service Class ........................... -- -- -- --
Investor A Class ........................ 3 26 -- --
Shares redeemed:
BlackRock Class ......................... (2,249,340) (22,360,127) (1,519,207) (15,113,395)
Institutional Class ..................... (907,432) (9,011,740) (773,181) (7,676,565)
Service Class ........................... -- -- -- --
Investor A Class ........................ (4,897) (49,260) -- --
---------- ------------- ---------- -------------
Net increase (decrease) ................... (327,365) $ (3,250,004) 4,646,196 $ 46,304,112
========== ============= ========== =============
Tax-Free Income
-------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
------------------------------------ ----------------------------------
Shares Value Shares Value
--------------- ------------------ --------------- ----------------
Shares sold:
BlackRock Class ......................... 224,255 $ 2,503,094 9,128,740 $ 102,454,056
Institutional Class ..................... 3,591,390 39,912,181 5,197,884 58,332,260
Service Class ........................... 52,330 581,800 12,138 134,680
Investor A Class ........................ 597,804 6,639,654 90,300 1,006,406
Investor B Class ........................ 54,741 608,534 85,989 957,137
Investor C Class ........................ 60,412 671,999 203,583 2,287,251
Shares issued in reinvestment of dividends:
BlackRock Class ......................... 386,166 4,293,119 295,571 3,273,698
Institutional Class ..................... 13,010 144,802 22,060 245,557
Service Class ........................... 5,756 63,944 7,420 82,417
Investor A Class ........................ 18,237 203,038 20,632 229,513
Investor B Class ........................ 6,196 68,962 9,385 104,430
Investor C Class ........................ 3,130 34,844 5,870 65,165
Shares redeemed:
BlackRock Class ......................... (1,876,330) (20,731,399) (376,828) (4,117,585)
Institutional Class ..................... (4,444,782) (49,461,550) (7,311,723) (81,231,082)
Service Class ........................... (91,144) (1,012,587) (41,170) (456,705)
Investor A Class ........................ (494,809) (5,504,634) (181,146) (2,006,621)
Investor B Class ........................ (149,127) (1,658,868) (205,514) (2,279,774)
Investor C Class ........................ (116,657) (1,300,425) (175,171) (1,943,626)
---------- -------------- ---------- -------------
Net increase (decrease) ................... (2,159,422) $ (23,943,492) 6,788,020 $ 77,137,177
========== ============== ========== =============
/1/ Commencement of operations.
60
BlackRock Funds
Pennsylvania Tax-Free Income
-------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
------------------------------------ ----------------------------------
Shares Value Shares Value
--------------- ------------------ --------------- ----------------
Shares sold:
Institutional Class .................... 8,822,824 $ 93,341,728 3,393,820 $ 36,620,210
Service Class .......................... 48,976 517,224 121,865 1,314,949
Investor A Class ....................... 348,356 3,686,712 404,459 4,358,919
Investor B Class ....................... 34,768 366,250 82,825 888,178
Investor C Class ....................... 34,135 357,808 81,677 882,020
Shares issued in reinvestment of dividends:
Institutional Class .................... 97,496 1,030,731 15,321 164,756
Service Class .......................... 12,728 134,722 14,290 153,757
Investor A Class ....................... 106,902 1,130,750 92,369 994,378
Investor B Class ....................... 45,852 482,072 47,030 502,847
Investor C Class ....................... 3,826 40,313 4,685 50,309
Shares redeemed:
Institutional Class .................... (9,131,240) (96,572,101) (13,577,018) (145,736,580)
Service Class .......................... (144,415) (1,530,324) (160,769) (1,734,866)
Investor A Class ....................... (747,020) (7,903,793) (627,889) (6,748,260)
Investor B Class ....................... (631,808) (6,644,992) (574,808) (6,142,499)
Investor C Class ....................... (47,135) (496,282) (88,192) (938,115)
---------- -------------- ----------- ---------------
Net decrease .............................. (1,145,755) $ (12,059,182) (10,770,335) $ (115,369,997)
========== ============== =========== ===============
New Jersey Tax-Free Income
-------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
------------------------------------ ----------------------------------
Shares Value Shares Value
--------------- ------------------ --------------- ----------------
Shares sold:
Institutional Class .................... 1,537,821 $ 17,984,593 7,071,031 $ 83,943,469
Service Class .......................... 29,258 343,064 36,098 424,155
Investor A Class ....................... 237,446 2,775,458 175,837 2,067,412
Investor B Class ....................... 42,331 494,772 89,465 1,045,404
Investor C Class ....................... 40,719 476,873 201,895 2,365,738
Shares issued in reinvestment of dividends:
Institutional Class .................... 5,921 69,071 995 11,668
Service Class .......................... 35,652 416,398 39,168 457,776
Investor A Class ....................... 16,564 193,299 13,342 155,762
Investor B Class ....................... 21,648 252,755 23,715 277,360
Investor C Class ....................... 5,243 61,375 3,197 37,267
Shares redeemed:
Institutional Class .................... (2,623,161) (30,654,400) (4,662,761) (55,129,130)
Service Class .......................... (141,208) (1,651,138) (113,893) (1,324,603)
Investor A Class ....................... (113,443) (1,322,639) (167,909) (1,952,173)
Investor B Class ....................... (119,681) (1,402,303) (165,180) (1,909,634)
Investor C Class ....................... (157,599) (1,837,993) (78,058) (899,443)
---------- -------------- ---------- --------------
Net increase (decrease) ................... (1,182,489) $ (13,800,815) 2,466,942 $ 29,571,028
========== ============== ========== ==============
61
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Ohio Tax-Free Income
---------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
------------------------------- -----------------------------------
Shares Value Shares Value
------------- --------------- --------------- -----------------
Shares sold:
Institutional Class .................... 1,340,116 $ 14,494,665 1,370,914 $ 14,795,802
Service Class .......................... 11,495 124,427 71,578 778,171
Investor A Class ....................... 412,979 4,460,886 145,363 1,578,175
Investor B Class ....................... 78,964 854,690 96,886 1,053,035
Investor C Class ....................... 267,788 2,898,539 155,647 1,694,055
Shares issued in reinvestment of dividends:
Institutional Class .................... 8,467 91,428 5,107 55,174
Service Class .......................... 2,768 29,918 1,460 15,778
Investor A Class ....................... 20,430 220,359 11,911 128,852
Investor B Class ....................... 6,538 70,609 6,384 69,064
Investor C Class ....................... 2,565 27,698 2,224 24,072
Shares redeemed:
Institutional Class .................... (792,870) (8,549,796) (1,464,476) (15,752,815)
Service Class .......................... (9,486) (101,664) (75,650) (821,133)
Investor A Class ....................... (62,962) (679,488) (383,242) (4,156,049)
Investor B Class ....................... (144,619) (1,562,181) (120,222) (1,301,519)
Investor C Class ....................... (103,937) (1,124,869) (188,841) (2,039,292)
--------- ------------ ---------- -------------
Net increase (decrease) ................... 1,038,236 $ 11,255,221 (364,957) $ (3,878,630)
========= ============ ========== =============
Delaware Tax-Free Income
-------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
---------------------------------- ------------------------------
Shares Value Shares Value
--------------- ---------------- ------------- --------------
Shares sold:
Institutional Class .................... 986,401 $ 9,946,873 907,119 $ 9,185,613
Investor A Class ....................... 271,815 2,745,395 537,513 5,444,902
Investor B Class ....................... 55,487 559,640 133,384 1,344,342
Investor C Class ....................... 139,825 1,408,625 326,399 3,319,846
Shares issued in reinvestment of dividends:
Institutional Class .................... 4,948 49,774 6,251 63,280
Investor A Class ....................... 27,261 274,272 20,590 207,937
Investor B Class ....................... 5,775 58,131 6,746 68,269
Investor C Class ....................... 5,281 53,146 5,629 56,858
Shares redeemed:
Institutional Class .................... (1,653,128) (16,614,334) (863,835) (8,735,695)
Investor A Class ....................... (119,168) (1,197,713) (129,041) (1,313,910)
Investor B Class ....................... (152,705) (1,536,227) (123,902) (1,246,188)
Investor C Class ....................... (237,132) (2,385,338) (320,378) (3,214,949)
---------- ------------- -------- ------------
Net increase (decrease) ................... (665,340) $ (6,637,756) 506,475 $ 5,180,305
========== ============= ======== ============
62
BlackRock Funds
Kentucky Tax-Free Income
-------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/05 9/30/04
---------------------------------- ------------------------------------
Shares Value Shares Value
--------------- ---------------- --------------- ------------------
Shares sold:
Institutional Class .................... 565,644 $ 5,528,249 494,416 $ 4,824,174
Service Class .......................... 1,020 9,900 17,525 169,829
Investor A Class ....................... 195,578 1,909,210 166,891 1,621,801
Investor B Class ....................... 13,530 132,160 56,399 548,160
Investor C Class ....................... 64,488 629,892 19,781 192,586
Shares issued in reinvestment of dividends:
Institutional Class .................... 2,871 27,988 7,612 74,196
Service Class .......................... 581 5,672 307 2,958
Investor A Class ....................... 13,383 130,544 15,451 149,776
Investor B Class ....................... 8,118 79,206 8,650 83,912
Investor C Class ....................... 2,641 25,845 3,218 31,285
Shares redeemed:
Institutional Class .................... (1,296,495) (12,649,723) (4,210,095) (40,628,351)
Service Class .......................... (1,382) (13,451) (3,003) (28,979)
Investor A Class ....................... (114,460) (1,115,126) (100,071) (961,863)
Investor B Class ....................... (53,030) (517,295) (53,053) (513,591)
Investor C Class ....................... (113,998) (1,112,008) - -
---------- ------------- ---------- --------------
Net decrease .............................. (711,511) $ (6,928,937) (3,575,972) $ (34,434,107)
========== ============= ========== ==============
On September 30, 2005, five shareholders held approximately 88% of the
UltraShort Municipal Portfolio, two shareholders held approximately 78% of the
Tax-Free Income Portfolio, one shareholder held approximately 86% of the
Pennsylvania Tax-Free Income Portfolio, one shareholder held approximately 78%
of the New Jersey Tax-Free Income Portfolio, one shareholder held approximately
73% of the Ohio Tax-Free Income Portfolio, three shareholders held
approximately 73% of the Delaware Tax-Free Income Portfolio and one shareholder
held approximately 81% of the Kentucky Tax-Free Income Portfolio. Some of the
shareholders are comprised of omnibus accounts, which are held on behalf of
several individual shareholders.
63
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
(F) At September 30, 2005 net assets consisted of:
Pennsylvania New Jersey
UltraShort Tax-Free Tax-Free Tax-Free
Municipal Income Income Income
--------------- ---------------- ---------------- ----------------
Capital paid-in ............................................. $ 43,054,108 $ 403,737,854 $ 661,339,836 $ 169,082,112
End of period undistributed net investment income
(distributions in excess of net investment income) ......... -- 900,332 188,150 (226,463)
Accumulated net realized loss on investment transactions
and futures contracts ...................................... (61,066) (22,585,928) (46,108,695) (7,686,779)
Net unrealized appreciation/depreciation on investment
transactions and futures contracts ......................... (107,204) 17,654,762 44,913,465 11,559,096
------------ ------------- ------------- -------------
$ 42,885,838 $ 399,707,020 $ 660,332,756 $ 172,727,966
============ ============= ============= =============
Ohio Delaware Kentucky
Tax-Free Tax-Free Tax-Free
Income Income Income
---------------- --------------- ---------------
Capital paid-in ............................................. $ 122,001,567 $ 80,024,090 $ 79,976,674
End of period undistributed net investment income
(distributions in excess of net investment income) ......... (142,938) (179,327) 577,813
Accumulated net realized loss on investment transactions
and futures contracts ...................................... (3,847,778) (2,656,961) (4,962,247)
Net unrealized appreciation on investment transactions and
futures contracts .......................................... 8,585,874 4,831,793 6,736,460
------------- ------------ ------------
$ 126,596,725 $ 82,019,595 $ 82,328,700
============= ============ ============
(G) Federal Tax Information
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. Short-term capital gain distributions that are reported in the
Statement of Changes in Net Assets are reported as ordinary income for federal
tax purposes. There were no short-term or long-term capital gains distributions
for the year ended September 30, 2005.
Dividends from net investment income and distributions from net realized
capital gains are determined in accordance with U.S. Federal income tax
regulations, which may differ from those amounts determined under accounting
principles generally accepted in the United States.
As of September 30, 2005, the following permanent differences attributable
to market discount were reclassified to the following accounts:
Increase (Decrease)
Accumulated Undistributed
Decrease Net Realized Net Investment
Paid in-Capital Gain Income
----------------- -------------- ---------------
UltraShort Municipal ................. $-- $ -- $ --
Tax-Free Income ...................... -- 22,750 (22,750)
Pennsylvania Tax-Free Income ......... -- 33,065 (33,065)
New Jersey Tax-Free Income ........... -- 22,725 (22,725)
Ohio Tax-Free Income ................. -- 49,270 (49,270)
Delaware Tax-Free Income ............. -- 572 (572)
Kentucky Tax-Free Income ............. -- 9,396 (9,396)
64
BlackRock Funds
The tax character of distributions paid during the years ended September
30, 2005 and September 30, 2004 were as follows:
Tax-Free Ordinary Total
Income Income Distributions
------------- ---------- --------------
UltraShort Municipal
9/30/05 ......................................... $ 770,909 $ -- $ 770,909
For the period 3/03/04 /1/ through 9/30/04 ...... 228,525 -- 228,525
Tax-Free Income
9/30/05 ......................................... 17,478,544 -- 17,478,544
9/30/04 ......................................... 18,475,728 -- 18,475,728
Pennsylvania Tax-Free Income
9/30/05 ......................................... 33,000,554 -- 33,000,554
9/30/04 ......................................... 35,861,484 14,600 35,876,084
New Jersey Tax-Free Income
9/30/05 ......................................... 7,656,354 -- 7,656,354
9/30/04 ......................................... 8,362,368 47,469 8,409,837
Ohio Tax-Free Income
9/30/05 ......................................... 5,669,535 -- 5,669,535
9/30/04 ......................................... 5,272,616 -- 5,272,616
Delaware Tax-Free Income
9/30/05 ......................................... 3,442,702 -- 3,442,702
9/30/04 ......................................... 3,997,046 -- 3,997,046
Kentucky Tax-Free Income
9/30/05 ......................................... 3,075,463 -- 3,075,463
9/30/04 ......................................... 4,721,493 44,470 4,765,963
/1/ Commencement of operations.
As of September 30, 2005, the tax components of distributable
earnings/(accumulated losses) were as follows:
Undistributed Accumulated Post-
Tax-Free Capital October
Income Losses Losses
--------------- ---------------- --------------
UltraShort Municipal ................. $ 17,470 $ (32,641) $ (28,425)
Tax-Free Income ...................... 1,879,622 (22,035,923) (547,504)
Pennsylvania Tax-Free Income ......... 1,894,243 (45,700,701) (269,411)
New Jersey Tax-Free Income ........... 167,826 (7,686,779) --
Ohio Tax-Free Income ................. 114,217 (3,533,923) (313,855)
Delaware Tax-Free Income ............. 27,699 (2,512,593) (81,428)
Kentucky Tax-Free Income ............. 760,646 (4,934,530) --
The estimated Post-October losses represent losses realized on investment
transactions from November 1, 2004 through September 30, 2005 that, in
accordance with Federal income tax regulations, the Portfolios may defer and
treat as having arisen in the following fiscal year. For Federal income tax
purposes, capital loss carryforwards may be carried forward and applied against
future capital gains.
65
BlackRock Funds
Notes to Financial Statements (Concluded)
At September 30, 2005, the Portfolios had capital loss carryforwards
available to offset future realized capital gains through the indicated
expiration dates:
Expiring September 30
-----------------------------------------
2008 2009 2010
------------- ------------- -------------
UltraShort Municipal ................ $ -- $ -- $ --
Tax-Free Income ...................... 3,717,571 1,756,215 --
Pennsylvania Tax-Free Income ......... 3,981,394 7,641,061 8,626,794
New Jersey Tax-Free Income ........... 733,444 2,652,175 162,686
Ohio Tax-Free Income ................. 41,989 -- --
Delaware Tax-Free Income ............. 83,140 -- --
Kentucky Tax-Free Income ............. 805,091 1,556,368 129,603
Expiring September 30
--------------------------------------------
2011 2012 2013 Total
--------------- ------------- -------------- --------------
UltraShort Municipal ................. $ -- $ 32,641 $ -- $ 32,641
Tax-Free Income ...................... 3,984,021 6,841,418 5,736,698 22,035,923
Pennsylvania Tax-Free Income ......... 15,329,699 -- 10,121,753 45,700,701
New Jersey Tax-Free Income ........... 2,530,579 883,300 724,595 7,686,779
Ohio Tax-Free Income ................. 1,883,560 825,006 783,368 3,533,923
Delaware Tax-Free Income ............. 1,312,264 493,468 623,721 2,512,593
Kentucky Tax-Free Income ............. 2,443,468 -- -- 4,934,530
$200,954 and $1,824 of its capital loss carryforward was used to offset
net taxable gains realized in the fiscal year ended September 30, 2005 for the
Kentucky Tax-Free Income and Ultra Short Municipal funds, respectively.
Wash Sale Tax Gross
Outstanding at Unrealized
9/30/2005 Book Cost Tax Cost Appreciation
---------------- ----------------- --------------- -------------
UltraShort Municipal ............. $ -- $ 42,827,249 $ 42,827,249 $ 1,957
Tax-Free Income .................. 2,500 397,546,425 397,548,925 19,502,358
PA Tax-Free Income ............... 138,585 628,130,574 628,269,159 45,876,612
NJ Tax-Free Income ............... -- 159,352,668 159,352,668 12,315,062
Ohio tax-Free Income ............. -- 119,958,170 119,958,170 8,644,477
DE Tax-Free Income ............... 62,940 78,318,614 78,381,554 5,152,306
Kentucky Tax-Free Income ......... 27,717 74,458,284 74,486,001 6,708,743
Tax Gross Tax Net
Unrealized Appreciation/
Depreciation Depreciation Market Value
------------- ------------- --------------
UltraShort Municipal ............. $ (109,161) $ (107,204) $ 42,720,045
Tax-Free Income .................. (1,850,096) 17,652,262 415,201,187
PA Tax-Free Income ............... (1,101,734) 44,774,878 673,044,037
NJ Tax-Free Income ............... (755,966) 11,559,096 170,911,764
Ohio tax-Free Income ............. (58,603) 8,585,874 128,544,044
DE Tax-Free Income ............... (383,453) 4,768,853 83,150,407
Kentucky Tax-Free Income ......... -- 6,708,743 81,194,744
(H) Concentration of Credit Risk
The Portfolios concentrate their investments in securities issued by state
agencies, other governmental entities and U.S. territories. The Portfolios are
more susceptible to adverse financial, social, environmental, economic,
regulatory and political factors that may affect these states, which could
seriously affect the ability of these states and their municipal subdivisions
to meet continuing obligations for principal and interest payments, than if the
Portfolios were not concentrated in securities issued by state agencies, other
governmental entities and U.S. territories.
66
BlackRock Funds
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
BlackRock Funds:
We have audited the accompanying statements of net assets of the UltraShort
Municipal, Tax-Free Income, Pennsylvania Tax-Free Income, New Jersey Tax-Free
Income, Ohio Tax-Free Income, Delaware Tax-Free Income and Kentucky Tax-Free
Income Portfolios [seven of the fifty portfolios constituting BlackRock Funds
(the "Fund"), collectively the "Portfolios"], as of September 30, 2005 and the
related statements of operations for the year then ended, and the statements of
changes in net assets and financial highlights for each of the two years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights of the Portfolios for the periods ended
September 30, 2003, September 30, 2002 and September 30, 2001, before the
adjustments for the Tax-Free Income, Pennsylvania Tax-Free Income, New Jersey
Tax-Free Income, Ohio Tax-Free Income, Delaware Tax-Free Income and Kentucky
Tax-Free Income Portfolios, described in Note B to the financial statements,
were audited by other auditors whose report, dated November 26, 2003, expressed
an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. The Portfolios are not required to have, nor were we engaged to
perform, an audit of their internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Portfolios' internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of September 30, 2005, by
correspondence with the custodians and brokers; where replies were not received
from brokers, we performed other auditing procedures. We believe that our
audits provide a reasonable basis for our opinion.
We also audited the adjustments described in Note B that were applied to
restate the financial highlights of the Portfolios named above for the period
ended September 30, 2002. In our opinion, such adjustments are appropriate and
have been properly applied.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of the
Portfolios as of September 30, 2005, the results of their operations for the
year ended, and the changes in their net assets and their financial highlights
for each of the two years in the period then ended, in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 25, 2005
67
BlackRock Funds
FUND MANAGEMENT (Unaudited)
Information pertaining to the Trustees and officers of the Fund is set forth
below. The statement of additional information (SAI) includes additional
information about the Trustees and is available without charge, upon request,
by calling (888) 825-2257. Institutional and service share class investors
should call (800) 441-7450.
Number of
Term of Portfolios Total Fund
Office/(1)/ in Fund Other Compensation
Position(s) And Length Complex/(2)/ Directorships for the
Name, Address and Held with of Time Principal Occupation(s) Overseen Held by Year Ending
Age Fund Served During Past Five Years by Trustee Trustee 9/30/05
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
Richard S. Davis/(3)/ Trustee Since 2005 Managing Director, BlackRock, Inc. 55 None N/A
BlackRock, Inc. (since 2005); Chief Executive Officer, (includes
40 E. 52nd Street State Street Research & 50
New York, NY 10022 Management Company (2000-2005); Portfolios
Age: 59 Since 2000 Chairman of the Board of of the Fund
Trustees, State Street Research mutual and 5
funds ("SSR Funds") (2000-2005); Portfolios
Senior Vice President, Metropolitan of
Life Insurance Company (1999-2000); BlackRock
Chairman, SSR Realty (2000-2004). Bond
Allocation
Target
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
Laurence D. Fink/(4)/ Trustee Since 2000 Director, Chairman and Chief 55 Director,
BlackRock, Inc. Executive Officer of BlackRock, Inc. (includes BlackRock, N/A
40 E. 52nd Street since its formation in 1998 and of 50 Inc.
New York, NY 10022 BlackRock, Inc.'s predecessor Portfolios
Age: 52 entities since 1988; Chairman of the of the Fund
Management Committee; formerly, and 5
Managing Director of the First Portfolios
Boston Corporation, Member of its of
Management Committee, Co-head of BlackRock
its Taxable Fixed Income Division Bond
and Head of its Mortgage and Real Allocation
Estate Products Group; Chairman of Target
the Board of Nomura BlackRock Shares)
Asset Management and several of
BlackRock's alternative investment
vehicles; Director of several of
BlackRock's offshore funds;
Co-Chairman of the Board of
Trustees of Mount Sinai-NYU;
Co-Chairman of the Board of
Trustees of NYU Hospitals Center;
member of the Board of Trustees of
NYU; member of the Board of
Executives of the New York Stock
Exchange, and Trustee of the
American Folk Art Museum.
- ------------------------------------------------------------------------------------------------------------------------------------
68
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Continued)
Number of
Term of Portfolios Total Fund
Office/(1)/ in Fund Other Compensation
Position(s) And Length Complex/(2)/ Directorships for the
Name, Address and Held with of Time Principal Occupation(s) Overseen Held by Year Ending
Age Fund Served During Past Five Years by Trustee Trustee 9/30/05
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce R. Bond Trustee Since 2005 Retired; Trustee and member of the 55 Director, Avaya $ 84,600
c/o BlackRock Funds Governance Committee, SSR Funds (includes Inc.(information
100 Bellevue Parkway (1997-2005). 50 technology).
Wilmington, DE 19809 Portfolios
Age: 59 of the Fund
and 5
Portfolios
of
BlackRock
Bond
Allocation
Target
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
Peter S. Drotch Trustee Since 2005 Retired; Trustee and member of the 55 Director, First $ 84,600
c/o BlackRock Funds Audit Committee, SSR Funds (includes Marblehead Corp.
100 Bellevue Parkway (2003-2005); Partner, Pricewater- 50 (student loan
Wilmington, DE 19809 houseCoopers LLP (accounting firm) Portfolios processing and
Age: 64 (1964-2000). of the Fund securitization);
and 5 Trustee,
Portfolios University of
of Connecticut; Trustee
BlackRock ,Huntington Theatre.
Bond
Allocation
Target
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
Honorable Stuart E. Trustee and Since 2001 Partner, Covington & Burling (law 55 Director, Mirant $130,100
Eizenstat Covington Chairman of firm) (2001-Present); Deputy (includes Corporation;
& Burling 1201 the Nominating Secretary of the Treasury 50 Advisory
Pennsylvania Avenue, Committee (1999-2001); Under Secretary of Portfolios Board member,
NW State for Economic, Business and of the Fund TheCoca-Cola Company;
Washington, DC 20004 Agricultural Affairs (1997-1999); and 5 Advisory Board
Age: 62 Under Secretary of Commerce for Portfolios member, Group
International Trade (1996-1997); of Menatep; Advisory
U.S. Ambassador to the European BlackRock Board member, BT
Union (1993-1996); Chairman, Bond Americas.
International Board of Governors, Allocation
Weizmann Institute of Science. Target
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
Robert M. Hernandez Trustee, Vice Since 1996 Retired; Director (1991-2001), Vice 55 Lead Director, ACE $140,100
c/o BlackRock Funds Chairman of Chairman and Chief Financial Officer (includes Limited (insurance
100 Bellevue Parkway the Board and (1994-2001), Executive Vice 50 company); Director
Wilmington, DE 19809 Chairman of President-Accounting and Finance Portfolios and Chairman of the
Age: 61 the Audit and Chief Financial Officer of the Fund Board, RTI
Committee (1991-1994), USX Corporation (a and 5 International Metals,
diversified company principally Portfolios Inc.: Director,
engaged in energy and steel of Eastman Chemical
businesses). BlackRock Company.
Bond
Allocation
Target
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
69
BLACKROCK FUNDS
FUND MANAGEMENT (Unaudited) (Continued)
Number of
Term of Portfolios Total Fund
Office/(1)/ in Fund Other Compensation
Position(s) And Length Complex/(2)/ Directorships for the
Name, Address and Held with of Time Principal Occupation(s) Overseen Held by Year Ending
Age Fund Served During Past Five Years by Trustee Trustee 9/30/05
- ------------------------------------------------------------------------------------------------------------------------------------
Dr. Matina Horner Trustee and Since 2004 Retired; Executive Vice President of 55 Chair of the Board $104,550
c/o BlackRock Funds Chairperson of Teachers Insurance and Annuity (includes of the Massachusetts
100 Bellevue Parkway the Governance Association and College Retirement 50 General Hospital
Wilmington, DE 19809 Committee Equities Fund (TIAA-CREF) Portfolios Institute of Health
Age: 66 (1989-2003). of the Fund Professions; Chair
and 5 of the Board of the
Portfolios Greenwall
of Foundation; Trustee,
BlackRock Century Foundation
Bond (formerly The
Allocation Twentieth Century
Target Fund); Director, N X
Shares) Fund); Director, N
Boston Edison);
Director, The Neiman
Marcus Group;
Honorary Trustee,
Massachusetts
General Hospital
Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Since 2005 President, Founders Investment Ltd. 55 Director, A.P. $ 84,600
c/o BlackRock Funds (private investments) (since 1999); (includes Pharma, Inc.
100 Bellevue Parkway Trustee, SSR Funds (1993-2003). 50
Wilmington, DE 19809 Portfolios
Age: 67 of the Fund
and 5
Portfolios
of
BlackRock
Bond
Allocation
Target
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
David R. Trustee and Since 1996 Chairman, Wilmerding & Associates, 56 None $135,100
Wilmerding, Jr. Chairperson of Inc. (investment advisers) (since (includes
c/o BlackRock Funds the Board 1989); Chairman, Coho Partners, 50
100 Bellevue Parkway Ltd. (investment advisers) (since Portfolios
Wilmington, DE 19809 2003); Director, Beaver Management of the Fund,
Age: 70 Corporation (land management 5 Portfolios
corporation); Managing General of
Partner, Chestnut Street Exchange BlackRock
Fund. Bond
Allocation
Target
Shares and
1 Portfolio
of Chestnut
Street
Exchange
Fund, which
is managed
by
BlackRock
Financial
Management
Inc. and
BlackRock
Institutional
Management
Corporation.)
- ------------------------------------------------------------------------------------------------------------------------------------
70
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Continued)
Term of Total Fund
Office(5) Compensation
Position(s) and Length for the
Name, Address and Held with of Time Principal Occupation(s) Year Ending
Age Fund Served During Past Five Years 9/30/05
- ----------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------------------
Anne Ackerley Vice President Since 2003 Managing Director, BlackRock, Inc. (since May N/A
BlackRock, Inc. (previously 2000); First Vice President and Operating
40 E. 52nd Street served as Officer, Mergers and Acquisitions Group
New York, NY 10022 Assistant (1997-2000), First Vice President and Operating
Age: 43 Secretary Officer, Public Finance Group (1995-1997), and
since First Vice President, Emerging Markets Fixed
2000) Income Research (1994-1995), Merrill Lynch &
Co.
- ----------------------------------------------------------------------------------------------------------------------------
Edward Baer Assistant Since 2005 Director and Senior Counsel of BlackRock, Inc. N/A
BlackRock, Inc. Secretary (since 2004); Associate, Willkie Farr &
40 E. 52nd Street Gallagher LLP (2000-2004); Associate, Morgan
New York, NY 10022 Lewis & Bockius LLP (1995-2000).
- ----------------------------------------------------------------------------------------------------------------------------
Age: 37
Bart Battista Chief Since 2004 Chief Compliance Officer and Anti-Money $368,547
BlackRock, Inc. Compliance Laundering Compliance Officer of BlackRock,
40 E. 52nd Street Officer and Inc. (since 2004); Managing Director (since
New York, NY 10022 Anti-Money 2003), and Director (1998-2002) of BlackRock,
Age: 46 Laundering Inc.; Compliance Officer at Moore Capital
Compliance Management (1995-1998).
Officer
- ----------------------------------------------------------------------------------------------------------------------------
Ellen L. Corson Assistant Since 1998 Senior Director and Vice President of Fund N/A
PFPC Inc. Treasurer Accounting and Administration, PFPC Inc.
103 Bellevue Parkway (since 2003); Vice President and Director of
Wilmington, DE 19809 Mutual Fund Accounting and Administration,
Age: 41 PFPC Inc. (since November 1997); Assistant
Vice President, PFPC Inc. (March
1997-November 1997); Senior Accounting
Officer, PFPC Inc. (March 1993-March 1997).
- ----------------------------------------------------------------------------------------------------------------------------
Henry Gabbay President Since 2005 Managing Director, BlackRock, Inc. (since N/A
BlackRock, Inc. 1989).
40 E. 52nd Street
New York, NY 10022
Age: 57
- ----------------------------------------------------------------------------------------------------------------------------
Brian P. Kindelan Secretary Since 1997 Managing Director and Senior Counsel (since N/A
BlackRock Advisors, Inc. January 2005), Director and Senior Counsel
100 Bellevue Parkway (2001-2004) and Vice President and Senior
Wilmington, DE 19809 Counsel (1998-2000), BlackRock Advisors,
Age: 46 Inc.; Senior Counsel, PNC Bank Corp. May
1995-April 1998).
- ----------------------------------------------------------------------------------------------------------------------------
William McGinley Treasurer Since 2005 Managing Director of BlackRock, Inc. (since N/A
BlackRock, Inc. 2004); Partner, PricewaterhouseCoopers LLP
100 Bellevue Parkway (1990-2004).
Wilmington, DE 19809
Age: 38
- ----------------------------------------------------------------------------------------------------------------------------
Vincent Tritto Assistant Since 2003 Managing Director and Assistant Secretary N/A
BlackRock, Inc. Secretary (since January 2005) and Director and Senior
40 E. 52nd Street Counsel (2002-2004) of BlackRock, Inc.
New York, NY 10022 Executive Director (2000-2002) and Vice
Age: 44 President (1998-2000), Morgan Stanley & Co.
Incorporated and Morgan Stanley Asset
Management Inc. and officer of various Morgan
Stanley-sponsored investment vehicles:
Counsel (1998); Associate (1988-1997),
Rogers & Wells LLP, New York, NY.
- ----------------------------------------------------------------------------------------------------------------------------
71
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Concluded)
(1) Each Trustee holds office for an indefinite term until the earlier of (1)
the next meeting of shareholders at which Trustees are elected and until
his or her successor is elected and qualified and (2) such time as such
Trustee resigns or his or her term as a Trustee is terminated in
accordance with the Fund's code of regulations and Declaration of Trust.
(2) A Fund Complex means two or more registered investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, that have a common investment adviser or
that have an investment adviser that is an affiliated person of the
investment adviser of any of the other registered investment companies.
(3) Mr. Davis is an interested person of the Fund due to his position at
BlackRock, Inc.
(4) Mr. Fink is an interested person of the Fund due to his position at
BlackRock, Inc.
(5) Each officer holds office for an indefinite term until the earlier of (1)
the next meeting of trustees at which his or her successor is appointed
and (2) such time as such officer resigns or his or her term as an officer
is terminated in accordance with the Fund's code of regulations and
Declaration of Trust.
72
BlackRock Funds
ADDITIONAL INFORMATION (Unaudited)
(A) A proxy statement was sent to shareholders of all portfolios of the Fund
asking them to consider and vote upon the election of nine trustees to the
Board of Trustees of the Fund (the "Board"). Five of the nine nominees were
already serving as trustees of the Fund and the additional nominees had
previously served as trustees of the State Street Research Funds. Due to
the increased size and complexity of the Fund resulting from the
reorganization with the State Street Research Funds, and an increase in the
responsibilities of boards of trustees of funds generally, the Board
believed it was in the best interest of the Fund to increase the size of
the Board. On April 29, 2005, the special meeting of shareholders was held,
at which all of the nominees included in the proxy were duly elected to the
Board.
The votes for the election of trustees were as follows:
Affirmative Negative
--------------- ----------
Bruce R. Bond .................... 3,006,153,475 9,427,152
Richard S. Davis ................. 3,006,504,966 9,075,661
Peter S. Drotch .................. 3,006,391,368 9,189,259
Stuart E. Eizenstat .............. 3,005,972,578 9,608,049
Laurence D. Fink ................. 3,006,652,923 8,927,704
Robert M. Hernandez .............. 3,006,095,141 9,485,487
Dr Matina Horner ................. 3,005,916,103 9,664,525
Toby Rosenblatt .................. 3,006,157,679 9,422,948
David R. Wilmerding, Jr. ......... 3,006,022,868 9,557,759
(B) PricewaterhouseCoopers LLP ("PwC"), the Fund's former independent auditor,
has been hired as an internal audit supporting service provider by The PNC
Financial Services Group, Inc. ("PNC"), the parent company of the Fund's
investment adviser and certain other service providers. In order to provide
certain services to PNC and its affiliates which would have caused PwC to
no longer be independent with respect to the Fund, PwC declined to stand
for re-election as independent auditor of the Fund after the completion of
the fiscal 2003 audit.
The Fund's Audit Committee approved engaging Deloitte & Touche LLP as the
independent registered public accounting firm to audit the Fund's financial
statements for fiscal year 2006. A majority of the Fund's Board of
Trustees, including a majority of the independent Trustees, approved the
appointment of Deloitte & Touche LLP as the Fund's independent registered
public accounting firm for the Fund's fiscal 2006 audit on November 29,
2005, subject to the right of the Fund, by a majority vote of the
shareholders at any meeting called for that purpose, to terminate the
appointment without penalty.
(C) As previously disclosed, BlackRock has received subpoenas from various
federal and state governmental and regulatory authorities and various
information requests from the Securities and Exchange Commission in
connection with ongoing industry-wide investigations of mutual fund
matters.
73
[THIS PAGE INTENTIONALLY LEFT BLANK.]
BlackRock Funds
Investment Adviser
BlackRock Advisors, Inc.
Wilmington, Delaware 19809
Sub-Adviser
BlackRock Financial Management, Inc.
New York, New York 10022
Custodian
PFPC Trust Co.
Philadelphia, Pennsylvania 19153
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Distributor
BlackRock Distributors, Inc.
King of Prussia, Pennsylvania 19406
Co-Administrator
BlackRock Advisors, Inc.
Wilmington, Delaware 19809
Counsel
Simpson Thacher & Bartlett LLP
New York, New York 10017
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Philadelphia, Pennsylvania 19103
The Fund will mail only one copy of shareholder documents, including
prospectuses, annual and semi-annual reports and proxy statements, to
shareholders with multiple accounts at the same address. This practice is
commonly called "householding" and it is intended to reduce expenses and
eliminate duplicate mailings of shareholder documents. Mailings of your
shareholder documents may be householded indefinitely unless you instruct us
otherwise. If you do not want the mailing of these documents to be combined
with those for other members of your household, please contact the Fund at
(800) 441-7762.
The Fund has delegated proxy voting responsibilities to BlackRock and its
affiliates, subject to the general oversight of the Fund's Board of Trustees. A
description of the policies and procedures that BlackRock and its affiliates
use to determine how to vote proxies relating to portfolio securities is
available without charge, upon request, by calling (800) 441-7762, or on the
website of the Securities and Exchange Commission (the "Commission") at
http://www.sec.gov.
Information on how proxies relating to the Fund's voting securities were voted
(if any) by the Advisor during the most recent 12-month period ended June 30th
is available, upon request and without charge, by calling (800) 441-7762 or on
the website of the Commission at http://www.sec.gov.
The Fund files its complete schedule of portfolio holdings for the first and
third quarters of its fiscal year with the Commission on Form N-Q. The Fund's
Form N-Q is available on the Commission's website at http://www.sec.gov and may
be reviewed and copied at the Commission's Public Reference Room in Washington,
D.C. Information regarding the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The Fund's Form N-Q may also be obtained
upon request, without charge, by calling (800) 441-7762.
[THIS PAGE INTENTIONALLY LEFT BLANK.]
BlackRock Funds
FUND SPECTRUM
BlackRock Funds is a leading mutual fund company currently managing
approximately $26 billion in the following 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.
STOCK PORTFOLIOS
- --------------------------------------
Investment Trust Small Cap Core Equity
Large Cap Value Equity Small Cap Growth Equity
Large Cap Growth Equity Global Science & Technology
Dividend Achievers(TM) Opportunities
Legacy Global Resources
Mid-Cap Value Equity All-Cap Global Resources
Mid-Cap Growth Equity Health Sciences
Aurora U.S. Opportunities
Small/Mid-Cap Growth International Opportunities
Small Cap Value Equity Index Equity
STOCK & BOND PORTFOLIOS
- --------------------------------------
Asset Allocation
BOND PORTFOLIOS
- --------------------------------------
Enhanced Income Government Income
Low Duration Bond Inflation Protected Bond
Intermediate Government Bond GNMA
Intermediate Bond Managed Income
Intermediate PLUS Bond International Bond
Core Bond Total Return High Yield Bond
Core PLUS Total Return
TAX-FREE BOND PORTFOLIOS
- --------------------------------------
UltraShort Municipal Ohio Tax-Free Income
Tax-Free Income Delaware Tax-Free Income
Pennsylvania Tax-Free Income Kentucky Tax-Free Income
New Jersey 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
Account Information
Call us at 1-800-441-7762 to get information about your account balances,
recent transactions and share prices. You can also reach us on the web at
www.blackrock.com.
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 $50 or more from their BlackRock portfolios, as
long as their account is at least $10,000.
Retirement Plans
Shareholders may make investments in conjunction with Traditional, Rollover,
Roth, Coverdell and Simple IRA's.
Additional Information About the Blackrock Funds
For additional reports or additional information, as well as more current
information about portfolio holdings and characteristics, BlackRock Fund
shareholders and prospective investors may call 1-800-441-7762.
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.
BlackRock
BND-ANN2 11/05
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock Funds
Strategic Portfolio
Annual Report
September 30, 2005
[GRAPHIC APPEARS HERE]
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE BlackRock
BlackRock Funds
STRATEGIC PORTFOLIO
TABLE OF CONTENTS
Portfolio Summary
Strategic Portfolio I.................... ................................ 1-2
Statement of Net Assets ...................................................... 3
Portfolio Financial Statements
Statement of Operations..................................................... 4
Statements of Changes in Net Assets......................................... 5
Financial Highlights........................................................ 6
Notes to Financial Statements..... ........................................ 7-11
Report of Independent Registered Public
Accounting Firm ............................................................. 12
Fund Management............................... ........................... 13-17
Additional Information ...................................................... 18
PRIVACY PRINCIPLES OF BLACKROCK FUNDS
BlackRock Funds is committed to maintaining the privacy of its shareholders and
to safeguarding their nonpublic personal information. The following information
is provided to help you understand what personal information BlackRock Funds
collects, how we protect that information, and why in certain cases we may share
such information with select other parties.
BlackRock Funds does not receive any nonpublic personal information relating to
its shareholders who purchase shares through their broker-dealers. In the case
of shareholders who are record owners of BlackRock Funds, BlackRock Funds
receives nonpublic personal information on account applications or other forms.
With respect to these shareholders, BlackRock Funds also has access to specific
information regarding their transactions in BlackRock Funds.
BlackRock Funds does not disclose any nonpublic personal information about its
shareholders or former shareholders to anyone, except as permitted by law or as
is necessary in order to service our shareholders' accounts (for example, to a
transfer agent).
BlackRock Funds restricts access to nonpublic personal information about its
shareholders to BlackRock employees with a legitimate business need for the
information. BlackRock Funds maintains physical, electronic and procedural
safeguards designed to protect the nonpublic personal information of our
shareholders.
BlackRock Strategic Portfolio I
Total Net Assets (9/30/05): $71.3 million
Performance Benchmark:
Citigroup Non-U.S. World Government Bond Index (Hedged)
Investment Approach:
Seeks to maximize total return through the investment in a portfolio of
investment grade fixed income securities of foreign and U.S. issuers denominated
in foreign currencies, baskets of foreign currencies and the U.S. dollar. The
Portfolio normally invests at least 65% of its total assets in non-dollar
denominated bonds of issuers located outside of the United States. The Portfolio
intends to primarily invest in developed countries, although it has the ability
to invest up to 20% of its total assets in bonds of issuers in emerging market
countries. The Portfolio may also invest in non-U.S. currencies. Securities are
purchased for the Portfolio when the management team determines that they have
the potential for above-average total return. When determining what securities
to purchase and sell, the management team considers, among other things, the
relative risk versus the potential reward of owning a security; the credit,
interest rate and prepayment risk; and general market conditions. In addition,
the management team conducts intense credit analysis and review of each security
purchased or sold.
Recent Portfolio Management Activity:
. The Portfolio underperformed the benchmark for the annual period.
. Non-U.S. bond markets outperformed during the first half of the annual
period, mainly due to strong performance during the fourth quarter of 2004. The
rebound in U.S. economic growth and the determination of the Federal Reserve to
maintain their measured tightening process contrasted with more sluggish
conditions in Europe and Japan. Disappointing economic releases dampened
optimism for a significant European rebound as higher oil prices and the strong
euro continued to hamper manufacturing, resulting in sluggish GDP growth in the
entire Euro-zone. Japan also experienced disappointing economic news as fourth
quarter GDP was released as a modest negative number, the third consecutive
quarter of negative growth. In the Dollar Bloc, Canadian bonds outperformed U.S.
bonds as the Bank of Canada halted their tightening program given the strength
of the Canadian dollar. In contrast, the Reserve Bank of Australia and the
Reserve Bank of New Zealand both raised official rates with a 25 basis point
rise to 5.50% in Australia and a 50 basis point increase to 6.75% in New
Zealand.
. In the first half of the annual period, the Portfolio remained long
duration in New Zealand and Mexico. The Portfolio initiated exposure to Swedish
inflation-linked bonds given attractive break-even levels and scope for
inflation to build. The Portfolio also held currency positions throughout the
period with trades on the pound versus euro, yen versus euro and Mexican peso
versus the U.S. dollar.
. During the second half of the annual period, economic growth remained
lackluster in Europe and market participants expressed doubt regarding the
sustainability of the European economic expansion. In contrast, the Bank of
Canada resumed its tightening stance by raising rates 25 basis points to 2.75%
in September. Despite hawkish rhetoric, the Reserve Bank of New Zealand did not
raise interest rates in the second half of the annual period. During the latter
half of the period, several developments in Japan reinforced the notion of a
sustainable economic recovery. The second quarter GDP release highlighted the
continued recovery in domestic demand, labor force numbers showed strength and
the Nikkei surged more than 20% during the third quarter of 2005.
. In the second half of the annual period, the Portfolio sold out of its
position in Swedish inflation-linked bonds which benefited performance. The
Portfolio had exposure to New Zealand and Canadian government and corporate
bonds. The Portfolio maintained exposure to euro government bonds and had an
allocation to intermediate maturity Mexican government bonds. The Portfolio held
currency positions in the period, maintaining a position in the yen versus euro.
In addition, the Portfolio had trades on the Swedish Krona versus the euro and
yen versus the U.S. dollar during the period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE STRATEGIC
PORTFOLIO I AND
THE CITIGROUP NON-U.S. WORLD GOVERNMENT BOND INDEX (HEDGED) FROM INCEPTION.
[LINE CHART]
Institutional Citigroup Non-U.S. World Government Index (Hedged)
------------- --------------------------------------------------
10/06/1997 $ 10,000 $ 10,000
12/31/1997 10,141 10,203
03/31/1998 10,303 10,515
06/30/1998 10,515 10,758
09/30/1998 11,084 11,319
12/31/1998 11,136 11,381
03/31/1999 11,131 11,590
06/30/1999 11,164 11,517
09/30/1999 11,290 11,572
12/31/1999 11,349 11,708
03/31/2000 11,478 11,962
06/30/2000 11,786 12,179
09/30/2000 12,245 12,378
12/31/2000 13,268 12,834
03/31/2001 13,709 13,186
06/30/2001 13,542 13,236
09/30/2001 14,144 13,524
12/31/2001 14,448 13,617
03/31/2002 14,484 13,563
06/30/2002 15,350 13,869
09/30/2002 15,521 14,326
12/31/2002 16,037 14,550
03/31/2003 16,070 14,742
06/30/2003 16,490 14,935
09/30/2003 16,512 14,819
12/31/2003 16,566 14,823
03/31/2004 16,949 15,071
06/30/2004 16,612 14,909
09/30/2004 16,956 15,263
12/31/2004 17,268 15,591
03/31/2005 17,215 15,784
06/30/2005 17,738 16,283
09/30/2005 17,714 16,337
For Period Ending September 30, 2005
Strategic Portfolio I - Average Annual Return
1 Year 3 Year 5 Year From Inception
- ------------ ---------- ---------- ---------------
4.47% 4.51% 7.67% 7.43%
Past Performance is not predictive of future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is actively
managed and its composition will vary.
1
Blackrock Strategic Portfolio I
FUND PROFILE
Credit Quality (% of long-term investments)/1/
AAA 75.3%
AA 6.2
A 16.6
BBB 1.9
-----
Total 100.0%
=====
Countries (% of long-term investments)
Germany 35.5%
Mexico 17.3
New Zealand 11.4
United States 10.2
Canada 9.7
France 6.1
Netherlands 5.6
Spain 4.2
-----
Total 100.0%
=====
Portfolio Statistics
Average maturity (years) 12.73
Effective Duration/2/ 4.07
- ----------
/1/ Using the higher of Standard & Poor's ("S&P's") or Moody's Investors
Service ("Moody's") rating.
/2/ Duration measures a Portfolio's price risk. Each year of duration
represents an expected 1% change in the net asset value of the portfolio
for every 1% change in interest rates. Effective duration is typically
calculated for bonds with embedded options and assumes that expected cash
flows will fluctuate as interest rates change.
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including advisory
fees and other Portfolio expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Portfolio and to
compare these costs with the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.60) and multiply the result by the cost shown for your
share class, in the row entitled "Expenses Incurred During Period", to estimate
the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front and
back end sales charges (loads) or redemption/exchange fees, where applicable.
Therefore, the hypothetical information is useful in comparing ongoing costs
only, and will not help you determine the relative total costs of owning
different funds.
Hypothetical Expenses
Actual Expenses (5% return before expenses)
--------------------- ----------------------------
Institutional Class Institutional Class
--------------------- ----------------------------
Beginning Account Value (4/01/05) $ 1,000.00 $ 1,000.00
Ending Account Value (9/30/05) 1,029.00 1,023.88
Expenses Incurred During Period (4/01/05 - 9/30/05) 1.12 1.12
For the Institutional share class of the Portfolio, expenses are equal to the
annualized expense ratio of 0.22%, multiplied by the average account value over
the period, multiplied by 183/365 (to reflect the one-half year period).
2
BlackRock Funds
STATEMENT OF NET ASSETS
BLACKROCK STRATEGIC PORTFOLIO I
As of September 30, 2005
Par
Maturity (000) Value
------------ --------- -------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 8.2%
U.S. Treasury Notes
3.50%(b)
(Cost $5,974,413) 12/15/09 $ 6,000 $ 5,836,404
-----------
FOREIGN BONDS - 67.4%
Canada - 7.8%
Canada Government Bonds (CND)
3.25% 12/01/06 2,500 2,153,907
Province of Ontario, Unsecured Notes (NZD)
6.25% 06/16/15 5,000 3,409,790
-----------
5,563,697
-----------
Germany - 28.6%
Bundesrepublic Deutschland (EUR)
4.00% 01/04/37 13,100 16,996,532
KFW (CND)
5.05% 02/04/25 3,700 3,373,166
-----------
20,369,698
-----------
Mexico - 13.9%
Mexican Fixed Rate Bonds (MXP)
12/24/08-
8.00% 12/07/23 21,495 1,927,697
12/24/09-
9.00% 12/20/12 73,850 7,028,834
9.50% 12/18/14 9,700 971,361
-----------
9,927,892
-----------
Netherlands - 4.5%
Kingdom of Netherlands Bonds (EUR)
4.00%(c) 01/15/37 2,500 3,223,931
-----------
New Zealand - 9.2%
General Electric Capital Corp., Senior Unsubor-
dinated Notes (NZD)
6.50% 09/28/15 5,000 3,381,110
Government of New Zealand (NZD)
6.00% 04/15/15 4,500 3,147,468
-----------
6,528,578
-----------
Spain - 3.4%
Spain Letras del Tesoro (EUR)
2.02%(d) 12/23/05 2,000 2,400,251
-----------
TOTAL FOREIGN BONDS
(Cost $46,788,418) 48,014,047
-----------
SHORT TERM INVESTMENTS - 25.5%
Federal Home Loan Bank, Discount
Notes
3.18%(e) 10/03/05 $13,000 $12,997,703
French Discount Treasury Bills (EUR)
2.01% 11/24/05 2,900 3,484,832
Galileo Money Market Fund 1,731 1,731,091
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $18,199,589) 18,213,626
-----------
TOTAL INVESTMENTS IN SECURITIES - 101.1%
(Cost $70,962,420(a)) 72,064,077
LIABILITIES IN EXCESS OF
OTHER ASSETS - (1.1)% (778,049)
-----------
NET ASSETS - 100.0% (Applicable to
8,116,371 Institutional
shares outstanding) $71,286,028
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($71,286,028/8,116,371) $ 8.78
======
- ----------
(a) Cost for Federal income tax purposes is $70,962,888. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $1,750,702
Gross unrealized depreciation (649,513)
----------
$1,101,189
==========
(b) Securities, or a portion thereof, pledged as collateral with a value of
$1,459,101 on 277 long U.S. Treasury Note futures contracts and 572 short
Euro Bobl futures contracts expiring December 2005 and 200 short Canadian
Bank Acceptance futures contracts expiring March 2006. The value of such
contracts on September 30, 2005 was $149,765,092, with an unrealized loss
of $242,290 (including commissions of $2,683).
(c) Security is illiquid. As of September 30, 2005, the Portfolio held 4.5% of
its net assets, with a current market value of $3,223,931 in these
securities.
(d) The rate shown is the effective yield on the zero coupon bonds at the time
of purchase.
(e) The rate shown is the effective yield on the discount notes at the time of
purchase.
KEY TO INVESTMENT ABBREVIATIONS
CND Canadian Dollar
EUR Euro
MXP Mexican Peso
NZD New Zealand Dollar
See accompanying notes to financial statements.
3
BlackRock Funds
STATEMENT OF OPERATIONS
BLACKROCK STRATEGIC PORTFOLIO I
For the year ended September 30, 2005
Investment income:
Interest .......................................................................... $ 2,959,927
------------
Expenses:
Investment advisory fee ........................................................... 139,505
Administration fee ................................................................ 160,431
Custodian fee ..................................................................... 39,573
Legal and audit fees .............................................................. 23,786
Transfer agent fee ................................................................ 18,039
Printing .......................................................................... 3,173
Trustees' fees .................................................................... 2,419
Other ............................................................................. 4,208
------------
Total expenses excluding interest expense ....................................... 391,134
Interest expense .............................................................. 10,501
------------
Total expenses .................................................................. 401,635
------------
Less investment advisory fee waived ........................................... (139,505)
Less administration fee waived ................................................ (107,497)
Less transfer agent fee waived ................................................ (920)
Less custodian fee waived ..................................................... (2,061)
------------
Net expenses .................................................................... 151,652
------------
Net investment income ............................................................... 2,808,275
------------
Realized and unrealized gain (loss) on investments and foreign currency transactions:
Net realized gain (loss) from:
Investment transactions ......................................................... 2,244,027
Futures contracts ............................................................... (442,985)
Foreign currency transactions ................................................... 1,514,041
------------
3,315,083
------------
Change in unrealized appreciation/depreciation from:
Investments ...................................................................... (1,809,901)
Futures contracts ................................................................ 232,364
Foreign currency transactions .................................................... (1,372,468)
------------
(2,950,005)
------------
Net gain on investments and foreign currency transactions ........................... 365,078
------------
Net increase in net assets resulting from operations ................................ $ 3,173,353
============
See accompanying notes to financial statements.
4
BlackRock Funds
STATEMENTS OF CHANGES IN NET ASSETS
BLACKROCK STRATEGIC PORTFOLIO I
For the For the
Year Ended Year Ended
9/30/05 9/30/04
---------------- ----------------
Increase in net assets:
Operations:
Net investment income ......................................... $ 2,808,275 $ 3,051,524
Net realized gain (loss) on investments, futures contracts and
foreign currency related transactions ........................ 3,315,083 (648,595)
Net change in unrealized appreciation/depreciation on
investments, futures contracts and foreign currency related
transactions ................................................. (2,950,005) (299,876)
------------- -------------
Net increase in net assets resulting from operations .......... 3,173,353 2,103,053
------------- -------------
Distributions to shareholders from:
Net investment income ......................................... (2,808,275) (1,724,257)
Capital ....................................................... -- (1,327,267)
------------- -------------
Total distributions to shareholders ........................... (2,808,275) (3,051,524)
------------- -------------
Capital share transactions:
Shares sold ................................................... 59,016,869 48,655,002
Shares issued in reinvestment of dividends .................... 2,793,808 3,172,537
Shares redeemed ............................................... (58,199,623) (39,691,524)
------------- -------------
Net increase in net assets resulting from capital share
transactions ................................................. 3,611,054 12,136,015
------------- -------------
Total increase in net assets .................................. 3,976,132 11,187,544
------------- -------------
Net assets:
Beginning of year ............................................. 67,309,896 56,122,352
------------- -------------
End of year ................................................... $ 71,286,028 $ 67,309,896
============= =============
End of year undistributed net investment income (distributions in
excess of net investment income) ................................. $ 1,700,677 $ (414,076)
See accompanying notes to financial statements.
5
BlackRock Funds
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
For the For the
Year Ended Year Ended
9/30/05 9/30/04
------------ ------------
Per share operating performance:
Net asset value, beginning of year ................................ $ 8.75 $ 8.85
------ -------
Net investment income ........................................... 0.36/1/ 0.33/1/
Net realized and unrealized gain (loss) on investments .......... 0.03 (0.10)
------ -------
Net increase from investment operations ....................... 0.39 0.23
------ -------
Distributions from net investment income ........................ (0.36) (0.16)
Distributions from net realized gains ........................... -- --
Distributions from capital ...................................... -- (0.17)
------ -------
Total distributions ........................................... (0.36) (0.33)
------ -------
Net asset value, end of year .................................... $ 8.78 $ 8.75
====== =======
Total Return ...................................................... 4.47% 2.69%
Ratios / Supplemental data
Net assets, end of year (in thousands) ............................ $ 71,286 $ 67,310
Ratio of expenses to average net assets ........................... 0.22% 0.42%
Ratio of expenses to average net assets (excluding interest
expense) ......................................................... 0.20% 0.23%
Ratio of expenses to average net assets (excluding waivers) ....... 0.58% 0.71%
Ratio of net investment income to average net assets .............. 4.03% 3.80%
Ratio of net investment income to average net assets (excluding
waivers) ......................................................... 3.67% 3.51%
Portfolio turnover ................................................ 223% 203%
For the For the For the
Year Ended Year Ended Year Ended
9/30/03/2/ 9/30/02/2/ 9/30/01/2/
------------ ------------ -----------
Per share operating performance:
Net asset value, beginning of year ................................ $ 8.87 $ 9.20 $ 8.63
------- ------- --------
Net investment income ........................................... 0.42 0.42 0.72
Net realized and unrealized gain (loss) on investments .......... 0.13 0.40 0.58
------- ------- --------
Net increase from investment operations ....................... 0.55 0.82 1.30
------- ------- --------
Distributions from net investment income ........................ (0.57) (1.15) (0.65)
Distributions from net realized gains ........................... -- -- (0.08)
Distributions from capital ...................................... -- -- --
------- ------- --------
Total distributions ........................................... (0.57) (1.15) (0.73)
------- ------- --------
Net asset value, end of year .................................... $ 8.85 $ 8.87 $ 9.20
======= ======= ========
Total Return ...................................................... 6.39% 9.74% 15.51%
Ratios / Supplemental data
Net assets, end of year (in thousands) ............................ $ 56,122 $ 31,253 $ 33,297
Ratio of expenses to average net assets ........................... 0.26% 0.85% 0.27%
Ratio of expenses to average net assets (excluding interest
expense) ......................................................... 0.26% 0.26% 0.26%
Ratio of expenses to average net assets (excluding waivers) ....... 0.50% 1.15% 0.60%
Ratio of net investment income to average net assets .............. 3.89% 4.73% 5.82%
Ratio of net investment income to average net assets (excluding
waivers) ......................................................... 3.65% 4.43% 5.49%
Portfolio turnover ................................................ 235% 180% 189%
- ----------
/1/ Calculated using the average shares outstanding method.
/2/ Audited by other auditors.
See accompanying notes to financial statements.
6
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS
(A) Organization
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 50 investment portfolios. These financial statements relate to the
Fund's Strategic Portfolio I (the "Portfolio"). The Portfolio is authorized to
issue an unlimited number of shares with a par value of $0.001.
Under the Fund's organizational documents, its officers and trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts with its vendors and others that provide for general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund.
However, based on experience, the Fund considers the risk of loss from such
claims to be remote.
(B) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Fund in preparation of its financial statements.
Investment Valuation -- Valuation of investments held by the Portfolio is
as follows: fixed income investments are valued by using market quotations or
prices provided by market makers; a portion of the fixed income investments are
valued utilizing one or more pricing services approved by the Board of Trustees
(the "Board"); an option or futures contract is valued at the last sales price
prior to 4:00 p.m. (Eastern time), as quoted on the principal exchange or board
of trade on which such option or futures contract is traded, or in the absence
of a sale, the mean between the last bid and asked prices prior to 4:00 p.m.
(Eastern time); the amortized cost method of valuation will be used with respect
to debt obligations with sixty days or less remaining to maturity unless the
investment advisor under the supervision of the Board determines that such
method does not represent fair value. Any assets which are denominated in a
non-U.S. currency are translated into U.S. dollars at the prevailing market
rates. In the event that application of these methods of valuation results in a
price for an investment which is deemed not to be representative of the market
value of such investment, the investment will be valued by, under the direction
of or in accordance with a method approved by the Board as reflecting fair value
("Fair Value Assets"). The investment advisor will submit its recommendations
regarding the valuation and/or valuation methodologies for Fair Value Assets to
a valuation committee. Such valuation committee may accept, modify or reject any
recommendations. The pricing of all Fair Value Assets shall be subsequently
reported to and ratified by the Board.
When determining the price for a Fair Value Asset, the investment advisor
shall seek to determine the price that the Portfolio might reasonably expect to
receive from the current sale of that asset in an arm's-length transaction. Fair
value determinations shall be based upon all available factors that the advisor
deems relevant.
Dividends to Shareholders: Dividends from net investment income are
declared by the Portfolio each day on "settled" shares (i.e. shares for which
the Portfolio has received payment) and are paid monthly. Over the course of a
year, substantially all of the Portfolio's net investment income will be
declared as dividends. Net realized capital gains, if any, are distributed at
least annually.
Foreign Currency Translation: The books and records of the Portfolio are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(I) Market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) Purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of such
transactions.
The Portfolio isolates that portion of gains and losses on investment
securities which is due to changes in the foreign exchange rates from that which
is due to changes in market prices of such securities.
The Portfolio reports certain foreign currency related transactions as
components of realized and unrealized gains for financial reporting purposes,
whereas such components are treated as ordinary income for federal income tax
purposes.
Forward Foreign Currency Contracts: The Portfolio enters into forward
foreign currency contracts. These contracts are adjusted by the daily forward
exchange rate of the underlying currency and any gains or losses are recorded as
unrealized until the contract settlement date. Such contracts, which protect the
value of the Portfolio's investment securities against a decline in the value of
currency, do not eliminate fluctuations in the underlying prices of the
securities. They
7
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
simply establish an exchange rate at a future date. Also, although such
contracts tend to minimize the risk of loss due to a decline in the value of a
hedged currency, at the same time they tend to limit any potential gain that
might be realized should the value of such foreign currency increase. Risks may
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
The aggregate principal amounts of the contracts are not recorded as the
Portfolio intends to settle the contracts prior to delivery. Under the terms of
foreign currency contracts open at September 30, 2005, the Portfolio is
obligated to deliver or receive currency in exchange for U.S. dollars as
indicated below:
Unrealized
Foreign
Value At Exchange
Settlement Date Currency Amount Currency Sold Contract Amount September 30, 2005 Gain (Loss)
- ----------------- ----------------- ----------------------------- ----------------- -------------------- ---------------
10/20/05 21,308,329 Euro ........................ $ 25,793,854 $ 25,724,303 $ 69,551
10/21/05 4,500,000 Euro ........................ 5,506,722 5,432,873 73,849
10/25/05 45,404,000 Swedish Krona ............... 5,867,768 5,888,374 (20,606)
10/25/05 127,134,938 Mexican Peso ................ 11,714,148 11,736,053 (21,905)
10/27/05 16,236,000 New Zealand Dollar .......... 10,957,197 11,203,424 (246,227)
10/28/05 6,545,785 Canadian Dollar ............. 5,510,488 5,643,591 (133,103)
11/25/05 10,650,000 Euro ........................ 12,996,681 12,881,389 115,292
------------ ------------ -----------
$ 78,346,858 $ 78,510,007 $ (163,149)
============ ============ ===========
Unrealized
Foreign
Value At Exchange
Settlement Date Currency Amount Currency Bought Contract Amount September 30, 2005 Gain (Loss)
- ----------------- ----------------- ----------------------------- ----------------- -------------------- -----------------
10/20/05 5,203,490 Euro ........................ $ 6,371,271 $ 6,281,871 $ (89,400)
10/25/05 45,404,335 Swedish Krona ............... 6,027,513 5,888,418 (139,095)
10/26/05 21,660,000 Mexican Peso ................ 2,013,105 1,999,473 (13,632)
10/27/05 2,405,755 New Zealand Dollar .......... 1,667,095 1,660,058 (7,037)
10/27/05 84,881,564 Japanese Yen ................ 762,739 751,320 (11,419)
10/28/05 78,360 Canadian Dollar ............. 67,152 67,560 408
11/25/05 4,604,719,600 Japanese Yen ................ 42,170,259 40,890,617 (1,279,642)
------------ ------------ -------------
$ 59,079,134 $ 57,539,317 $ (1,539,817)
============ ============ =============
Investment Transactions and Investment Income: Investment transactions are
accounted for on the trade date. The cost of investments sold and the related
gain or loss is determined by use of specific identification method, generally
first in first out, for both financial reporting and federal income purposes.
Interest income is recorded on the accrual basis. 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.
Reverse Repurchase Agreements: The Portfolio may enter into reverse
repurchase agreements with qualified third party brokers-dealers as determined
by and under the direction of the Board. 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 Portfolio 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. There were no reverse repurchase agreements
held by the Portfolio at September 30, 2005.
Futures Transactions: The Portfolio invests in futures contracts typically
as a substitute for taking a position in the underlying asset and/or as part of
a strategy designed to reduce exposure to other risks, such as interest rate or
currency risk. The Portfolio may also use these instruments for leverage. These
futures contracts obligate a portfolio, at maturity, to take or make delivery of
securities, the cash value of a securities index or a stated quantity of a
foreign currency. Upon entering into a futures contract, the Portfolio is
required to deposit cash or pledge U.S. Government securities of an initial
margin. Subsequent payments, which are dependent on the daily fluctuations in
the value of the underlying security or securities, are made or received by the
Portfolio each day (daily variation margin) and are recorded as cumulative
unrealized gains or losses until the contracts are closed. When contracts are
closed, the
8
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
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.
Financing Transactions: The Portfolio may enter into financing transactions
consisting of a sale by the Portfolio of securities, together with a commitment
to repurchase similar securities at a future date. The difference between the
selling price and the future purchase price is an adjustment to interest income.
If the counterparty to whom the Portfolio sells the security becomes insolvent,
a Portfolio's right to repurchase the security may be restricted. The value of
the security may change over the term of the financing transaction.
Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("generally accepted accounting principles") requires the use of management
estimates. Actual results could differ from the estimates.
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 Portfolio invests 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 deterioration in a
country's balance of payments or for the 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
Portfolio may be inhibited.
(C) Transactions with Affiliates and Related Parties
Pursuant to an Investment Advisory Agreement, BlackRock Financial
Management, Inc. ("BlackRock"), a wholly-owned subsidiary of BlackRock, Inc.,
serves as investment adviser to the Portfolio. For its advisory services,
BlackRock is entitled to receive fees, computed daily and paid monthly, at the
annual rate of 0.20% of the Portfolio's average daily net assets.
BlackRock has contractually agreed to waive or reimburse all of its
advisory fees for the Portfolio until February 1, 2006, and may reimburse the
Portfolio for certain operating expenses.
In the interest of limiting the expenses of the Portfolio, BlackRock and
the Portfolio have entered into a series of annual expense limitation
agreements. The agreements set a limit on certain operating expenses of the
Portfolio for the next year and require BlackRock to waive or reimburse fees or
expenses if these operating expenses exceed that limit. These expense limits
apply to the aggregate expenses incurred on a share class (excluding: interest,
taxes, brokerage commissions and other extraordinary expenses).
BlackRock has contractually agreed to waive or reimburse fees or expenses
in order to limit expenses to 0.26% of the Portfolio's average daily net assets.
This agreement is reviewed annually by the Fund's Board.
If in the following two years the operating expenses of the Portfolio that
previously received a waiver on reimbursement from BlackRock are less than the
expense limit for the 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 advisor and (3) the Board of Trustees of the Fund has
approved the payments to BlackRock at the previous quarterly meeting.
At September 30, 2005, the amounts subject to possible future reimbursement
under the expense limitation agreement are as follows:
Total Waivers
Expiring Expiring Subject to
January 31, 2007 January 31, 2008 Reimbursement
------------------ ------------------ --------------
$ 158,645 $ 159,931 $ 318,576
9
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
PFPC Inc. ("PFPC"), an indirect subsidiary of The PNC Financial Services
Group, Inc., and BlackRock Advisors, Inc. ("BAI"), act as co-administrators for
the Portfolio. For theses 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 the Portfolio, at the following annual rates:
0.085% of the first $500 million, 0.075% of the next $500 million and 0.065% of
assets in excess of $1 billion. In addition, the Portfolio is charged an
administration fee based on the following percentage of average daily net assets
of the Portfolio's Institutional share class: 0.145% of the first $500 million,
0.135% of the next $500 million and 0.125% of assets in excess of $1 billion.
PFPC and BAI may, at their discretion, waive all or any portion of their
administration fees for the Portfolio's Institutional Share Class.
In addition, PFPC Trust Co., an indirect wholly-owned subsidiary of The PNC
Financial Services Group, Inc., serves as custodian for the Portfolio. PFPC
serves as transfer and dividend disbursing agent. The annual transfer agent fee
will not exceed 0.018% of the average daily net assets of the Portfolio plus per
account fees and disbursements.
At year ended September 30, 2005, affiliated payables were as follows:
PFPC/(1)/ .............. $ 7,502
BlackRock/(2)/ ......... 9,084
- ----------
(1) -- payables to PFPC are for Accounting, Administration, Custody and
Transfer Agent services.
(2) -- payables to BlackRock are for Advisory and Administration services.
(D) Purchase and Sales of Securities
For the year ended September 30, 2005, purchases and sales of investment
securities, other than short-term investments and government securities, were
$116,951,061 and $134,534,130, respectively. For the year ended September 30,
2005, purchases and sales of government securities were $54,053,658 and
$17,100,873, respectively.
(E) Capital Shares
Transactions in capital shares for each period were as follows:
For the For the
Year Ended Year Ended
9/30/05 9/30/04
--------------- ---------------
Shares sold ........................................ 6,719,554 5,536,840
Shares issued in reinvestment of dividends ......... 316,853 361,760
Shares redeemed .................................... (6,614,510) (4,547,851)
---------- ----------
Net increase ....................................... 421,897 1,350,749
========== ==========
On September 30, 2005, four shareholders held approximately 65% of the
outstanding shares of the Portfolio. Some of the shareholders are comprised of
omnibus accounts, which are held on behalf of several individual shareholders.
(F) At September 30, 2005, net assets consisted of:
Capital paid-in ............................................. $ 69,297,092
End of period undistributed net investment income 1,700,677
Accumulated net realized gain on investment transactions and
foreign currency related transactions ...................... 648,931
Net unrealized depreciation on investment transactions and
foreign currency related transactions ...................... (360,672)
------------
$ 71,286,028
============
(G) Federal Tax Information
No provision is made for Federal taxes as it is the Fund's intention to
have the 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. Short-term capital and foreign currency gain distributions that
are reported in
10
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Concluded)
the Statement of Changes in Net Assets are reported as ordinary income for
Federal income tax purposes. There were no short-term or long-term capital gain
distributions for the year ended September 30, 2005.
Dividends from net investment income and distributions from net realized
capital gains are determined in accordance with U.S. Federal income tax
regulations, which may differ from those amounts determined under accounting
principles generally accepted in the United States. These book/tax differences
are either temporary or permanent in nature. To the extent these differences are
permanent, they are charged or credited to paid-in-capital or accumulated net
realized gain, as appropriate, in the period that the differences arise. The
following permanent differences as of September 30, 2005, attributable to
realized foreign currency gains/(losses), foreign futures realized
gains/(losses), and distribution reclasses were reclassified to the following
accounts:
Increase Increase
(Decrease) (Decrease)
Accumulated Undistributed
Net Realized Net Investment
Gain Income
------------------ ---------------
$ (2,114,753) $2,114,753
The tax character of distributions paid during the year ended September 30,
2005 and the tax character of distributions paid during the year ended September
30, 2004 were as follows:
Tax
Ordinary Long-term Return Total
Date Income Capital Gain Of Capital Distributions
- ----------- -------------- -------------- ------------ --------------
9/30/05 $ 2,097,256 $ 711,019 $ -- $ 2,808,275
9/30/04 1,724,257 -- 1,327,267 3,051,524
As of September 30, 2005, the tax components of distributable
earnings/(accumulated losses) were as follows:
Undistributed Undistributed Accumulated Post-
Ordinary Long-Term Capital October
Income Capital Gain Losses Losses
--------------- --------------- ------------- --------
$-- $ 196,391 $-- $--
For Federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. $539,578 of the Portfolio's
capital loss carryforward was used to offset net taxable gains realized in the
fiscal year ended September 30, 2005.
11
BlackRock Funds
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of BlackRock Funds:
We have audited the accompanying statement of net assets of the Strategic
Portfolio I [one of the fifty portfolios constituting BlackRock Funds (the
"Fund"), the "Portfolio"], as of September 30, 2005 and the related statement of
operations for the year then ended, and the statements of changes in net assets
and financial highlights for each of the two years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights of the Portfolio for the periods ended September 30, 2003, September
30, 2002 and September 30, 2001 were audited by other auditors whose report,
dated November 26, 2003, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Portfolio is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Portfolio's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of September 30, 2005, by
correspondence with the custodians and brokers; where replies were not received
from brokers, we performed other auditing procedures. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Portfolio as of September 30, 2005, the results of its operations, the changes
in its net assets and its financial highlights for each of the two years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
November 25, 2005
12
BlackRock Funds
FUND MANAGEMENT (Unaudited)
Information pertaining to the Trustees and officers of the Fund is set forth
below. The statement of additional information (SAI) includes additional
information about the Trustees and is available without charge, upon request, by
calling (888) 825-2257. Institutional and service share class investors should
call (800) 441-7450.
Term Of
Position(s) Office/(1)/
Name, Address and Held with and Length
Age Fund of Time
Served
- ------------------------------------------------
INTERESTED TRUSTEES
- ------------------------------------------------
Richard S. Davis/(3)/ Trustee Since 2005
BlackRock, Inc.
40 E. 52nd Street
New York, NY 10022
Age: 59
- -----------------------------------------------
Laurence D. Fink/(4)/ Trustee Since 2000
BlackRock, Inc.
40 E. 52nd Street
New York, NY 10022
Age: 52
- -----------------------------------------------
Number of
Portfolios Total Fund
in Fund Other Compensation
Complex/(2)/ Directorships for the
Name, Address and Principal Occupation(s) Overseen Held by Year Ending
Age During Past Five Years by Trustee Trustee 9/30/05
- -----------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------
Richard S. Davis/(3)/ Managing Director, BlackRock, Inc. 55 None N/A
BlackRock, Inc. (since 2005); Chief Executive Officer, (includes
40 E. 52nd Street State Street Research & 50
New York, NY 10022 Management Company (2000-2005); Portfolios
Age: 59 Chairman of the Board of Trustees, of the Fund
State Street Research mutual funds and 5
("SSR Funds") (2000-2005); Senior Portfolios
Vice President, Metropolitan Life of
Insurance Company (1999-2000); BlackRock
Chairman, SSR Realty (2000-2004). Bond
Allocation
Target
Shares)
- -----------------------------------------------------------------------------------------------------------------
Laurence D. Fink/(4)/ Director, Chairman and Chief 55 Director, BlackRock, N/A
BlackRock, Inc. Executive Officer of BlackRock, Inc. (includes Inc.
40 E. 52nd Street since its formation in 1998 and of 50
New York, NY 10022 BlackRock, Inc.'s predecessor Portfolios
Age: 52 entities since 1988; Chairman of the of the Fund
Management Committee; formerly, and 5
Managing Director of the First Portfolios
Boston Corporation, Member of its of
Management Committee, Co-head of BlackRock
its Taxable Fixed Income Division Bond
and Head of its Mortgage and Real Allocation
Estate Products Group; Chairman of Target
the Board of Nomura BlackRock Shares)
Asset Management and several of
BlackRock's alternative investment
vehicles; Director of several of
BlackRock's offshore funds;
Co-Chairman of the Board of
Trustees of Mount Sinai-NYU;
Co-Chairman of the Board of
Trustees of NYU Hospitals Center;
member of the Board of Trustees of
NYU; member of the Board of
Executives of the New York Stock
Exchange, and Trustee of the
American Folk Art Museum.
- -----------------------------------------------------------------------------------------------------------------
13
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Continued)
Term of
Position(s) Office/(1)/
Name, Address and Held with and Length
Age Fund of Time
Served
- ---------------------------------------------------------------
DISINTERESTED TRUSTEES
- ---------------------------------------------------------------
Bruce R. Bond Trustee Since 2005
c/o BlackRock Funds
100 Bellevue Parkway
Wilmington, DE 19809
Age: 59
- ----------------------------------------------------------------
Peter S. Drotch Trustee Since 2005
c/o BlackRock Funds
100 Bellevue Parkway
Wilmington, DE 19809
Age: 64
- ----------------------------------------------------------------
Honorable Stuart E. Eizenstat Trustee and Since 2001
Covington & Burling Chairman of
1201 Pennsylvania Avenue, the Nominating
NW Committee
Washington, DC 20004
Age: 62
- ----------------------------------------------------------------
Robert M. Hernandez Trustee, Vice Since 1996
c/o BlackRock Funds Chairman of
100 Bellevue Parkway the Board and
Wilmington, DE 19809 Chairman of
Age: 61 the Audit
Committee
- ----------------------------------------------------------------
Number of
Portfolios Total Fund
in Fund Other Compensation
Complex/(2)/ Directorships for the
Name, Address and Principal Occupation(s) Overseen Held by Year Ending
Age During Past Five Years by Trustee Trustee 9/30/05
- -----------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------
Bruce R. Bond Retired; Trustee and member of the 55 Director, Avaya, Inc. $ 84,600
c/o BlackRock Funds Governance Committee, SSR Funds (includes (information
100 Bellevue Parkway ( 1997-2005). 50 technology).
Wilmington, DE 19809 Portfolios
Age: 59 of the Fund
and 5
Portfolios
of
BlackRock
Bond
Allocation
Target
Shares)
- -----------------------------------------------------------------------------------------------------------------------------
Peter S. Drotch Retired; Trustee and member of the 55 Director, First $ 84,600
c/o BlackRock Funds Audit Committee, SSR Funds (includes Marblehead Corp.
100 Bellevue Parkway (2003-2005); Partner, Pricewater- 50 (student loan
Wilmington, DE 19809 houseCoopers LLP (accounting firm) Portfolios processing and
Age: 64 ( 1964-2000). of the Fund securitization);
and 5 Trustee, University of
Portfolios Connecticut; Trustee,
of Huntington Theatre.
BlackRock
Bond
Allocation
Target
Shares)
- -----------------------------------------------------------------------------------------------------------------------------
Honorable Stuart E. Eizenstat Partner, Covington & Burling (law 55 Director, Mirant $130,100
Covington & Burling firm) (2001-Present); Deputy (includes Corporation; Advisory
1201 Pennsylvania Avenue, Secretary of the Treasury 50 Board member, The
NW (1999-2001); Under Secretary of Portfolios Coca-Cola Company;
Washington, DC 20004 State for Economic, Business and of the Fund Advisory Board
Age: 62 Agricultural Affairs (1997-1999); and 5 member, Group
Under Secretary of Commerce for Portfolios Menatep; Advisory
International Trade (1996-1997); of Board member, BT
U.S. Ambassador to the European BlackRock Americas.
Union (1993-1996); Chairman, Bond
International Board of Governors, Allocation
Weizmann Institute of Science. Target
Shares)
- -----------------------------------------------------------------------------------------------------------------------------
Robert M. Hernandez Retired; Director (1991-2001), Vice 55 Lead Director, ACE $140,100
c/o BlackRock Funds Chairman and Chief Financial Officer (includes Limited (insurance
100 Bellevue Parkway (1994-2001), Executive Vice 50 company); Director
Wilmington, DE 19809 President-Accounting and Finance Portfolios and Chairman of the
Age: 61 and Chief Financial Officer of the Fund Board, RTI
(1991-1994), USX Corporation (a and 5 International Metals,
diversified company principally Portfolios Inc.: Director, Eastman
engaged in energy and steel of Chemical Company.
businesses). BlackRock
Bond
Allocation
Target
Shares)
- -----------------------------------------------------------------------------------------------------------------------------
14
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Continued)
Term of
Position(s) Office/(1)/
Name, Address and Held with and Length
Age Fund of Time
Served
- ---------------------------------------------------------
Dr. Matina Horner Trustee and Since 2004
c/o BlackRock Funds Chairperson of
100 Bellevue Parkway the Governance
Wilmington, DE 19809 Committee
Age: 66
- ---------------------------------------------------------
Toby Rosenblatt Trustee Since 2005
c/o BlackRock Funds
100 Bellevue Parkway
Wilmington, DE 19809
Age: 67
- ---------------------------------------------------------
David R. Wilmerding, Jr. Trustee and Since 1996
c/o BlackRock Funds Chairperson of
100 Bellevue Parkway the Board
Wilmington, DE 19809
Age: 70
- ---------------------------------------------------------
Number of
Portfolios Total Fund
in Fund Other Compensation
Complex/(2)/ Directorships for the
Name, Address and Principal Occupation(s) Overseen Held by Year Ending
Age During Past Five Years by Trustee Trustee 9/30/05
- -----------------------------------------------------------------------------------------------------------------------------
Dr. Matina Horner Retired; Executive Vice President of 55 Chair of the Board of $104,550
c/o BlackRock Funds Teachers Insurance and Annuity (includes the Massachusetts
100 Bellevue Parkway Association and College Retirement 50 General Hospital
Wilmington, DE 19809 Equities Fund (TIAA-CREF) Portfolios Institute of Health
Age: 66 ( 1989-2003). of the Fund Professions; Chair of
and 5 the Board of the
Portfolios Greenwall Foundation;
of Trustee, Century
BlackRock Foundation (formerly
Bond The Twentieth Century
Allocation Fund); Director, N
Target STAR (formerly called
Shares) Boston Edison);
Director, The Neiman
Marcus Group;
Honorary Trustee,
Massachusetts
General Hospital
Corporation.
- -----------------------------------------------------------------------------------------------------------------------------
Toby Rosenblatt President, Founders Investment Ltd. 55 Director, A.P. Pharma, $ 84,600
c/o BlackRock Funds (private investments) (since 1999); (includes Inc.
100 Bellevue Parkway Trustee, SSR Funds (1993-2003). 50
Wilmington, DE 19809 Portfolios
Age: 67 of the Fund
and 5
Portfolios
of
BlackRock
Bond
Allocation
Target
Shares)
- -----------------------------------------------------------------------------------------------------------------------------
David R. Wilmerding, Jr. Chairman, Wilmerding & Associates, 56 None $135,100
c/o BlackRock Funds Inc. (investment advisers) (since (includes
100 Bellevue Parkway 1989); Chairman, Coho Partners, 50
Wilmington, DE 19809 Ltd. (investment advisers) (since Portfolios
Age: 70 2003); Director, Beaver Management of the Fund,
Corporation (land management 5 Portfolios
corporation); Managing General of
Partner, Chestnut Street Exchange BlackRock
Fund. Bond
Allocation
Target
Shares and
1 Portfolio
of Chestnut
Street
Exchange
Fund, which
is managed
by
BlackRock
Financial
Management
Inc. and
BlackRock
Institutional
Management
Corporation.)
- -----------------------------------------------------------------------------------------------------------------------------
15
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Continued)
Term of Total Fund
Office/(5)/ Compensation
Position(s) and Length for the
Name, Address and Held with of Time Principal Occupation(s) Year Ending
Age Fund Served During Past Five Years 9/30/05
- -----------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------
Anne Ackerley Vice President Since 2003 Managing Director, BlackRock, Inc. (since May N/A
BlackRock, Inc. (previously 2000); First Vice President and Operating
40 E. 52nd Street served as Officer, Mergers and Acquisitions Group
New York, NY 10022 Assistant (1997-2000), First Vice President and Operating
Age: 43 Secretary Officer, Public Finance Group (1995-1997), and
since First Vice President, Emerging Markets Fixed
2000) Income Research (1994-1995), Merrill Lynch &
Co.
- -----------------------------------------------------------------------------------------------------------------------------
Edward Baer Assistant Since 2005 Director and Senior Counsel of BlackRock, Inc. N/A
BlackRock, Inc. Secretary (since 2004); Associate, Willkie Farr &
40 E. 52nd Street Gallagher LLP (2000-2004); Associate, Morgan
New York, NY 10022 Lewis & Bockius LLP (1995-2000).
Age: 37
Bart Battista Chief Since 2004 Chief Compliance Officer and Anti-Money $368,547
BlackRock, Inc. Compliance Laundering Compliance Officer of BlackRock,
40 E. 52nd Street Officer and Inc. (since 2004); Managing Director (since
New York, NY 10022 Anti-Money 2003), and Director (1998-2002) of BlackRock,
Age: 46 Laundering Inc.; Compliance Officer at Moore Capital
Compliance Management (1995-1998).
Officer
- -----------------------------------------------------------------------------------------------------------------------------
Ellen L. Corson Assistant Since 1998 Senior Director and Vice President of Fund N/A
PFPC Inc. Treasurer Accounting and Administration, PFPC Inc.
103 Bellevue Parkway (since 2003); Vice President and Director of
Wilmington, DE 19809 Mutual Fund Accounting and Administration,
Age: 41 PFPC Inc. (since November 1997); Assistant
Vice President, PFPC Inc. (March
1997-November 1997); Senior Accounting
Officer, PFPC Inc. (March 1993-March 1997).
- -----------------------------------------------------------------------------------------------------------------------------
Henry Gabbay President Since 2005 Managing Director, BlackRock, Inc. (since N/A
BlackRock, Inc. 1989).
40 E. 52nd Street
New York, NY 10022
Age: 57
Brian P. Kindelan Secretary Since 1997 Managing Director and Senior Counsel (since N/A
BlackRock Advisors, Inc. January 2005), Director and Senior Counsel
100 Bellevue Parkway (2001-2004) and Vice President and Senior
Wilmington, DE 19809 Counsel (1998-2000), BlackRock Advisors,
Age: 46 Inc.; Senior Counsel, PNC Bank Corp. May
1995-April 1998).
- -----------------------------------------------------------------------------------------------------------------------------
William McGinley Treasurer Since 2005 Managing Director of BlackRock, Inc. (since N/A
BlackRock, Inc. 2004); Partner, PricewaterhouseCoopers LLP
100 Bellevue Parkway ( 1990-2004).
Wilmington, DE 19809
Age: 38
- -----------------------------------------------------------------------------------------------------------------------------
Vincent Tritto Assistant Since 2003 Managing Director and Assistant Secretary N/A
BlackRock, Inc. Secretary (since January 2005) and Director and Senior
40 E. 52nd Street Counsel (2002-2004) of BlackRock, Inc.
New York, NY 10022 Executive Director (2000-2002) and Vice
Age: 44 President (1998-2000), Morgan Stanley & Co.
Incorporated and Morgan Stanley Asset
Management Inc. and officer of various Morgan
Stanley-sponsored investment vehicles:
Counsel (1998); Associate (1988-1997),
Rogers & Wells LLP, New York, NY.
- -----------------------------------------------------------------------------------------------------------------------------
16
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Concluded)
(1) Each Trustee holds office for an indefinite term until the earlier of (1)
the next meeting of shareholders at which Trustees are elected and until
his or her successor is elected and qualified and (2) such time as such
Trustee resigns or his or her term as a Trustee is terminated in accordance
with the Fund's code of regulations and Declaration of Trust.
(2) A Fund Complex means two or more registered investment companies that hold
themselves out to investors as related companies for purposes of investment
and investor services, that have a common investment adviser or that have
an investment adviser that is an affiliated person of the investment
adviser of any of the other registered investment companies.
(3) Mr. Davis is an interested person of the Fund due to his position at
BlackRock, Inc.
(4) Mr. Fink is an interested person of the Fund due to his position at
BlackRock, Inc.
(5) Each officer holds office for an indefinite term until the earlier of (1)
the next meeting of trustees at which his or her successor is appointed and
(2) such time as such officer resigns or his or her term as an officer is
terminated in accordance with the Fund's code of regulations and
Declaration of Trust.
17
BlackRock Funds
ADDITIONAL INFORMATION (Unaudited)
(A) A proxy statement was sent to shareholders of all portfolios of the Fund
asking them to consider and vote upon the election of nine trustees to the
Board of Trustees of the Fund (the "Board"). Five of the nine nominees were
already serving as trustees of the Fund and the additional nominees had
previously served as trustees of the State Street Research Funds. Due to
the increased size and complexity of the Fund resulting from the
reorganization with the State Street Research Funds, and an increase in the
responsibilities of boards of trustees of funds generally, the Board
believed it was in the best interest of the Fund to increase the size of
the Board. On April 29, 2005, the special meeting of shareholders was held,
at which all of the nominees included in the proxy were duly elected to the
Board.
The votes for the election of trustees were as follows:
Affirmative Negative
--------------- ----------
Bruce R. Bond .................... 3,006,153,475 9,427,152
Richard S. Davis ................. 3,006,504,966 9,075,661
Peter S. Drotch .................. 3,006,391,368 9,189,259
Stuart E. Eizenstat .............. 3,005,972,578 9,608,049
Laurence D. Fink ................. 3,006,652,923 8,927,704
Robert M. Hernandez .............. 3,006,095,141 9,485,487
Dr Matina Horner ................. 3,005,916,103 9,664,525
Toby Rosenblatt .................. 3,006,157,679 9,422,948
David R. Wilmerding, Jr. ......... 3,006,022,868 9,557,759
(B) PricewaterhouseCoopers LLP ("PwC"), the Fund's former independent
registered public accounting firm, has been hired as an internal audit
supporting service provider by The PNC Financial Services Group, Inc.
("PNC"), the parent company of the Fund's investment adviser and certain
other service providers. In order to provide certain services to PNC and
its affiliates which would have caused PwC to no longer be independent with
respect to the Fund, PwC declined to stand for re-election as independent
registered public accounting firm of the Fund after the completion of the
fiscal 2003 audit.
The Fund's Audit Committee approved engaging Deloitte & Touche LLP as the
independent registered public accounting firm to audit the Fund's financial
statements for fiscal year 2006. A majority of the Fund's Board of
Trustees, including a majority of the independent Trustees, approved the
appointment of Deloitte & Touche LLP as the Fund's independent registered
public accounting firm for the Fund's fiscal 2006 audit on November 29,
2005, subject to the right of the Fund, by a majority vote of the
shareholders at any meeting called for that purpose, to terminate the
appointment without penalty.
(C) As previously disclosed, BlackRock has received subpoenas from various
federal and state governmental and regulatory authorities and various
information requests from the Securities and Exchange Commission in
connection with ongoing industry-wide investigations of mutual fund
matters.
18
BlackRock Funds
Investment Adviser
BlackRock Financial Management, Inc.
New York, New York 10022
Custodian
PFPC Trust Co.
Philadelphia, Pennsylvania 19153
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Distributor
BlackRock Distributors, Inc.
King of Prussia, Pennsylvania 19406
Co-Administrator
BlackRock Advisors, Inc.
Wilmington, Delaware 19809
Counsel
Simpson Thacher & Bartlett LLP
New York, New York 10017
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Philadelphia, Pennsylvania 19103
The Fund has delegated proxy voting responsibilities to BlackRock and its
affiliates, subject to the general oversight of the Fund's Board of Trustees. A
description of the policies and procedures that BlackRock and its affiliates use
to determine how to vote proxies relating to portfolio securities is available
without charge, upon request, by calling 1-800-441-7762, or on the website of
the Securities and Exchange Commission (the "Commission") at http://www.sec.gov.
Information on how proxies relating to the Fund's voting securities were voted
(if any) by the Advisor during the most recent 12-month period ended June 30th
is available, upon request and without charge, by calling (800) 441-7762 or on
the website of the Commission at http://www.sec.gov.
The Fund files its complete schedule of portfolio holdings for the first and
third quarters of its fiscal year with the Commission on Form N-Q. The Fund's
Form N-Q is available on the Commission's website at http://www.sec.gov and may
be reviewed and copied at the Commission's Public Reference Room in Washington,
D.C. Information regarding the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The Fund's Form N-Q may also be obtained
upon request, without charge, by calling (800) 441-7762.
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Fund shares.
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.
BlackRock
STRAT-ANN 11/05
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock Funds
Exchange Portfolio
Annual Report
September 30, 2005
[GRAPHIC APPEARS HERE]
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE BlackRock
BlackRock Funds
EXCHANGE PORTFOLIO
TABLE OF CONTENTS
Shareholder Letter .........................................................1
Portfolio Summary
Exchange Portfolio ..................................................2-3
Statement of Net Assets ....................................................4
Portfolio Financial Statements
Statement of Operations ...............................................5
Statements of Changes in Net Assets ...................................6
Financial Highlights ..................................................7
Notes to Financial Statements ...........................................8-12
Report of Independent Registered Public Accounting Firm ...................13
Fund Management ........................................................14-18
Additional Information ....................................................19
PRIVACY PRINCIPLES OF BLACKROCK FUNDS
BlackRock Funds is committed to maintaining the privacy of its shareholders and
to safeguarding their nonpublic personal information. The following information
is provided to help you understand what personal information BlackRock Funds
collects, how we protect that information, and why in certain cases we may
share such information with select other parties.
BlackRock Funds does not receive any nonpublic personal information relating to
its shareholders who purchase shares through their broker-dealers. In the case
of shareholders who are record owners of BlackRock Funds, BlackRock Funds
receives nonpublic personal information on account applications or other forms.
With respect to these shareholders, BlackRock Funds also has access to specific
information regarding their transactions in BlackRock Funds.
BlackRock Funds does not disclose any nonpublic personal information about its
shareholders or former shareholders to anyone, except as permitted by law or as
is necessary in order to service our shareholders' accounts (for example, to a
transfer agent).
BlackRock Funds restricts access to nonpublic personal information about its
shareholders to BlackRock employees with a legitimate business need for the
information. BlackRock Funds maintains physical, electronic and procedural
safeguards designed to protect the nonpublic personal information of our
shareholders.
BlackRock Exchange Portfolio
September 30, 2005
Dear Shareholder,
We are pleased to present the Annual Report of the BlackRock Exchange
Portfolio for the period ended September 30, 2005. On January 31, 2005, the
State Street Research Funds reorganized into BlackRock Funds and we at
BlackRock would like to welcome the former State Street Research Funds
shareholders and our new shareholders to the BlackRock Funds Family.
The Annual Report includes important information on the Portfolio:
.. Portfolio Summary - discusses recent portfolio management activity and
highlights total returns.
.. Fund Profile - displays characteristics of the Portfolio's holdings as of
September 30, 2005.
.. Expense Example - discusses costs in a shareholder account and provides
information for a shareholder to estimate his or her expenses and to
compare expenses of the Portfolio to other funds.
.. Statement of Net Assets - lists portfolio holdings and includes each
holding's market value and number of shares as of September 30, 2005. The
Statement of Net Assets also contains the net asset value for the
Portfolio.
.. Statement of Operations - displays the components of the Portfolio's
investment income and provides a detailed look at the Portfolio's
expenses. The Statement of Operations also lists the aggregate change in
value of the Portfolio's securities due to market fluctuations and
security sales.
.. Statements of Changes in Net Assets - compares Portfolio information from
the prior period to the current period. Specifically, it details
shareholder distributions, aggregate realized gains and losses, and the
change in net assets from the beginning of the period to the end of the
period.
.. Financial Highlights - include the Portfolio's expense ratios, net asset
values, total returns, distributions per share, and turnover ratios for
the current period and the last five years.
.. Notes to Financial Statements - provide additional information on fees, a
summary of significant accounting policies, a list of affiliated
transactions, and a summary of purchases and sales of securities.
.. Fund Management Table - lists information regarding BlackRock Funds'
Trustees and Officers.
At BlackRock, we maintain an unwavering commitment to placing our clients
first and we value the trust you have placed in us. We hope you find the report
informative, and we thank you for making BlackRock part of your investment
strategy. Should you have questions concerning this report, please contact your
financial advisor or contact us at 1-800-441-7762 or visit us at
www.blackrock.com/funds.
Sincerely,
[GRAPHIC APPEARS HERE]
Anne Ackerley
Managing Director
BlackRock Advisors,Inc.
1
BlackRock Exchange Portfolio
Total Net Assets (9/30/05): $292.5 million
Performance Benchmark:
S&P 500(R) Index
Investment Approach:
Seeks long-term growth of capital and consequent long-term growth of
income by investing largely in a diversified and supervised Portfolio of common
stocks, or securities convertible into common stocks, believed by management to
have growth potential over the years. In pursuing the Portfolio's investment
objective, the management team seeks to minimize the recognition of capital
gains.
Recent Portfolio Management Activity:
. On January 31, 2005, BlackRock, Inc., the parent of BlackRock
Advisors, Inc. (BAI), acquired SSRM Holdings, Inc., the parent of State Street
Research & Management Company (SSRM), the investment adviser to the State Street
Research mutual funds. In connection with the transaction, the BlackRock
Exchange Portfolio (the Portfolio) reorganized with the State Street Research
Exchange Fund (the SSR Fund). The SSR Fund transferred substantially all of its
assets and liabilities to the Portfolio in exchange for shares of the Portfolio,
which were then distributed to the SSR Fund shareholders. For periods prior to
January 31, 2005, the performance information shown reflects the performance of
the SSR Fund, which had substantially similar investment goals and strategies as
the Portfolio.
. The Portfolio underperformed the benchmark for the annual period.
. U.S. equity markets posted solid gains during the annual period.
Equity markets rallied in the final quarter of 2004, but have provided mixed
results thus far in 2005. Investors continue to exhibit caution, as worries over
oil prices, interest rates and economic growth remain in the spotlight.
Nevertheless, the S&P 500(R) Index managed to produce double digit gains, rising
12.25% over the one year period. Within the Portfolio's benchmark, the S&P
500(R) Index, all major sectors were in positive territory. However, the energy
sector was the primary driver of total return as energy prices climbed
significantly. Other sector leaders included information technology and
utilities.
. Security selection was the major driver of the Portfolio's
underperformance relative to its benchmark. In particular, weakness in the
energy, consumer staples and information technology ("IT") sectors had a
negative impact on performance. Security selection in industrials and
telecommunication services aided performance during the period. Overall, sector
allocation was positive, and the Portfolio's overweight to the strong
performing energy sector aided returns.
. Results within the energy sector were somewhat mixed. The Portfolio
produced strong absolute gains within the energy sector, buoyed by our
overweight to the sector. However, security selection had a negative impact on
the Portfolio. Stocks within both the oil and gas and the energy equipment and
services industries tended to underperform those within the benchmark.
. Our exposure in the consumer staples sector detracted from
performance. In particular, security selection within both the beverages and the
food and staples retailing industries hampered relative returns. Most notably,
positions in Anheuser-Busch and Wal-Mart contributed to relative
underperformance. Holdings in the computers and peripherals and the IT services
industries created a drag on returns within information technology.
. In contrast, both the industrials and telecommunication sectors
delivered strong relative gains. Strength in both our aerospace and defense and
machinery holdings boosted returns. Key contributors in the industrials sector
were Boeing and Caterpillar, while Verizon was a key contributor in
telecommunication services.
. At the end of the annual period, relative to the S&P 500(R), the
Portfolio was overweight in the consumer staples, energy, and health care
sectors and was underweight in the consumer discretionary, utilities and
financials sectors.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE EXCHANGE PORTFOLIO
AND THE S&P 500(R) INDEX FOR THE PAST TEN YEARS.
[LINE CHART]
Exchange Portfolio S&P 500(R) Index
------------------ ----------------
09/30/1995 $ 10,000 $ 10,000
12/31/1995 10,580 10,602
03/31/1996 11,451 11,171
06/30/1996 11,914 11,673
09/30/1996 12,474 12,033
12/31/1996 13,337 13,036
03/31/1997 13,768 13,386
06/30/1997 16,423 15,723
09/30/1997 17,288 16,901
12/31/1997 17,566 17,386
03/31/1998 19,874 19,811
06/30/1998 20,856 20,465
09/30/1998 18,640 18,429
12/31/1998 22,501 22,354
03/31/1999 24,227 23,468
06/30/1999 25,852 25,122
09/30/1999 24,259 23,554
12/31/1999 26,685 27,058
03/31/2000 26,889 27,679
06/30/2000 26,274 26,944
09/30/2000 26,188 26,683
12/31/2000 25,583 24,595
03/31/2001 22,100 21,679
06/30/2001 22,993 22,948
09/30/2001 20,475 19,580
12/31/2001 22,934 21,672
03/31/2002 23,542 21,732
06/30/2002 20,228 18,820
09/30/2002 17,228 15,569
12/31/2002 18,627 16,882
03/31/2003 18,302 16,351
06/30/2003 20,500 18,868
09/30/2003 20,856 19,367
12/31/2003 22,519 21,725
03/31/2004 22,938 22,093
06/30/2004 23,223 22,473
09/30/2004 22,881 22,053
12/31/2004 24,236 24,089
03/31/2005 23,575 23,572
06/30/2005 24,006 23,894
09/30/2005 24,981 24,756
For period ending September 30, 2005
Exchange Portfolio - Average Annual Return
1 Year 3 Year 5 Year 10 Year
------------ ----------- ------------- ----------
9.18% 13.17% (0.94)% 9.58%
THE INCEPTION DATE OF THE PORTFOLIO WAS 12/17/76.
Past performance is not predictive of future results. The graph and table do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of shares. Although the holdings and sectors
listed above were current as of the periods indicated, the Portfolio is
actively managed and its composition will vary.
2
BlackRock Exchange Portfolio
FUND PROFILE
Top Ten Holdings (% of long-term investments)
Exxon Mobil Corp. 6.8%
American Express Co. 6.0
The Procter & Gamble Co. 5.0
Target Corp. 4.9
SLM Corp. 4.3
General Electric Co. 4.0
First Data Corp. 3.7
Microsoft Corp 3.5
Hewlett-Packard Co. 3.5
Berkshire Hathaway, Inc. - Class B 3.5
-----
Total 45.2%
=====
Top Ten Industries (% of long-term investments)
Oil & Gas 13.7%
Finance 11.7
Pharmaceuticals 10.0
Computer & Office Equipment 8.1
Retail Merchandising 7.2
Computer Software & Services 7.2
Soaps & Cosmetics 5.0
Aerospace 5.0
Beverages & Bottling 4.2
Manufacturing 4.0
-----
Total 76.1%
=====
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including advisory
fees, and other Portfolio expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Portfolio and to
compare these costs with the ongoing costs of investing in other mutual funds.
The Example below is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period April 1, 2005 to September 30,
2005.
The information under "Actual Expenses," together with the amount you invested,
allows you to estimate actual expenses incurred over the reporting period.
Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.60) and multiply the result by the cost shown for
your share class, in the row entitled "Expenses Incurred During Period", to
estimate the expenses incurred on your account during this period.
The information under "Hypothetical Expenses" provides information about
hypothetical account values and hypothetical expenses based on the Portfolio's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Portfolio's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expense you incurred for the period. You may use this information to
compare the ongoing costs of investing in the Portfolio and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front
and back end sales charges (loads) or redemption/exchange fees, where
applicable. Therefore, the hypothetical information is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds.
Hypothetical Expenses
Actual Expenses (5% return before expenses)
----------------- ---------------------------
BlackRock Class BlackRock Class
----------------- ---------------------------
Beginning Account Value (4/01/05) $ 1,000.00 $ 1,000.00
Ending Account Value (9/30/05) 1,059.80 1,021.95
Expenses Incurred During Period (4/01/05 - 9/30/05) 3.10 3.05
For the BlackRock share class of the Portfolio, expenses are equal to the
annualized expense ratio of 0.60%, multiplied by the average account value over
the period, multiplied by 183/365 (to reflect the one-half year period).
3
BlackRock Funds
STATEMENT OF NET ASSETS
BLACKROCK EXCHANGE PORTFOLIO
As of September 30, 2005
Number
of Shares Value
----------- --------------
COMMON STOCKS -- 99.3%
Aerospace -- 5.0%
The Boeing Co. 131,800 $ 8,955,810
General Dynamics Corp. 46,500 5,559,075
------------
14,514,885
------------
Banks -- 1.5%
J.P. Morgan Chase & Co., Inc. 124,728 4,232,021
------------
Beverages & Bottling -- 4.1%
Anheuser-Busch Cos., Inc. 192,315 8,277,237
The Coca-Cola Co. 87,735 3,789,275
------------
12,066,512
------------
Computer & Office Equipment -- 8.0%
Dell, Inc.(b) 170,500 5,831,100
Hewlett-Packard Co. 349,270 10,198,684
International Business Machines Corp. 92,371 7,410,002
------------
23,439,786
------------
Computer Software & Services -- 7.2%
First Data Corp. 266,480 10,659,200
Microsoft Corp. 399,890 10,289,170
------------
20,948,370
------------
Conglomerates -- 3.4%
Berkshire Hathaway, Inc. - Class B(b) 3,687 10,069,197
------------
Electronics -- 2.0%
Agilent Technologies, Inc.(b) 29,749 974,280
Intel Corp. 200,000 4,930,000
------------
5,904,280
------------
Finance -- 11.6%
American Express Co. 305,626 17,555,158
Fannie Mae 88,105 3,948,866
SLM Corp. 233,200 12,508,848
------------
34,012,872
------------
Food & Agriculture -- 0.1%
General Mills, Inc. 8,497 409,555
------------
Insurance -- 2.3%
American International Group, Inc. 106,800 6,617,328
------------
Machinery & Heavy Equipment -- 2.5%
Caterpillar, Inc. 124,256 7,300,040
------------
Manufacturing -- 4.0%
General Electric Co. 344,970 11,615,140
------------
Medical & Medical Services -- 3.4%
Medco Health Solutions, Inc.(b) 11,124 609,929
Millipore Corp.(b) 150,000 9,433,500
------------
10,043,429
------------
Medical Instruments & Supplies -- 3.8%
Johnson & Johnson 124,195 7,859,060
Medtronic, Inc. 60,000 3,217,200
------------
11,076,260
------------
Oil & Gas -- 13.6%
BP PLC 131,321 9,304,093
Exxon Mobil Corp. 312,469 19,854,280
Schlumberger Ltd. 109,238 9,217,502
Transocean, Inc.(b) 21,148 1,296,584
------------
39,672,459
------------
Pharmaceuticals -- 9.9%
AstraZeneca PLC - ADR 76,000 3,579,600
Merck & Co., Inc. 83,999 2,285,613
Novartis AG - ADR 185,384 9,454,584
Pfizer, Inc. 280,383 7,001,163
Wyeth 145,544 6,734,321
------------
29,055,281
------------
Retail Merchandising -- 7.2%
Target Corp. 273,222 14,188,418
Wal-Mart Stores, Inc. 154,700 6,778,954
------------
20,967,372
------------
Soaps & Cosmetics -- 5.0%
The Procter & Gamble Co. 246,400 14,650,944
------------
Telecommunications -- 2.8%
Vodafone Group PLC - SP ADR 309,500 8,037,715
------------
Tobacco -- 1.9%
Altria Group, Inc. 77,000 5,675,670
------------
TOTAL COMMON STOCKS
(Cost $89,989,239) 290,309,116
------------
SHORT TERM INVESTMENTS -- 0.7%
Galileo Money Market Fund
(Cost $2,110,964) 2,110,964 2,110,964
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $92,100,203(a)) 292,420,080
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 0.0% 96,013
------------
NET ASSETS -- 100.0% $292,516,093
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
BLACKROCK SHARE
($292,516,093/548,167) $ 533.63
========
- ----------
(a) Cost for Federal income tax purposes is $85,523,957. The gross
unrealized appreciation (depreciation) on a tax basis is as
follows:
Gross unrealized appreciation $208,418,553
Gross unrealized depreciation (1,522,430)
------------
$206,896,123
============
(b) Non-income producing security.
KEY TO INVESTMENT ABBREVIATIONS
ADR American Depository Receipts
PLC Public Limited Co.
SP Sponsored
See accompanying notes to financial statements.
4
BlackRock Funds
STATEMENT OF OPERATIONS
BLACKROCK EXCHANGE PORTFOLIO
For the For the
Nine Months Ended Year Ended
9/30/05 12/31/04
------------------- ---------------
Investment income:
Interest .................................................... $ 51,236 $ 38,550
Dividends and reclaims ...................................... 3,581,524 6,333,137
Foreign taxes witheld ....................................... (24,636) (79,760)
Security lending income ..................................... -- 2,665
------------ ------------
Total investment income ................................... 3,608,124 6,294,592
------------ ------------
Expenses:
Investment advisory fee ..................................... 1,082,951 1,515,452
Administration fee .......................................... 240,497 108,870
Printing fee ................................................ 71,122 9,300
Legal and audit fee ......................................... 50,417 53,021
Transfer agent fee .......................................... 34,693 11,810
Custodian fee ............................................... 27,964 93,500
Trustees' fees .............................................. 8,187 25,445
Registration fees and expenses .............................. 3,578 --
Other ....................................................... 15,586 28,638
------------ ------------
Total expenses ............................................. 1,534,995 1,846,036
------------ ------------
Less investment advisory fees waived ...................... (156,407) --
Less administration fees waived ........................... (68,117) --
Less transfer agent fee waived ............................ (2,496) --
Less custodian fees waived ................................ (1,842) --
------------ ------------
Net expenses ............................................... 1,306,133 1,846,036
------------ ------------
Net investment income ........................................ 2,301,991 4,448,556
------------ ------------
Realized and unrealized gain (loss) on investments:
Net increase from payment by affiliate ...................... -- 98,840
Net realized gain (loss) from:
Investment transactions .................................... (2,560,750) 4,097,700
Redemption-in-kind transactions (Note C) ................... 8,537,884 22,587,741
------------ ------------
5,977,134 26,685,441
------------ ------------
Change in unrealized appreciation from:
Investments ................................................ 248,812 (9,213,483)
------------ ------------
Net gain on investments transactions ......................... 6,225,946 17,570,798
------------ ------------
Net increase in net assets resulting from operations ......... $ 8,527,937 $ 22,019,354
============ ============
See accompanying notes to financial statements.
5
BlackRock Funds
STATEMENTS OF CHANGES IN NET ASSETS
BLACKROCK EXCHANGE PORTFOLIO
For the For the For the
Nine Months Ended Year Ended Year Ended
9/30/05 12/31/04 12/31/03
------------------- ---------------- ----------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................................... $ 2,301,991 $ 4,448,556 $ 3,407,737
Net increase from payment by affiliate (Note D) ................. -- 98,840 --
Net realized gain (loss) on investment transactions ............. (2,560,750) 4,097,700 4,576,085
Net realized gain on redemption-in-kind transactions ............ 8,537,884 22,587,741 7,674,460
Change in unrealized appreciation (depreciation) on investments.. 248,812 (9,213,483) 39,112,155
------------- ------------- -------------
Net increase in net assets resulting from operations ............ 8,527,937 22,019,354 54,770,437
------------- ------------- -------------
Distributions to shareholders from:
Net investment income ........................................... (1,671,755) (4,387,534) (3,497,110)
------------- ------------- -------------
Capital share transactions:
Shares issued in reinvestment of dividends ...................... 335,703 911,070 627,059
Shares redeemed ................................................. (14,027,713) (28,889,729) (10,704,806)
------------- ------------- -------------
Net decrease in net assets resulting from capital share
transactions ................................................... (13,692,010) (27,978,659) (10,077,747)
------------- ------------- -------------
Total increase(decrease) in net assets .......................... (6,835,828) (10,346,839) 41,195,580
Net assets:
Beginning of period ............................................. 299,351,921 309,698,760 268,503,180
------------- ------------- -------------
End of period ................................................... $ 292,516,093 $ 299,351,921 309,698,760
============= ============= =============
End of period undistributed net investment income ................. $ 691,258 $ 61,022 $ --
See accompanying notes to financial statements.
6
BlackRock Funds
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
For the For the For the
Nine Months Ended Year Ended Year Ended
9/30/05 12/31/04 /1/ 12/31/03 /2/
------------------- ------------- -------------
Per share operating performance:
Net asset value, beginning of period .............................. $ 520.73 $ 490.99 $ 411.01
--------- --------- ---------
Net investment income ............................................ 4.10/3/ 7.61 5.40
Net realized and unrealized gain (loss) on investments ........... 11.80 29.63 80.08
Distributions from net investment income ......................... (3.00) (7.50) (5.50)
--------- --------- ---------
Net asset value, end of period ................................... $ 533.63 $ 520.73 $ 490.99
========= ========= =========
Total Return ...................................................... 3.10%/5/ 7.63% 20.89%
Ratios/Supplemental data
Net assets, end of period (in thousands) .......................... $ 292,516 $ 299,352 $ 309,699
Ratio of expenses to average net assets ........................... 0.60%/6/ 0.61% 0.59%
Ratio of expenses to average net assets (excluding waivers) ....... 0.71%/6/ 0.61% 0.59%
Ratio of net investment income to average net assets .............. 1.06%/6/ 1.47% 1.20%
Ratio of net investment income to average net assets (excluding
waivers) ......................................................... 0.95%/6/ 1.47% 1.20%
Portfolio turnover ................................................ - 4% 5%
For the For the For the
Year Ended Year Ended Year Ended
12/31/02 /2/ 12/31/01 /2/ 12/31/00 /2/
-------------- -------------- -------------
Per share operating performance:
Net asset value, beginning of period .............................. $ 511.71 $ 575.76 $ 616.80
--------- --------- ----------
Net investment income ............................................ 4.74 4.22 4.75
Net realized and unrealized gain (loss) on investments ........... (100.64) (64.02) (41.19)/4/
Distributions from net investment income ......................... (4.80) (4.25) (4.60)
--------- --------- ----------
Net asset value, end of period ................................... $ 411.01 $ 511.71 $ 575.76
========= ========= ==========
Total Return ...................................................... (18.78)% (10.35)% (4.13)
Ratios/Supplemental data
Net assets, end of period (in thousands) .......................... $ 268,503 $ 367,640 $ 437,804
Ratio of expenses to average net assets ........................... 0.60% 0.57% 0.55%
Ratio of expenses to average net assets (excluding waivers) ....... 0.60% 0.57% 0.55%
Ratio of net investment income to average net assets .............. 1.00% 0.81% 0.78%
Ratio of net investment income to average net assets (excluding
waivers) ......................................................... 1.00% 0.81% 0.78%
Portfolio turnover ................................................ 3% 1% 11%
- ---------
/1/ During the year ended December 31, 2004, the Advisor reimbursed the
Portfolio as part of an internal review regarding the use of fund brokerage
commissions. These payments increased net realized and unrealized gain on
investments per share by $0.17, and increased total return by 0.04%.
/2/ Audited by other auditors.
/3/ Calculated using the average shares outstanding method.
/4/ After provision for federal tax on retained capital gains of $11.01.
/5/ Not annualized.
/6/ Annualized.
See accompanying notes to financial statements.
7
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS
(A) Organization
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 50 portfolios, one of which, the BlackRock Exchange Portfolio
(the "Portfolio"), is included in these financial statements. The Portfolio is
authorized to issue an unlimited number of shares with a par value of $0.001.
Under the Fund's organizational documents, its officers and trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts with its vendors and others that provide for general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund.
However, based on experience, the Fund considers the risk of loss from such
claims to be remote.
(B) Fund Reorganization
On January 31, 2005, BlackRock, Inc., the parent of BlackRock Advisors,
Inc. ("BlackRock"), acquired SSRM Holdings, Inc., the parent of State Street
Research & Management Co. ("SSRM"), the investment adviser to the former State
Street Research mutual funds. In connection with the transaction, the BlackRock
Exchange Portfolio reorganized with the State Street Research Exchange Fund.
On January 31, 2005, the BlackRock Exchange Portfolio acquired all of the
assets and certain stated liabilities of the State Street Research Exchange
Fund. The reorganization was pursuant to an Agreement and Plan of
Reorganization, which was approved by the State Street Research shareholders on
January 25, 2005. In connection with the reorganization, the BlackRock Exchange
Portfolio inherited the accounting and performance history of the State Street
Research Exchange Fund. Under the Agreement and Plan of Reorganization, 572,959
shares of the State Street Research Exchange Fund were exchanged for 572,959
BlackRock Class shares of the BlackRock Exchange Portfolio. The BlackRock
Exchange Portfolio commenced operations on this date as a result of this tax
free reorganization.
Included in the net assets from the State Street Research Exchange Fund
was paid-in-capital of $84,329,708, undistributed net investment income of
$265,841, accumulated realized gain of $14,157,803 and net unrealized
appreciation of $189,448,466. Total net assets as of January 28, 2005 were
$288,201,818.
Accordingly, the information presented in the financial statements and
related notes reflects operations of the predecessor State Street Research fund
prior to January 31, 2005 and represents operations of the reorganized
BlackRock Fund following the consummation of the reorganization.
(C) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Portfolio in the preparation of its financial statements.
Investment Valuation -- Valuation of investments held by the Portfolio is
as follows: investments traded on a national securities exchange or on the
NASDAQ National Market System are valued at the last reported sale price that
day or the NASDAQ official closing price, if applicable; investments traded on
a national securities exchange for which there were no sales on that day and
investments traded on other over-the-counter markets for which market
quotations are readily available are valued at the mean of the bid and asked
prices. The amortized cost method of valuation will be used with respect to
debt obligations with sixty days or less remaining to maturity unless the
investment adviser under the supervision of the Board of Trustees (the "Board")
determines such method does not represent fair value. Any assets which are
denominated in a non-U.S. currency are translated into U.S. dollars at the
prevailing market rates. In the event that application of these methods of
valuation results in a price for an investment which is deemed not to be
representative of the market value of such investment, the investment will be
valued by, under the direction of or in accordance with a method approved by
the Board as reflecting fair value ("Fair Value Assets"). The investment
adviser will submit its recommendations regarding the valuation and/or
valuation methodologies for Fair Value Assets to a valuation committee. Such
valuation committee may accept, modify or reject any recommendations. The
pricing of all Fair Value Assets shall be subsequently reported to and ratified
by the Board.
When determining the price for a Fair Value Asset, the investment advisor
shall seek to determine the price that the Portfolio might reasonably expect to
receive from the current sale of that asset in an arms'-length transaction.
Fair value determinations shall be based upon all available factors that the
advisor deems relevant.
8
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
Dividends to Shareholders -- Dividends from net investment income, which
are recorded on the ex-dividend date, are declared and paid quarterly for the
Portfolio. Net realized short-term capital gains, if any, are distributed
annually. The Portfolio's current practice is to retain long-term capital
gains and to pay Federal taxes thereon at corporate capital gain tax rates on
behalf of the shareholders.
Investment Transactions and Investment Income -- Investment transactions
are accounted for on the trade date. The cost of investments sold and the
related gain or loss thereon is determined by use of the specific
identification method, generally high cost, for both financial reporting and
federal income tax purposes. Interest income is recorded on the accrual basis.
Discounts and premiums on debt securities are accreted or amortized,
respectively, for book and tax purposes using the effective yield-to-maturity
method over the term of the instrument. Dividends are recorded on the
ex-dividend date.
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
Portfolio's custodian or an authorized securities depository.
Redemptions-In-Kind -- The fund transferred securities and cash due to
redemptions-in-kind. For purposes of generally accepted accounting principles,
these transactions were treated as a sale of securities and the resulting gains
and losses were recognized based on the market value of the securities on the
date of the transfer. For tax purposes, no gains or losses were recognized.
Gains and losses resulting from such redemptions in-kind are disclosed
separately in the Statement of Operations.
Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("generally accepted accounting principles") requires the use of management
estimates. Actual results could differ from these estimates.
Other -- Expenses that are directly related to the Portfolio are charged
directly to the Portfolio. Other operating expenses incurred by the Fund are
prorated to the Portfolio on the basis of relative net assets.
(D) Transactions with Affiliates and Related Parties
Prior to January 31, 2005, the State Street Research Exchange Fund entered
in an agreement with SSRM to provide management advisory, statistical and
research facilities and services. Fees were earned monthly at the annual rate
of 0.50% of the Portfolio's average net assets.
Effective January 31, 2005, pursuant to an Investment Advisory Agreement,
BlackRock serves as investment advisor. BlackRock is an indirect majority-owned
subsidiary of The PNC Financial Services Group, Inc. For its advisory
services, BlackRock is entitled to receive fees computed daily and payable
monthly at the annual rate of 0.50% of average daily net assets.
The Portfolio's advisory fees were paid to BlackRock beginning January 31,
2005. Prior to that date the fees were paid to SSRM. See (Note B) above for
more information on the fund reorganization.
In the interest of limiting the expenses of the Portfolio, BlackRock and
the Portfolio have entered into an annual expense limitation agreements. The
agreement sets a limit on certain operating expenses of the 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 the
aggregate expenses incurred (excluding: interest, taxes, brokerage commissions
and other extraordinary expenses).
BlackRock has contractually agreed to waive or reimburse fees or expenses
until February 1, 2006, in order to limit expenses to 0.60% of average daily
net assets. This agreement is reviewed annually by the Fund's Board.
9
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
At September 30, 2005, the amounts subject to possible future
reimbursement under the expense limitation agreement are as follows:
Total Waivers
Expiring Expiring Subject to
January 31, 2007 January 31, 2008 Reimbursement
------------------ ------------------ --------------
$ 3,839 $ 220,685 $ 224,524
Prior to January 31, 2005, the Portfolio paid SSRM for certain
administrative costs incurred in providing other assistance and services to the
Portfolio. The fee was based on actual costs allocated equally among the State
Street Research funds. Effective January 31, 2005, PFPC Inc. ("PFPC"), an
indirect wholly-owned subsidiary of The PNC Financial Services Group, Inc., and
BlackRock act as co-administrators for the Portfolio. 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 the
Portfolio, at the following annual rates: 0.085% of the first $500 million,
0.075% of the next $500 million and 0.065% of assets in excess of $1 billion.
In addition, the Portfolio is charged an administration fee based on the
following percentage of average daily net assets of each respective class:
0.035% of the first $500 million, 0.025% of the next $500 million and 0.015% of
assets in excess of $1 billion.
PFPC and BlackRock may, at their discretion, waive all or any portion of
their administration fees for the Portfolio.
Prior to January 31, 2005, State Street Bank and Trust Co. served as the
Portfolio's custodian and record keeper. Effective January 31, 2005, PFPC Trust
Co., an indirect subsidiary of The PNC Financial Services Group, Inc., serves
as custodian for the Portfolio. Prior to January 31, 2005, Boston Financial
Data Services, Inc. served as the State Street Research Funds' transfer agent.
Effective January 31, 2005, PFPC serves as transfer and dividend disbursing
agent. The custodian and transfer agent have agreed to voluntarily waive a
portion of their fees during the period. Prior to January 31, 2005, State
Street Research Service Center, a division of State Street Research Investment
Services, Inc., the State Street Research Funds' principal underwriter,
provided certain shareholder services to the State Street Research Funds, such
as responding to inquiries and instructions from investors with respect to the
purchase and redemption of shares of the funds. For the month ended January 31,
2005, the State Street Research Exchange Fund paid $382 for these services.
Subsequent to January 31, 2005, BlackRock operated an Investor Service center
on behalf of the fund.
As of the fiscal year ended September 30, 2005, affiliated payables were
as follows:
PFPC/(1)/ ........................ $ 18,632
BlackRock/(2)/ ................... 112,834
(1) - payables to PFPC are for Accounting, Administration, Custody and Transfer
Agent services provided.
(2) - payables to BlackRock are for Advisory and Administration services
provided.
During the year ended December 31, 2004, SSRM conducted an internal review
regarding the use of fund brokerage commissions in consideration of the
distribution of shares. In connection with this review, SSRM determined to
reimburse the fund the entire amount of any such identified brokerage
commissions, and reviewed this matter with the Board of Trustees of the State
Street Research Fund. This amount is shown in the total amount of $98,840 as
"Net increase from payment by affiliate" on the Statements of Changes in Net
Assets.
(E) Purchases and Sales of Securities
For the nine months ended September 30, 2005, purchases and sales of
securities, other than short-term investments and U.S. government securities,
including $10,523,291 representing redemptions-in-kind, were $0 and
$13,852,503, respectively. There were no purchases or sales of U.S. government
securities for the nine months ended September 30, 2005.
10
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Continued)
(F) Capital Shares
Transactions in capital shares for each period were as follows:
For the For the For the
Nine Months Ended Year Ended Year Ended
9/30/05 12/31/04 12/31/03
------------------- --------------- ---------------
Shares issued in reinvestment of dividends .................... 653 1,790 1,360
Shares redeemed ............................................... (27,354)/1/ (57,683)/2/ (23,879)/3/
------- ------- -------
Net decrease .................................................. (26,701) (55,893) (22,159)
======= ======= =======
- ----------
/1/ Including (20,440) representing redemptions-in-kind.
/2/ Including (55,646) representing redemptions-in-kind.
/3/ Including (19,964) representing redemptions-in-kind.
On September 30, 2005, two shareholders held approximately 14% of the
outstanding shares of the Portfolio.
(G) At September 30, 2005, net assets consisted of:
Capital paid-in .......................................... $ 93,410,907
End of period undistributed net investment income ........ 691,258
Accumulated net realized loss on investment transactions.. (1,905,949)
Net unrealized appreciation on investment transactions ... 200,319,877
------------
$292,516,093
============
(H) Federal Tax Information
No provision for Federal income taxes is necessary with respect to net
investment income because it is the Portfolio's intention to qualify under
Subchapter M of the Internal Revenue Code of 1986, as amended, and to make the
requisite income distributions to its shareholders which will be sufficient to
relieve it from federal income and excise taxes. The Portfolio currently
retains and designates as undistributable gains all of its taxable net
long-term capital gains and pays federal income taxes thereon on behalf of the
shareholders. The Portfolio has a tax year end of 12/31.
Dividends from net investment income are determined in accordance with
U.S. Federal income tax regulations, which may differ from those amounts
determined under accounting principles generally accepted in the United States.
These book/tax differences are either temporary or permanent in nature. To the
extent these differences are permanent, they are charged or credited to
paid-in-capital or accumulated net realized gain, as appropriate, in the period
that the differences arise. The following permanent differences as of December
31, 2004, attributable to redemptions in-kind distributions and directed
brokerage reimbursement adjustments, which for tax purposes, are not available
to offset future income, were reclassified to the following accounts:
Increase Increase (Decrease) Increase (Decrease)
(Decrease)in Accumulated Net Undistributed Net
Paid in-Capital Realized Gain (Loss) Investment Income
----------------- ---------------------- --------------------
$ 21,804,809 $ (21,705,969) $ (98,840)
The estimated tax character of distributions paid during the period ended
September 30, 2005 and the years ended December 31, 2004 and December 31, 2003,
respectively, were as follows:
Ordinary
Income
--------------
09/30/05 ........................... $ 1,671,755
12/31/04 ........................... 4,387,534
12/31/03 ........................... (3,497,110)
11
BlackRock Funds
NOTES TO FINANCIAL STATEMENTS (Concluded)
As of September 30, 2005, the estimate tax components of distributable
earnings/(accumulated losses) were as follows:
Undistributed Accumulated
Ordinary Capital
Income Losses
--------------- -----------------
$ 691,258 $ (1,905,949)
As of December 31, 2004, the Portfolios had capital loss carryforwards
available to offset future realized capital gains through the indicated
expiration dates:
Expiring December 31
------------------------------------------------
2009 2010 Total
-------------- -------------- --------------
$ 770,500 $ 7,112,583 $ 7,883,083
12
BlackRock Funds
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
BlackRock Funds:
We have audited the accompanying statement of net assets of the Exchange
Portfolio [one of the fifty portfolios constituting BlackRock Funds (the
"Fund"), the "Portfolio"] (formerly "State Street Exchange Fund"), as of
September 30, 2005 and the related statement of operations for the period
January 1, 2005 through September 30, 2005 and the year ended December 31,
2004, the statement of changes in net assets for the period then ended and the
years ended December 31, 2004 and December 31, 2003, and the financial
highlights for the period then ended and for the years ended December 31, 2004
and December 31, 2003. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits. The financial highlights of the Portfolio for the years ended December
31, 2002, December 31, 2001 and December 30, 2000 were audited by other
auditors whose report, dated February 12, 2003, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. The Portfolio is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Portfolio's internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of September 30, 2005, by
correspondence with the custodians and brokers; where replies were not received
from brokers, we performed other auditing procedures. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Portfolio as of September 30, 2005, the results of its operations, the changes
in its net assets, and its financial highlights for the period then ended, in
conformity with accounting principles generally accepted in the United States
of America.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 25, 2005
13
BlackRock Funds
FUND MANAGEMENT (Unaudited)
Information pertaining to the Trustees and officers of the Fund is set forth
below. The statement of additional information (SAI) includes additional
information about the Trustees and is available without charge, upon request,
by calling (888) 825-2257. Institutional and service share class investors
should call (800) 441-7450.
Number of
Term of Portfolios Total Fund
Office/(1)/ in Fund Other Compensation
Position(s) and Length Complex/(2)/ Directorships for the
Name, Address and Held with of Time Principal Occupation(s) Overseen Held by Year Ending
Age Fund Served During Past Five Years by Trustee Trustee 9/30/05
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
Richard S. Davis/(3)/ Trustee Since 2005 Managing Director, BlackRock, Inc. 55 None N/A
BlackRock, Inc. (since 2005); Chief Executive Officer, (includes
40 E. 52nd Street State Street Research & 50
New York, NY 10022 Management Company (2000-2005); Portfolios
Age: 59 Chairman of the Board of Trustees, of the Fund
State Street Research mutual funds and 5
("SSR Funds") (2000-2005); Senior Portfolios
Vice President, Metropolitan Life of
Insurance Company (1999-2000); BlackRock
Chairman, SSR Realty (2000-2004). Bond
Allocation
Target
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
Laurence D. Fink/(4)/ Trustee Since 2000 Director, Chairman and Chief 55 Director, N/A
BlackRock, Inc. Executive Officer of BlackRock, Inc. (includes BlackRock,
40 E. 52nd Street since its formation in 1998 and of 50 Inc.
New York, NY 10022 BlackRock, Inc.'s predecessor Portfolios
Age: 52 entities since 1988; Chairman of the of the Fund
Management Committee; formerly, and 5
Managing Director of the First Portfolios
Boston Corporation, Member of its of
Management Committee, Co-head of BlackRock
its Taxable Fixed Income Division Bond
and Head of its Mortgage and Real Allocation
Estate Products Group; Chairman of Target
the Board of Nomura BlackRock Shares)
Asset Management and several of
BlackRock's alternative investment
vehicles; Director of several of
BlackRock's offshore funds;
Co-Chairman of the Board of
Trustees of Mount Sinai-NYU;
Co-Chairman of the Board of
Trustees of NYU Hospitals Center;
member of the Board of Trustees of
NYU; member of the Board of
Executives of the New York Stock
Exchange, and Trustee of the
American Folk Art Museum.
- ------------------------------------------------------------------------------------------------------------------------------------
14
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Continued)
Number of
Term of Portfolios Total Fund
Office/(1)/ in Fund Other Compensation
Position(s) and Length Complex/(2)/ Directorships for the
Name, Address and Held with of Time Principal Occupation(s) Overseen Held by Year Ending
Age Fund Served During Past Five Years by Trustee Trustee 9/30/05
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce R. Bond Trustee Since 2005 Retired; Trustee and member of the 55 Director, $ 84,600
c/o BlackRock Funds Governance Committee, SSR Funds (includes Avaya, Inc.
100 Bellevue Parkway (1997-2005). 50 (information
Wilmington, DE 19809 Portfolios technology).
Age: 59 of the Fund
and 5
Portfolios
of
BlackRock
Bond
Allocation
Target
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
Peter S. Drotch Trustee Since 2005 Retired; Trustee and member of the 55 Director, $ 84,600
c/o BlackRock Funds Audit Committee, SSR Funds (includes First
100 Bellevue Parkway (2003-2005); Partner, Pricewater- 50 Marblehead
Wilmington, DE 19809 houseCoopers LLP (accounting firm) Portfolios Corp.
Age: 64 (1964-2000). of the Fund (student loan
and 5 processing
Portfolios and
of securitization);
BlackRock Trustee,
Bond University of
Allocation Connecticut;
Target Trustee,
Shares) Huntington
Theatre.
- ------------------------------------------------------------------------------------------------------------------------------------
Honorable Stuart E. Trustee and Since 2001 Partner, Covington & Burling (law 55 Director, Mirant $130,100
Eizenstat Covington Chairman of firm) (2001-Present); Deputy (includes Corporation;
& Burling the Secretary of the Treasury 50 Advisory
1201 Pennsylvania Nominating (1999-2001); Under Secretary of Portfolios Board member,
Avenue, NW Committee State for Economic, Business and of the Fund The Coca-Cola
Washington, DC 20004 Agricultural Affairs (1997-1999); and 5 Company;
Age: 62 Under Secretary of Commerce for Portfolios Advisory Board
International Trade (1996-1997); of member, Group
U.S. Ambassador to the European BlackRock Menatep;
Union (1993-1996); Chairman, Bond Advisory
International Board of Governors, Allocation Board member, BT
Weizmann Institute of Science. Target Americas.
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
Robert M. Hernandez Trustee, Since 1996 Retired; Director (1991-2001), Vice 55 Lead Director, $140,100
c/o BlackRock Funds Vice Chairman and Chief Financial (includes ACE Limited
100 Bellevue Parkway Chairman of Officer (1994-2001), Executive Vice 50 insurance
Wilmington, DE 19809 the Board President-Accounting and Finance Portfolios company);
Age: 61 and and Chief Financial Officer of the Fund Director and
Chairman of (1991-1994), USX Corporation (a and 5 Chairman of the
the Audit diversified company principally Portfolios Board, RTI
Committee engaged in energy and steel of International
businesses). BlackRock Metals, Inc.:
Bond Director,
Allocation Eastman Chemical
Target Company.
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
15
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Continued)
Number of
Term of Portfolios Total Fund
Office/(1)/ in Fund Other Compensation
Position(s) and Length Complex/(2)/ Directorships for the
Name, Address and Held with of Time Principal Occupation(s) Overseen Held by Year Ending
Age Fund Served During Past Five Years by Trustee Trustee 9/30/05
- ------------------------------------------------------------------------------------------------------------------------------------
Dr. Matina Horner Trustee and Since 2004 Retired; Executive Vice President 55 Chair of the $104,550
c/o BlackRock Funds Chairperson of Teachers Insurance and Annuity (includes Board of
100 Bellevue Parkway of the Association and College Retirement 50 the
Wilmington, DE 19809 Governance Equities Fund (TIAA-CREF) Portfolios Massachusetts
Age: 66 Committee (1989-2003). of the Fund General Hospital
and 5 Health Institute
Portfolios of Professions;
of Chair of the
BlackRock Board of the
Bond Greenwall
Allocation Foundation;
Target Trustee, Century
Shares) Foundation
(formerly
The Twentieth
Century
Fund); Director,
N STAR
(formerly called
Boston Edison);
Director, The
Neiman
Marcus Group;
Honorary
Trustee,
Massachusetts
General Hospital
Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Since 2005 President, Founders Investment Ltd. 55 Director, $ 84,600
c/o BlackRock Funds (private investments) (since 1999); (includes A.P. Pharma,
100 Bellevue Parkway Trustee, SSR Funds (1993-2003). 50 Inc.
Wilmington, DE 19809 Portfolios
Age: 67 of the Fund
and 5
Portfolios
of
BlackRock
Bond
Allocation
Target
Shares)
- ------------------------------------------------------------------------------------------------------------------------------------
David R. Wilmerding, Jr. Trustee and Since 1996 Chairman, Wilmerding & Associates, 56 None $135,100
c/o BlackRock Funds Chairperson Inc. (investment advisers) (since (includes
100 Bellevue Parkway of the 1989); Chairman, Coho Partners, 50
Wilmington, DE 19809 Board Ltd. (investment advisers) (since Portfolios
Age: 70 2003); Director, Beaver Management of the Fund,
Corporation (land management 5 Portfolios
corporation); Managing General of
Partner, Chestnut Street Exchange BlackRock
Fund. Bond
Allocation
Target
Shares and
1 Portfolio
of Chestnut
Street
Exchange
Fund, which
is managed
by
BlackRock
Financial
Management
Inc. and
BlackRock
Institutional
Management
Corporation.)
- ------------------------------------------------------------------------------------------------------------------------------------
16
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Continued)
Term of Total Fund
Office/(5)/ Compensation
Position(s) and Length for the
Name, Address and Held with of Time Principal Occupation(s) Year Ending
Age Fund Served During Past Five Years 9/30/05
- ------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------
Anne Ackerley Vice President Since 2003 Managing Director, BlackRock, Inc. (since May N/A
BlackRock, Inc. (previously 2000); First Vice President and Operating
40 E. 52nd Street served as Officer, Mergers and Acquisitions Group
New York, NY 10022 Assistant (1997-2000), First Vice President and Operating
Age: 43 Secretary Officer, Public Finance Group (1995-1997), and
since First Vice President, Emerging Markets Fixed
2000) Income Research (1994-1995), Merrill Lynch &
Co.
- ---------------------------------------------------------------------------------------------------------------------------
Edward Baer Assistant Since 2005 Director and Senior Counsel of BlackRock, Inc. N/A
BlackRock, Inc. Secretary (since 2004); Associate, Willkie Farr &
40 E. 52nd Street Gallagher LLP (2000-2004); Associate, Morgan
New York, NY 10022 Lewis & Bockius LLP (1995-2000).
Age: 37
- ---------------------------------------------------------------------------------------------------------------------------
Bart Battista Chief Since 2004 Chief Compliance Officer and Anti-Money $368,547
BlackRock, Inc. Compliance Laundering Compliance Officer of BlackRock,
40 E. 52nd Street Officer and Inc. (since 2004); Managing Director (since
New York, NY 10022 Anti-Money 2003), and Director (1998-2002) of BlackRock,
Age: 46 Laundering Inc.; Compliance Officer at Moore Capital
Compliance Management (1995-1998).
Officer
- ---------------------------------------------------------------------------------------------------------------------------
Ellen L. Corson Assistant Since 1998 Senior Director and Vice President of Fund N/A
PFPC Inc. Treasurer Accounting and Administration, PFPC Inc.
103 Bellevue Parkway (since 2003); Vice President and Director of
Wilmington, DE 19809 Mutual Fund Accounting and Administration,
Age: 41 PFPC Inc. (since November 1997); Assistant
Vice President, PFPC Inc. (March
1997-November 1997); Senior Accounting
Officer, PFPC Inc. (March 1993-March 1997).
- ---------------------------------------------------------------------------------------------------------------------------
Henry Gabbay President Since 2005 Managing Director, BlackRock, Inc. (since N/A
BlackRock, Inc. 1989).
40 E. 52nd Street
New York, NY 10022
Age: 57
- ---------------------------------------------------------------------------------------------------------------------------
Brian P. Kindelan Secretary Since 1997 Managing Director and Senior Counsel (since N/A
BlackRock Advisors, Inc. January 2005), Director and Senior Counsel
100 Bellevue Parkway (2001-2004) and Vice President and Senior
Wilmington, DE 19809 Counsel (1998-2000), BlackRock Advisors,
Age: 46 Inc.; Senior Counsel, PNC Bank Corp. May
1995-April 1998).
- ---------------------------------------------------------------------------------------------------------------------------
William McGinley Treasurer Since 2005 Managing Director of BlackRock, Inc. (since N/A
BlackRock, Inc. 2004); Partner, PricewaterhouseCoopers LLP
100 Bellevue Parkway (1990-2004).
Wilmington, DE 19809
Age: 38
- ---------------------------------------------------------------------------------------------------------------------------
Vincent Tritto Assistant Since 2003 Managing Director and Assistant Secretary N/A
BlackRock, Inc. Secretary (since January 2005) and Director and Senior
40 E. 52nd Street Counsel (2002-2004) of BlackRock, Inc.
New York, NY 10022 Executive Director (2000-2002) and Vice
Age: 44 President (1998-2000), Morgan Stanley & Co.
Incorporated and Morgan Stanley Asset
Management Inc. and officer of various Morgan
Stanley-sponsored investment vehicles:
Counsel (1998); Associate (1988-1997),
Rogers & Wells LLP, New York, NY.
- ---------------------------------------------------------------------------------------------------------------------------
17
BlackRock Funds
FUND MANAGEMENT (Unaudited) (Concluded)
(1) Each Trustee holds office for an indefinite term until the earlier of (1)
the next meeting of shareholders at which Trustees are elected and until
his or her successor is elected and qualified and (2) such time as such
Trustee resigns or his or her term as a Trustee is terminated in accordance
with the Fund's code of regulations and Declaration of Trust.
(2) A Fund Complex means two or more registered investment companies that hold
themselves out to investors as related companies for purposes of investment
and investor services, that have a common investment adviser or that have
an investment adviser that is an affiliated person of the investment
adviser of any of the other registered investment companies.
(3) Mr. Davis is an interested person of the Fund due to his position at
BlackRock, Inc.
(4) Mr. Fink is an interested person of the Fund due to his position at
BlackRock, Inc.
(5) Each officer holds office for an indefinite term until the earlier of (1)
the next meeting of trustees at which his or her successor is appointed and
(2) such time as such officer resigns or his or her term as an officer is
terminated in accordance with the Fund's code of regulations and
Declaration of Trust.
18
BlackRock Funds
ADDITIONAL INFORMATION (Unaudited)
(A) A proxy statement was sent to shareholders of all portfolios of the Fund
asking them to consider and vote upon the election of nine trustees to the
Board of Trustees of the Fund (the "Board"). Five of the nine nominees were
already serving as trustees of the Fund and the additional nominees had
previously served as trustees of the State Street Research Funds. Due to
the increased size and complexity of the Fund resulting from the
reorganization with the State Street Research Funds, and an increase in the
responsibilities of boards of trustees of funds generally, the Board
believed it was in the best interest of the Fund to increase the size of
the Board. On April 29, 2005, the special meeting of shareholders was held,
at which all of the nominees included in the proxy were duly elected to the
Board.
The votes for the election of trustees were as follows:
Affirmative Negative
--------------- ----------
Bruce R. Bond .................... 3,006,153,475 9,427,152
Richard S. Davis ................. 3,006,504,966 9,075,661
Peter S. Drotch .................. 3,006,391,368 9,189,259
Stuart E. Eizenstat .............. 3,005,972,578 9,608,049
Laurence D. Fink ................. 3,006,652,923 8,927,704
Robert M. Hernandez .............. 3,006,095,141 9,485,487
Dr Matina Horner ................. 3,005,916,103 9,664,525
Toby Rosenblatt .................. 3,006,157,679 9,422,948
David R. Wilmerding, Jr. ......... 3,006,022,868 9,557,759
(B) The Fund's Audit Committee approved engaging Deloitte & Touche LLP as the
independent registered public accounting firm to audit the Fund's financial
statements for fiscal year 2006. A majority of the Fund's Board of
Trustees, including a majority of the independent Trustees, approved the
appointment of Deloitte & Touche LLP as the Fund's independent registered
public accounting firm for the Fund's fiscal 2006 audit on November 29,
2005, subject to the right of the Fund, by a majority vote of the
shareholders at any meeting called for that purpose, to terminate the
appointment without penalty.
(C) As previously disclosed, BlackRock has received subpoenas from various
federal and state governmental and regulatory authorities and various
information requests from the Securities and Exchange Commission in
connection with ongoing industry-wide investigations of mutual fund
matters.
19
[THIS PAGE INTENTIONALLY LEFT BLANK.]
BlackRock Funds
Investment Adviser
BlackRock Advisors, Inc.
Wilmington, Delaware 19809
Custodian
PFPC Trust Co.
Philadelphia, Pennsylvania 19153
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809
Distributor
BlackRock Distributors, Inc.
King of Prussia, Pennsylvania 19406
Co-Administrator
BlackRock Advisors, Inc.
Wilmington, Delaware 19809
Counsel
Simpson Thacher & Bartlett LLP
New York, New York 10017
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Philadelphia, Pennsylvania 19103
The Fund will mail only one copy of shareholder documents, including
prospectuses, annual and semi-annual reports and proxy statements, to
shareholders with multiple accounts at the same address. This practice is
commonly called "householding" and it is intended to reduce expenses and
eliminate duplicate mailings of shareholder documents. Mailings of your
shareholder documents may be householded indefinitely unless you instruct us
otherwise. If you do not want the mailing of these documents to be combined
with those for other members of your household, please contact the Fund at
(800) 441-7762.
The Fund has delegated proxy voting responsibilities to BlackRock and its
affiliates, subject to the general oversight of the Fund's Board of Trustees. A
description of the policies and procedures that BlackRock and its affiliates
use to determine how to vote proxies relating to portfolio securities is
available without charge, upon request, by calling 1-800-441-7762, or on the
website of the Securities and Exchange Commission (the "Commission") at
http://www.sec.gov.
Information on how proxies relating to the Fund's voting securities were voted
(if any) by BlackRock during the most recent 12-month period ended June 30th is
available, upon request and without charge, by calling (800) 441-7762 or on the
website of the Commission at http://www.sec.gov.
The Fund files its complete schedule of portfolio holdings for the first and
third quarters of its fiscal year with the Commission on Form N-Q. The Fund's
Form N-Q is available on the Commission's website at http://www.sec.gov and may
be reviewed and copied at the Commission's Public Reference Room in Washington,
D.C. Information regarding the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The Fund's Form N-Q may also be obtained
upon request, without charge, by calling (800) 441-7762.
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Fund shares.
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.
BlackRock
EX-ANN 11/05