EXHIBIT 17(d) September 30, 1999 TAXABLE BOND PORTFOLIOS ANNUAL REPORT TO SHAREHOLDERS Not FDIC Insured May Lose Value No Bank Guarantee BLACKROCK FUNDS (LOGO) PURE INVESTMENT STYLE (REGISTRATION MARK) [GRAPHIC OMITTED] BLACKROCK FUNDS TAXABLE BOND PORTFOLIOS . Low Duration Bond . GNMA . Intermediate Government Bond . Managed Income . Intermediate Bond . International Bond . Core Bond . High Yield Bond . Government Income TABLE OF CONTENTS SHAREHOLDER LETTER................................................... 1 PORTFOLIO SUMMARIES Low Duration Bond.............................................. 3 Intermediate Government Bond................................... 4 Intermediate Bond.............................................. 5 Core Bond...................................................... 6 Government Income.............................................. 7 GNMA........................................................... 8 Managed Income................................................. 9 International Bond............................................. 10 High Yield Bond................................................ 11 Note on Performance Information................................ 12 STATEMENT OF NET ASSETS/SCHEDULE OF INVESTMENTS...................... 13-45 Core Bond Statement of Assets & Liabilities.................... 31 Managed Income Statement of Assets & Liabilities............... 41 High Yield Statement of Assets & Liabilities................... 45 PORTFOLIO FINANCIAL STATEMENTS Statement of Operations........................................ 46-47 Statement of Cash Flows........................................ 48-51 Statement of Changes in Net Assets............................. 52-55 Financial Highlights........................................... 56-63 NOTES TO FINANCIAL STATEMENTS........................................ 64-76 REPORT OF INDEPENDENT ACCOUNTANTS.................................... 77 BLACKROCK FUNDS October 14, 1999 Dear Shareholder: We are pleased to present the Annual Report for the BlackRock Funds for the fiscal year ended September 30, 1999, our last annual report of the millenium. As we look ahead to the new millenium the future looks promising. While the Fed has indicated a bias to tightening, interest rates remain low and stable. Inflation still seems to be in check, despite a general consensus that world economies are strengthening. Over the past twelve months the S&P 500 moved ahead by 27.8%, and the Dow did even better, returning 34.0%. Broadly, stocks performed better than bonds over the same period, as the total return of the Lehman Aggregate Index was -0.38%. However, these numbers tell only part of the story. A closer look reveals that much of the equity market's performance was generated in the last quarter of 1998. As an example, the performance of the S&P 500 for the first nine months of 1999 is only 5.87%. Additionally, performance has been narrow, with the largest growth stocks (and, to some degree, the Internet sector) leading the way. In other words, it looks like the great bull market of recent years may have slowed its charge. It is still moving forward, but with less energy. What should investors do? We believe that the symbolism of the new millenium is appropriate for investors. The idea that we are marking the passing of 1,000 years of human history is a wonderful reminder of the virtue of patience. While we will be hearing much exaggeration and cosmic rhetoric about the "new age" of investing, we believe that this is a good time to call to mind a concept that has proven its worth over many years of investment history. This is the idea of "regression to the mean," which basically means that, over time, markets tend to perform as they have always performed. According to Ibbotson, from 1926 to 1998, the market for large company stocks as measured by the S&P 500 Index has returned 11.22% annually. This is a respectable return but significantly less generous than the S&P has been returning in recent years. Therefore, if you believe that markets will revert to their historical performance, this figure is a more realistic long-term planning tool. On the other hand, if you are mesmerized by the recent dazzling performance of internet stocks, 11.22% may look paltry. Will the concept of "regression to the mean" impact markets in the new millenium as it has in the past? Or have we really entered a new age in which valuations are based on new and non-traditional measures and that markets can continue to climb higher indefinitely. This is what some observers think. For example, consider that the total market capitalization of AOL is approximately $136 billion, which is nearly equal to the COMBINED market capitalizations of Dow Industrial components J.P. Morgan, Alcoa, General Motors and Philip Morris. There is even a best-selling book titled "Dow 36,000" whose authors believe that the DJIA should be three times as high because they believe that "old" methods of valuation are out of date and do not reflect the realities of the new information economy. Of course we cannot predict the future, but we believe that while certain factors may change, markets will continue to fluctuate in the future as they have in the past. 1 BLACKROCK FUNDS BlackRock was founded on the belief that adhering to a disciplined investment approach that seeks to manage risk rather than attempt to time the markets will add value to client portfolios. That's why we continue to believe that the best course of action in the new millenium is the same as it was in the old: 1) work with your financial adviser to set your goals; 2) plan and implement a sensible asset allocation that meets your goals and fits with your personal ability to tolerate risk; and 3) consult with your financial advisor to make ongoing adjustments. We also believe that mutual funds, which provide a diversified investment portfolio and professional management, may be the most appropriate investment vehicle for individual investors. BlackRock Funds takes pride in the completeness of its mutual fund offerings. We currently offer 36 different portfolios which can meet the needs of virtually any investor regardless of investment goal and risk tolerance. In addition to the traditional asset classes, we also offer funds such as International Small Cap Equity, Micro-Cap Equity and High Yield Bond for investors that are interested in more specialized markets. Continued thanks for your confidence in BlackRock Funds. We appreciate the opportunity to help you achieve your long-term investment goals. Sincerely, /s/ KAREN H. SABATH Karen H. Sabath MANAGING DIRECTOR BLACKROCK ADVISORS, INC. 2 BLACKROCK FUNDS LOW DURATION BOND PORTFOLIO TOTAL ASSETS (9/30/99): $265.5 PERFORMANCE BENCHMARK: MERRILL LYNCH 1-3 YEAR TREASURY INDEX INVESTMENT APPROACH: SEEKS A TOTAL RATE OF RETURN THAT EXCEEDS THE TOTAL RETURN OF ITS BENCHMARK BY INVESTING PRIMARILY IN INVESTMENT GRADE SECURITIES WITH MATURITIES FROM 3 TO 5 YEARS. THE PORTFOLIO MAY ALSO INVEST UP TO 20% OF ITS ASSETS IN DEBT SECURITIES OF FOREIGN ISSUERS AND UP TO 20% IN BELOW INVESTMENT GRADE SECURITIES RATED B OR HIGHER BY A MAJOR RATING AGENCY OR DEEMED BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY. RECENT PORTFOLIO MANAGEMENT ACTIVITY: . IN SHARP CONTRAST TO THE FIRST NINE MONTHS OF 1998, TREASURY YIELDS ROSE SHARPLY DURING THE FIRST SIX MONTHS OF THE PERIOD AND CONTINUED TO INCREASE THROUGH FISCAL YEAR END. FOR THE PERIOD, THE YIELD OF THE 2-YEAR TREASURY ROSE 133 BASIS POINTS FROM 4.27% TO END THE PERIOD AT 5.60%. . ASSET-BACKED SECURITIES (ABS) CONTINUED TO BE THE PORTFOLIO'S LARGEST SECTOR WEIGHTING DURING THE PERIOD, AS THE MANAGER BELIEVED THIS SECTOR OFFERED ATTRACTIVE TOTAL RETURN OPPORTUNITIES WITHIN THE SHORT DURATION SECTOR. . THE MANAGER INCREASED THE PORTFOLIO'S WEIGHTINGS IN MORTGAGE PASS-THROUGH SECURITIES AND CORPORATE BONDS DURING THE PERIOD. IN THE MORTGAGE SECTOR, EMPHASIS WAS PLACED ON ISSUES THAT OFFERED RELATIVE PREPAYMENT STABILITY. CORPORATES FACED A DIFFICULT THIRD QUARTER AS STEADY SUPPLY CONTINUED TO ENTER THE MARKET AND INVESTORS BECAME CONCERNED THAT ECONOMIC MOMENTUM COULD RECEDE LATE IN THE YEAR. FURTHERMORE, INVESTOR APPETITE FOR CREDIT AND LIQUIDITY RISK CONTINUED TO REMAIN SUPRESSED AFTER LAST YEAR'S VOLATILITY. CORPORATES STILL OUTPERFORMED TREASURIES IN 1999, HOWEVER, BECAUSE OF THEIR STRONG PERFORMANCE IN THE FIRST HALF OF THE YEAR. ALTHOUGH LOWER-RATED INVESTMENT GRADE SECURITIES WERE POPULAR DURING THE FIRST HALF OF THE PERIOD, INVESTORS INCREASINGLY FOCUSED ON HIGHER CREDIT QUALITY ISSUES DURING THE PAST THREE MONTHS. Although the portfolio holdings and sectors listed above were current as of the end of the annual period ended September 30, 1999, the Portfolio is actively managed and the composition will vary. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE LOW DURATION BOND PORTFOLIO AND THE MERRILL 1-3 YEAR TREASURY INDEX FROM INCEPTION AND AT EACH FISCAL YEAR END. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Institutional Service Investor A Investor B Investor C BlackRock Merrill 1-3 Year Class Class Class Class Class Class Treasury Index 7/17/92 $10,000 $10,000 $9,700 $10,000 $10,000 $10,000 $10,000 Sep-92 10,079 10,079 9,777 10,079 10,079 10,079 10,288 Dec-92 10,137 10,137 9,833 10,137 10,137 10,137 10,595 Mar-93 10,295 10,295 9,986 10,295 10,295 10,295 10,614 Jun-93 10,468 10,468 10,154 10,468 10,468 10,468 10,848 Sep-93 10,620 10,620 10,302 10,620 10,620 10,620 10,965 Dec-93 10,711 10,711 10,390 10,711 10,711 10,711 11,122 Mar-94 10,691 10,691 10,370 10,691 10,691 10,691 11,188 Jun-94 10,713 10,713 10,391 10,713 10,713 10,713 11,132 Sep-94 10,837 10,837 10,512 10,837 10,837 10,837 11,141 Dec-94 10,860 10,860 10,534 10,860 10,860 10,860 11,251 Mar-95 11,214 11,214 10,878 11,214 11,214 11,214 11,251 Jun-95 11,521 11,521 11,175 11,521 11,521 11,521 11,629 Sep-95 11,767 11,767 11,414 11,767 11,767 11,767 12,002 Dec-95 12,001 12,001 11,641 12,001 12,001 12,001 12,182 Mar-96 12,023 12,009 11,644 12,004 12,004 12,023 12,489 Jun-96 12,149 12,125 11,752 12,115 12,115 12,149 12,531 Sep-96 12,347 12,313 11,929 12,298 12,298 12,347 12,657 Dec-96 12,610 12,565 12,168 12,537 12,537 12,610 12,866 Mar-97 12,668 12,614 12,210 12,556 12,556 12,668 13,110 Jun-97 12,938 12,876 12,459 12,789 12,789 12,938 13,197 Sep-97 13,196 13,122 12,692 13,003 13,003 13,199 13,487 Dec-97 13,370 13,286 12,845 13,135 13,135 13,379 13,752 Mar-98 13,588 13,492 13,039 13,309 13,309 13,602 13,983 Jun-98 13,808 13,699 13,235 13,483 13,483 13,828 14,197 Sep-98 14,156 14,035 13,552 13,781 13,781 14,182 14,634 Dec-98 14,256 14,125 13,634 13,838 13,838 14,288 14,745 Mar-99 14,425 14,280 13,778 13,958 13,958 14,461 14,834 Jun-99 14,521 14,366 13,854 14,008 14,008 14,564 14,918 Sep-99 14,709 14,541 14,016 13,651 14,146 14,758 15,106 For period ending September 30, 1999 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN 1 Year 3 Year 5 Year From Inception BlackRock Class 4.06% 6.13% 6.37% 5.55% Institutional Class 3.91% 6.01% 6.30% 5.50% Service Class 3.60% 5.70% 6.06% 5.33% Investor A Class (Load Adjusted) 0.32% 4.45% 5.28% 4.79% Investor A Class (NAV) 3.42% 5.52% 5.92% 5.24% Investor B Class (Load Adjusted) (1.95)% 3.54% 5.05% 4.93% Investor B Class (NAV) 2.65% 4.78% 5.48% 4.93% Investor C Class (Load Adjusted) 1.62% 4.78% 5.48% 4.93% Investor C Class (NAV) 2.65% 4.78% 5.48% 4.93% - -------------------------------------------------------------------------------- The performance information above includes information relating to each class of the Portfolio since the commencement of operations of the Portfolio, rather than the date such class was introduced. The inception dates of the Portfolio's share classes were as follows: Institutional Shares, 7/17/92; Service, 1/12/96; Investor A Shares, 1/12/96; Investor B Shares, 11/18/96; Investor C Shares, 2/24/97; and BlackRock Shares, 6/3/97. See "Note on Performance Information" on page 12 for further information on how performance data was calculated. Past performance is not predictive of future results. 3 BLACKROCK FUNDS INTERMEDIATE GOVERNMENT BOND PORTFOLIO TOTAL ASSETS (9/30/99): $424.1 MILLION PERFORMANCE BENCHMARK: LEHMAN BROTHERS INTERMEDIATE GOVERNMENT INDEX INVESTMENT APPROACH: SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY INVESTING IN SECURITIES ISSUED BY THE U.S. GOVERNMENT OR ITS AGENCIES OR RATED AAA BY A MAJOR RATING AGENCY. THE PORTFOLIO EMPHASIZES SECURITIES WITH MATURITIES FROM 5 TO 10 YEARS. RECENT PORTFOLIO MANAGEMENT ACTIVITY: . IN SHARP CONTRAST TO THE FIRST NINE MONTHS OF 1998, TREASURY YIELDS ROSE SHARPLY DURING THE FIRST SIX MONTHS OF THE PERIOD AND CONTINUED TO INCREASE THROUGH FISCAL YEAR END. FOR THE PERIOD, THE YIELD OF THE 5-YEAR TREASURY ROSE 154 BASIS POINTS FROM 4.22% ON SEPTEMBER 30, 1998 TO 5.76% ON SEPTEMBER 30, 1999. . AS MORTGAGE PRICES DROPPED DURING FOURTH QUARTER 1998, THE PORTFOLIO'S MORTGAGE ALLOCATION INCREASED FROM 32% IN SEPTEMBER 1998 TO 45% BY DECEMBER. IN THE FIRST PART OF 1999, THE MANAGER REDUCED MORTGAGE EXPOSURE AS PRICES ROSE AND PREPAYMENT FEARS INCREASED. RECENTLY, HOWEVER, HIGHER INTEREST RATES HAVE ALLEVIATED PREPAYMENT FEARS, AND A DECREASE IN NEW ISSUANCE HAS PROVIDED A FAVORABLE TECHNICAL ENVIRONMENT FOR MORTGAGES. Although the portfolio holdings and sectors listed above were current as of the end of the annual period ended September 30, 1999, the Portfolio is actively managed and the composition will vary. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERMEDIATE GOVERNMENT BOND PORTFOLIO AND THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT INDEX FROM INCEPTION AND AT EACH FISCAL YEAR END. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Institutional Service Investor A Investor B Investor C Lehman Intermediate Class Class Class Class Class Government Index 4/20/92 $10,000 $10,000 $9,600 $10,000 $10,000 $10,000 Jun-92 10,276 10,276 9,865 10,276 10,276 10,000 Sep-92 10,714 10,714 10,286 10,714 10,714 10,746 Dec-92 10,626 10,626 10,201 10,626 10,626 10,746 Mar-93 10,986 10,986 10,547 10,986 10,986 10,746 Jun-93 11,218 11,218 10,769 11,218 11,218 10,746 Sep-93 11,452 11,448 10,990 11,448 11,448 11,567 Dec-93 11,454 11,447 10,984 11,442 11,442 11,567 Mar-94 11,181 11,166 10,715 11,161 11,161 11,567 Jun-94 11,043 11,022 10,576 11,016 11,016 11,567 Sep-94 11,097 11,070 10,621 11,063 11,063 11,393 Dec-94 11,070 11,036 10,589 11,030 11,030 11,383 Mar-95 11,567 11,524 11,057 11,517 11,517 11,857 Jun-95 12,056 12,002 11,515 11,995 11,995 12,411 Sep-95 12,239 12,173 11,680 12,166 12,166 12,605 Dec-95 12,597 12,520 12,022 12,523 12,523 13,026 Mar-96 12,531 12,445 11,933 12,430 12,430 12,919 Jun-96 12,607 12,511 11,991 12,491 12,491 13,006 Sep-96 12,831 12,723 12,190 12,698 12,698 13,229 Dec-96 13,153 13,033 12,482 12,981 12,981 13,535 Mar-97 13,150 13,021 12,464 12,938 12,938 13,531 Jun-97 13,517 13,375 12,797 13,260 13,260 13,910 Sep-97 13,867 13,711 13,112 13,561 13,561 14,266 Dec-97 14,170 14,000 13,383 13,816 13,816 14,581 Mar-98 14,381 14,197 13,567 13,979 13,979 14,800 Jun-98 14,657 14,460 13,811 14,204 14,204 15,075 Sep-98 15,230 15,014 14,334 14,714 14,714 15,779 Dec-98 15,250 15,021 14,336 14,688 14,688 15,819 Mar-99 15,276 15,035 14,343 14,667 14,667 15,776 Jun-99 15,195 14,945 14,251 14,546 14,546 15,746 Sep-99 15,344 15,081 14,375 14,132 14,644 15,907 For period ending September 30, 1999 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN 1 Year 3 Year 5 Year From Inception Institutional Class 0.75% 6.14% 6.69% 5.92% Service Class 0.45% 5.83% 6.38% 5.67% Investor A Class (Load Adjusted) (3.76)% 4.23% 5.38% 4.99% Investor A Class (NAV) 0.28% 5.65% 6.24% 5.57% Investor B Class (Load Adjusted) (5.00)% 3.64% 5.35% 5.26% Investor B Class (NAV) (0.47)% 4.88% 5.77% 5.26% Investor C Class (Load Adjusted) (1.47)% 4.88% 5.77% 5.26% Investor C Class (NAV) (0.47)% 4.88% 5.77% 5.26% - -------------------------------------------------------------------------------- The performance information above includes information relating to each class of the Portfolio since the commencement of operations of the Portfolio, rather than the date such class was introduced. The inception dates of the Portfolio's share classes were as follows: Institutional Shares, 4/20/92; Investor A Shares, 5/11/92; Service Shares, 7/29/93; Investor C Shares, 10/8/96; and Investor B Shares, 10/11/96. See "Note on Performance Information" on page 12 for further information on how performance data was calculated. Past performance is not predictive of future results. 4 BLACKROCK FUNDS INTERMEDIATE BOND PORTFOLIO TOTAL ASSETS (9/30/99): $546.7 MILLION PERFORMANCE BENCHMARK: LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE INDEX INVESTMENT APPROACH: SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY INVESTING IN SECURITIES RATED BBB OR HIGHER BY A MAJOR RATING AGENCY OR DEEMED BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY. THE PORTFOLIO EMPHASIZES SECURITIES WITH MATURITIES FROM 5 TO 10 YEARS. RECENT PORTFOLIO MANAGEMENT ACTIVITY: . IN SHARP CONTRAST TO THE FIRST NINE MONTHS OF 1998, TREASURY YIELDS ROSE SHARPLY DURING THE FIRST SIX MONTHS OF THE PERIOD AND CONTINUED TO INCREASE THROUGH FISCAL YEAR END. FOR THE PERIOD, THE YIELD OF 5-YEAR TREASURY ROSE 154 BASIS POINTS FROM 4.22% ON SEPTEMBER 30, 1998 TO 5.76% ON SEPTEMBER 30, 1999. . THE PORTFOLIO'S MORTGAGE ALLOCATION WAS INCREASED DURING THE BEGINNING OF THE PERIOD AS THE MANAGER BELIEVED THESE SECURITIES OFFERED ATTRACTIVE VALUE. AS MORTGAGES RECOVERED, THE MANAGER PARED SOME MORTGAGE EXPOSURE; HOWEVER, THE PORTFOLIO CURRENTLY MAINTAINS AN OVERWEIGHT MORTGAGE ALLOCATION VERSUS THE INDEX WITH AN EMPHASIS ON NON-INDEX SECURITIES. . THE PORTFOLIO'S CORPORATE BOND EXPOSURE WAS MODESTLY INCREASED DURING THE FIRST HALF OF THE PERIOD. DURING THE SECOND HALF, THE PORTFOLIO WAS SLIGHTLY OVERWEIGHT IN CORPORATES, ALTHOUGH BLACKROCK HAS RECENTLY MOVED TO A MORE DEFENSIVE POSITION. ALTHOUGH LOWER-RATED INVESTMENT GRADE SECURITIES WERE POPULAR DURING THE FIRST HALF OF THE PERIOD, LOWER CREDIT QUALITY DID NOT PROVIDE MUCH INCREMENTAL RETURN DURING THE PAST SIX MONTHS. Although the portfolio holdings and sectors listed above were current as of the end of the annual period ended September 30, 1999, the Portfolio is actively managed and the composition will vary. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERMEDIATE BOND PORTFOLIO AND THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE INDEX FROM INCEPTION AND AT EACH FISCAL YEAR END. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Institutional Service Investor A Investor B Investor C BlackRock Lehman Brothers Intermediate Class Class Class Class Class Class Government/Corporate Index 9/17/93 $10,000 $10,000 $9,600 $10,000 $10,000 $10,000 $10,000 Dec-93 9,954 9,945 9,610 9,945 9,945 9,954 10,037 Mar-94 9,675 9,660 9,547 9,660 9,660 9,675 9,833 Jun-94 9,592 9,572 9,274 9,572 9,572 9,592 9,774 Sep-94 9,655 9,628 9,188 9,626 9,626 9,655 9,854 Dec-94 9,644 9,611 9,241 9,610 9,610 9,644 9,843 Mar-95 10,044 10,003 9,225 10,002 10,002 10,044 10,274 Jun-95 10,498 10,447 9,601 10,441 10,441 10,498 10,788 Sep-95 10,696 10,636 10,023 10,620 10,620 10,696 10,965 Dec-95 11,051 10,983 10,194 10,965 10,965 11,051 11,349 Mar-96 10,966 10,890 10,526 10,878 10,878 10,966 11,255 Jun-96 11,046 10,962 10,442 10,945 10,945 11,046 11,325 Sep-96 11,241 11,147 10,506 11,125 11,125 11,241 11,526 Dec-96 11,527 11,422 10,679 11,394 11,394 11,527 11,809 Mar-97 11,522 11,408 10,938 11,375 11,375 11,522 11,247 Jun-97 11,863 11,737 10,920 11,712 11,712 11,863 11,579 Sep-97 12,184 12,047 11,243 12,016 12,016 12,184 11,891 Dec-97 12,403 12,255 11,534 12,217 12,217 12,403 12,145 Mar-98 12,601 12,440 11,728 12,391 12,391 12,601 12,334 Jun-98 12,825 12,652 11,923 12,573 12,573 12,825 12,566 Sep-98 13,257 13,070 12,310 12,958 12,958 13,262 13,130 Dec-98 13,282 13,084 12,319 12,942 12,942 13,293 13,168 Mar-99 13,354 13,146 12,372 12,973 12,973 13,370 13,143 Jun-99 13,298 13,090 12,305 12,880 12,880 13,319 13,092 Sep-99 13,403 13,214 12,418 12,471 12,991 13,428 13,212 For period ending September 30, 1999 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN 1 Year 3 Year 5 Year From Inception BlackRock Class 1.25% 6.11% 6.82% 5.01% Institutional Class 1.10% 6.04% 6.78% 4.98% Service Class 0.80% 5.73% 6.47% 4.67% Investor A Class (Load Adjusted) (3.37)% 4.11% 5.46% 3.84% Investor A Class (NAV) 0.62% 5.55% 6.33% 4.55% Investor B Class (Load Adjusted) (4.63)% 3.89% 5.64% 4.34% Investor B Class (NAV) (0.13)% 5.13% 6.07% 4.34% Investor C Class (Load Adjusted) (1.13)% 5.13% 6.07% 4.34% Investor C Class (NAV) (0.13)% 5.13% 6.07% 4.34% - -------------------------------------------------------------------------------- The performance information above includes information relating to each class of the Portfolio since the commencement of operations of the Portfolio, rather than the date such class was introduced. The inception dates of the Portfolio's share classes were as follows: Institutional Shares, 9/17/93; Service Shares, 9/23/93; Investor A Shares, 5/20/94; Investor B Shares, 2/5/98; BlackRock Shares, 5/1/98 and Investor C Shares, 10/16/98. See "Note on Performance Information" on page 12 for further information on how performance data was calculated. Past performance is not predictive of future results. 5 BLACKROCK FUNDS CORE BOND PORTFOLIO TOTAL ASSETS (9/30/99): $967.0 MILLION PERFORMANCE BENCHMARK: LEHMAN BROTHERS AGGREGATE INDEX INVESTMENT APPROACH: SEEKS A TOTAL RATE OF RETURN THAT EXCEEDS THE TOTAL RETURN OF ITS BENCHMARK BY INVESTING IN SECURITIES RATED BBB OR HIGHER BY A MAJOR RATING AGENCY OR DEEMED BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY. THE PORTFOLIO EMPHASIZES SECURITIES WITH MATURITIES FROM 5 TO 15 YEARS. RECENT PORTFOLIO MANAGEMENT ACTIVITY: . IN SHARP CONTRAST TO THE FIRST NINE MONTHS OF 1998, TREASURY YIELDS ROSE SHARPLY DURING THE PAST TWELVE MONTHS. FOR THE PERIOD, THE YIELD OF THE 10- YEAR TREASURY ROSE 147 BASIS POINTS FROM 4.41% ON SEPTEMBER 30, 1998 TO 5.88% ON SEPTEMBER 30, 1999. . THE PORTFOLIO MAINTAINED AN OVERWEIGHT POSITION VERSUS THE INDEX IN THE MORTGAGE PASS-THROUGH AND ASSET-BACKED SECURITY SECTORS, AS THE MANAGER BELIEVED THESE SECTORS OFFERED ATTRACTIVE YIELDS AND TOTAL RETURN OPPORTUNITIES RELATIVE TO TREASURIES. . THE PORTFOLIO'S CORPORATE BOND EXPOSURE WAS INCREASED SLIGHTLY DURING THE PERIOD BUT REMAINS UNDERWEIGHT TO THE INDEX, AS THE MANAGER BELIEVES THAT OTHER SPREAD PRODUCTS, SUCH AS MORTGAGES, OFFER BETTER RELATIVE VALUE. THE PORTFOLIO EMPHASIZED HIGH QUALITY LIQUID NAMES, AS LOWER QUALITY CORPORATES OFFERED LITTLE INCREMENTAL RETURN. Although the portfolio holdings and sectors listed above were current as of the end of the annual period ended September 30, 1999, the Portfolio is actively managed and the composition will vary. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE COREBOND PORTFOLIO AND THE LEHMAN BROTHERS AGGREGATE INDEX FROM INCEPTION AND AT EACH FISCAL YEAR END. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Institutional Service Investor A Investor B Investor C BlackRock Lehman Class Class Class Class Class Class Aggregate Index 12/9/92 $10,000 $10,000 $9,600 $10,000 $10,000 $10,000 $10,000 Dec-92 10,033 10,033 9,631 10,033 10,033 10,033 10,192 Mar-93 10,416 10,416 9,999 10,416 10,416 10,416 10,487 Jun-93 10,688 10,688 10,261 10,688 10,688 10,688 10,751 Sep-93 11,021 11,021 10,581 11,021 11,021 11,021 11,010 Dec-93 11,005 11,005 10,565 11,005 11,005 11,005 11,123 Mar-94 10,715 10,715 10,286 10,715 10,715 10,715 10,574 Jun-94 10,612 10,612 10,188 10,612 10,612 10,612 10,760 Sep-94 10,695 10,695 10,267 10,695 10,695 10,695 10,605 Dec-94 10,749 10,749 10,319 10,749 10,749 10,749 10,866 Mar-95 11,269 11,269 10,818 11,269 11,269 11,269 11,349 Jun-95 11,931 11,931 11,453 11,931 11,931 11,931 11,848 Sep-95 12,166 12,166 11,680 12,166 12,166 12,166 12,265 Dec-95 12,703 12,703 12,195 12,703 12,703 12,703 12,707 Mar-96 12,405 12,399 11,900 12,396 12,396 12,405 12,329 Jun-96 12,473 12,466 11,957 12,432 12,432 12,473 12,503 Sep-96 12,722 12,706 12,182 12,642 12,642 12,722 12,980 Dec-96 13,157 13,134 12,584 13,035 13,035 13,157 13,120 Mar-97 13,121 13,088 12,534 12,940 12,940 13,121 13,007 Jun-97 13,563 13,523 13,026 13,604 13,604 13,564 13,484 Sep-97 14,002 13,950 13,432 14,003 14,003 14,009 13,932 Dec-97 14,348 14,283 13,748 14,305 14,305 14,360 14,342 Mar-98 14,580 14,503 13,954 14,493 14,493 14,599 14,562 Jun-98 14,926 14,836 14,268 14,791 14,791 14,950 14,903 Sep-98 15,483 15,377 14,783 15,297 15,297 15,514 15,534 Dec-98 15,520 15,403 14,801 15,287 15,287 15,557 15,586 Mar-99 15,498 15,371 14,762 15,219 15,219 15,542 15,507 Jun-99 15,346 15,220 14,600 15,024 15,020 15,353 15,236 Sep-99 15,457 15,319 14,687 14,633 15,081 15,469 15,339 For period ending September 30, 1999 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN 1 Year 3 Year 5 Year From Inception BlackRock Class (0.02)% 6.83% 7.72% 6.66% Institutional Class (0.17)% 6.70% 7.64% 6.60% Service Class (0.47)% 6.38% 7.42% 6.44% Investor A Class (Load Adjusted) (4.59)% 4.76% 6.41% 5.71% Investor A Class (NAV) (0.64)% 6.19% 7.29% 6.34% Investor B Class (Load Adjusted) (5.83)% 4.15% 6.28% 5.92% Investor B Class (NAV) (1.38)% 5.40% 6.71% 5.92% Investor C Class (Load Adjusted) (2.37)% 5.40% 6.71% 5.92% Investor C Class (NAV) (1.38)% 5.40% 6.71% 5.92% - -------------------------------------------------------------------------------- The performance information above includes information relating to each class of the Portfolio since the commencement of operations of the Portfolio, rather than the date such class was introduced. The inception dates of the Portfolio's share classes were as follows: Institutional Shares, 12/9/92; Service Shares, 1/12/96; Investor A Shares, 1/31/96; Investor B Shares, 3/18/96; Investor C Shares, 2/28/97; and BlackRock Shares, 5/1/97. See "Note on Performance Information" on page 12 for further information on how performance data was calculated. Past performance is not predictive of future results. 6 BLACKROCK FUNDS GOVERNMENT INCOME PORTFOLIO TOTAL ASSETS (9/30/99): $43.9 MILLION PERFORMANCE BENCHMARK: LEHMAN BROTHERS MORTGAGE/MERRILL LYNCH 10-YEAR TREASURY INDEX INVESTMENT APPROACH: SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY INVESTING IN SECURITIES ISSUED BY THE U.S. GOVERNMENT OR GOVERNMENT AGENCY OR RATED AAA BY A MAJOR RATING AGENCY. THE PORTFOLIO EMPHASIZES SECURITIES WITH MATURITIES FROM 10 TO 15 YEARS. RECENT PORTFOLIO MANAGEMENT ACTIVITY: . IN SHARP CONTRAST TO THE FIRST NINE MONTHS OF 1998, TREASURY YIELDS ROSE SHARPLY DURING THE FIRST SIX MONTHS OF THE PERIOD AND CONTINUED TO INCREASE THROUGH FISCAL YEAR END. FOR THE PERIOD, THE YIELD OF 10-YEAR TREASURY ROSE 147 BASIS POINTS FROM 4.41% ON SEPTEMBER 30, 1998 TO 5.88% ON SEPTEMBER 30, 1999. . THE PORTFOLIO'S MORTGAGE WEIGHTING DECREASED DURING THE FIRST HALF OF THE PERIOD, AS HIGH LEVELS OF PREPAYMENT RESULTED IN CASH COMING INTO THE PORTFOLIO. THE MANAGER REDEPLOYED THESE PROCEEDS INTO TREASURIES AND SPREAD PRODUCTS SUCH AS COMMERCIAL MORTGAGE-BACKED SECURITIES. PREPAYMENT FEARS SUBSIDED TOWARDS THE END OF THE PERIOD AS INTEREST RATES ROSE, AND THE RESULTANT DECREASE IN NEW ISSUANCE PROVIDED A FAVORABLE TECHNICAL ENVIRONMENT FOR MORTGAGES. Although the portfolio holdings and sectors listed above were current as of the end of the annual period ended September 30, 1999, the Portfolio is actively managed and the composition will vary. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GOVERNMENT INCOME PORTFOLIO AND THE LEHMAN BROTHERS MORTGAGE INDEX/MERRILL LYNCH 10-YEAR TREASURY INDEX FROM INCEPTION AND AT EACH FISCAL YEAR END. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Investor A Investor B Investor C Lehman Brothers Mortgage Index/ Class Class Class Merrill Lynch 10 Year Treasury Index 10/3/94 $9,550 $10,000 $10,000 $10,000 Dec-94 9,541 9,975 9,975 10,037 Mar-95 10,024 10,462 10,462 10,588 Jun-95 10,718 11,168 11,168 11,335 Sep-95 10,912 11,350 11,350 11,537 Dec-95 11,353 11,793 11,793 12,059 Mar-96 11,132 11,536 11,536 11,779 Jun-96 11,156 11,540 11,540 11,887 Sep-96 11,393 11,766 11,766 12,108 Dec-96 11,740 12,101 12,101 12,497 Mar-97 11,713 12,052 12,052 12,368 Jun-97 12,171 12,499 12,499 12,502 Sep-97 12,588 12,904 12,904 12,906 Dec-97 12,975 13,277 13,277 13,212 Mar-98 13,182 13,464 13,464 13,410 Jun-98 13,510 13,774 13,774 13,641 Sep-98 13,988 14,235 14,235 14,002 Dec-98 14,012 14,233 14,233 13,281 Mar-99 13,894 14,086 14,086 13,132 Jun-99 13,693 13,855 13,855 12,889 Sep-99 13,793 13,651 13,930 12,973 For period ending September 30, 1999 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN 1 Year 3 Year From Inception Investor A Class (Load Adjusted) (5.83)% 4.96% 6.65% Investor A Class (NAV) (1.40)% 6.58% 7.64% Investor B Class (Load Adjusted) (6.58)% 4.54% 6.44% Investor B Class (NAV) (2.14)% 5.79% 6.87% Investor C Class (Load Adjusted) (3.12)% 5.79% 6.87% Investor C Class (NAV) (2.14)% 5.79% 6.87% - -------------------------------------------------------------------------------- The performance information above includes information relating to each class of the Portfolio since the commencement of operations of the Portfolio, rather than the date such class was introduced. The inception dates of the Portfolio's share classes were as follows: Investor A Shares, 10/3/94; Investor B Shares, 10/3/94; and Investor C Shares, 2/28/97. See "Note on Performance Information" on page 12 for further information on how performance data was calculated. Past performance is not predictive of future results. 7 BLACKROCK FUNDS GNMA PORTFOLIO TOTAL ASSETS (9/30/99): $111.5 MILLION PERFORMANCE BENCHMARK: LEHMAN GNMA INDEX INVESTMENT APPROACH: SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY INVESTING IN SECURITIES ISSUED BY THE GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMAS"), AS WELL AS OTHER U.S. GOVERNMENT SECURITIES. RECENT PORTFOLIO MANAGEMENT ACTIVITY: . IN SHARP CONTRAST TO THE FIRST NINE MONTHS OF 1998, TREASURY YIELDS ROSE SHARPLY DURING THE PAST TWELVE MONTHS. FOR THE PERIOD, THE YIELD OF THE 10- YEAR TREASURY ROSE 147 BASIS POINTS FROM 4.41% ON SEPTEMBER 30, 1998 TO 5.88% ON SEPTEMBER 30, 1999. . THE PORTFOLIO REMAINED PRIMARILY INVESTED IN GNMA MORTGAGE PASS- THROUGHS OVER THE PERIOD. AFTER PARING THE PORTFOLIO'S PASS-THROUGH HOLDINGS DURING LATE 1998, THE MANAGER INCREASED MORTGAGE HOLDINGS DURING THE FIRST QUARTER OF 1999 DUE TO THEIR WIDE YIELD SPREADS AND ATTRACTIVE VALUE. . THE MANAGER INITIATED MINOR POSITIONS IN AAA-RATED NON-PREPAYMENT SENSITIVE COMMERCIAL MORTGAGE-BACKED SECURITIES AND ASSET-BACKED SECURITIES, WHICH THE MANAGER BELIEVED TO REPRESENT EXCELLENT VALUE DUE TO THEIR HIGH CREDIT QUALITY, DOMESTIC PROFILE AND WIDE YIELD SPREADS. Although the portfolio holdings and sectors listed above were current as of the end of the annual period ended September 30, 1999, the Portfolio is actively managed and the composition will vary. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GNMA INCOME PORTFOLIO AND THE LEHMAN GNMA INDEX FROM INCEPTION AND AT EACH FISCAL YEAR END. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Institutional Service Investor A Investor B Investor C Lehman Class Class Class Class Class GNMA Index 9/1/86 $10,000 $10,000 $9,550 $10,000 $10,000 $10,000 Dec-86 10,296 10,289 9,822 10,265 10,265 10,357 Mar-87 10,411 10,396 9,919 10,348 10,348 10,588 Jun-87 10,251 10,228 9,756 10,158 10,158 10,450 Sep-87 10,265 10,234 9,757 10,141 10,141 10,191 Dec-87 10,407 10,368 9,880 10,250 10,250 10,801 Mar-88 10,684 10,636 10,132 10,491 10,491 11,256 Jun-88 10,883 10,826 10,308 10,654 10,654 11,461 Sep-88 11,009 10,943 10,415 10,744 10,744 11,719 Dec-88 11,149 11,074 10,536 10,848 10,848 11,754 Mar-89 11,192 11,109 10,564 10,857 10,857 11,888 Jun-89 11,633 11,537 10,967 11,250 11,250 12,865 Sep-89 11,673 11,569 10,992 11,255 11,255 13,052 Dec-89 12,063 11,947 11,347 11,596 11,596 13,597 Mar-90 12,170 12,044 11,434 11,664 11,664 13,593 Jun-90 12,350 12,213 11,590 11,800 11,800 14,109 Sep-90 12,473 12,325 11,691 11,881 11,881 14,285 Dec-90 13,090 12,925 12,255 12,431 12,431 15,036 Mar-91 13,442 13,262 12,570 12,727 12,727 15,498 Jun-91 13,652 13,460 12,751 12,887 12,887 15,801 Sep-91 14,417 14,204 13,451 13,569 13,569 16,659 Dec-91 15,188 14,952 14,153 14,251 14,251 17,448 Mar-92 14,951 14,708 13,916 13,986 13,986 17,314 Jun-92 15,594 15,329 14,498 14,544 14,544 17,998 Sep-92 16,125 15,839 14,974 14,994 14,994 18,562 Dec-92 16,208 15,908 15,033 15,024 15,024 18,741 Mar-93 16,824 16,501 15,586 15,549 15,549 19,275 Jun-93 17,214 16,871 15,929 15,861 15,861 19,636 Sep-93 17,430 17,070 16,111 16,042 16,012 19,785 Dec-93 17,481 17,108 16,140 16,071 16,010 19,974 Mar-94 16,843 16,470 15,531 15,465 15,378 19,491 Jun-94 16,658 16,278 15,343 15,278 15,163 19,384 Sep-94 16,743 16,348 15,403 15,337 15,193 19,544 Dec-94 16,863 16,453 15,495 15,429 15,256 19,674 Mar-95 17,811 17,365 16,348 16,278 16,065 20,712 Jun-95 18,849 18,364 17,281 17,207 16,950 21,807 Sep-95 19,228 18,718 17,608 17,533 17,239 22,294 Dec-95 19,853 19,313 18,159 18,081 17,745 23,029 Mar-96 19,692 19,142 17,990 17,913 17,548 22,957 Jun-96 19,829 19,261 18,094 18,017 17,617 23,120 Sep-96 20,211 19,617 18,420 18,341 17,901 23,606 Dec-96 20,790 20,164 18,927 18,846 18,359 24,303 Mar-97 20,814 20,172 18,927 18,846 18,324 24,335 Jun-97 21,606 20,924 19,625 19,541 18,964 25,284 Sep-97 22,280 21,561 20,214 20,127 19,497 26,029 Dec-97 22,672 21,924 20,545 20,457 19,779 26,620 Mar-98 22,888 22,116 20,716 20,627 19,907 27,051 Jun-98 23,384 22,574 21,136 21,046 20,277 27,509 Sep-98 23,922 23,077 21,599 21,507 20,682 28,212 Dec-98 24,192 23,322 21,817 21,683 20,852 28,463 Mar-99 24,379 23,485 21,959 21,783 20,948 28,747 Jun-99 24,600 23,680 22,133 21,914 21,074 29,009 Sep-99 24,320 23,393 21,856 20,734 20,770 28,887 For period ending September 30, 1999 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN 1 Year 3 Year 5 Year From Inception Institutional Class 1.14% 6.68% 7.95% 7.71% Service Class 0.84% 6.35% 7.62% 7.39% Investor A Class (Load Adjusted) (3.35)% 4.73% 6.56% 6.74% Investor A Class (NAV) 0.67% 6.17% 7.44% 7.21% Investor B Class (Load Adjusted) (4.56)% 4.13% 6.22% 6.41% Investor B Class (NAV) (0.09)% 5.39% 6.65% 6.41% Investor C Class (Load Adjusted) (1.13)% 5.39% 6.65% 6.41% Investor C Class (NAV) (0.09)% 5.39% 6.65% 6.41% - -------------------------------------------------------------------------------- In connection with the conversion of various common trust funds maintained by PNC Bank and PNC Bank, Delaware ("PNC-DE"), an affiliate of PNC Bank, into the Fund between May 1 and May 15, 1998 (the "CTF Conversion"), the GNMA Portfolio was established to receive the assets of the GNMA Fund of PNC Bank. Performance information presented for this Portfolio includes performance for the predecessor common trust fund which transferred its assets and liabilities to the related Portfolio pursuant to the CTF Conversion. Performance information presented is based upon the performance of the GNMA Fund for periods prior to the CTF Conversion. Past performance is not predictive of future results. 8 BLACKROCK FUNDS MANAGED INCOME PORTFOLIO TOTAL ASSETS (9/30/99): $1.5 BILLION PERFORMANCE BENCHMARK: LEHMAN BROTHERS AGGREGATE INDEX INVESTMENT APPROACH: SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY INVESTING IN SECURITIES RATED BBB OR HIGHER BY A MAJOR RATING AGENCY OR DEEMED BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY. THE PORTFOLIO EMPHASIZES SECURITIES WITH MATURITIES FROM 5 TO 10 YEARS. RECENT PORTFOLIO MANAGEMENT ACTIVITY: . IN SHARP CONTRAST TO THE FIRST NINE MONTHS OF 1998, TREASURY YIELDS ROSE SHARPLY DURING THE PAST TWELVE MONTHS. FOR THE PERIOD, THE YIELD OF THE 10- YEAR TREASURY ROSE 147 BASIS POINTS FROM 4.41% ON SEPTEMBER 30, 1998 TO 5.88% ON SEPTEMBER 30, 1999. . CONSISTENT WITH THE PORTFOLIO'S INCOME BIAS, THE MANAGER MAINTAINED OVERWEIGHT POSITIONS VERSUS THE INDEX IN SPREAD SECTORS. THE PORTFOLIO INCREASED ITS OVERALL MORTGAGE SECURITY EXPOSURE, FOCUSING ON MORTGAGE PASS-THROUGHS, DUE TO WIDENING YIELD SPREADS DURING THE BEGINNING OF THE PERIOD. . THE PORTFOLIO'S AGGREGATE CORPORATE BOND AND ASSET-BACKED SECURITY EXPOSURE REMAINS OVERWEIGHT RELATIVE TO THE INDEX AFTER BEING MODESTLY REDUCED DURING THE FIRST SIX MONTH PERIOD AND SLIGHTLY INCREASED DURING THE LAST SIX MONTH PERIOD. WITHIN THE PORTFOLIO'S CORPORATE WEIGHTING, THE MANAGER EMPHASIZED LOWER-RATED INVESTMENT GRADE SECURITIES IN THE BEGINNING OF THE PERIOD, BUT HAS SINCE EMPHASIZED HIGH QUALITY LIQUID NAMES AS LOWER RATED SECURITIES PROVIDED LITTLE INCREMENTAL RETURN. Although the portfolio holdings and sectors listed above were current as of the end of the annual period ended September 30, 1999, the Portfolio is actively managed and the composition will vary. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE MANAGED INCOME PORTFOLIO AND THE LEHMAN BROTHERS AGGREGATE INDEX FROM INCEPTION AND AT EACH FISCAL YEAR END. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Institutional Service Investor A Investor B Investor C Lehman Brothers Class Class Class Class Class Aggregate Index 11/1/89 $10,000 $10,000 $ 9,550 $10,000 $10,000 $10,000 Dec-89 10,105 10,105 9,650 10,000 10,000 10,027 Mar-90 10,004 10,004 9,554 9,900 9,900 9,946 Jun-90 10,306 10,306 9,843 10,199 10,199 10,309 Sep-90 10,380 10,380 9,913 10,272 10,272 10,397 Dec-90 10,943 10,943 10,451 10,830 10,830 10,923 Mar-91 11,161 11,161 10,659 11,045 11,045 11,227 Jun-91 11,259 11,259 10,752 11,142 11,142 11,411 Sep-91 11,910 11,910 11,374 11,786 11,786 12,059 Dec-91 12,580 12,580 12,014 12,449 12,449 12,671 Mar-92 12,290 12,290 11,737 12,162 12,162 12,509 Jun-92 12,749 12,749 12,175 12,617 12,617 13,014 Sep-92 13,316 13,316 12,717 13,177 13,177 13,574 Dec-92 13,323 13,323 12,724 13,185 13,185 13,609 Mar-93 14,022 14,022 13,391 13,876 13,876 14,172 Jun-93 14,457 14,457 13,806 14,306 14,306 14,549 Sep-93 14,935 14,940 14,263 14,780 14,780 14,928 Dec-93 14,881 14,862 14,186 14,701 14,701 14,936 Mar-94 14,370 14,343 13,690 14,186 14,186 14,507 Jun-94 14,110 14,079 13,422 13,909 13,909 14,357 Sep-94 14,145 14,104 13,440 13,927 13,927 14,445 Dec-94 14,215 14,166 13,492 13,981 13,981 14,500 Mar-95 14,894 14,835 14,122 14,634 14,634 15,231 Jun-95 15,744 15,671 14,909 15,449 15,449 16,159 Sep-95 16,022 15,935 15,153 15,702 15,702 16,477 Dec-95 16,701 16,602 15,778 16,350 16,350 17,179 Mar-96 16,369 16,260 15,443 16,003 16,003 16,872 Jun-96 16,437 16,315 15,490 16,051 16,051 16,969 Sep-96 16,716 16,580 15,734 16,304 16,304 17,281 Dec-96 17,277 17,123 16,243 16,831 16,831 17,800 Mar-97 17,227 17,060 16,177 16,762 16,763 17,701 Jun-97 17,848 17,663 16,740 17,346 17,346 18,351 Sep-97 18,432 18,228 17,267 17,892 17,893 18,960 Dec-97 18,913 18,689 17,697 18,338 18,338 19,517 Mar-98 19,189 18,949 17,936 18,585 18,586 19,818 Jun-98 19,692 19,432 18,384 19,050 19,015 20,282 Sep-98 20,137 19,856 18,778 19,457 19,386 21,140 Dec-98 20,292 19,993 18,900 19,582 19,475 21,212 Mar-99 20,304 19,989 18,888 19,570 19,426 21,103 Jun-99 20,097 19,769 18,673 19,312 19,426 20,918 Sep-99 20,252 19,907 18,796 18,723 19,426 21,060 For period ending September 30, 1999 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN 1 Year 3 Year 5 Year From Inception Institutional Class 0.57% 6.60% 7.44% 7.38% Service Class 0.26% 6.28% 7.13% 7.19% Investor A Class (Load Adjusted) (4.40)% 4.47% 5.95% 6.57% Investor A Class (NAV) 0.09% 6.10% 6.93% 7.06% Investor B Class (Load Adjusted) (5.16)% 4.31% 6.18% 6.90% Investor B Class (NAV) (0.66)% 5.56% 6.61% 6.90% - -------------------------------------------------------------------------------- The performance information above includes information relating to each class of the Portfolio since the commencement of operations of the Portfolio, rather than the date such class was introduced. The inception dates of the Portfolio's share classes were as follows: Institutional Shares, 11/1/89; Investor A Shares, 2/5/92; Service Shares, 7/29/93; and Investor B Shares, 7/15/97. See "Note on Performance Information" on page 12 for further information on how performance data was calculated. The comparative index from previous years has changed from the Salomon Broad Investment Grade Index to the Lehman Aggregate to more accurately reflect the type of holdings of Managed Income. Past performance is not predictive of future results. 9 BLACKROCK FUNDS INTERNATIONAL BOND PORTFOLIO TOTAL ASSETS (9/30/99): $70.3 MILLION PERFORMANCE BENCHMARK: SALOMON NON-U.S. HEDGED WORLD GOVERNMENT BOND INDEX INVESTMENT APPROACH: PURSUES CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY INVESTING IN INVESTMENT GRADE INTERNATIONAL FIXED INCOME SECURITIES. RECENT PORTFOLIO MANAGEMENT ACTIVITY: . DURING THE PERIOD, BOND YIELDS GENERALLY FELL IN JAPAN, EUROPE AND THE DOLLAR BLOC (CANADA AND AUSTRALIA), WHILE U.S. BOND YIELDS ROSE. . THE PORTFOLIO REMAINED PREDOMINANTLY CURRENCY HEDGED INTO U.S. DOLLARS, ALTHOUGH THE MANAGER ESTABLISHED A MODEST LONG EURO POSITION VERSUS THE DOLLAR AND THE YEN. . OVER THE PERIOD THE PORTFOLIO WAS REWARDED FOR ITS OVERWEIGHT POSITION TO CONTINENTAL EUROPE AND THE UNITED KINGDOM, WHICH PERFORMED WELL DUE TO LACK OF INFLATIONARY PRESSURE AND THE CONTINUED EASING OF MONETARY POLICY IN THOSE MARKETS. THE PORTFOLIO BENEFITED FROM ITS SIGNIFICANT UNDERWEIGHT POSITION TO JAPAN DURING THE BEGINNING OF THE PERIOD. THE MANAGER INCREASED THE PORTFOLIO'S WEIGHTING IN JAPAN DURING THE PERIOD AS THAT MARKET SHOWED SIGNS OF RECOVERY, BUT REMAINS UNDERWEIGHT VERSUS THE INDEX. Although the portfolio holdings and sectors listed above were current as of the end of the annual period ended September 30, 1999, the Portfolio is actively managed and the composition will vary. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERNATIONAL BOND PORTFOLIO AND THE SALOMON NON-U.S. HEDGED WORLD GOVERNMENT BOND INDEX FROM INCEPTION AND AT EACH FISCAL YEAR END. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Institutional Service Investor A Investor B Investor C Salomon Non-U.S. Hedged Class Class Class Class Class World Government Bond Index 7/1/91 $10,000 $10,000 $ 9,500 $10,000 $10,000 $10,000 Sep-91 10,360 10,360 9,894 10,360 10,360 10,482 Dec-91 10,600 10,600 10,123 10,600 10,600 10,090 Mar-92 10,470 10,470 9,999 10,470 10,470 10,846 Jun-92 11,008 11,008 10,513 11,008 11,008 11,157 Sep-92 11,298 11,298 10,789 11,298 11,298 11,581 Dec-92 11,254 11,254 10,747 11,254 11,254 11,766 Mar-93 11,717 11,717 11,190 11,717 11,717 12,169 Jun-93 12,116 12,116 11,571 12,116 12,116 12,483 Sep-93 12,689 12,689 12,118 12,689 12,689 12,932 Dec-93 12,977 12,977 12,393 12,977 12,977 13,225 Mar-94 12,715 12,715 12,143 12,715 12,715 12,803 Jun-94 12,453 12,453 11,892 12,453 12,453 12,561 Sep-94 12,369 12,369 11,812 12,369 12,369 12,580 Dec-94 12,496 12,496 11,933 12,496 12,496 12,732 Mar-95 13,545 13,545 12,936 13,545 13,545 13,323 Jun-95 14,054 14,054 13,421 14,054 14,054 14,016 Sep-95 14,302 14,302 13,658 14,302 14,302 14,427 Dec-95 14,998 14,998 14,323 14,998 14,998 15,032 Mar-96 15,051 15,051 14,374 15,051 15,051 15,011 Jun-96 15,395 15,394 14,697 15,370 15,370 15,291 Sep-96 16,002 15,989 15,259 15,928 15,928 15,797 Dec-96 16,590 16,558 15,793 16,442 16,442 16,340 Mar-97 16,762 16,717 15,938 16,562 16,562 16,458 Jun-97 17,335 17,276 16,378 17,078 17,078 16,988 Sep-97 17,859 17,783 16,853 17,539 17,539 17,565 Dec-97 18,294 18,203 17,244 17,911 17,911 18,069 Mar-98 18,777 18,671 17,679 18,328 18,328 18,527 Jun-98 19,112 18,988 17,972 18,597 18,597 18,955 Sep-98 20,092 19,947 18,872 19,529 19,492 19,942 Dec-98 20,395 20,232 19,135 19,800 19,726 20,052 Mar-99 20,697 20,518 19,397 20,071 19,958 20,395 Jun-99 20,519 20,327 19,209 19,838 19,729 20,266 Sep-99 20,474 20,266 19,143 19,141 19,624 20,167 For period ending September 30, 1999 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN 1 Year 3 Year 5 Year From Inception Institutional Class 1.91% 8.56% 10.61% 9.07% Service Class 1.60% 8.22% 10.38% 8.93% Investor A Class (Load Adjusted) (3.63)% 6.21% 9.12% 8.18% Investor A Class (NAV) 1.43% 8.04% 10.25% 8.85% Investor B Class (Load Adjusted) (3.89)% 5.94% 9.23% 8.51% Investor B Class (NAV) 0.67% 7.21% 9.67% 8.51% Investor C Class (Load Adjusted) (0.34)% 7.21% 9.67% 8.51% Investor C Class (NAV) 0.67% 7.21% 9.67% 8.51% - -------------------------------------------------------------------------------- The performance information above includes information relating to each class of the Portfolio since the commencement of operations of the Portfolio, rather than the date such class was introduced. The inception dates of the Portfolio's share classes were as follows: Service Shares, 7/1/91; Investor B Shares, 4/19/96; Investor A Shares, 4/22/96; Institutional Shares, 6/10/96; and Investor C Shares, 9/11/96. See "Note on Performance Information" on page 12 for further information on how performance data was calculated. Past performance is not predictive of future results. 10 BLACKROCK FUNDS HIGH YIELD BOND PORTFOLIO TOTAL ASSETS (9/30/99): $91.6 MILLION PERFORMANCE BENCHMARK: LEHMAN HIGH YIELD INDEX INVESTMENT APPROACH: SEEKS CURRENT INCOME BY INVESTING PRIMARILY IN NON-INVESTMENT GRADE SECURITIES (RATED C OR HIGHER OR DEEMED TO BE OF COMPARABLE QUALITY) WHICH YIELD A HIGH LEVEL OF CURRENT INCOME. RECENT PORTFOLIO MANAGEMENT ACTIVITY: . SINCE THE PORTFOLIO'S INCEPTION IN NOVEMBER 1998 THE HIGH YIELD MARKET HAS PERFORMED WELL AS YIELD SPREADS HAVE NARROWED COMPARED TO TREASURIES. INVESTORS CONTINUE TO EMPHAZISE HIGHER QUALITY NON-INVESTMENT GRADE CREDITS INSTEAD OF LOWER TIER CREDITS. THE MANAGER HAS TAKEN ADVANTAGE OF THIS DURING THE PERIOD BY FOCUSING ON B-RATED CREDITS, WHERE YIELD SPREADS CONTINUE TO TIGHTEN, WHILE UNDERWEIGHTING CCC-RATED SECURITIES. . THE PORTFOLIO HAS BENEFITED FROM BEING OVERWEIGHT RELATIVE TO THE INDEX IN THE TELECOM, OIL AND GAS AND CABLE SECTORS. PARTICULAR EMPHASIS HAS BEEN PLACED ON THESE SECTORS AS IMPROVING FUNDAMENTALS AND THE POTENTIAL FOR CONSOLIDATION CONTINUE TO BE A MAJOR CONTRIBUTOR TO THEIR STRONG PERFORMANCE. THE PORTFOLIO HAS BEEN UNDERWEIGHT THE HEALTHCARE AND TEXTILE SECTORS, WHICH HAVE BEEN WEAK PERFORMERS. . THE MANAGER BELIEVES THAT THE SUPPLY AND DEMAND TECHNICALS OF THE HIGH YIELD MARKET APPEAR TO BE FAVORABLE, AS STRONG MONEY INFLOWS AND LOWER SUPPLY RELATIVE TO LAST YEAR MAY BODE WELL FOR HIGH YIELD INVESTORS. Although the portfolio holdings and sectors listed above were current as of the end of the annual period ended September 30, 1999, the Portfolio is actively managed and the composition will vary. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE HIGH YIELD BOND PORTFOLIO AND THE LEHMAN HIGH YIELD INDEX FROM INCEPTION AND AT EACH MONTH-END. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Institutional Service Investor A Investor B Investor C BlackRock Lehman High Class Class Class Class Class Class Yield Index 11/19/98 $10,000 $10,000 $9,500 $10,000 $10,000 $10,000 $10,000 12/31/98 10,128 10,106 9,616 10,113 10,113 10,110 10,160 1/31/99 10,395 10,370 9,866 10,369 10,369 10,378 10,310 2/28/99 10,380 10,351 9,847 10,343 10,343 10,363 10,250 3/31/99 10,466 10,435 9,926 10,418 10,418 10,451 10,347 4/30/99 10,853 10,819 10,289 10,794 10,794 10,840 10,548 5/31/99 10,586 10,551 10,032 10,517 10,517 10,576 10,405 6/30/99 10,622 10,584 10,062 10,542 10,542 10,613 10,383 7/31/99 10,637 10,597 10,072 10,547 10,547 10,630 10,425 8/31/99 10,599 10,557 10,032 10,498 10,498 10,593 10,309 9/30/99 10,592 10,548 10,022 10,010 10,377 10,587 10,235 For period ending September 30, 1999 - -------------------------------------------------------------------------------- TOTAL RETURN From Inception BlackRock Class 5.87% Institutional Class 5.93% Service Class 5.47% Investor A Class (Load Adjusted) 0.22% Investor A Class (NAV) 5.50% Investor B Class (Load Adjusted) 0.06% Investor B Class (NAV) 4.78% Investor C Class (Load Adjusted) 3.64% Investor C Class (NAV) 4.69% - -------------------------------------------------------------------------------- The performance information above includes information relating to each class of the Portfolio since the commencement of operations of the Portfolio, rather than the date such class was introduced. The inception dates of the Portfolio's share classes were as follows: BlackRock Shares; Institutional Shares; Service Shares; Investor A Shares; Investor B Shares; and Investor C Shares, 11/19/98. See "Note on Performance Information" on page 12 for further information on how performance data was calculated. Past performance is not predictive of future results. 11 BLACKROCK FUNDS NOTE ON PERFORMANCE INFORMATION The performance information above includes information for each class of each Portfolio since the commencement of operations of the Portfolio, rather than the date such class was introduced. Performance information for each class introduced after the commencement of operations of a Portfolio is therefore based on the performance history of a predecessor class or predecessor classes. If a class of shares in a Portfolio (the "Subsequent Class") has more than one predecessor class, the performance data predating the introduction of the Subsequent Class is based initially on the performance of the Portfolio's first operational predecessor class (the "Initial Class"); thereafter, the performance of the Subsequent Class is based upon the performance of any other predecessor class or classes which were introduced after the Initial Class and which had total operating expenses more similar to those of the Subsequent Class. In the case of Investor A, Investor B, Investor C and Service Shares, the performance information for periods prior to their introduction dates has not been restated to reflect the shareholder servicing and processing and/or distribution fees and certain other expenses borne by these share classes which, if reflected, would reduce the performance quoted. Accordingly, the performance information may be used in assessing each Portfolio's performance history but does not reflect how the distinct classes would have performed on a relative basis prior to the introduction of these classes, which would require an adjustment to the ongoing expenses. Performance information is restated to reflect the current maximum front-end sales charge (in the case of Investor A Shares) or the maximum contingent deferred sales charge (in the case of Investor B and Investor C Shares), and assumes the reinvestment of dividends and distributions. The maximum front-end sales charges for Investor A Shares are as follows: Intermediate Government Bond, Intermediate Bond, Core Bond and GNMA -- 4.00%; Government Income and Managed Income -- 4.50%; International Bond and High Yield Bond -- 5.00%; and Low Duration Bond -- 3.00%. The maximum contingent deferred sales charge for Investor B Shares and Investor C Shares of all of the Portfolios is 4.50% and 1.00%, respectively. The performance information also reflects fee waivers that subsidize and reduce the total operating expenses of each Portfolio. The Portfolios' returns would have been lower if there were not such waivers. BlackRock Advisors Inc. and the Portfolio's Administrators are under no obligation to waive or continue waiving their fees. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. - -------------------------------------------------------------------------------- IMPORTANT TAX INFORMATION FOR SHAREHOLDERS OF THE BLACKROCK TAXABLE BOND PORTFOLIOS (UNAUDITED) During the fiscal year ended September 30, 1999, the following Portfolios of the BlackRock Funds declared the following dividends from net realized capital gains: SHORT-TERM LONG-TERM CAPITAL GAIN, CAPITAL GAIN, PER SHARE PER SHARE ------------- ------------- Intermediate Government Bond Portfolio ....... $0.0141 $0.0611 Intermediate Bond Portfolio .................. 0.0524 0.0498 Core Bond Portfolio .......................... 0.2043 -- Government Income Portfolio .................. 0.1635 -- GNMA Portfolio ............................... 0.0184 -- Managed Income Portfolio ..................... 0.1516 -- International Bond Portfolio ................. -- 0.0616 Because the Portfolios' fiscal year is not the calendar year, another notification will be sent with respect to calendar year 1999. The second notification, which reflects the amounts to be used by calendar year taxpayers on their U.S. federal income tax returns, has been made in conjunction with Form 1099-DIV and will be mailed in January 2000. 12 BLACKROCK FUNDS STATEMENT OF NET ASSETS LOW DURATION BOND PORTFOLIO Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value ---------- ------- ----------- U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 19.5% Small Business Administration Participation Certificates, Series 97, Class A 5.85%** 08/15/22 $ 1,370 $ 1,364,944 U.S. Treasury Bonds 8.75%(DAGGER) 11/15/08 9,067 9,923,229 U.S. Treasury Notes 5.00%(DAGGER) 02/28/01 13,245 13,148,306 5.25%(DAGGER) 05/31/01 4,000 3,977,104 5.75%(DAGGER) 06/30/01 9,760 9,776,653 5.50%(DAGGER) 07/01-05/03 5,045 5,019,022 6.50%(DAGGER) 08/31/01 6,090 6,185,633 6.25% 02/28/02 905 916,636 5.63% 12/31/02 1,400 1,395,152 ----------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $51,798,603) 51,706,679 ----------- MORTGAGE PASS-THROUGHS -- 31.4% Federal Home Loan Mortgage Corp. 5.81%** 10/01/00 8,290 8,196,711 7.25% 07/06-06/08 66 66,618 7.50%(DAGGER) 07/01/07 2,356 2,392,139 8.25% 06/01/09 72 74,470 8.75% 01/01/13 1,326 1,381,189 5.72%** 06/01/28 2,139 2,126,768 Federal Home Loan Mortgage Corp. 5 Year Balloon 7.00%(DAGGER) 05/00-11/00 553 555,585 Federal Home Loan Mortgage Corp. 7 Year Balloon 8.00%(DAGGER) 01/01/04 365 371,191 Federal Home Loan Mortgage Corp. 30 Year Balloon 8.25% 09/01/09 73 75,183 7.50% 04/01/22 733 736,711 6.98% 07/01/27 4,219 4,225,759 Federal Home Loan Mortgage Corp. Gold 7.00% 09/01/11 3,092 3,094,673 Federal National Mortgage Association 6.29% 10/04/00 2,000 2,009,839 6.20%(DAGGER) 02/26/01 5,135 5,117,200 6.73% 02/26/01 605 606,833 6.00% 11/03-01/04 5,938 5,783,043 7.00% 06/01/04 1,931 1,898,264 6.50%(DAGGER) 10/08-11/08 5,619 5,550,817 7.50% 05/01/09 1,321 1,325,284 11.50% 05/01/09 236 260,732 5.50%(DAGGER) 07/01/09 2,891 2,722,515 5.81% 03/01/29 837 816,934 Federal National Mortgage Association 10 Year Balloon 6.00% 12/03-02/04 3,844 3,751,697 Federal National Mortgage Association 15 Year Balloon 7.00% 12/08-09/14 6,772 6,767,794 8.00%(DAGGER) 08/01/09 2,800 2,851,626 Par Maturity (000) Value ---------- ------- ----------- MORTGAGE PASS-THROUGHS (CONTINUED) Government National Mortgage Association 7.25% 04/15/06 $ 431 428,470 8.25%(DAGGER) 08/08-09/08 4,052 4,181,153 7.50% 07/16/22 2,700 2,721,094 8.00% 05/16/24 5,391 5,433,877 Government National Mortgage Association 15 Year 7.00% 07/02-05/12 6,600 6,607,059 Government National Mortgage Association 30 Year 6.50%(DAGGER) 03/24-04/24 1,197 1,151,475 ----------- TOTAL MORTGAGE PASS-THROUGHS (Cost $84,156,010) 83,282,703 ----------- MULTIPLE CLASS MORTGAGE PASS-THROUGHS -- 1.9% Bear Stearns Mortgage Securities, Inc., Series 96-6, Class A2 7.00% 11/25/27 1,292 1,286,986 Residential Accredit Loans, Inc., Series 97-QS7, Class A1 7.50% 07/25/27 403 402,111 Residential Asset Securitization Trust, Series 98-A1, Class A1 7.00% 03/25/28 1,570 1,569,013 Residential Asset Securitization Trust, Series 98-A2, Class A1 6.75%(DOUBLE DAGGER) 04/25/28 1,880 1,876,645 ----------- TOTAL MULTIPLE CLASS MORTGAGE PASS-THROUGHS (Cost $5,147,875) 5,134,755 ----------- COMMERCIAL MORTGAGE BACKED SECURITIES -- 28.0% American Business Financial Services, Series 98-A, Class A 6.10% 10/15/05 3,497 3,470,588 Asset Securitization Corp., Series 97-D5, Class A1A 6.50% 02/14/41 2,985 2,965,915 Bayview Financial Acquisition Trust, Series 98-1, Class AI 7.01% 05/25/29 2,748 2,716,239 Bayview Financial Acquisition Trust, Series 98-1, Class AII 5.64%** 05/25/29 2,307 2,296,141 Bosque Asset Corp., Series 97-1, Class A1 7.66% 06/05/02 1,005 1,004,348 Boston Edison Co., Series 99-1, Class A2 6.00% 09/15/05 2,050 2,018,609 Captec Franchise Trust, Series 99-1, Class A1 6.50% 05/25/05 3,965 3,932,580 Citicorp Mortgage Securities, Inc., Series 94-4, Class A6 6.00% 02/25/09 2,116 2,082,938 Copelco Capital Funding Corp., Series 99-A, Class A3 5.67% 03/15/02 2,700 2,664,742 Donaldson, Lufkin and Jenrette, Inc. Mortgage Acceptance Corp., Series 95-CF2, Class AIA 6.65% 12/17/27 956 961,701 See accompanying notes to financial statements. 13 BLACKROCK FUNDS STATEMENT OF NET ASSETS LOW DURATION BOND PORTFOLIO (CONTINUED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ----- ----- COMMERCIAL MORTGAGE BACKED SECURITIES (CONTINUED) Donaldson, Lufkin and Jenrette, Inc. Mortgage Acceptance Corp., Series 96-CF2, Class A1A 6.86% 11/12/21 $ 2,108 $ 2,105,465 Franchise Loan Trust, Series 98-1, Class A1 6.24% 07/15/04 2,029 1,991,679 Green Tree Recreational Equipment & Construction, Series 98-C, Class A4 6.17% 02/15/11 2,300 2,279,156 Huntton Paige, Series 99-1 7.43% 03/01/19 2,800 2,810,664 ICI Funding Corp. Small Business Administration Loan-Backed Adjustable Rate Certificates, Series 97-1, Class A 6.00%** 01/15/24 2,272 2,249,685 J.P. Morgan Commercial Mortgage Finance Corp., Series 97, Class D 6.36%** 07/25/29 2,000 1,970,000 Merit Securities Corp., Series 98-11, Class 2A2 5.66%** 11/28/22 4,172 4,168,975 Morgan Stanley Capital International, Inc., Series 98-CF1, Class A1 6.33% 10/15/07 1,203 1,166,776 Mortgage Capital Funding, Inc., Series 98-MC2, Class A1 6.33% 10/18/07 2,873 2,791,664 Navistar Financial Corp Owner Trust, Series 99-A, Class A3 5.95% 04/15/03 3,950 3,922,844 PNC Mortgage Securities Corp., Series 97-6, Class A1 6.49% 10/25/26 2,948 2,946,525 Prudential Home Mortgage Securities, Inc., Series 94-19, Class A2 7.05% 05/25/24 3,532 3,537,292 Reilly Mortgage Securities, Series 99-1 7.43% 02/01/23 264 266,168 Republic Bank Home Loan Owner Trust, Series 98-1, Class A1 6.61% 04/25/07 588 585,904 Residential Funding Mortgage Securities, Series 98-NS1, Class A2 6.38% 01/25/09 2,153 2,139,763 Salomon Brothers Mortgage Securities VII, Series 92-5, Class A1 7.69%** 11/25/22 267 267,178 Salomon Brothers Mortgage Securities VII, Series 96-6B, Class A1 5.73%** 06/30/26 11 10,743 Structured Asset Securities Corp., Series 98-C2A, Class B 5.70%** 01/25/13 3,167 3,165,586 SWB Loan Backed Certificates, Series 98-1, Class AV 5.75%** 09/15/24 2,992 2,976,955 Union Planters Mortgage Finance Corp., Series 98-1, Class A1 6.35% 01/25/28 1,764 1,772,892 Par Maturity (000) Value -------- ----- ----- COMMERCIAL MORTGAGE BACKED SECURITIES (CONTINUED) Wilshire Funding Corp., Series 97, Class A 7.25% 08/25/27 $ 1,553 $ 1,526,758 Wilshire Funding Corp., Series 98-2, Class A3 7.00% 12/28/37 5,662 5,583,874 ----------- TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $75,018,985) 74,350,347 ----------- PROJECT LOANS -- 5.4% FEDERAL HOUSING AUTHORITY, GENERAL MOTORS ACCEPTANCE CORP. GRANTOR TRUST, SERIES 97-A, CLASS A 7.14% 01/01/21 12,440 12,473,475 Federal Housing Authority, INSD Project, Series 82 7.43% 09/01/22 1,978 1,988,903 ----------- TOTAL PROJECT LOANS (Cost $14,543,388) 14,462,378 ----------- ASSET BACKED SECURITIES -- 41.5% Amresco Independence Funding, Inc., Series 99-1, Class A 6.50% 06/15/20 3,000 3,000,000 Arcadia Automobile Receivables Trust, Series 98-B, Class A3 5.95%+ 11/15/02 6,650 6,654,522 Banc One Auto Grantor Trust, Series 97-A, Class A 6.27% 11/20/03 298 299,986 Barnett Auto Trust, Series 97-A, Class A3 6.03%+ 11/15/01 4,078 4,143,323 Chevy Chase Auto Receivables Trust, Series 97-3, Class A 6.20% 03/20/04 2,280 2,295,547 Dayton Hudson Credit Card Master Trust, Series 97-1, Class A 6.25% 08/25/05 2,300 2,248,810 Fifth Third Auto Grantor Trust, Series 96-B, Class A 6.45% 03/15/02 260 260,833 First Security Auto Grantor Trust, Series 97-A, Class A 6.30% 08/15/03 2,006 2,016,501 First Security Auto Owner Trust, Series 99-2, Class A3 6.00% 10/15/03 4,150 4,130,547 FMAC Loan Receivables Trust, Series 98-CA, Class A1 5.99% 11/15/04 2,139 2,081,463 Ford Credit Auto Owner Trust, Series 99-A, Class A4 5.31% 11/15/01 3,700 3,664,156 Ford Credit Auto Owner Trust, Series 99-C, Class A4 6.08% 09/16/02 4,175 4,158,039 Green Tree Financial Corp., Series 95-A, Class A 7.25% 07/15/05 1,975 1,872,618 See accompanying notes to financial statements. 14 BLACKROCK FUNDS STATEMENT OF NET ASSETS LOW DURATION BOND PORTFOLIO (CONTINUED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ----- ----- ASSET BACKED SECURITIES (CONTINUED) Green Tree Financial Corp., Series 96-10, Class A4 6.42% 11/15/28 $ 3,139 $ 3,146,751 Green Tree Recreational Equipment & Consumer Trust, Series 97-C, Class A1 6.49% 02/15/18 1,877 1,867,745 Health Care Receivables Securitization Program Notes, NPF VI, Series 98-1, Class A 6.22% 06/01/02 3,300 3,253,331 Honda Auto Lease Trust, Series 99-A, Class A4 6.45% 09/16/02 5,500 5,509,453 Honda Auto Receivables Grantor Trust, Series 98-A, Class A 5.50% 07/15/04 3,286 3,246,847 Missouri Higher Education Loan Authority, Series 97, Class P 5.40%** 07/25/08 3,209 3,166,974 Newcourt Equipment Trust Securities, Series 98-1, Class A3 5.24% 12/20/02 4,250 4,197,295 Nissan Auto Receivables Owner Trust, Series 99-A, Class A3 6.47% 09/15/03 2,275 2,240,875 PBG Equipment Trust, Series 1A, Class A 6.27% 01/20/12 1,376 1,344,562 PMC Capital Limited Partnership, Series 98-1, Class A 6.75%** 04/01/21 4,105 4,104,948 PMC Capital Small Business Administration Loan-Backed Adjustable Rate Certificates, Series 97-1, Class A 6.35%** 09/15/23 1,681 1,664,311 PMC Capital Small Business Administration Loan-Backed Adjustable Rate Certificates, Series 97-1, Class B 6.70%** 09/15/23 894 896,067 Ryder Vehicle Lease Trust, Series 98-A, Class A 6.10% 09/15/08 4,430 4,413,514 Sears Credit Account Master Trust, Series 95-5, Class A 6.05% 01/15/08 3,000 2,955,662 Sears Credit Account Master Trust, Series 97-1, Class A 6.20% 07/16/07 4,030 4,003,865 The Money Store Auto Grantor Trust, Series 97-4, Class A2 6.35% 03/20/04 1,121 1,127,458 The Money Store Business Loan Backed Securities, Series 97-1, Class A 5.53%** 01/15/25 371 370,268 5.65%** 04/15/28 3,083 3,092,608 The Money Store Business Loan Backed Securities, Series 97-1, Class B 6.02%** 01/15/25 1,855 1,838,005 Par Maturity (000) Value -------- ----- ----- ASSET BACKED SECURITIES (CONTINUED) The Money Store Home Equity Trust, Series 98-A, Class MH2 7.23% 05/15/24 $ 2,000 $ 1,873,033 The Money Store Residential Trust, Series 97-II, Class A1 6.65% 11/15/07 216 215,979 Toyota Auto Receivables Owner Trust, Series 99-A, Class A3 6.15% 08/16/04 7,775 7,750,703 USAA Auto Loan Grantor Trust, Series 99-1, Class A 6.10% 02/15/06 5,107 5,086,558 World Omni Automobile Lease Securitization Trust, Series 96-B, Class A3 6.25% 11/15/02 5,973 5,982,508 ------------ TOTAL ASSET BACKED SECURITIES (Cost $110,861,897) 110,175,665 ------------ CORPORATE BONDS -- 10.4% FINANCE -- 7.6% Diageo Capital PLC 6.63% 06/24/04 1,250 1,246,875 Donaldson, Lufkin and Jenrette, Inc. 5.88% 04/01/02 2,900 2,838,375 Firstar Corp. 6.50% 07/15/02 2,700 2,686,627 Goldman Sachs Escrow Corp., Series 144A 6.75% 08/01/01 3,000 2,954,160 Popular North America, Inc. 6.88% 06/15/01 2,550 2,541,435 TransAmerica Finance Corp. 7.25% 08/15/02 4,550 4,585,791 US West Capital Funding, Inc. 6.88% 08/15/01 3,435 3,435,000 ------------ 20,288,263 ------------ INDUSTRIAL -- 0.9% Nabisco, Inc. 6.00% 02/15/01 1,720 1,701,533 Williams Cos., Inc. 6.13% 02/01/01 660 657,525 ------------ 2,359,058 ------------ INSURANCE -- 0.6% METROPOLITAN LIFE INSURANCE CO. 6.30% 11/01/03 1,640 1,590,800 ------------ PIPELINES -- 0.5% El Paso Energy Corp. 6.63% 07/15/01 1,420 1,420,000 ------------ UTILITY -- 0.3% Avon Energy Partnership 6.73% 12/11/02 690 686,550 ------------ See accompanying notes to financial statements. 15 BLACKROCK FUNDS STATEMENT OF NET ASSETS LOW DURATION BOND PORTFOLIO (CONTINUED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ----- ----- CORPORATE BONDS (CONTINUED) YANKEE -- 0.5% Banco Internacional S.A. 6.03% 07/16/01 $ 1,227 $ 1,225,145 Nordbanken 5.91%** 10/25/01 150 146,850 ------------ 1,371,995 ------------ TOTAL CORPORATE BONDS (Cost $27,784,853) 27,716,666 ------------ FOREIGN BONDS -- 0.7% Newcourt Credit Group 7.63% 06/28/01 2,700 1,859,549 (Cost $1,875,343) ------------ TAXABLE MUNICIPAL BONDS -- 0.2% PHILADELPHIA AUTHORITY INDUSTRIAL DEVELOPMENT TAX CLAIM COLLECTION REVENUE BOND, SERIES 97A 6.49% 06/15/04 538 521,876 (Cost $537,835) ------------ Shares ------ SHORT TERM INVESTMENTS -- 0.2% Galileo Money Market Fund (Cost $443,042) 443,042 443,042 ------------ TOTAL INVESTMENTS IN SECURITIES (Cost $372,167,831*) 139.2% 369,653,660 Par (000) ----- REVERSE REPURCHASE AGREEMENTS -- (39.7%) Aubrey Lanston (Agreement dated 09/30/99 to be repurchased at $2,631,934. Collateralized by $2,600,000 U.s. Treasury Notes 5.25% due 05/31/01. the value of the collateral Is $2,655,824.) 5.25% 10/07/99 $ 2,629 (2,629,633) Commerzbank (Agreement dated 09/24/99 to be repurchased at $6,225,822. Collateralized by $6,090,000 U.S. Treasury Notes 6.50% due 08/31/01. The value of the collateral is $6,219,346.) 5.30% 10/01/99 6,219 (6,225,822) Lehman Brothers (Agreement dated 09/27/99 to be repurchased at $1,299,563. Collateralized by $1,295,000 U.S. Treasury Notes 5.50% due 07/31/01. The value of the collateral is $1,304,205.) 5.25% 10/04/99 1,298 (1,298,995) Lehman Brothers (Agreement dated 09/29/99 to be repurchased at $23,109,145. Collateralized by $23,005,000 U.S. Treasury Notes 5.00-5.75% due 02/28/01 to 06/30/01. The value of the collateral is $23,123,699.) 5.34% 10/06/99 23,085 (23,092,024) Par Maturity (000) Value -------- ----- ----- REVERSE REPURCHASE AGREEMENTS (CONTINUED) Lehman Brothers (Agreement dated 09/29/99 to be repurchased at $6,013,633. Collateralized by $6,000,000 U.S. Treasury Notes 5.50% due 08/31/01. The value of the collateral is $5,995,207.) 5.25% 10/06/99 $ 6,008 $ (6,009,252) Lehman Brothers (Agreement dated 09/29/99 to be repurchased at $10,221,359. Collateralized by $9,067,000 U.S. Treasury Bonds 8.75% due 11/15/08. The value of the collateral is $10,222,896.) 5.29% 10/13/99 10,200 (10,203,373) Lehman Brothers (Agreement dated 09/17/99 to be repurchased at $7,558,617. Collateralized by $7,908,008 Federal National Mortgage Association 5.50-6.50% due 11/01/08 to 07/01/09. The value of the collateral is $7,735,568.) 5.38% 10/19/99 7,526 (7,538,372) Lehman Brothers (Agreement dated 09/20/99 to be repurchased at $8,570,985. Collateralized by $8,289,973 Federal Home Loan Mortgage Corp. 5.80% due 07/01/01 and $602,674 Federal National Mortgage Association 6.50% due 10/01/05. The value of the collateral is $8,818,276.) 5.38% 10/19/99 8,534 (8,548,029) Lehman Brothers (Agreement dated 09/27/99 to be repurchased at $5,344,605. Collateralized by $6,650,000 Arcadia Automobile Receivables Trust 5.95% due 11/15/02. The value of the collateral is $6,672,108.) 5.55% 10/29/99 5,320 (5,321,640) Morgan Stanley (Agreement dated 09/15/99 to be repurchased at $5,459,909. Collateralized by $5,740,314 Federal National Mortgage Association 6.20-6.725% due 02/26/01. The value of the collateral is $5,753,957.) 5.46% 10/14/99 5,436 (5,449,191) Morgan Stanley (Agreement dated 09/28/99 to be repurchased at $7,433,233. Collateralized by $7,629,752 Federal National Mortgage Association 7.00-8.00% due 12/01/08 to 08/01/09. The value of the collateral is $7,726,711.) 5.40% 10/18/99 7,411 (7,414,335) See accompanying notes to financial statements. 16 BLACKROCK FUNDS STATEMENT OF NET ASSETS LOW DURATION BOND PORTFOLIO (CONCLUDED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value ---------- --------- ------------- REVERSE REPURCHASE AGREEMENTS (CONTINUED) Morgan Stanley (Agreement dated 09/17/99 to be repurchased at $11,484,466. Collateralized by $2,356,062 Federal Home Loan Bank 7.50% due 07/01/07, $5,310,258 Federal National Mortgage Association 6.00% due 01/01/04 and $4,051,996 Government National Mortgage Association 8.25% due 08/15/08 to 09/15/08. The value of the collateral is $11,821,586.) 5.37% 10/19/99 $ 11,435 $(11,453,763) Salomon Brothers (Agreement dated 09/09/99 to be repurchased at $3,731,157. Collateralized by $4,077,634 Barnett Auto Trust 6.03% due 11/15/01 and $442,032 Federal National Mortgage Association 7.00% due 12/01/08. The value of the collateral is $4,598,724.) 5.63% 10/12/99 3,712 (3,724,771) Salomon Brothers (Agreement dated 09/15/99 to be repurchased at $5,423,316. Collateralized by $918,259 Federal Home Loan Mortgage Corp. Gold 7.00-8.00% due 05/01/00 to 01/01/04 and $4,866,440 Federal National Mortgage Association 6.00-7.00% due 12/01/03 to 06/01/04. The value of the collateral is $5,709,767.) 5.36% 10/14/99 5,400 (5,412,864) Salomon Brothers (Agreement dated 09/15/99 to be repurchased at $1,136,888. Collateralized by $1,213,909 Government National Mortgage Association 6.50-7.25% due 04/15/06 to 04/15/24. The value of the collateral is $1,188,262.) 5.36% 10/14/99 1,132 (1,134,697) ------------ TOTAL REVERSE REPURCHASE AGREEMENTS (Cost $105,345,950) (105,456,761) OTHER ASSETS IN EXCESS OF LIABILITIES 0.5% 1,267,396 -------- ------------ NET ASSETS (Applicable to 8,079,707 BlackRock shares, 16,047,318 Institutional shares, 1,718,517 Service shares, 264,237 Investor A shares, 768,840 Investor B shares and 159,937 Investor C shares outstanding) 100% $265,464,295 ======== ============ Value ------------- NET ASSET VALUE AND REDEMPTION PRICE PER BLACKROCK, INSTITUTIONAL, SERVICE AND INVESTOR A SHARE ($256,345,512/26,109,779) $ 9.82 ============ OFFERING PRICE PER BLACKROCK, INSTITUTIONAL AND SERVICE SHARE $ 9.82 ============ MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($9.82/.970) $ 10.12 ============ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (SUBJECT TO A MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 4.5%) PER INVESTOR B SHARE ($7,548,548/768,840) $ 9.82 ============ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (SUBJECT TO A MAXIMUM CONTINGENT DEFERRED SALES CHARGE OF 1.0%) PER INVESTOR C SHARE ($1,570,235/159,937) $ 9.82 ============ ____________________ * Cost for Federal income tax purposes is $372,533,490. The gross unrealized appreciation (depreciation) on a tax basis is as follows: Gross unrealized appreciation $ 296,259 Gross unrealized depreciation (3,176,089) ----------- $(2,879,830) =========== ** Rates shown are the rates as of September 30, 1999. + Partial principal in the amount of $108,114,311 has been pledged as collateral for reverse repurchase agreements. ++ Principal amount of securities pledged as collateral of $1,000,000 on 60 long U.S. Treasury Notes futures contracts and 353 short U.S. Treasury Notes futures contracts expiring December 1999. The value of such contracts on September 30, 1999 was $50,741,344, thereby resulting in an unrealized loss of $80,898. See accompanying notes to financial statements. 17 BLACKROCK FUNDS STATEMENT OF NET ASSETS INTERMEDIATE GOVERNMENT BOND PORTFOLIO Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ----------- ----------- U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 23.9% Federal Home Loan Bank Bonds 5.00% 09/20/00 $ 3,000 $ 2,978,737 Small Business Administration Participation Certificates, Series 96-20H, Class 1 7.25% 08/01/16 4,846 4,841,254 Small Business Administration Participation Certificates, Series 96-20J, Class 1 7.20% 10/01/16 4,229 4,218,044 Small Business Administration Participation Certificates, Series 98-20J, Class 1 5.50% 10/01/18 4,856 4,451,629 Small Business Investment Cos. Pass-Through, Series 96-P10A, Class 1 6.67% 02/10/06 4,523 4,474,449 U.S. Treasury Bonds 8.75% 11/15/08 20,890 22,862,716 12.75% 11/15/10 11,925 15,852,188 14.00% 11/15/11 7,730 11,135,680 U.S. Treasury Notes 6.50% 10/15/06 29,670 30,356,944 ----------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $104,836,704) 101,171,641 ----------- MORTGAGE PASS-THROUGHS -- 32.9% Federal Home Loan Mortgage Corp. 9.00% 06/01/01 1 513 7.00% 05/02-05/11 5,056 5,060,450 6.50% 04/01/08 2,997 2,955,319 8.00% 11/01/08 1,591 1,644,195 6.45% 04/29/09 4,100 3,914,021 6.00% 05/15/16 900 892,386 Federal National Mortgage Association 6.08% 10/01/99 5,323 5,268,040 6.20% 02/26/01 942 938,936 6.73% 02/26/01 6,381 6,398,585 8.50% 06/03-08/09 4,351 4,454,912 6.50% 08/03-05/15 32,092 31,563,395 6.13% 11/25/03 2,323 2,276,758 6.09% 10/01/08 7,298 6,869,689 6.04% 02/25/09 4,500 4,199,844 7.27% 01/25/11 6,205 6,262,590 7.00% 05/01/11 6,091 6,089,303 5.50% 01/14-06/14 4,983 4,692,227 7.58% 11/01/18 4,864 4,870,104 6.00% 11/23-02/29 2,925 2,769,211 Federal National Mortgage Association 10 Year Balloon 6.00% 02/01/04 3,490 3,403,613 Federal National Mortgage Association Multi-Family 6.50% 10/25/03 1,508 1,506,663 7.71% 12/01/18 4,250 4,370,522 6.32% 10/01/23 9,646 8,874,334 Par Maturity (000) Value ---------- --------- ------------ MORTGAGE PASS-THROUGHS (CONTINUED) Government National Mortgage Association 7.25% 04/15/06 $ 6,627 $ 6,583,802 8.25% 11/08-02/09 3,745 3,864,525 6.50% 10/23-12/23 8,197 7,842,619 7.00% 12/15/27 566 555,333 MLCC Mortgage Investors, Inc., Series 95-C3, Class A1 6.75% 10/01/99 1,507 1,499,179 ------------ TOTAL MORTGAGE PASS-THROUGHS (Cost $142,739,634) 139,621,068 ------------ MULTIPLE CLASS MORTGAGE PASS-THROUGHS -- 2.7% Federal National Mortgage Association Grantor Trust, Series 96-T6, Class A 6.33% 10/25/00 4,571 4,559,589 General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 97-C1, Class X (IO) 7.84%*** 07/15/27 18,269 1,416,413 General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 97-C2, Class A3 6.57% 11/15/07 2,850 2,736,594 Residential Asset Securitization Trust, Series 98-A1, Class A1 7.00% 03/25/28 2,617 2,615,022 --------- ----------- TOTAL MULTIPLE CLASS MORTGAGE PASS-THROUGHS (Cost $11,544,959) 11,327,618 ----------- COMMERCIAL MORTGAGE BACKED SECURITIES -- 2.7% Atherton Franchisee Loan Funding, Series 98-A, Class A2 6.72% 08/15/10 5,150 4,871,929 General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 99-C2, Class A2 6.95% 09/15/33 1,000 985,117 Morgan Stanley Capital International, Inc., Series 97-HF1, Class A1 6.86% 07/15/29 3,886 3,881,619 Residential Funding Mortgage Securities, Series 96-HS2, Class A4 7.55% 09/25/12 127 126,530 Union Planters Mortgage Finance Corp., Series 98-1, Class A1 6.35% 01/25/28 1,472 1,479,448 ----------- TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $11,703,561) 11,344,643 ----------- ROJECT LOANS -- 5.1% Federal Housing Authority, General Motors Acceptance Corp. Grantor Trust, Series 97-A, Class A 7.01% 01/01/21 950 952,177 Federal Housing Authority, General Motors Acceptance Corp., Series 93-1 5.94% 04/14/12 2,001 1,834,846 Federal Housing Authority, Merrill Lynch, Series 29, Class 1A1 7.43% 06/01/22 8,028 8,083,071 See accompanying notes to financial statements. 18 BLACKROCK FUNDS STATEMENT OF NET ASSETS INTERMEDIATE GOVERNMENT BOND PORTFOLIO (CONTINUED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- --------- ------------- PROJECT LOANS (CONTINUED) Federal Housing Authority, Merrill Lynch, Series 97-23 7.43% 12/01/21 $ 5,411 $ 5,449,250 Federal Housing Authority, USGI, Series 56 7.46% 01/01/23 5,309 5,348,333 ------------- TOTAL PROJECT LOANS (Cost $22,060,574) 21,667,677 ------------- ASSET BACKED SECURITIES -- 26.2% ACLC Business Loan Receivables Trust, Series 98-1, Class A1 6.44% 09/15/19 8,861 8,628,611 Boston Edison Co., Series 99-1, Class A4 6.91% 09/15/09 4,475 4,430,997 Chevy Chase Auto Receivables Trust, Series 96-1, Class A 6.60%++ 12/15/02 375 376,390 Chevy Chase Auto Receivables Trust, Series 97-3, Class A 6.20% 03/20/04 1,979 1,992,289 Citibank Credit Card Master Trust I, Series 97-6, Class A (PO) 7.05%*** 08/15/06 8,525 6,090,918 Citibank Credit Card Master Trust I, Series 99-2, Class A 5.88% 03/10/11 2,275 2,103,309 Contimortgage Home Equity Loan Trust, Series 95-1, Class A4 8.60% 04/15/10 635 634,110 Dayton Hudson Credit Card Master Trust, Series 98-1, Class A 5.90% 05/25/06 2,200 2,148,630 DVI Receivables Corp., Series 98-1, Class A2 6.04% 04/10/06 2,193 2,202,804 FMAC Loan Receivables Trust, Series 97-C, Class A 6.75% 12/15/19 4,010 3,890,337 Green Tree Financial Corp., Series 97-5, Class A7 7.13% 05/15/29 3,501 3,278,160 Green Tree Home Improvement Loan Trust, Series 97-C, Class HEA2 6.38% 08/15/28 73 73,127 Health Care Receivables Securitization Program Notes, NPF VI, Series 98-1, Class A 6.22% 06/01/02 4,500 4,436,360 Honda Auto Lease Trust, Series 99-A, Class A4 6.45% 09/16/02 4,100 4,107,047 MBNA Master Credit Card Trust, Series 99-B, Class A 5.90% 08/15/11 3,550 3,337,941 National Premier Financial, Series 97-1, Class A 6.82% 07/01/01 2,300 2,306,828 New Century Home Equity Loan Trust, Series 98-NC3, Class A1 6.00% 08/25/28 2,445 2,433,635 People's Bank Credit Card Master Trust, Series 99-1, Class A 5.67%** 05/15/05 6,300 6,300,000 Par/Shares Maturity (000) Value --------- ---------- ------------- ASSET BACKED SECURITIES (CONTINUED) PMC Capital Small Business Administration Loan-Backed Adjustable Rate Certificates, Series 97-1, Class A 6.35%** 09/15/23 $ 2,802 $ 2,773,852 Sears Credit Account Master Trust, Series 97-1, Class A 6.20% 07/16/07 6,560 6,517,458 Sears Credit Account Master Trust, Series 98-1, Class A 5.80% 08/15/05 10,700 10,524,496 Standard Credit Card Master Trust, Series 94-4, Class A 8.25% 11/07/03 5,000 5,208,353 SWB Loan Backed Certificates, Series 99-1, Class A 7.38% 05/15/25 2,041 2,020,227 The Money Store Home Equity Trust, Series 95-A, Class A8 8.13% 06/15/15 2,902 2,940,331 The Money Store Home Equity Trust, Series 96-B, Class A13 6.90% 04/15/10 204 203,524 The Money Store Residential Trust, Series 98-I, Class A4 6.52% 08/15/15 9,000 8,942,493 The Money Store Small Business Administration Loan Trust, Series 99-1, Class A 5.52%** 07/15/25 3,193 3,166,060 Travelers Bank Credit Card Master Trust, Series 98-1, Class A 6.00% 01/18/05 4,900 4,832,674 Union Acceptance Corp., Series 96-A, Class A 5.40% 04/07/03 1,776 1,762,716 USAA Auto Loan Grantor Trust, Series 99-1, Class A 6.10% 02/15/06 3,638 3,623,302 ------------- TOTAL ASSET BACKED SECURITIES (Cost $112,428,698) 111,286,979 ------------- TAXABLE MUNICIPAL BONDS -- 1.4% New Jersey Economic Development Authority State Pension Funding Zero Coupon Revenue Bond, Series 97, Class B 6.98%*** 02/15/02 1,527 1,297,950 Stanislaus County, California Taxable Pension Obligation Refunding Revenue Bond, Series 95 7.15% 08/15/13 4,645 4,546,294 ------------- TOTAL TAXABLE MUNICIPAL BONDS (Cost $5,953,564) 5,844,244 ------------- SHORT TERM INVESTMENTS -- 5.5% Federal Home Loan Bank Discount Notes 5.17% 10/01/99 15,350 15,350,000 Galileo Money Market Fund 8,004,082 8,004,082 ------------- TOTAL SHORT TERM INVESTMENTS (Cost $23,354,082) 23,354,082 ------------- See accompanying notes to financial statements. 19 BLACKROCK FUNDS STATEMENT OF NET ASSETS INTERMEDIATE GOVERNMENT BOND PORTFOLIO (CONCLUDED) AS OF SEPTEMBER 30, 1999 Value ------------- TOTAL INVESTMENTS IN SECURITIES (Cost $433,621,776*) 100.4% $ 425,617,952 LIABILITIES IN EXCESS OF OTHER ASSETS (0.4%) (1,498,262) ---------- ------------- NET ASSETS (Applicable to 39,317,708 Institutional shares, 2,697,887 Service shares, 731,775 Investor A shares, 81,751 Investor B shares and 47,327 Investor C shares outstanding) 100.0% $ 424,119,690 ========== ============= NET ASSET VALUE AND REDEMPTION PRICE PER INSTITUTIONAL, SERVICE AND INVESTOR A SHARE ($422,842,885/42,747,370) $ 9.89 ============= OFFERING PRICE PER INSTITUTIONAL AND SERVICE SHARE $ 9.89 ============= MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($9.89/0.960) $ 10.30 ============= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE (SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 4.5%) PER INVESTOR B SHARE ($808,654/81,751) $ 9.89 ============= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE (SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 1.0%) PER INVESTOR C SHARE ($468,151/47,327) $ 9.89 ============= _______________________ * Also cost for Federal income tax purposes. The gross unrealized appreciation (depreciation) on a tax basis is as follows: Gross unrealized appreciation $ 394,370 Gross unrealized depreciation (8,398,194) ----------- $(8,003,824) =========== ** Rates shown are the rates as of September 30, 1999. *** Rates shown are the effective yields as of September 30, 1999. ++ Principal amount of securities pledged as collateral of $2,570,124 on 37 short U.S. Treasury Bonds futures contracts, 30 long U.S. Treasury Notes futures contracts and 168 short U.S. Treasury Notes futures contracts expiring December 1999. The value of such contracts on September 30, 1999 was $25,742,188, thereby resulting in an unrealized gain of $21,282. See accompanying notes to financial statements. 20 BLACKROCK FUNDS STATEMENT OF NET ASSETS INTERMEDIATE BOND PORTFOLIO Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ------- ----------- U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 18.2% Small Business Administration Participation Certificates, Series 92-20H, Class 1 7.40% 08/01/12 $ 3,186 $ 3,206,678 Small Business Administration Participation Certificates, Series 96-20H, Class 1 7.25% 08/01/16 5,526 5,520,728 Small Business Investment Cos. Pass-Through, Series 96-P10A, Class 1 6.67% 02/10/06 3,034 3,001,494 Small Business Investment Cos. Pass-Through, Series 97-P10D, Class 1 6.51% 11/01/07 1,000 967,771 U.S. Treasury Bonds 8.75%+ 11/15/08 21,380 23,398,988 12.75%+ 11/15/10 11,625 15,453,390 14.00% 11/15/11 2,420 3,486,203 5.25% 02/15/29 660 577,250 U.S. TREASURY NOTES 5.50%+ 07/31/01 5,350 5,338,518 5.63% 12/31/02 2,460 2,451,482 5.88% 11/15/05 950 944,872 6.50%+ 10/15/06 34,300 35,094,141 ----------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $100,305,664) 99,441,515 ----------- MORTGAGE PASS-THROUGHS -- 16.0% Federal Home Loan Mortgage Corp. 5.81%** 07/01/01 9,498 9,391,001 9.50% 01/01/05 126 133,384 9.00% 01/05-12/16 75 78,223 8.50% 07/01/06 13 13,653 7.25% 12/01/06 391 389,062 6.50% 04/01/08 3,879 3,824,530 8.00%+ 07/08-09/18 5,013 5,154,088 6.45% 04/29/09 5,000 4,773,196 Federal Home Loan Mortgage Corp. Gold 7.00% 09/01/11 6,236 6,241,798 Federal National Mortgage Association 6.20%+ 02/26/01 5,182 5,164,146 6.00%+ 01/04-07/14 3,781 3,669,247 9.50% 03/01/05 7 7,796 8.00%+ 03/01/08 2,299 2,319,585 6.04% 02/25/09 5,600 5,226,473 7.50%+ 05/01/09 1,748 1,754,052 8.50% 08/01/09 5,514 5,645,199 7.27% 01/25/11 3,250 3,280,235 7.00% 05/01/11 7,768 7,765,258 5.50%+ 12/13-06/14 7,292 6,866,160 Federal National Mortgage Association 10 Year Balloon 6.00% 02/01/04 2,678 2,611,500 Government National Mortgage Association 7.25%+ 04/15/06 1,183 1,175,071 8.25%+ 08/08-11/08 5,907 6,095,563 9.50% 05/16-11/16 189 202,692 8.50% 02/17-03/17 1,608 1,674,442 6.50% 10/23-12/23 4,473 4,278,878 ----------- TOTAL MORTGAGE PASS-THROUGHS (Cost $88,764,547) 87,735,232 ----------- Par Maturity (000) Value -------- ------- ----------- MULTIPLE CLASS MORTGAGE PASS-THROUGHS -- 3.7% Amresco Securitized Net Interest Margin Trust, Series 96-1, Class A 8.10% 04/26/26 $ 1,004 $ 953,397 Federal Home Loan Mortgage Corp., Series 96T-2, Class A 7.00%+ 01/25/21 3,472 3,428,928 Federal National Mortgage Association Grantor Trust, Series 96-T6, Class A 6.33%+ 10/25/00 2,838 2,830,602 Federal National Mortgage Association Strip Notes, Series 279, Class 1 (PO) 6.92%*** 07/01/26 386 309,094 Federal National Mortgage Association, Series 89-16, Class B (PO) 8.79%*** 03/25/19 1,123 825,205 General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 97-C1, Class X (IO) 7.84%*** 07/15/27 27,177 2,107,102 General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 97-C2, Class A3 6.57% 11/15/07 4,325 4,152,901 MLCC Mortgage Investors, Inc., Series 95-C1, Class C 7.58%** 05/25/15 2,022 2,001,568 Residential Asset Securitization Trust, Series 98-A1, Class A1 7.00% 03/25/28 2,617 2,615,022 Residential Asset Securitization Trust, Series 98-A2, Class A1 6.75% 04/25/28 1,245 1,242,176 ----------- TOTAL MULTIPLE CLASS MORTGAGE PASS-THROUGHS (Cost $21,061,144) 20,465,995 ----------- COMMERCIAL MORTGAGE BACKED SECURITIES -- 13.3% Asset Securitization Corp., Series 97-D5, Class A1A 6.50% 02/14/41 6,163 6,123,543 Atherton Franchisee Loan Funding, Series 98-A, Class A2 6.72% 08/15/10 6,000 5,676,034 Bayview Financial Acquisition Trust, Series 98-1, Class AI 7.01% 05/25/29 3,237 3,198,893 Bayview Financial Acquisition Trust, Series 98-1, Class AII 5.64%** 05/25/29 2,374 2,363,057 Bosque Asset Corp., Series 97-1, Class A1 7.66% 06/05/02 1,005 1,004,348 Chase Commercial Mortgage Securities Corp., Series 97-2, Class A1 6.45% 12/19/04 704 688,633 Commercial Mortgage Asset Trust, Series 99-C1, Class A1 6.25% 08/17/06 487 472,960 Deutsche Mortgage and Asset Receiving Corp., Series 98-C1, Class A1 6.22% 09/15/07 284 277,047 Franchise Loan Trust, Series 98-1, Class A1 6.24% 07/15/04 3,784 3,713,652 See accompanying notes to financial statements. 21 BLACKROCK FUNDS STATEMENT OF NET ASSETS INTERMEDIATE BOND PORTFOLIO (CONTINUED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ------- ----------- COMMERCIAL MORTGAGE BACKED SECURITIES (CONTINUED) General Motors Acceptance Corp., Series 97 7.43% 02/21/21 $ 968 $ 974,357 General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 99-C2, Class A2 6.95% 09/15/33 825 812,722 ICI Funding Corp. Secured Assets Corp., Series 97-1, Class A10 7.75% 03/25/28 3,400 3,432,832 ICI Funding Corp. Small Business Administration Loan-Backed Adjustable Rate Certificates, Series 97-1, Class A 6.00%** 01/15/24 2,538 2,512,135 J.P. Morgan Commercial Mortgage Finance Corp., Series 97, Class D 6.36%** 07/25/29 4,000 3,940,000 Lehman Brothers Commercial Conduit Mortgage Trust, Series 96-C2, Class A 7.43%** 10/25/26 8,160 8,280,529 Master Financial Asset Securitization Trust, Series 98-2, Class A3 6.60% 11/20/18 6,000 5,831,250 Merit Securities Corp., Series 98-11, Class 2A2 5.66%** 11/28/22 5,245 5,241,755 Morgan Stanley Capital International, Inc., Series 97-HF1, Class A1 6.86% 07/15/29 4,393 4,387,917 Morgan Stanley Capital International, Inc., Series 98-CF1, Class A1 6.33% 10/15/07 2,359 2,288,676 NYC Mortgage Loan Trust, Series 96, Class A1 6.75% 06/25/06 3,923 3,919,320 Republic Bank Home Loan Owner Trust, Series 98-1, Class A1 6.61% 04/25/07 588 585,904 Salomon Brothers Mortgage Securities VII, Series 96-6B, Class A1 5.73%** 06/30/26 7 7,285 Structured Asset Securities Corp., Series 98-C2A, Class B 5.70%** 01/25/13 3,410 3,409,093 Union Planters Mortgage Finance Corp., Series 98-1, Class A1 6.35% 01/25/28 3,358 3,374,608 ----------- TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $73,735,926) 72,516,550 ----------- PROJECT LOANS -- 4.0% FEDERAL HOUSING AUTHORITY, MERRILL LYNCH, SERIES 97-23 7.43% 12/01/21 17,123 17,242,401 Federal Housing Authority, USGI, Series 56 7.46% 01/01/23 4,787 4,822,270 ----------- TOTAL PROJECT LOANS (Cost $22,267,002) 22,064,671 ----------- Par Maturity (000) Value -------- ------- ----------- ASSET BACKED SECURITIES -- 26.1% ACLC Business Loan Receivables Trust, Series 98-1, Class A1 6.44% 09/15/19 $ 3,171 $ 3,088,135 Associates Manufactured Housing Pass- Through, Series 96-1, Class B1 8.00% 03/15/27 4,200 4,007,062 Barnett Auto Trust, Series 97-A, Class A3 6.03% 11/15/01 1,046 1,062,390 Boston Edison Co., Series 99-1, Class A4 6.91% 09/15/09 5,500 5,445,918 Chevy Chase Auto Receivables Trust, Series 97-1, Class A 6.50% 10/15/03 3,794 3,745,806 Chevy Chase Auto Receivables Trust, Series 97-3, Class A 6.20% 03/20/04 2,017 2,030,676 Citibank Credit Card Master Trust I, Series 97-6, Class A (IO) 7.05%*** 08/15/06 10,450 7,466,287 Citibank Credit Card Master Trust I, Series 99-2, Class A 5.88% 03/10/11 3,025 2,796,707 Dayton Hudson Credit Card Master Trust, Series 97-1, Class A 6.25% 08/25/05 4,000 3,910,974 DVI Receivables Corp., Series 98-1, Class A2 6.04% 04/10/06 4,386 4,405,608 FMAC Loan Receivables Trust, Series 97-C, Class A 6.75% 12/15/19 6,817 6,613,575 FMAC Loan Receivables Trust, Series 98-CA, Class A1 5.99% 11/15/04 3,572 3,476,258 Green Tree Financial Corp., Series 94-B, Class A 7.85% 07/15/04 2,444 2,393,729 Green Tree Financial Corp., Series 96-7, Class A6 7.65% 10/15/27 3,300 3,346,922 Green Tree Financial Corp., Series 96-9, Class B1 7.65% 01/15/28 4,000 3,740,613 Green Tree Financial Corp., Series 98-1, Class D 6.35%** 06/15/29 5,800 5,655,586 Green Tree Recreational Equipment & Consumer Trust, Series 97-C, Class A1 6.49% 02/15/18 5,632 5,603,236 Health Care Receivables Securitization Program Notes, NPF VI, Series 98-1, Class A 6.22% 06/01/02 4,400 4,337,774 Honda Auto Lease Trust, Series 99-A, Class A4 6.45% 09/16/02 5,050 5,058,680 MBNA Master Credit Card Trust, Series 99-B, Class A 5.90% 08/15/11 4,400 4,137,166 Mellon Bank Home Equity Loan Trust, Series 96-1, Class B2 5.69%** 04/15/26 871 870,824 National Premier Financial, Series 97-1, Class A 6.82% 07/01/01 3,000 3,008,906 See accompanying notes to financial statements. 22 BLACKROCK FUNDS STATEMENT OF NET ASSETS INTERMEDIATE BOND PORTFOLIO (CONTINUED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ------- ----------- ASSET BACKED SECURITIES (CONTINUED) PBG Equipment Trust, Series 1A, Class A 6.27% 01/20/12 $ 8,068 $ 7,885,675 PMC Capital Limited Partnership, Series 98-1, Class A 6.75%** 04/01/21 2,413 2,413,316 PMC Capital Small Business Administration Loan-Backed Adjustable Rate Certificates, Series 97-1, Class A 6.35%** 09/15/23 4,598 4,551,753 Puget Power Conservation Grantor Trust, Series 97-1, Class A 6.23% 07/11/02 2,536 2,526,802 Sears Credit Account Master Trust, Series 95-5, Class A 6.05% 01/15/08 5,000 4,926,103 Sears Credit Account Master Trust, Series 97-1, Class A 6.20% 07/16/07 6,055 6,015,733 Standard Credit Card Master Trust, Series 94-4, Class A 8.25% 11/07/03 1,650 1,718,756 SWB Loan Backed Certificates, Series 99-1, Class A 7.38% 05/15/25 2,655 2,628,729 The Money Store Home Equity Trust, Series 95-A, Class A8 8.13% 06/15/15 2,435 2,467,513 The Money Store Small Business Administration Loan Trust, Series 99-1, Class A 5.52%** 07/15/25 3,967 3,933,590 Travelers Bank Credit Card Master Trust, Series 98-1, Class A 6.00% 01/18/05 5,800 5,720,308 Union Acceptance Corp., Series 96-A, Class A 5.40% 04/07/03 1,770 1,757,167 USAA Auto Loan Grantor Trust, Series 99-1, Class A 6.10% 02/15/06 10,075 10,033,759 ----------- TOTAL ASSET BACKED SECURITIES (Cost $144,789,580) 142,782,036 ----------- CORPORATE BONDS -- 35.1% AUTOMOTIVE -- 1.0% DAIMLERCHRYSLER HOLDINGS N.A. 6.90% 09/01/04 5,620 5,648,100 ----------- FINANCE -- 18.5% American General Financial Corp. 8.13% 08/15/09 2,250 2,379,375 Associates Corp. 5.75% 11/01/03 3,430 3,297,259 Bear Stearns Capital Trust Investments 7.00% 01/15/27 5,100 5,025,094 Chrysler Financial Co. 5.25% 10/22/01 4,130 4,031,086 Citicorp 6.38% 11/15/08 1,710 1,618,087 Crestar Financial Corp. 8.25% 07/15/02 3,200 3,328,000 Crown Cork & Seal, S.A. 6.75% 12/15/03 2,000 1,961,234 Den Danske Bank 6.38%** 06/15/08 5,600 5,173,000 Par Maturity (000) Value -------- ------- ----------- CORPORATE BONDS (CONTINUED) FINANCE (CONTINUED) Equitable Life Surplus 6.95% 12/01/05 $ 1,750 $ 1,718,575 ERAC USA Finance Co. 6.95% 03/01/04 1,375 1,353,302 Firstar Corp. 6.50% 07/15/02 2,480 2,467,717 Ford Motor Credit Co. 6.50% 02/28/02 5,850 5,828,062 5.80% 01/12/09 2,810 2,560,612 General Motors Acceptance Corp. 6.85% 06/17/04 400 399,769 5.85% 01/14/09 1,705 1,557,944 Goldman Sachs Group 6.65% 05/15/09 5,485 5,228,975 Household Finance Corp. 7.00% 08/01/03 2,400 2,398,977 J.P. Morgan & Co., Inc. 6.77%** 02/15/12 3,700 3,244,530 KeyBank N.A. 5.80% 04/01/04 2,200 2,105,963 Lehman Brothers Holdings, Inc. 8.75% 05/15/02 3,940 4,084,598 Marsh & McLennan Cos., Inc. 6.63% 06/15/04 6,295 6,216,313 Merrill Lynch & Co., Inc. 6.00% 02/17/09 2,800 2,576,000 Newcourt Credit Group 7.13% 12/17/03 5,035 5,061,786 Popular North America, Inc. 6.88% 06/15/01 4,950 4,933,374 Provident Companies, Inc. 7.41% 03/15/38 3,780 3,264,404 Raytheon Co. 6.30% 03/15/05 4,300 4,122,625 TransAmerica Finance Corp. 7.25% 08/15/02 7,125 7,181,047 TXU Eastern Funding Co. 6.15% 05/15/02 3,810 3,723,051 U.S. Bancorp 6.50% 06/15/04 4,140 4,078,491 ----------- 100,919,250 ----------- INDUSTRIAL -- 9.8% Anixter, Inc. 8.00%++ 09/15/03 4,350 4,133,198 Atlantic Richfield 10.88% 07/15/05 2,960 3,496,500 Coca-Cola Enterprises, Inc. 5.71% 03/18/37 5,000 5,001,550 Cox Enterprises, Inc. 6.63% 06/14/02 2,820 2,794,084 Federated Department Stores 6.13%** 09/01/01 3,230 3,201,738 Litton Industries, Inc. 6.05% 04/15/03 4,100 3,987,250 Monsanto Co. 5.75% 12/01/05 4,125 3,856,875 Nabisco, Inc. 6.70% 06/15/02 4,200 4,152,246 6.85% 06/15/05 300 289,956 Rohm & Haas Co. 6.95% 07/15/04 2,520 2,526,300 Southdown, Inc. 10.00% 03/01/06 2,850 3,097,893 Tyco Intl. Group Corp., S.A. 5.88% 11/01/04 5,865 5,557,088 See accompanying notes to financial statements. 23 BLACKROCK FUNDS STATEMENT OF NET ASSETS INTERMEDIATE BOND PORTFOLIO (CONTINUED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ------- ----------- CORPORATE BONDS (CONTINUED) INDUSTRIAL (CONTINUED) Union Carbide Corp. 6.75% 04/01/03 $ 2,100 $ 2,047,500 United Technologies Corp. 7.00% 09/15/06 4,170 4,173,261 Williams Holdings of Delaware 6.13% 12/01/03 5,650 5,387,282 ----------- 53,702,721 ----------- INSURANCE -- 0.6% Metropolitan Life Insurance Co. 6.30% 11/01/03 3,265 3,167,050 ----------- PIPELINES -- 0.5% El Paso Energy Corp. 6.63% 07/15/01 2,745 2,745,000 ----------- TELECOMMUNICATIONS -- 0.5% Sprint Capital Corp. 6.13% 11/15/08 3,010 2,799,300 ----------- UTILITY -- 1.9% National Rural Utilities 5.00% 10/01/02 4,620 4,428,362 US West Capital Funding, Inc. 6.25% 07/15/05 6,440 6,098,422 ----------- 10,526,784 ----------- WASTE MANAGEMENT -- 0.1% USA Waste Management, Inc. 6.13% 07/15/01 825 793,031 ----------- YANKEE -- 2.1% Nordbanken 5.91%** 10/25/01 4,950 4,846,05 Swedbank 7.50%** 09/29/49 2,200 1,975,38 Yorkshire Power Finance 6.15% 02/25/03 5,100 4,888,60 ----------- 11,710,035 ----------- TOTAL CORPORATE BONDS (Cost $197,365,608) 192,011,271 ----------- TAXABLE MUNICIPAL BONDS -- 2.6% New Jersey Economic Development Authority State Pension Funding Zero Coupon Revenue Bond, Series 97-B 6.94%*** 02/15/05 2,900 1,979,250 New York State Power Authority and General Purpose Revenue Bond, Series 98-B 6.11%** 02/15/11 5,600 5,530,000 Philadelphia Authority Industrial Development Tax Claim Collection Revenue Bond, Series 97-A 6.49% 06/15/04 6,860 6,653,916 ----------- TOTAL TAXABLE MUNICIPAL BONDS (Cost $14,471,744) 14,163,166 ----------- Shares ------- SHORT TERM INVESTMENTS -- 0.0% Galileo Money Market Fund (Cost $119,644) 119,644 119,644 ----------- TOTAL INVESTMENTS IN SECURITIES (Cost $662,880,859*) 119.1% 651,300,080 ----------- Par Maturity (000) Value -------- ------- ----------- REVERSE REPURCHASE AGREEMENTS -- (19.0%) Aubrey Lanston (Agreement dated 09/28/99 to be repurchased at $5,174,827. Collateralized by $4,900,000 U.S. Treasury Notes 6.50% due 10/15/06. The value of the collateral is $5,160,512.) 5.30% 10/05/99 $ 5,170 $(5,171,783) Aubrey Lanston (Agreement dated 09/30/99 to be repurchased at $6,945,333. Collateralized by $6,600,000 U.S. Treasury Notes 6.50% due 10/15/06. The value of the collateral is $6,971,217.) 5.25% 10/07/99 6,938 (6,939,262) Lehman Brothers (Agreement dated 09/27/99 to be repurchased at $5,368,850. Collateralized by $5,350,000 U.S. Treasury Notes 5.50% due 7/31/01. The value of the collateral is $5,388,093.) 5.25% 10/04/99 5,363 (5,366,504) Lehman Brothers (Agreement dated 09/27/99 to be repurchased at $10,162,181. Collateralized by $9,600,000 U.S. Treasury Notes 6.50% due 10/15/06. The value of the collateral is $10,110,391.) 5.25% 10/12/99 10,140 (10,145,915) Lehman Brothers (Agreement dated 09/29/99 to be repurchased at $45,144,381. Collateralized by $21,380,000 U.S. Treasury Bonds 8.75% due 11/15/08 and $18,140,000 U.S. Treasury Notes 6.50-12.75% due 10/15/06 to 11/15/10. The value of the collateral is $45,188,364.) 5.29% 10/13/99 45,052 (45,064,940) Lehman Brothers (Agreement dated 09/17/99 to be repurchased at $5,452,529. Collateralized by $5,908,973 Federal National Mortgage Association 5.50% due 06/01/14. The value of the collateral is $5,590,750.) 5.38% 10/19/99 5,429 (5,437,925) Morgan Stanley (Agreement dated 08/23/99 to be repurchased at $6,510,052. Collateralized by $6,803,258 Federal National Mortgage Association 6.20-6.33% due 10/25/00 to 02/26/01. The value of the collateral is $6,763,163.) 5.49% 10/21/99 6,452 (6,490,373) See accompanying notes to financial statements. 24 BLACKROCK FUNDS STATEMENT OF NET ASSETS INTERMEDIATE BOND PORTFOLIO (CONCLUDED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ------- ------------ REVERSE REPURCHASE AGREEMENTS (CONTINUED) Morgan Stanley (Agreement dated 09/29/99 to be repurchased at $6,886,718. Collateralized by $6,946,344 Government National Mortgage Association 7.25-8.25% due 04/15/06 to 11/15/08. The value of the collateral is $7,318,394.) 5.38% 10/28/99 $ 6,857 $ (6,859,049) Salomon Brothers (Agreement dated 07/7/99 to be repurchased at $1,129,411. Collateralized by $1,177,156 Federal National Mortgage Association 6.00% due 02/01/04. The value of the collateral is $1,153,980.) 5.17% 10/05/99 1,115 (1,128,771) Salomon Brothers (Agreement dated 09/15/99 to be repurchased at $9,090,080. Collateralized by $3,866,990 Federal Home Loan Mortgage Corp. 8.00% due 07/01/08 to 09/01/18 and $5,680,642 Federal National Mortgage Association 6.00-7.50% due 01/01/04 to 05/01/09. The value of the collateral is $10,257,230.) 5.36% 10/14/99 9,051 (9,072,561) Salomon Brothers (Agreement dated 07/21/99 to be repurchased at $2,428,401. Collateralized by $610,294 Federal Home Loan Mortgage Corp. 7.00% due 01/25/21 and $2,299,464 Federal National Mortgage Association 8.00% due 03/01/08. The value of the collateral is $2,941,115.) 5.24% 10/19/99 2,397 (2,422,121) ------------- TOTAL REVERSE REPURCHASE AGREEMENTS (Cost $103,963,825) (104,099,204) LIABILITIES IN EXCESS OF OTHER ASSETS (0.1%) (537,965) ------- ------------ NET ASSETS (Applicable to 4,647,402 BlackRock shares, 52,309,786 Institutional shares, 2,668,946 Service shares, 262,157 Investor A shares, 110,931 Investor B shares and 46,134 Investor C shares outstanding) 100.0% $546,662,911 ======= ============ Value ----------- NET ASSET VALUE AND REDEMPTION PRICE PER BLACKROCK, INSTITUTIONAL, SERVICE AND INVESTOR A SHARE ($545,232,962 / 59,888,291) $9.10 ===== OFFERING PRICE PER BLACKROCK, INSTITUTIONAL AND SERVICE SHARE $9.10 ===== MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($9.10 / 0.960) $9.48 ===== NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 4.5%) PER INVESTOR B SHARE ($1,009,934 / 110,931) $9.10 ===== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE (subject to a contingent deferred sales charge of 1.0%) PER INVESTOR C SHARE ($420,015 / 46,134) $9.10 ===== - ------------------------- * Cost for Federal income tax purposes is $664,080,781. The gross unrealized appreciation (depreciation) on a tax basis is as follows: Gross unrealized appreciation $ 666,938 Gross unrealized depreciation (13,447,639) ------------ $(12,780,701) ============ ** Rates shown are the rates as of September 30, 1999. ***Rates shown are the effective yields as of September 30, 1999. + Partial principal in the amount of $98,754,060 has been pledged as collateral for reverse repurchase agreements. ++Principal amount of securities pledged as collateral of $600,000 on 29 long U.S. Treasury Notes futures contracts, 315 short U.S. Treasury Notes futures contracts and 29 short U.S. Treasury Bonds futures contracts expiring December 1999. The value of such contracts on September 30, 1999 was $40,665,469, thereby resulting in an unrealized gain of $23,389. See accompanying notes to financial statements. 25 BLACKROCK FUNDS SCHEDULE OF INVESTMENTS CORE BOND PORTFOLIO Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ---------- -------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 24.0% Overseas Private Investment Co. 5.46%** 02/15/06 $ 303 $ 276,776 5.79%** 02/15/06 273 254,794 6.27%** 12/06-05/12 2,666 2,540,892 5.92%** 12/16/06 2,041 1,961,939 6.38%** 12/16/06 1,887 1,833,761 6.46%** 12/16/06 203 198,373 6.53%** 12/16/06 492 480,602 6.66%** 12/16/06 750 750,938 6.87% 12/16/06 970 941,649 5.88%** 05/29/12 360 340,573 6.81%** 05/29/12 386 386,341 6.84%** 05/29/12 498 491,396 6.91%** 05/29/12 1,020 982,526 Small Business Administration Participation Certificates, Series 92-20H, Class 1 7.40% 08/01/12 191 192,401 Small Business Administration Participation Certificates, Series 96-20J, Class 1 7.20% 10/01/16 1,224 1,220,540 Small Business Administration Participation Certificates, Series 97-20B, Class 1 7.10% 02/01/17 2,318 2,299,651 Small Business Investment Cos. Pass-Through, Series 97-P10C, Class 1 6.85% 08/01/07 5,303 5,244,441 Small Business Investment Cos. Pass-Through, Series 97-P10D, Class 1 6.51% 11/10/07 1,400 1,354,879 Small Business Investment Cos. Pass-Through, Series 98-10A, Class 1 6.12% 02/01/08 875 829,372 Student Loan Marketing Association, Series 97-3, Class A2 5.50%** 10/25/10 3,500 3,410,312 U.S. Treasury Bonds 5.50% 03/31/03 4,245 4,206,517 8.75% 11/15/08 30,615 33,506,082 12.75% 11/15/10 13,400 17,812,940 14.00% 11/15/11 750 1,080,435 7.50% 11/15/16 19,175 21,241,689 8.50% 02/15/20 10,110 12,427,093 5.25% 02/15/29 4,745 4,150,077 U.S. Treasury Bonds (CPI) 3.63%+ 04/15/28 21,010 20,028,161 U.S. Treasury Notes 5.50% 08/31/01 6,950 6,934,684 5.63% 12/31/02 11,945 11,903,637 6.00% 08/04-08/09 27,547 27,776,884 6.50% 10/15/06 52,525 53,741,101 U.S. Treasury Notes (CPI) 3.63% 01/15/08 7,400 7,389,128 3.88% 04/15/29 8,150 7,987,218 U.S. Treasury Strip Principals 6.38% 02/15/11 3,865 1,881,807 -------------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $261,822,666) 258,059,609 -------------- Par Maturity (000) Value -------- ---------- -------------- MORTGAGE PASS-THROUGHS -- 31.8% Federal Home Loan Mortgage Corp. Gold 7.50% 09/05-06/27 $ 2,794 $ 2,823,625 6.00%+ 02/12-07/14 19,218 18,509,611 5.50%+ 12/13-01/14 25,707 24,229,222 8.00% 11/01/15 77 78,784 7.00% 03/01/25 543 534,471 6.50% 11/28-07/29 57,268 54,976,947 Federal National Mortgage Association 6.10% 02/04/09 8,400 7,864,668 6.36% 04/09/09 3,700 3,510,930 6.50%+ 04/09-07/29 33,907 33,049,780 8.00% 10/09-05/22 102 103,714 5.50%+ 06/11-05/24 79,680 75,023,948 7.00%** 09/11-10/25 13,273 13,189,381 6.00% 03/13-05/29 40,655 38,514,901 7.50% 06/29-09/29 20,998 21,070,091 Government National Mortgage Association 8.50% 01/10-04/17 185 192,665 7.00% 12/22-09/28 6,624 6,504,248 6.50% 12/23-08/24 11,978 11,458,154 9.00% 10/15/24 469 467,879 7.50% 05/27-09/29 16,188 16,238,951 9.17% 03/15/37 3,032 3,260,665 7.70% 11/15/38 927 934,097 MLCC Mortgage Investors, Inc., Series 95-C3, Class A1 6.75%** 12/26/25 1,025 1,019,442 MLCC Mortgage Investors, Inc., Series 96-C1, Class A3 7.42% 04/25/28 3,000 3,012,016 Morgan Stanley Capital, Series 99-FNV1, Class A2 6.53% 03/15/31 5,940 5,676,354 -------------- TOTAL MORTGAGE PASS-THROUGHS (Cost $349,817,080) 342,244,544 -------------- MULTIPLE CLASS MORTGAGE PASS-THROUGHS -- 2.9% Amresco Securitized Net Interest Margin Trust, Series 96-1, Class A 8.10% 04/26/26 627 595,864 Chase Commercial Mortgage Securities Corp., Series 97-1, Class X (IO) 8.51%*** 04/19/15 42,570 2,908,143 Credit Suisse First Boston Mortgage Corp., Series 97-C1, Class AX (IO) 8.60%*** 04/20/22 61,842 5,321,274 Federal Home Loan Mortgage Corp., Series 65, Class A (PO) 4.09%*** 03/15/24 955 428,278 Federal National Mortgage Association Strip Notes, Series 279, Class 1 (PO) 6.99%*** 07/01/26 242 193,817 Federal National Mortgage Association, Series 96-3, Class C (PO) 5.00%*** 02/25/24 996 567,464 Federal National Mortgage Association, Series 96-54, Class A (PO) 7.57%*** 04/25/21 953 827,696 Federal National Mortgage Association, Series 97-44, Class L (PO) 4.35%*** 02/25/24 990 534,600 See accompanying notes to financial statements. 26 BLACKROCK FUNDS SCHEDULE OF INVESTMENTS CORE BOND PORTFOLIO (CONTINUED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ---------- -------------- MULTIPLE CLASS MORTGAGE PASS-THROUGHS (CONTINUED) Federal National Mortgage Association, Series 99-17, Class HJ (PO) 4.00%*** 12/25/23 $ 695 $ 297,547 Federal National Mortgage Association, Series 99-17, Class JH (PO) 5.00%*** 04/25/24 865 393,034 Federal National Mortgage Association, Series 99-51, Class L (PO) 5.60%*** 10/25/29 700 357,000 First Union-Lehman Brothers Commercial Mortgage 1, Series 97-C1, Class A3 7.38% 04/18/29 4,700 4,752,880 General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 97-C1, Class X (IO) 7.84%*** 07/15/27 45,812 3,551,867 J.P. Morgan Commercial Mortgage Finance Corp., Series 97-C5, Class A2 7.07% 09/15/29 5,100 5,101,545 Residential Accredit Loans, Inc., Series 97-QS7, Class A1 7.50% 07/25/27 954 952,828 Salomon Brothers Mortgage Securities VI, Series 87-1 (IO) 6.00%*** 02/17/17 1,779 465,774 Salomon Brothers Mortgage Securities VI, Series 87-1 (PO) 6.00%*** 02/17/17 1,816 1,423,615 Salomon Brothers Mortgage Securities VI, Series 87-2 (IO) 6.00%*** 03/06/17 1,110 302,033 Salomon Brothers Mortgage Securities VI, Series 87-2 (PO) 6.00%*** 03/06/17 1,104 863,880 Salomon Brothers Mortgage Securities, Series 87-3, Class A (PO) 5.00%*** 10/23/17 495 405,876 Salomon Brothers Mortgage Securities, Series 87-3, Class B (IO) 5.00%*** 10/23/17 383 94,811 Structured Asset Securities Corp., Series 96-CFL, Class X1 (IO) 5.05%*** 02/25/28 19,700 1,022,020 -------------- TOTAL MULTIPLE CLASS MORTGAGE PASS-THROUGHS (Cost $33,553,460) 31,361,846 -------------- COMMERCIAL MORTGAGE BACKED SECURITIES -- 3.4% Capco America Securitization Corp., Series 98-D7, Class A1B 6.26% 09/15/08 2,700 2,524,469 COMM, Series 99-1, Class A2 6.46% 09/15/08 2,285 2,175,963 Credit Suisse First Boston Mortgage Securities Corp., Series 97-C2, Class AX (IO) 8.32%*** 11/17/22 19,442 1,232,036 Donaldson, Lufkin and Jenrette, Inc. Mortgage Acceptance Corp., Series 97-CF1, Class A 7.60% 04/15/07 2,000 2,029,686 Par Maturity (000) Value -------- ---------- -------------- COMMERCIAL MORTGAGE BACKED SECURITIES (CONTINUED) Empire Funding Home Loan Owner Trust, Series 98-2, Class A4 6.53% 03/25/19 $ 7,000 $ 6,868,750 First Boston Mortgage Securities Corp., Series 93-M1, Class A 6.75% 09/25/06 114 112,289 General Electric Capital Mortgage Services, Series 97-HE1, Class A4 7.78% 03/25/27 1,666 1,676,396 General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 99-C2, Class A2 6.95% 09/15/33 1,605 1,581,113 Goldman Sachs Mortgage Securities Corp. II, Series 96-PL, Class A2 7.41% 02/15/27 2,891 2,906,661 J.P. Morgan Commercial Mortgage Finance Corp., Series 96-C3, Class A1 7.33% 04/25/28 1,437 1,446,208 Lehman Brothers Commercial Conduit Mortgage Trust, Series 98-C4, Class X (IO) 1.00%*** 09/15/23 17,860 648,516 Mid-State Trust, Series 1, Class A1 7.34% 07/01/35 2,372 2,306,783 Mid-State Trust, Series 6, Class A4 7.79% 07/01/35 909 824,966 Midland Royalty Acceptance Corp., Series 96-C2, Class A2 7.23% 01/25/29 4,050 4,023,413 PNC Mortgage Securities Corp., Series 97-6, Class A1 6.49% 10/25/26 5,897 5,893,050 -------------- TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $36,851,897) 36,250,299 -------------- PROJECT LOANS -- 1.5% Avon on the Green, Construction Loan Collateral 7.75% 05/01/39 729 736,646 Desert Mirage Apartments, Construction Loan Collateral 7.25% 11/25/37 915 901,067 Desert Mirage Apartments, Construction Loan Committment 7.25% 06/01/01 85 83,988 Evergreen Tower II, Construction Loan Collateral 7.38% 09/01/39 916 901,121 Evergreen Tower II, Construction Loan Committment 7.38% 03/01/00 59 58,179 Federal Housing Authority, Greens at Viera East Apartments 7.88% 12/01/38 928 940,574 Federal Housing Authority, East Point Chelsea 10.23% 05/01/33 98 105,215 Federal Housing Authority, Merrill Lynch, Series 97-23 7.43% 12/01/21 3,150 3,171,952 See accompanying notes to financial statements. 27 BLACKROCK FUNDS SCHEDULE OF INVESTMENTS CORE BOND PORTFOLIO (CONTINUED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ---------- -------------- PROJECT LOANS (CONTINUED) Federal Housing Authority, University Park Apartments 7.88% 10/01/37 $ 7,654 $ 7,691,416 Greens at Viera East Apartments, Construction Loan Collateral 7.88% 12/01/38 0 281 Pheasant Run Manor, Construction Loan Collateral 6.88% 08/01/41 464 439,049 Pheasant Run Manor, Construction Loan Committment 6.88% 08/01/01 799 755,650 Federal Housing Authority, Sakonnet Bay Manor 7.63% 10/01/38 837 840,975 -------------- TOTAL PROJECT LOANS (Cost $16,899,442) 16,626,113 -------------- ASSET BACKED SECURITIES -- 10.4% Arcadia Automobile Receivables Trust, Series 98-B, Class A3 5.95% 11/15/02 17,500 17,511,900 Associates Manufactured Housing Pass-Through, Series 96-1, Class B1 8.00% 03/15/27 2,815 2,685,686 Boston Edison Co., Series 99-1, Class A5 7.03% 03/15/12 2,300 2,281,152 Chevy Chase Auto Receivables Trust, Series 97-2, Class A 6.35% 01/15/04 2,686 2,702,284 Chevy Chase Auto Receivables Trust, Series 97-3, Class A 6.20% 03/20/04 961 967,354 CIT Group Securitization Corp., Series 95-2, Class B 7.65% 05/15/26 300 250,781 FMAC Loan Receivables Trust, Series 97-B, Class A 6.85% 09/15/19 5,396 5,254,380 Ford Credit Auto Owner Trust, Series 99-C, Class A4 6.08% 09/16/02 6,850 6,822,172 Green Tree Financial Corp., Series 93-3, Class B 6.85% 10/15/18 3,246 3,078,164 Green Tree Financial Corp., Series 94-B, Class A 7.85% 07/15/04 114 111,336 Green Tree Financial Corp., Series 95-A, Class A 7.25% 07/15/05 5,534 5,248,259 Green Tree Financial Corp., Series 96-2, Class B2 7.90% 04/15/27 3,650 2,852,315 Green Tree Financial Corp., Series 97-2, Class B 7.56% 06/15/28 5,000 4,678,390 Green Tree Financial Corp., Series 97-3, Class B2 8.03%++ 07/15/28 2,400 1,858,940 Green Tree Home Improvement Loan Trust, Series 94-D, Class M 9.05% 01/15/15 638 645,302 Health Care Receivables Securitization Program Notes, NPF VI, Series 98-1A, Class A 6.22% 06/01/02 6,800 6,703,833 Par Maturity (000) Value -------- ---------- -------------- ASSET BACKED SECURITIES (CONTINUED) Honda Auto Lease Trust, Series 99-A, Class A4 6.45% 09/16/02 $ 9,050 $ 9,065,555 MBNA Master Credit Card Trust, Series 99-B, Class A 5.90% 08/15/11 2,700 2,538,716 MBNA Master Credit Card Trust, Series 99-J, Class A 7.00% 02/15/12 3,950 3,969,134 Mellon Bank Home Equity Loan Trust, Series 96-1, Class B2 5.69%** 04/15/26 1,294 1,293,796 Pegasus Aviation Lease Securitization, Series 99-1A, Class A1 6.30% 03/25/29 1,942 1,898,785 Puget Power Conservation Grantor Trust, Series 97-1, Class A 6.23% 07/11/02 2,384 2,375,194 Sears Credit Account Master Trust, Series 95-5, Class A 6.05% 01/15/08 10,600 10,443,339 Sears Credit Account Master Trust, Series 97-1, Class A 6.20% 07/16/07 10,500 10,431,908 Sears Credit Account Master Trust, Series 98-1, Class A 5.80% 08/15/05 5,400 5,311,428 The Money Store Home Equity Trust, Series 95-A, Class A8 8.13% 06/15/15 904 916,083 World Omni Automobile Lease Securitization Trust, Series 96-B, Class A3 6.25% 11/15/02 533 533,991 -------------- TOTAL ASSET BACKED SECURITIES (Cost $115,240,782 112,430,177 -------------- CORPORATE BONDS -- 21.1% AEROSPACE -- 0.3% United Technology Corp. 6.50% 06/01/09 3,735 3,606,629 -------------- AIR TRANSPORTATION -- 0.1% Continental Airlines 7.06% 09/15/09 965 929,197 -------------- AUTOMOTIVE -- 0.7% DaimlerChrysler Holdings N.A. 7.20% 09/01/09 7,650 7,688,250 -------------- FINANCE -- 7.1% AT&T Capital Corp. 6.25% 05/15/01 4,000 3,965,000 Chase Manhattan Corp. 5.75% 04/15/04 1,580 1,513,617 CIT Group, Inc. 7.13% 10/15/04 2,160 2,159,578 Dresdner Funding Trust 1 8.15% 06/30/31 3,275 3,070,313 FMR Corp. 7.57% 06/15/29 5,185 5,068,338 Ford Motor Credit Co. 6.70% 07/16/04 3,885 3,865,575 5.80% 01/12/09 6,905 6,292,181 Goldman Sachs Escrow Corp., Series 144A 7.00% 08/01/03 860 834,002 See accompanying notes to financial statements. 28 BLACKROCK FUNDS SCHEDULE OF INVESTMENTS CORE BOND PORTFOLIO (CONTINUED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ---------- -------------- CORPORATE BONDS (CONTINUED) FINANCE (CONTINUED) J.P. Morgan & Co., Inc. 5.54%** 02/15/12 $ 100 $ 87,690 Lehman Brothers Holdings, Inc. 6.75% 09/24/01 5,200 5,179,720 6.20% 01/15/02 6,000 5,894,400 6.63% 04/01/04 2,250 2,187,090 Merrill Lynch & Co., Inc. 5.75% 11/04/02 2,445 2,379,254 6.00% 02/17/09 2,175 2,001,000 MidAmerican Funding LLC 5.85% 03/01/01 4,845 4,800,281 National City Corp. 6.88% 05/15/19 5,000 4,576,248 Newcourt Credit Group 6.88% 02/16/05 465 454,644 Pemex Finance Ltd. 9.14% 08/15/04 2,520 2,524,158 Simon Property Group LP, Inc. 6.63% 06/15/03 4,200 4,041,618 TXU Eastern Funding Co. 6.15% 05/15/02 310 302,925 Wachovia Corp 5.63% 12/15/08 4,910 4,413,157 Yorkshire Power Finance 6.50% 02/25/08 5,435 4,945,850 Zurich Capital Trust International 8.38% 06/01/37 5,925 5,821,313 -------------- 76,377,952 -------------- INDUSTRIAL -- 5.5% Atlantic Richfield 9.13% 03/01/11 4,960 5,784,600 7.00% 04/15/38 2,255 2,241,630 Coca-Cola Enterprises, Inc. 5.71% 03/18/37 7,485 7,487,320 Conoco, Inc. 6.95% 04/15/29 2,145 1,994,850 Corning, Inc. 6.30% 03/01/09 3,000 2,822,730 Cox Enterprises, Inc. 6.63% 06/14/02 2,380 2,358,128 Enron Corp. 6.45% 11/15/01 3,000 2,970,350 Ford Motor Co. 7.45% 07/16/31 8,670 8,555,347 Hyder PLC 7.38% 12/15/28 2,585 2,277,705 Jones Apparel Group, Inc. 6.25% 10/01/01 7,050 6,917,813 Nabisco, Inc. 6.00% 02/15/01 2,445 2,418,749 7.55% 06/15/15 1,660 1,581,897 Tyco Intl. Group SA 6.25% 06/15/03 6,340 6,154,327 Williams Cos., Inc. 6.13% 02/01/01 2,290 2,281,413 Williams Holdings of Delaware 6.13% 12/01/03 3,450 3,289,579 -------------- 59,136,438 -------------- INSURANCE -- 0.8% Equitable Cos., Inc. 9.00% 12/15/04 3,480 3,788,850 7.00% 04/01/28 1,565 1,425,527 Par Maturity (000) Value -------- ---------- -------------- CORPORATE BONDS (CONTINUED) INSURANCE (CONTINUED) Florida Windstorm Underwriting Association 7.13% 02/25/19 $ 3,410 $ 3,187,122 -------------- 8,401,499 -------------- TELECOMMUNICATIONS -- 3.3% AT&T Corp. 6.00% 03/15/09 3,400 3,162,000 6.50% 03/15/29 4,995 4,403,692 Chesapeake & Potomac Telephone of Maryland 8.30% 08/01/31 3,375 3,622,569 CSX Corp. 5.85% 12/01/03 1,460 1,393,716 MCI Worldcom, Inc. 7.75% 04/01/27 3,696 3,866,940 7.13% 06/15/27 1,635 1,653,394 SBC Communications, Inc. 7.38% 06/15/25 4,275 4,061,250 Sprint Capital Corp. 5.70% 11/15/03 2,800 2,677,500 6.13% 11/15/08 2,000 1,860,000 6.38% 05/01/09 5,900 5,561,616 U.S. West Capital Funding, Inc. 6.88% 08/01-07/28 3,890 3,784,313 -------------- 36,046,990 -------------- TRANSPORTATION -- 0.4% Federal Express Corp. 7.11% 01/02/14 3,228 3,013,906 6.72% 01/15/22 1,820 1,718,242 -------------- 4,732,148 -------------- UTILITY -- 1.4% Avon Energy Partners Holdings 7.05% 12/11/07 2,215 2,103,586 6.46% 03/04/08 5,000 4,550,650 Illinois Power Co. 7.50% 06/15/09 1,165 1,165,383 Niagara Mohawk Power Corp. 7.75% 10/01/08 2,765 2,820,300 Reliant Energy, Inc. 6.50% 02/01/08 4,910 4,627,675 -------------- 15,267,594 -------------- WASTE MANAGEMENT -- 0.5% USA Waste Management, Inc. 6.13% 07/15/01 5,350 5,142,688 -------------- YANKEE -- 1.0% Den Norske Stats Oljesel 7.38% 05/01/16 950 918,763 Deutsche Bank Capital Funding Trust Investment 7.87%** 12/29/49 2,240 2,135,011 Empresa Electrica Pehuenche 7.30% 05/01/03 4,985 4,808,307 Swedbank 7.50%** 09/29/49 2,800 2,514,120 -------------- 10,376,201 -------------- TOTAL CORPORATE BONDS (Cost $236,052,118) 227,705,586 -------------- See accompanying notes to financial statements. 29 BLACKROCK FUNDS SCHEDULE OF INVESTMENTS CORE BOND PORTFOLIO (CONCLUDED) Par/Shares AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ---------- -------------- TAXABLE MUNICIPAL BONDS -- 1.4% New Jersey Economic Development Authority State Pension Funding Zero Coupon Revenue Bond, Series 97-B 6.80%*** 02/15/05 $ 200 $ 136,500 7.56%*** 02/15/16 10,100 3,004,750 7.59%*** 02/15/17 3,575 983,125 7.21%*** 02/15/18 5,500 1,402,500 7.62%*** 02/15/20 6,265 1,378,300 7.63%*** 02/21-02/23 7,810 1,494,581 New York State Power Authority and General Purpose Revenue Bond, Series 98D 6.26% 02/15/03 7,100 7,002,375 -------------- TOTAL TAXABLE MUNICIPAL BONDS (Cost $15,602,843) 15,402,131 -------------- SHORT TERM INVESTMENTS -- 3.1% Federal Home Loan Bank Discount Notes 5.17% 10/01/99 9,700 9,700,000 Federal Home Loan Mortgage Corp. Discount Notes 5.20% 10/01/99 16,250 16,250,000 Galileo Money Market Fund 7,080,314 7,080,314 -------------- TOTAL SHORT TERM INVESTMENTS (Cost $33,030,314) 33,030,314 -------------- PREFERRED STOCK -- 0.4% Centaur Funding Corp., Cumulative 144A 9.08% 4,150 4,290,482 -------------- (Cost $4,150,000) TOTAL INVESTMENTS IN SECURITIES -- 100.0% (Cost $1,103,020,602*) $1,077,401,101 ============== - ---------------------- * Cost for Federal income tax purposes is $1,103,416,734. The gross unrealized appreciation (depreciation) on a tax basis is as follows: Gross unrealized appreciation $ 2,014,633 Gross unrealized depreciation (28,030,266 ------------ $(26,015,633) ============ ** Rates shown are the rates as of September 30, 1999. *** Rates shown are the effective yields as of September 30, 1999. +Partial principal in the amount of $97,450,655 has been pledged as collateral for reverse repurchase agreements. ++Principal amount of securities pledged as collateral of $2,400,000 on 173 long U.S. Treasury Notes futures contracts and 202 short U.S. Treasury Bonds futures contracts expiring December 1999. The value of such contracts on September 30, 1999 was $42,067,000, thereby resulting in an unrealized gain of $193,040. See accompanying notes to financial statements. 30 BLACKROCK FUNDS STATEMENT OF ASSETS AND LIABILITIES CORE BOND PORTFOLIO SEPTEMBER 30, 1999 ASSETS Investments at value (Cost $1,103,020,602) ................ $1,077,401,101 Collateral received for securities loaned ................. 37,971,708 Interest receivable ....................................... 12,545,208 Principal receivable ...................................... 114,977 Investments sold receivable ............................... 8,665,241 Capital shares sold receivable ............................ 1,390,994 Prepaid expenses .......................................... 29,667 -------------- TOTAL ASSETS ....................................... 1,138,118,896 -------------- LIABILITIES Payable upon return of securities loaned .................. 37,971,708 Investments purchased payable ............................. 33,584,229 Reverse repurchase agreements payable ..................... 90,270,868 Capital shares redeemed payable ........................... 3,521,558 Distributions payable ..................................... 5,080,433 Advisory fees payable ..................................... 256,169 Administrative fees payable ............................... 71,716 Transfer agent fees payable ............................... 64,611 Other accrued expenses payable ............................ 190,102 Futures margin payable .................................... 108,644 -------------- TOTAL LIABILITIES .................................. 171,120,038 -------------- NET ASSETS (Applicable to 17,266,409 BlackRock shares, 76,524,752 Institutional shares, 7,062,261 Service shares, 727,748 Investor A shares, 1,544,744 Investor B shares and 726,233 Investor C shares outstanding) .............................................. $ 966,998,858 ============== NET ASSET VALUE AND REDEMPTION PRICE PER BLACKROCK, INSTITUTIONAL, SERVICE AND INVESTOR A SHARE ($945,853,555 / 101,581,170) ............. $ 9.31 ============== OFFERING PRICE PER BLACKROCK, INSTITUTIONAL AND SERVICE SHARE ............................................. $ 9.31 ============== MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($9.31 / 0.960) ............................................ $ 9.70 ============== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE (subject to a maximum contingent deferred sales charge of 4.5%) PER INVESTOR B SHARE ($14,383,286 / 1,544,744) ................................. $ 9.31 ============== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE (subject to a maximum contingent deferred sales charge of 1.0%) PER INVESTOR C SHARE ($6,762,017 / 726,233) .................................... $ 9.31 ============== See accompanying notes to financial statements. 31 BLACKROCK FUNDS STATEMENT OF NET ASSETS GOVERNMENT INCOME PORTFOLIO Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ---------- ------------ U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 53.9% Small Business Administration Participation Certificates, Series 96-20J, Class 1 7.20% 10/01/16 $ 405 $ 403,856 Small Business Administration Participation Certificates, Series 98-20J, Class 1 5.50% 10/01/18 236 216,493 U.S. Treasury Bonds 7.50% 11/15/16 1,200 1,329,336 8.50%+ 02/15/20 2,775 3,410,997 U.S. Treasury Notes 5.00% 02/28/01 400 397,080 6.50%+ 08/01-10/06 2,040 2,085,742 6.25% 02/28/02 650 658,358 5.50%+ 05/31/03 15,290 15,139,201 ------------ TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $23,887,364) 23,641,063 ------------ MORTGAGE PASS-THROUGHS -- 83.5% Federal Home Loan Mortgage Corp. 7.00%++ 08/10-03/11 1,050 1,051,461 6.00% 10/11-07/14 4,749 4,574,322 8.00%++ 05/12-11/26 3,379 3,464,434 5.50% 10/13-05/14 2,409 2,270,262 7.50% 11/01/25 40 39,954 6.92% 07/01/27 410 410,140 6.50% 04/01/29 2,991 2,871,460 Federal Home Loan Mortgage Corp. Gold 6.50% 06/01/29 2,486 2,386,429 Federal Home Loan Mortgage Corp. (TBA) 6.50% 06/15/13 2,000 1,961,250 Federal National Mortgage Association 6.14% 09/10/08 300 282,201 7.00% 08/09-12/11 1,405 1,404,468 8.50% 01/01/13 806 833,877 6.50% 01/13-07/29 1,302 1,263,199 8.00% 11/13-08/14 668 681,890 5.50% 12/13-01/14 900 847,128 6.00% 05/14-01/29 3,746 3,522,332 7.50% 06/24-04/26 763 765,692 Government National Mortgage Association 6.00% 01/14-06/14 989 950,065 6.50% 11/23-06/29 4,333 4,145,825 7.00% 10/27-06/28 2,380 2,337,346 7.50% 04/27-11/27 612 614,707 ------------ TOTAL MORTGAGE PASS-THROUGHS (Cost $37,335,024) 36,678,442 ------------ MULTIPLE CLASS MORTGAGE PASS-THROUGHS -- 1.7% Federal National Mortgage Association, Series 96-54, Class A (PO) 5.85%*** 04/25/21 228 197,772 Residential Accredit Loans, Inc., Series 98-D7, Class CB6 6.75% 05/25/28 215 212,844 Salomon Brothers Mortgage Securities VI, Series 87-1 (IO) 6.00%*** 02/17/17 306 80,033 Par Maturity (000) Value -------- ---------- ------------ MULTIPLE CLASS MORTGAGE PASS-THROUGHS (CONTINUED) Salomon Brothers Mortgage Securities VI, Series 87-1 (PO) 6.00%*** 02/17/17 $ 306 $ 239,620 ------------ TOTAL MULTIPLE CLASS MORTGAGE PASS-THROUGHS (Cost $735,563) 730,269 ------------ COMMERCIAL MORTGAGE BACKED SECURITIES -- 2.5% Capco America Securitization Corp., Series 98-D7, Class A1B 6.26% 09/15/08 70 65,449 Commercial Mortgage Asset Trust, Series 99-C1, Class A1 6.25% 08/17/06 292 283,776 Goldman Sachs Mortgage Securities Corp., Series 98-1, Class A 8.00% 09/20/27 198 202,174 Goldman Sachs Mortgage Securities Corp., Series 98-2, Class A 7.75% 05/19/27 206 208,873 Morgan Stanley Capital International, Inc., Series 98-CF1, Class A1 6.33% 10/15/07 116 112,190 Union Planters Mortgage Finance Corp., Series 98-1, Class A1 6.35% 01/25/28 243 244,537 ------------ TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $1,137,227) 1,116,999 ------------ PROJECT LOANS -- 2.3% Federal Housing Authority, Excelsior II Apartments 8.04% 02/01/39 699 721,777 Federal Housing Authority, INSD Project, Series 82 7.43% 09/01/22 282 283,995 ------------ TOTAL PROJECT LOANS (Cost $992,209) 1,005,772 ------------ ASSET BACKED SECURITIES -- 0.7% Chase Manhattan Grantor Trust, Series 96-B, Class A 6.61% 09/15/02 37 36,735 The Money Store Small Business Administration Loan Trust, Series 99-1, Class A 5.52%** 07/15/25 290 287,824 ------------ TOTAL ASSET BACKED SECURITIES (Cost $326,790) 324,559 ------------ Shares ---------- SHORT TERM INVESTMENTS -- 0.1% Galileo Money Market Fund (Cost $31,624) 31,624 31,624 ------------ TOTAL INVESTMENTS IN SECURITIES (Cost $64,445,801*) 144.7% 63,528,728 See accompanying notes to financial statements. 32 BLACKROCK FUNDS STATEMENT OF NET ASSETS GOVERNMENT INCOME PORTFOLIO (CONCLUDED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ---------- ------------ REVERSE REPURCHASE AGREEMENTS -- (42.8%) Aubrey Lanston (Agreement dated 09/30/99 to be repurchased at $263,081. Collateralized by $250,000 U.S. Treasury Notes 6.50% due 10/15/06. The value of the collateral is $264,099.) 5.25% 10/07/99 $ 263 $ (262,851) Lehman Brothers (Agreement dated 09/29/99 to be repurchased at $14,587,631. Collateralized by $14,500,000 U.S. Treasury Notes 5.50% due 05/31/03. The value of the collateral is $14,625,185.) 5.34% 10/06/99 14,573 (14,576,823) Lehman Brothers (Agreement dated 09/27/99 to be repurchased at $529,280. Collateralized by $500,000 U.S. Treasury Notes 6.50% due 10/15/06. The value of the collateral is $528,198.) 5.25% 10/12/99 528 (528,433) Lehman Brothers (Agreement dated 09/29/99 to be repurchased at $3,430,700. Collateralized by $2,775,000 U.S. Treasury Bonds 8.50% due 02/15/20. The value of the collateral is $3,441,122.) 5.29% 10/13/99 3,424 (3,424,662) ----------- TOTAL REVERSE REPURCHASE AGREEMENTS (Cost $18,787,094) (18,792,769) LIABILITIES IN EXCESS OF OTHER ASSETS (1.9%) (836,968) -------- ----------- NET ASSETS (Applicable to 676,578 Investor A shares, 3,502,628 Investor B shares and 245,394 Investor C shares outstanding) 100.0% $ 43,898,991 ======== ============ Value ------------ NET ASSET VALUE AND REDEMPTION PRICE PER INVESTOR A SHARE ($6,712,667 / 676,578) $ 9.92 ====== MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($9.92 / 0.955) $10.39 ====== NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 4.5%) PER INVESTOR B SHARE ($34,751,627 / 3,502,628) $ 9.92 ====== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE (SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 1.0%) PER INVESTOR C SHARE ($2,434,697 / 245,394) $ 9.92 ====== - ------------------------- * Cost for Federal income tax purposes is $64,780,030. The gross unrealized appreciation (depreciation) on a tax basis is as follows: Gross unrealized appreciation $ 110,308 Gross unrealized depreciation (1,361,610) ----------- $(1,251,302) =========== ** Rates shown are the rates as of September 30, 1999. ***Rates shown are the effective yields as of September 30, 1999. +Partial principal in the amount of $18,025,000 has been pledged as collateral for reverse repurchase agreements. ++Principal amount of securities pledged as collateral of $672,284 on 61 short U.S. Treasury Notes futures contracts expiring December 1999. The value of such contracts on September 30, 1999 was $6,643,094, thereby resulting in an unrealized gain of $2,952. See accompanying notes to financial statements. 33 BLACKROCK FUNDS STATEMENT OF NET ASSETS GNMA PORTFOLIO Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- -------- ----------- U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 14.9% U.S. Treasury Bonds 8.50% + 02/15/20 $ 1,600 $ 1,966,701 U.S. Treasury Notes 6.00% 08/15/00 4,020 4,041,341 5.50% + 05/03-05/09 10,460 10,125,775 4.75% 02/15/04 500 480,000 ------------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $16,619,008) 16,613,817 ------------- MORTGAGE PASS-THROUGHS -- 87.2% Federal Home Loan Mortgage Corp. 6.00% 04/11-06/29 9,208 8,721,264 5.50% 04/13-05/14 2,840 2,676,405 7.50% 05/01/27 582 585,045 6.92% 07/01/27 1,127 1,127,885 6.50% 06/01/29 92 88,561 Federal National Mortgage Association 7.00% 05/11-09/11 2,700 2,697,785 6.50% 02/13-07/29 1,393 1,356,308 6.00% 06/13-01/14 1,760 1,692,859 8.00% 11/13-08/14 1,648 1,680,276 5.50% 12/13-03/14 3,142 2,958,611 Government National Mortgage Association 8.00% ++/ + 2/07-06/28 9,677 9,869,232 8.50% 1/17-09/21 2,621 2,726,977 7.00% + 9/17-07/29 20,342 19,944,874 9.00% 5/18-07/21 1,725 1,810,669 7.50% 2/22-11/27 11,349 11,389,296 6.50% 7/23-03/29 29,211 27,945,119 ------------- TOTAL MORTGAGE PASS-THROUGHS (Cost $98,276,428) 97,271,166 ------------- COMMERCIAL MORTGAGE BACKED SECURITIES -- 3.0% Chase Commercial Mortgage Securities Corp., Series 97-2, Class A1 6.45% 12/19/04 1,049 1,026,764 Commercial Mortgage Asset Trust, Series 99-C1, Class A1 6.25% 08/17/06 682 662,145 Morgan Stanley Capital International, Inc., Series 97-HF1, Class A1 6.86% 07/15/29 1,098 1,096,979 Residential Accredit Loans, Inc., Series 98-D7, Class CB6 6.75% 05/25/28 574 567,585 ------------- TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $3,418,164) 3,353,473 ------------- PROJECT LOANS -- 15.8% Federal Housing Authority, Castle Terrace 8.00% 10/01/38 1,499 1,533,488 Federal Housing Authority, Excelsior II Apartments 8.04% 02/01/39 999 1,031,108 Federal Housing Authority, Arrowhead Springs Apartments 7.55% 02/01/39 1,115 1,113,335 Par Maturity (000) Value ---------- ---------- ------------- PROJECT LOANS (CONTINUED) Federal Housing Authority, Creekwood Apartments 7.30% 11/15/38 $ 1,993 $ 1,976,158 Greens at Viera East Apartments, Construction Loan Collateral 7.88% 12/01/38 1,340 1,358,607 Prairie District Lofts, Construction Loan Collateral 7.41% 12/01/38 1,186 1,172,431 Prairie District Lofts, Construction Loan Committment 7.41% 12/01/38 299 295,595 Renaissance Place Apartments, Construction Loan Collateral 7.38% 02/01/39 1,878 1,856,735 Federal Housing Authority, Triangle Point Apartments 7.75% 09/30/38 1,967 1,987,137 Federal Housing Administration, Village at Stone Falls 7.38% 01/01/39 1,575 1,555,471 Federal Housing Authority, INSD Project, Series 82 7.43% 09/01/22 1,483 1,490,972 Federal Housing Authority, Timber Ridge Apartments, Project Loan 7.50% 12/15/38 2,199 2,207,149 ------------- TOTAL PROJECT LOANS (Cost $17,491,865) 17,578,186 ------------- ASSET BACKED SECURITIES -- 0.8% The Money Store Small Business Administration Loan Trust, Series 99-1, Class A 5.52%** 07/15/25 871 863,471 (Cost $870,843) ------------- CORPORATE BONDS -- 0.6% FINANCE -- 0.6% Federal National Mortgage Association, Series 98, Class B 6.14% 09/10/08 770 724,316 (Cost $718,114) ------------- Shares ---------- SHORT TERM INVESTMENTS -- 0.1% Galileo Money Market Fund 99,794 99,794 (Cost $99,794) ------------- TOTAL INVESTMENTS IN SECURITIES (Cost $137,494,216*) 122.4% 136,504,223 See accompanying notes to financial statements. 34 BLACKROCK FUNDS STATEMENT OF NET ASSETS GNMA PORTFOLIO (CONCLUDED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ---------- ------------- REVERSE REPURCHASE AGREEMENTS -- (18.7%) Aubrey Lanston (Agreement dated 09/27/99 to be repurchased at $10,402,501. Collateralized by $10,450,000 U.S. Treasury Notes 5.50% due 05/15/09. The value of the collateral is $10,333,968.) 2.35% 10/04/99 $10,398 $(10,400,466) Lehman Brothers (Agreement dated 09/29/99 to be repurchased at $1,978,061. Collateralized by $1,600,000 U.S. Treasury Bonds 8.50% due 02/15/20. The value of the collateral is $1,984,071.) 5.29% 10/13/99 1,974 (1,974,580) Lehman Brothers (Agreement dated 09/24/99 to be repurchased at $8,542,319. Collateralized by $8,819,880 Government National Mortgage Association 7.00-8.00% due 03/20/24 to 08/20/25. The value of the collateral is $8,788,129.) 5.37% 10/25/99 8,503 (8,511,880) ------------- TOTAL REVERSE REPURCHASE AGREEMENTS (Cost $20,874,750) (20,886,926) LIABILITIES IN EXCESS OF OTHER ASSETS (3.7%) (4,102,457) ---------- ------------- NET ASSETS (Applicable to 11,448,311 Institutional shares, 10,011 Service shares, 114,492 Investor A shares, 23,707 Investor B shares and 2,459 Investor C shares outstanding) 100.0% $ 111,514,840 ========== ============= Value ------------- NET ASSET VALUE AND REDEMPTION PRICE PER INSTITUTIONAL, SERVICE AND INVESTOR A SHARE ($111,263,270 (DIVIDE) 11,572,814) $ 9.61 ====== OFFERING PRICE PER INSTITUTIONAL AND SERVICE SHARE $ 9.61 ====== MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($9.61 (DIVIDE) 0.960) $10.01 ====== NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 4.5%) PER INVESTOR B SHARE ($227,928 (DIVIDE) 23,707) $ 9.61 ====== NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 1.0%) PER INVESTOR C SHARE ($23,642 (DIVIDE) 2,459) $ 9.61 ====== - ---------------------------- * Cost for Federal income tax purposes is $137,618,631. The gross unrealized appreciation (depreciation) on a tax basis is as follows: Gross unrealized appreciation $ 788,188 Gross unrealized depreciation (1,902,596) ------------- $ (1,114,408) ============= ** Rates shown are the rates as of September 30, 1999. + Partial principal in the amount of $20,869,880 has been pledged as collateral for reverse repurchase agreements. ++ Principal amount of securities pledged as collateral of $2,206,426 on 257 short U.S. Treasury Notes futures contracts expiring December 1999. The value of such contracts on September 30, 1999 was $28,076,875, thereby resulting in an unrealized loss of $13,242. See accompanying notes to financial statements. 35 BLACKROCK FUNDS SCHEDULE OF INVESTMENTS MANAGED INCOME PORTFOLIO Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ------- -------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 17.4% Overseas Private Investment Co. 6.84% 02/15/05 $ 702 $ 692,422 6.46%** 12/06/06 170 165,310 5.92%** 12/16/06 1,701 1,634,950 6.38%** 12/16/06 1,572 1,528,134 6.53% 12/16/06 410 400,502 6.66% 12/16/06 900 901,125 6.87% 12/16/06 808 784,708 6.27% 12/06-05/29 3,251 3,097,672 5.46%** 05/29/12 427 390,003 5.79% 05/29/12 385 359,028 5.88%** 05/29/12 508 479,948 6.81% 05/29/12 544 544,390 6.91% 05/29/12 1,437 1,384,468 Small Business Administration Participation Certificates, Series 96-20B, Class 1 6.38% 02/01/16 6,269 6,018,029 Small Business Administration Participation Certificates, Series 96-20K, Class 1 6.95% 11/10/16 8,813 8,691,747 Small Business Administration Participation Certificates, Series 97, Class A 5.85%** 08/15/22 3,197 3,184,867 Small Business Administration Participation Certificates, Series 97-20B, Class 1 7.10% 02/01/17 6,313 6,263,810 Small Business Administration Participation Certificates, Series 97-20F, Class 1 7.20% 06/01/17 2,070 2,062,944 Small Business Administration Participation Certificates, Series 97-20G, Class 1 6.85% 07/01/17 12,224 11,993,921 Student Loan Marketing Association, Series 97-3, Class A2 5.50%** 10/25/10 6,300 6,138,563 U.S. Treasury Bonds 8.75% 11/15/08 23,380 25,587,855 12.75% 11/15/10 8,725 11,598,351 7.50% 11/15/16 21,820 24,171,768 8.50% 02/15/20 28,245 34,718,421 5.25% 02/15/29 8,320 7,276,847 U.S. Treasury Bonds (CPI) 3.63% + 04/15/28 38,565 36,762,780 3.88% 04/15/29 9,000 8,820,240 U.S. Treasury Notes 5.63% 12/31/02 23,705 23,622,914 6.00% + 08/04-08/09 47,436 47,822,690 6.50% 10/15/06 21,560 22,059,174 U.S. Treasury Notes (CPI) 3.63% 01/15/08 12,625 12,606,452 -------------- TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $317,607,071) 311,764,033 -------------- Par Maturity (000) Value -------- ------- -------------- MORTGAGE PASS-THROUGHS -- 41.3% Federal Home Loan Mortgage Corp. 9.00% 07/01/01 $ 30 $ 31,336 6.50% 12/02-04/29 85,597 82,365,100 6.28%** 10/15/07 4,469 4,267,755 6.45% 04/29/09 9,750 9,307,732 7.50% 10/09-10/27 12,833 13,005,192 6.00% 11/12-07/14 2,445 2,353,912 7.00% 05/01/26 589 579,301 Federal Home Loan Mortgage Corp. Gold 6.00% 05/01/14 18,888 18,191,794 6.50% + 04/29-06/29 58,803 56,451,012 Federal National Mortgage Association 9.50% 03/01/05 15 15,593 7.00% 06/06-05/26 6,658 6,581,421 6.80% 07/23/07 12,025 11,859,519 6.04% 02/25/09 26,800 25,012,405 6.36% 04/09/09 5,000 4,744,500 6.50% 02/11-08/29 91,042 87,564,875 6.00% + 04/13-01/29 87,423 82,669,075 5.50% + 12/13-05/14 268,784 253,077,210 Government National Mortgage Association 8.20% 06/15/12 291 297,760 8.00% 05/13-05/27 4,589 4,706,588 7.25% 04/15/15 1,209 1,232,064 9.50% 09/16-10/17 212 227,483 8.50% 01/17-11/21 429 445,853 9.00% 03/18-11/20 765 802,655 7.50% 04/23-04/27 976 981,045 6.50% 01/24-12/27 33,213 31,770,624 7.00% 12/27-01/28 22,248 21,844,616 Government National Mortgage Association II 9.50% 05/17-12/24 674 715,230 7.50% 01/29-09/29 2,000 2,007,558 MLCC Mortgage Investors, Inc., Series 95-C, Class D 7.98%** 05/25/15 3,506 3,419,292 MLCC Mortgage Investors, Inc., Series 96-C1, Class A2 7.24% 04/25/28 7,113 7,134,711 MLCC Mortgage Investors, Inc., Series 96-C1, Class A3 7.42% 04/25/28 5,500 5,522,029 -------------- TOTAL MORTGAGE PASS-THROUGHS (Cost $761,723,561) 739,185,240 -------------- MULTIPLE CLASS MORTGAGE PASS-THROUGHS -- 0.3% Federal Home Loan Mortgage Corp., Series 65, Class A (PO) 4.09%*** 03/15/24 1,795 804,984 Federal National Mortgage Association Series 96-3, Class C (PO) 5.00%*** 02/25/24 1,681 958,057 Federal National Mortgage Association Strip Notes, Series 279, Class 1 (PO) 6.00%*** 07/01/26 512 409,729 Federal National Mortgage Association, Series 97-44, Class L (PO) 4.35%*** 02/25/24 1,874 1,011,804 See accompanying notes to financial statements. 36 BLACKROCK FUNDS SCHEDULE OF INVESTMENTS MANAGED INCOME PORTFOLIO (CONTINUED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ------- -------------- MULTIPLE CLASS MORTGAGE PASS-THROUGHS (CONTINUED) Federal National Mortgage Association, Series 99-51, Class L (PO) 5.00%*** 10/25/29 $ 1,000 $ 510,000 Federal National Mortgage Association, Series 99-17, Class HJ (PO) 4.00%*** 12/25/23 1,290 552,281 Federal National Mortgage Association, Series 99-17, Class JH (PO) 5.00%*** 04/25/24 1,630 740,631 Residential Accredit Loans, Inc., Series 97-QS7, Class A1 7.50% 08/15/27 1,120 1,118,916 -------------- TOTAL MULTIPLE CLASS MORTGAGE PASS-THROUGHS (Cost $6,563,065) 6,106,402 -------------- COMMERCIAL MORTGAGE BACKED SECURITIES -- 4.7% Advanta Mortgage Loan Trust, Series 96-1, Class A7 7.07% 03/25/27 1,600 1,581,000 Capco America Securitization Corp., Series 98-D7, Class A1B 6.26% 09/15/08 3,340 3,122,861 COMM, Series 99-1, Class A2 6.46% 09/15/08 7,833 7,459,384 Commercial Capital Access One, Series 98-3, Class A1 6.30% 11/15/28 6,592 6,367,103 Deutsche Mortgage and Asset Receiving Corp., Series 98-C1, Class A2 6.54% 02/15/08 3,000 2,845,034 Empire Funding Home Loan Owner Trust, Series 98-2, Class A4 6.53% 03/25/19 15,000 14,718,750 FFCA Secured Lending Corp., Series 98-1, Class A1B 6.73% 07/18/13 8,246 7,696,683 FPlus, Series 98-3, Class A8 7.17%** 05/10/24 7,300 6,795,844 General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 99-C2, Class A2 6.95% 09/15/33 1,900 1,871,723 JP Morgan Commercial Mortgage Finance Corp., Series 96-C3, Class A1 7.33% 04/25/28 1,797 1,807,760 Lehman Brothers Commercial Conduit Mortgage Trust, Series 96-c2, Class A 7.43%** 10/25/26 9,267 9,404,263 Midland Royalty Acceptance Corp., Series 96-C, Class A 7.23% 01/25/29 6,200 6,159,299 Morgan Stanley Capital International, Inc., Series 99-RM1, Class A2 6.71% 12/15/31 4,933 4,727,689 Union Planters Mortgage Finance Corp., Series 98-1, Class A3 6.60% 01/25/28 9,094 8,972,727 USGI, Series 87 7.43% 12/01/22 900 905,226 -------------- TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $87,151,737) 84,435,346 -------------- Par Maturity (000) Value -------- ------- -------------- PROJECT LOANS -- 2.1% Federal Housing Authority, Audobon Villas 7.94% 11/15/37 $ 5,243 $ 5,376,733 Federal Housing Authority, Lakeland Nursing 7.88% 12/01/34 11,772 11,827,077 Federal Housing Authority, Meadowbrook of Topeka 8.50% 08/01/22 1,651 1,699,044 Federal Housing Authority, Riverwalk 8.22% 06/01/36 1,559 1,590,958 Federal Housing Authority, University Park Project Loans Apartments 7.88% 10/01/37 4,495 4,517,181 Federal Housing Authority, Washington PC94, Non-Public 6.90% 02/01/14 785 754,279 Meadows II Apartments, Construction Loan Collateral 7.00% 12/01/39 1,949 1,874,798 Meadows II Apartments, Construction Loan Committment 7.00% 12/01/00 1,914 1,840,285 Ponds at Punaluu, Construction Loan Collateral 7.63% 04/01/37 284 284,380 Quabbin Valley Healthcare, Construction Loan Collateral 7.66% 06/01/39 937 929,293 Quabbin Valley Healthcare, Construction Loan Committment 7.66% 03/08/00 40 39,522 Villages of Winterset, Construction Loan Collateral 7.13% 10/31/38 443 431,866 Villages of Winterset, Construction Loan Committment 7.13% 06/01/01 57 55,366 Whittier Rehab at Westborough Project Loan 8.13% 02/28/37 7,114 7,228,176 -------------- TOTAL PROJECT LOANS (COST $39,148,787) 38,448,958 -------------- ASSET BACKED SECURITIES -- 15.4% ACLC Business Loan Receivables Trust, Series 98-1, Class A1 6.44% 07/15/13 10,727 10,445,161 Arcadia Automobile Receivables Trust, Series 97-B, Class A3 6.30% 07/16/01 477 477,644 Arcadia Automobile Receivables Trust, Series 98-B, Class A3 5.95% 11/15/02 17,500 17,511,900 Arcadia Automobile Receivables Trust, Series 98-C, Class A2 5.38%** 02/15/02 1,555 1,550,927 Associates Manufactured Housing Pass-Through, Series 96-1, Class B1 8.00% 03/15/27 3,200 3,053,000 Boston Edison Co., Series 99-1, Class A5 7.03% 03/15/12 3,800 3,768,859 Chase Credit Card Master Trust, Series 97-5, Class A 6.19% 08/15/05 25,830 25,641,699 See accompanying notes to financial statements. 37 BLACKROCK FUNDS SCHEDULE OF INVESTMENTS MANAGED INCOME PORTFOLIO (CONTINUED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ------- -------------- MULTIPLE CLASS MORTGAGE PASS-THROUGHS (CONTINUED) Federal National Mortgage Association, Series 99-51, Class L (PO) 5.00%*** 10/25/29 $ 1,000 $ 510,000 Federal National Mortgage Association, Series 99-17, Class HJ (PO) 4.00%*** 12/25/23 1,290 552,281 Federal National Mortgage Association, Series 99-17, Class JH (PO) 5.00%*** 04/25/24 1,630 740,631 Residential Accredit Loans, Inc., Series 97-QS7, Class A1 7.50% 08/15/27 1,120 1,118,916 -------------- TOTAL MULTIPLE CLASS MORTGAGE PASS-THROUGHS (Cost $6,563,065) 6,106,402 -------------- COMMERCIAL MORTGAGE BACKED SECURITIES -- 4.7% Advanta Mortgage Loan Trust, Series 96-1, Class A7 7.07% 03/25/27 1,600 1,581,000 Capco America Securitization Corp., Series 98-D7, Class A1B 6.26% 09/15/08 3,340 3,122,861 COMM, Series 99-1, Class A2 6.46% 09/15/08 7,833 7,459,384 Commercial Capital Access One, Series 98-3, Class A1 6.30% 11/15/28 6,592 6,367,103 Deutsche Mortgage and Asset Receiving Corp., Series 98-C1, Class A2 6.54% 02/15/08 3,000 2,845,034 Empire Funding Home Loan Owner Trust, Series 98-2, Class A4 6.53% 03/25/19 15,000 14,718,750 FFCA Secured Lending Corp., Series 98-1, Class A1B 6.73% 07/18/13 8,246 7,696,683 FPlus, Series 98-3, Class A8 7.17%** 05/10/24 7,300 6,795,844 General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 99-C2, Class A2 6.95% 09/15/33 1,900 1,871,723 JP Morgan Commercial Mortgage Finance Corp., Series 96-C3, Class A1 7.33% 04/25/28 1,797 1,807,760 Lehman Brothers Commercial Conduit Mortgage Trust, Series 96-c2, Class A 7.43%** 10/25/26 9,267 9,404,263 Midland Royalty Acceptance Corp., Series 96-C, Class A 7.23% 01/25/29 6,200 6,159,299 Morgan Stanley Capital International, Inc., Series 99-RM1, Class A2 6.71% 12/15/31 4,933 4,727,689 Union Planters Mortgage Finance Corp., Series 98-1, Class A3 6.60% 01/25/28 9,094 8,972,727 USGI, Series 87 7.43% 12/01/22 900 905,226 -------------- TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $87,151,737) 84,435,346 -------------- Par Maturity (000) Value -------- ------- -------------- PROJECT LOANS -- 2.1% Federal Housing Authority, Audobon Villas 7.94% 11/15/37 $ 5,243 $ 5,376,733 Federal Housing Authority, Lakeland Nursing 7.88% 12/01/34 11,772 11,827,077 Federal Housing Authority, Meadowbrook of Topeka 8.50% 08/01/22 1,651 1,699,044 Federal Housing Authority, Riverwalk 8.22% 06/01/36 1,559 1,590,958 Federal Housing Authority, University Park Project Loans Apartments 7.88% 10/01/37 4,495 4,517,181 Federal Housing Authority, Washington PC94, Non-Public 6.90% 02/01/14 785 754,279 Meadows II Apartments, Construction Loan Collateral 7.00% 12/01/39 1,949 1,874,798 Meadows II Apartments, Construction Loan Committment 7.00% 12/01/00 1,914 1,840,285 Ponds at Punaluu, Construction Loan Collateral 7.63% 04/01/37 284 284,380 Quabbin Valley Healthcare, Construction Loan Collateral 7.66% 06/01/39 937 929,293 Quabbin Valley Healthcare, Construction Loan Committment 7.66% 03/08/00 40 39,522 Villages of Winterset, Construction Loan Collateral 7.13% 10/31/38 443 431,866 Villages of Winterset, Construction Loan Committment 7.13% 06/01/01 57 55,366 Whittier Rehab at Westborough Project Loan 8.13% 02/28/37 7,114 7,228,176 -------------- TOTAL PROJECT LOANS (COST $39,148,787) 38,448,958 -------------- ASSET BACKED SECURITIES -- 15.4% ACLC Business Loan Receivables Trust, Series 98-1, Class A1 6.44% 07/15/13 10,727 10,445,161 Arcadia Automobile Receivables Trust, Series 97-B, Class A3 6.30% 07/16/01 477 477,644 Arcadia Automobile Receivables Trust, Series 98-B, Class A3 5.95% 11/15/02 17,500 17,511,900 Arcadia Automobile Receivables Trust, Series 98-C, Class A2 5.38%** 02/15/02 1,555 1,550,927 Associates Manufactured Housing Pass-Through, Series 96-1, Class B1 8.00% 03/15/27 3,200 3,053,000 Boston Edison Co., Series 99-1, Class A5 7.03% 03/15/12 3,800 3,768,859 Chase Credit Card Master Trust, Series 97-5, Class A 6.19% 08/15/05 25,830 25,641,699 See accompanying notes to financial statements. 37 BLACKROCK FUNDS SCHEDULE OF INVESTMENTS MANAGED INCOME PORTFOLIO (CONTINUED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ------- ------------ ASSET BACKED SECURITIES (CONTINUED) CIT Group Securitization Corp., Series 95-2, Class B 7.65% 05/15/26 $ 7,650 $ 6,394,922 Daimler-Benz Auto Grantor Trust, Series 97-A, Class A 6.05%**/++ 03/31/05 1,845 1,846,446 Equicon Home Equity Loan Trust, Series 93-1, Class I (IO) 7.00%*** 02/18/13 6,140 46,053 Fifth Third Auto Grantor Trust, Series 96-B, Class A 6.45% 03/15/02 395 396,466 FMAC Loan Receivables Trust, Series 97-B, Class A 6.85% 09/15/19 6,234 6,070,968 FMAC Loan Receivables Trust, Series 97-C, Class A 6.75% 12/15/19 2,406 2,334,203 Ford Credit Auto Owner Trust, Series 98-C, Class A5 5.86% 10/15/02 3,200 3,180,704 Ford Credit Auto Owner Trust, Series 99-C, Class A4 6.08% 09/16/02 11,100 11,054,906 Green Tree Financial Corp., Series 93-3, Class B 6.85% 10/15/18 3,246 3,078,164 Green Tree Financial Corp., Series 94-B, Class A 7.85% 07/15/04 1,195 1,170,144 Green Tree Financial Corp., Series 95-A, Class A 7.25% 07/15/05 5,196 4,927,943 Green Tree Financial Corp., Series 96-2, Class B2 7.90%++ 04/15/27 2,500 1,953,640 Green Tree Financial Corp., Series 96-5, Class A7 8.25% 07/15/27 5,534 5,709,754 Green Tree Financial Corp., Series 96-7, Class A6 7.65% 10/15/27 9,025 9,153,324 Green Tree Financial Corp., Series 96-8, Class B1 7.95% 01/01/05 3,000 2,849,961 Green Tree Financial Corp., Series 97-1, Class B1 7.23% 03/15/28 9,000 8,382,611 Green Tree Financial Corp., Series 97-3, Class B1 7.51% 07/15/28 2,500 2,316,406 Green Tree Financial Corp., Series 97-3, Class B2 8.03% 07/15/28 7,050 5,460,637 Green Tree Home Improvement Loan Trust, Series 94-D, Class M 9.05% 01/15/15 456 460,930 Green Tree Home Improvement Loan Trust, Series 96-C, Class HIB1 7.75% 06/15/21 5,697 5,642,816 Green Tree Home Improvement Loan Trust, Series 97-A, Class HEM2 7.90% 03/15/28 5,150 4,902,156 Par Maturity (000) Value -------- ------- ----------- ASSET BACKED SECURITIES (CONTINUED) Health Care Receivables Securitization Program Notes, NPF VI, Series 98-1, Class A 6.22% 06/01/02 $13,800 13,604,838 Honda Auto Lease Trust, Series 99-A, Class A4 6.45% 09/16/02 14,700 14,725,266 Keycorp Student Loan Trust, Series 95-B, Class A 5.41%** 09/27/24 7,635 7,650,075 MBNA Master Credit Card Trust, Series 99-B, Class A 5.90% 08/15/11 4,400 4,137,166 MBNA Master Credit Card Trust, Series 99-J, Class A 7.00% 02/15/12 6,200 6,230,033 Mellon Bank Home Equity Loan Trust, Series 96-1, Class B2 5.69%** 04/15/26 1,244 1,244,035 Newcourt Equipment Trust Securities, Series 98-2, Class A3 5.45% 10/15/02 15,400 15,209,044 Puget Power Conservation Grantor Trust, Series 97-1, Class A 6.23% 07/11/02 6,757 6,731,399 Railcar Leasing LLC, Series 97-1, Class A1 6.75% 07/15/06 10,047 9,952,695 Sears Credit Account Master Trust, Series 95-5, Class A 6.05% 01/15/08 3,812 3,755,661 Sears Credit Account Master Trust, Series 96-3, Class A 7.00% 07/15/08 11,600 11,743,513 Sears Credit Account Master Trust, Series 96-4, Class A 6.45% 10/16/06 4,200 4,167,009 Sears Credit Account Master Trust, Series 97-1, Class A 6.20% 07/15/07 8,000 7,948,120 Sears Credit Account Master Trust, Series 98-1, Class A 5.80% 08/15/05 7,900 7,770,423 The Money Store Business Loan Backed Securities, Series 97-1, Class A 5.65%** 04/15/28 6,347 6,367,135 The Money Store Home Equity Trust, Series 97-C, Class MH2 7.36% 02/15/24 2,775 2,730,772 Toyota Auto Receivables Owner Trust, Series 99-A, Class A3 6.15% 08/16/04 225 224,297 World Omni Automobile Lease Securitization Trust, Series 97-B, Class A1 6.07% 11/25/03 2,000 2,007,307 ----------- TOTAL ASSET BACKED SECURITIES (Cost $283,684,857) 275,981,132 ----------- See accompanying notes to financial statements. 38 BLACKROCK FUNDS SCHEDULE OF INVESTMENTS MANAGED INCOME PORTFOLIO (CONTINUED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ------- ----------- CORPORATE BONDS -- 17.2% AEROSPACE -- 0.3% United Tech Corp. 6.50% 06/01/09 $ 6,010 $ 5,803,437 ----------- AIR TRANSPORTATION -- 0.1% CONTINENTAL AIRLINES 7.06% 03/15/11 2,045 1,969,126 ----------- AUTOMOTIVE -- 0.1% DaimlerChrysler Holdings N.A. 6.90% 09/01/04 1,700 1,708,500 ----------- FINANCE -- 7.8% Allmerica Financial Corp. 7.63% 10/15/25 1,640 1,542,593 American General Capital Securities 7.57% 12/01/45 4,480 4,104,800 Associates Corp. 6.25% 11/01/08 5,000 4,731,250 AT&T Capital Corp. 5.48%** 04/09/01 3,500 3,468,080 Chrysler Corp. 7.45% 03/01/27 6,105 6,083,927 Crown Cork & Seal, S.A. 6.75% 12/15/03 3,000 2,941,850 CSW Investments 6.95% 08/01/01 7,705 7,749,073 ERAC USA Finance Co. 6.95% 03/01/04 1,017 1,000,952 Fairfax Financial Hldgs. 7.38% 03/15/06 2,780 2,618,788 FMR Corp. 7.57% 06/15/29 7,095 6,935,363 Ford Motor Credit Co. 6.70% 07/16/04 9,485 9,437,575 Frank Russel Co. 5.63% 01/15/09 6,400 5,748,160 Golden State Holding Corp. 7.00% 08/01/03 10,300 9,988,631 Goldman Sachs Group, Inc. 6.25% 02/01/03 6,030 5,864,970 6.65% 05/15/09 4,665 4,447,250 Great Western Finance 8.21% 02/01/27 5,000 4,800,000 Larwin Group - Participation in Asset Exchange 8.00% 12/01/99 13 12,515 Lehman Brothers Holdings, Inc. 6.75% 09/24/01 8,000 7,968,800 6.20% 01/15/02 4,700 4,617,280 7.38% 05/15/07 1,500 1,516,502 Merrill Lynch & Co., Inc. 5.75% 11/04/02 5,165 5,026,113 6.00% 02/17/09 400 368,000 MidAmerican Funding, LLC 6.93% 03/01/29 8,050 7,344,015 National City Corp. 6.88% 05/15/19 11,000 10,067,746 Newcourt Credit Group 6.88% 02/16/05 900 879,957 Paine Webber, Inc. 6.38% 05/15/04 2,565 2,470,969 Pemex Finance Ltd. 9.14% 08/15/04 4,410 4,417,277 Riggs Capital Trust 8.63% 12/31/26 400 376,500 Par Maturity (000) Value -------- ------- -------------- CORPORATE BONDS (CONTINUED) FINANCE (CONTINUED) Riggs Capital Trust II Preferred Securities, Series C 8.88% 03/15/27 $ 2,000 $ 1,872,910 Washington Mutual Capital, Inc. 8.38% 06/01/27 1,250 1,223,438 Yorkshire Power Finance 6.50% 02/25/08 2,350 2,138,500 Zurich Capital Trust I 8.38% 06/01/27 8,150 8,007,375 -------------- 139,771,159 -------------- INDUSTRIAL -- 4.0% Alberton's, Inc. 7.45% 08/01/29 2,100 2,079,000 Atlantic Richfield 9.88% 03/01/16 4,885 6,100,144 Coca-Cola Enterprises, Inc. 5.71% 03/18/37 12,520 12,523,881 Conoco, Inc. 6.95% 04/15/29 2,995 2,785,350 Dayton Hudson Corp. 5.95% 06/15/00 3,400 3,400,000 Ford Motor Co. 7.45% 07/16/31 15,405 15,201,282 General Motors 8.80% 03/01/21 3,000 3,348,750 Hyder PLC 6.75% 12/15/04 6,500 6,216,925 Nabisco, Inc. 6.85% 06/15/05 8,300 8,022,116 7.05% 07/15/07 3,380 3,269,204 7.55% 06/15/15 3,080 2,935,086 Tyco Intl. Group Corp., S.A. 5.88% 11/01/04 2,910 2,757,225 Xerox Corp. 5.91% 04/01/99 3,600 3,586,500 -------------- 72,225,463 -------------- Insurance -- 1.0% Equitable Cos., Inc. 9.00% 12/15/04 5,555 6,048,006 7.00% 04/01/28 4,670 4,253,810 Florida Windstorm Underwriting Association 7.13% 02/25/19 5,715 5,341,468 Prudential Insurance Co. 6.38% 07/23/06 2,750 2,609,063 -------------- 18,252,347 -------------- TELECOMMUNICATIONS -- 1.9% AT&T Corp. 6.00% 03/15/09 6,290 5,849,700 6.50% 03/15/29 5,615 4,950,296 Sprint Capital Corp. 6.38% 05/01/09 2,540 2,394,323 6.90% 05/01/19 4,060 3,776,746 Time Warner, Inc. 9.13% 01/15/13 2,075 2,334,026 US West Capital Funding, Inc. 6.88% 07/15/28 6,070 5,349,188 Worldcom, Inc. 7.75% 04/01/27 9,710 10,159,088 -------------- 34,813,367 -------------- See accompanying notes to financial statements. 39 BLACKROCK FUNDS SCHEDULE OF INVESTMENTS MANAGED INCOME PORTFOLIO (CONCLUDED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value -------- ------- -------------- CORPORATE BONDS (CONTINUED) TRANSPORTATION -- 0.2% Federal Express Corp. 6.72% 01/15/22 $ 3,017 $ 2,848,046 -------------- REGIONAL AGENCY -- 0.3% Quebec Province 7.50% 09/15/29 4,460 4,482,300 -------------- UTILITY -- 0.6% Avon Energy Partnership 6.73% 12/11/02 1,100 1,094,500 Israel Electric Corp. Ltd. 7.13% 07/15/05 1,915 1,877,658 8.10% 12/15/46 8,860 7,374,574 -------------- 10,346,732 -------------- WASTE MANAGEMENT -- 0.3% USA Waste Management, Inc. 6.13% 07/15/01 5,455 5,243,619 -------------- YANKEE -- 0.6% Empresa Electrica Pehuenche 7.30% 05/01/03 11,000 10,610,106 -------------- TOTAL CORPORATE BONDS (Cost $318,540,187) 308,074,202 -------------- FOREIGN BONDS -- 0.2% Newcourt Credit Group 7.63% 06/28/01 4,690 3,230,106 (Cost $3,263,386) -------------- TAXABLE MUNICIPAL BONDS -- 0.7% Los Angeles County Pension Obligation Revenue Bond, Series 95D 6.97% 06/30/08 7,355 7,299,838 New Jersey Economic Development Authority State Pension Funding Zero Coupon Revenue Bond, Series 97B 7.56%*** 02/15/16 1,600 476,000 7.59%*** 02/15/17 575 158,125 7.21%*** 02/15/18 14,500 3,697,500 7.62%*** 02/20-02/21 1,010 215,337 7.63%*** 02/22-02/23 815 150,925 -------------- TOTAL TAXABLE MUNICIPAL BONDS (Cost $12,934,199) 11,997,725 -------------- SHORT TERM INVESTMENTS -- 0.2% Federal Home Loan Mortgage Corp. Discount Notes 5.17% 10/01/99 3,500 3,500,000 (Cost $3,500,000) -------------- Shares ------ PREFERRED STOCK -- 0.5% Centaur Funding Corp., Cumulative 144A 9.08% 8,000 8,270,808 (Cost $8,000,000) -------------- TOTAL INVESTMENTS IN SECURITIES (Cost $1,842,116,850*) 100.0% $1,790,993,952 ============== REVERSE REPURCHASE AGREEMENTS -- (17.0%) Aubrey Lanston (Agreement dated 09/30/99 to be repurchased at $31,681,812. Collateralized by $31,000,000 U.S. Treasury notes 6.00% Due 08/15/09. The value of the collateral is $31,488,556.) 3.75% 10/04/99 31,349 (31,352,015) Par Maturity (000) Value -------- -------- ------------- REVERSE REPURCHASE AGREEMENTS (CONTINUED) Aubrey Lanston (Agreement dated 09/23/99 to be repurchased at $37,470,937. Collateralized by $39,715,780 U.S. Treasury Notes (CPI) 3.63% due 04/15/28. The value of the collateral is $37,450,353.) 5.30% 10/22/99 $ 37,312 $ (37,355,582) Lehman Brothers (Agreement dated 09/15/99 to be repurchased at $57,767,354. Collateralized by $58,553,153 Federal Home Loan Mortgage Corp. Gold 6.50% due 04/01/29-06/01/29 and $3,374,088 Federal National Mortgage Association 5.50% due 12/01/13. The value of the collateral is $59,902,726.) 5.36% 10/14/99 57,519 (57,656,023) Lehman Brothers (Agreement dated 09/17/99 to be repurchased at $111,895,852. Collateralized by $121,466,453 Federal National Mortgage Association 5.50-6.00% due 12/01/13 to 01/01/29. The value of the collateral is $114,853,225.) 5.38% 10/19/99 111,413 (111,596,078) Morgan Stanley (Agreement dated 09/15/99 to be repurchased at $24,573,037. Collateralized by $27,067,750 Federal National Mortgage Association 5.50-6.00% due 01/01/14-01/01/29. The value of the collateral is $25,497,471.) 5.38% 10/14/99 24,467 (24,525,503) ------------- TOTAL REVERSE REPURCHASE AGREEMENTS (Cost $262,059,388) $(262,485,201) ============= __________________________ * Cost for Federal income tax purposes is $1,845,288,663. The gross unrealized appreciation (depreciation) on a tax basis is as follows: Gross unrealized appreciation $ 2,982,178 Gross unrealized depreciation (57,276,889) ------------- $ (54,294,711) ============= ** Rates shown are the rates as of September 30, 1999. *** Rates shown are the effective yields as of September 30, 1999. + Partial principal in the amount of $281,177,044 has been pledged as collateral for reverse repurchase agreements. ++ Principal amount of securities pledged as collateral of $8,400,000 on 802 long U.S. Treasury Bonds futures contracts and 85 short U.S. Treasury Notes futures contracts expiring December 1999. The value of such contracts on September 30, 1999 was $100,738,500, thereby resulting in an unrealized gain of $212,024. See accompanying notes to financial statements. 40 BLACKROCK FUNDS STATEMENT OF ASSETS AND LIABILITIES MANAGED INCOME PORTFOLIO SEPTEMBER 30, 1999 ASSETS Investments at value (Cost $1,842,116,850) ......... $1,790,993,952 Collateral received for securities loaned .......... 64,906,405 Interest receivable ................................ 17,558,576 Principal receivable ............................... 1,321 Investments sold receivable ........................ 15,461,982 Capital shares sold receivable ..................... 196,218 Prepaid expenses ................................... 5,995 -------------- TOTAL ASSETS ................................ 1,889,124,449 -------------- LIABILITIES Cash Overdraft ..................................... 140,276 Payable upon return of securities loaned ........... 64,906,405 Investments purchased payable ...................... 6,084,726 Capital shares redeemed payable .................... 819,509 Distributions payable .............................. 8,044,534 Advisory fees payable .............................. 565,290 Administrative fees payable ........................ 181,696 Transfer agent fees payable ........................ 83,645 Other accrued expenses payable ..................... 265,729 Deferred dollar roll income ........................ 8,446 Reverse repurchase agreements payable .............. 262,485,201 Futures margin payable ............................. 685,630 Net unrealized depreciation on forward foreign currency contracts ............... 9,620 -------------- TOTAL LIABILITIES ........................... 344,280,707 -------------- NET ASSETS (Applicable to 126,353,410 Institutional shares, 27,322,500 Service shares, 1,521,912 Investor A shares and 586,681 Investor B shares outstanding) ......... $1,544,843,742 ============== NET ASSET VALUE AND REDEMPTION PRICE PER INSTITUTIONAL, SERVICE AND INVESTOR A SHARE ($1,539,026,022 / 155,197,822) ............... $ 9.92 ====== OFFERING PRICE PER INSTITUTIONAL AND SERVICE SHARE .... $ 9.92 ====== MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($9.92 / 0.955) .................................... $10.39 ====== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE (subject to a maximum contingent deferred sales charge of 4.5%) PER INVESTOR B SHARE ($5,817,720 / 586,681) ............................. $ 9.92 ====== See accompanying notes to financial statements. 41 BLACKROCK FUNDS STATEMENT OF NET ASSETS INTERNATIONAL BOND PORTFOLIO Par** AS OF SEPTEMBER 30, 1999 Maturity (000) Value ---------- ------- ----------- FOREIGN BONDS -- 60.8% AUSTRIA -- 2.9% Allgemeine Hypobk AG 5.00% 09/02/09 2,000 $ 2,043,707 ----------- CANADA -- 3.7% Canada Trust Company Mortgage 5.63% 01/01/02 1,976 1,334,877 Highway 407 International, Inc. 6.47% 07/27/29 2,000 1,292,149 ----------- 2,627,026 ----------- DENMARK -- 3.4% Kingdom of Denmark 8.00% 05/03-03/06 15,000 2,403,789 ----------- FRANCE -- 5.3% European Investment Bank 5.00% 04/15/08 1,955 2,029,995 Government of France 5.50% 10/25/07 1,524 1,666,584 ----------- 3,696,579 ----------- GERMANY -- 11.9% Bundesobligation 126 4.50% 02/18/03 2,600 2,790,560 Deutsche Telekom International Financial 5.25% 05/20/08 0 1 Deutschland Republic 6.25% 04/26/06 4,000 4,579,437 Dresdner Funding Trust II 5.79% 06/30/11 1,000 982,449 ----------- 8,352,447 ----------- ITALY -- 2.6% Buoni Poliennali del Tes 6.75% 07/01/07 1,549 1,802,354 ----------- NETHERLANDS -- 9.9% Government of Netherlands 7.00% 06/15/05 3,000 3,535,219 5.50% 01/15/28 3,409 3,427,225 ----------- 6,962,444 ----------- SPAIN -- 2.3% Bonos y Oblig del Estado 4.25% 07/30/02 1,543 1,650,832 ----------- SWEDEN -- 4.9% Swedish Government 6.00% 02/09/05 25,000 3,433,434 ----------- UNITED KINGDOM -- 13.9% Abbey National Treasury Services 8.00% 04/02/03 600 1,015,166 Bayerische Landesbank Girozentrale 7.88% 12/07/06 1,100 1,901,626 Federal National Mortgage Assoc. Global Bond 6.88%++ 06/07/02 2,500 4,134,131 Halifax Building Society PLC 6.50% 02/16/04 450 726,505 United Kingdom Treasury 9.00% 10/13/08 1,000 1,988,796 ----------- 9,766,224 ----------- TOTAL FOREIGN BONDS (Cost $43,277,858) 42,738,836 ----------- Par Maturity (000) Value ---------- ------- ----------- U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 0.2% U.S. Treasury Notes 6.50% 10/15/06 $ 160 $ 163,705 (Cost $164,285) ----------- CORPORATE BONDS -- 12.4% First USA Credit Card Master Trust 5.68%** 10/15/99 3,000 3,003,750 Ford Motor Credit Co. 6.70% 07/16/04 3,000 2,985,000 Sears Credit Account Master Trust 7.00% 01/15/04 2,750 2,759,169 ----------- TOTAL CORPORATE BONDS (Cost $8,761,484) 8,747,919 ----------- SHORT TERM INVESTMENTS -- 25.0% Federal Home Loan Mortgage Corp. Discount Notes 5.20% 10/01/99 17,600 17,600,000 (Cost $17,600,000) ----------- TOTAL INVESTMENTS IN SECURITIES (Cost $69,803,627*) 98.4% 69,250,460 OTHER ASSETS IN EXCESS OF LIABILITIES 1.6% 1,098,704 ---------- ----------- NET ASSETS (Applicable to 5,483,834 Institutional shares, 345,169 Service shares, 244,200 Investor A shares, 226,363 Investor B shares, and 209,909 Investor C shares outstanding) 100.0% $70,349,164 ========== =========== NET ASSET VALUE AND REDEMPTION PRICE PER INSTITUTIONAL, SERVICE AND INVESTOR A SHARE ($65,634,014 / 6,073,203) $ 10.81 =========== OFFERING PRICE PER INSTITUTIONAL AND SERVICE SHARE $ 10.81 =========== MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($10.81 / 0.950) $ 11.38 =========== NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 4.5%) PER INVESTOR B SHARE ($2,446,599 / 226,363) $10.81 ====== NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 1.0%) PER INVESTOR C SHARE ($2,268,551 / 209,909) $10.81 ====== - -------------------------------- * Also cost for Federal income tax purposes. The gross unrealized appreciation (depreciation) on a tax basis is as follows: Gross unrealized appreciation $ 544,235 Gross unrealized depreciation (1,097,402) ----------- $ (553,167) =========== ** In local currency. ++ Principal amount of securities pledged as collateral of $1,000,000 on 12 long Japanese Bond futures contracts expiring March 2000. The value of such contracts on September 30, 1999 was $14,874,319, thereby resulting in an unrealized gain of $427,578. See accompanying notes to financial statements. 42 BLACKROCK FUNDS SCHEDULE OF INVESTMENTS HIGH YIELD BOND PORTFOLIO Number AS OF SEPTEMBER 30, 1999 of Shares Value ---------- ----------- PREFERRED STOCKS -- 7.2% Hyperion Telecommunications, Inc., Series B (PIK) 12.875% 3,231 $ 2,876,093 Key Energy Services, Inc. Warrant 1,000 2,000 Nextel Communications, Inc., Series D (PIK) 13.00% 1,032 1,083,600 Nextel Communications, Inc., Cumulative Series E (PIK) 11.125% 1,084 1,051,480 Nextlink Communications, Inc. (PIK) 14.00% 31,462 1,557,369 ----------- TOTAL PREFERRED STOCKS (Cost $6,771,579) 6,570,542 ----------- Par Maturity (000) ---------- ------- COMMERCIAL MORTGAGE BACKED SECURITIES -- 2.0% Donaldson, Lufkin & Jenrette, Inc., Commercial Mortgage Corp., Series 98-CG1, Class B4 7.35%** 01/10/13 $ 2,531 1,806,273 ----------- (Cost $2,003,507) CORPORATE BONDS -- 90.6% ELECTRONICS -- 3.1% Amkor Technologies, Inc., Series 144A 10.50% 05/01/09 2,000 1,920,000 Condor Systems, Inc., Series 144A 11.88% 05/01/09 1,000 890,000 ----------- 2,810,000 ----------- FINANCIAL -- 0.8% BGLS, Inc., Series B 15.75% 01/31/01 700 700,000 ----------- INDUSTRIAL -- 37.1% American Plumbing & Mechanical, Inc., Series 144A 11.63% 10/15/08 1,000 900,000 Ameriserve Food Distributor 8.88%+ 10/15/06 750 570,000 Charles River Laboratories, Inc. 13.50% 10/01/09 1,000 1,010,000 Concentra Operating Corp., Series 144A 13.00% 08/15/09 2,000 2,000,000 Fountain View, Inc., Series B 11.25% 04/15/08 1,000 720,000 Golden Northwest Aluminum First Mortgage Notes 12.00% 12/15/06 1,750 1,802,500 Hudson Respiratory Care, Inc. 9.13% 04/15/08 2,000 1,560,000 Huntsman ICI Hldgs., Series 144A (STEP) 13.00%*** 12/31/09 3,500 910,000 Kasper A.S.L. Ltd. 12.75% 03/31/04 1,500 1,447,500 Knology Hldgs., Inc. (STEP) 13.36%*** 10/15/07 2,000 1,100,000 Knowles Electronics, Inc. 13.13% 10/01/09 1,000 979,540 Lyondell Chemical 10.88% + 05/01/09 2,600 2,613,000 National Equipment Services, Series D 10.00% 11/30/04 2,000 1,980,000 Nebco Evans Hldg. Co. (STEP) 17.25%*** 07/15/07 800 296,000 Par Maturity (000) Value ---------- ------- ----------- CORPORATE BONDS (CONTINUED) INDUSTRIAL (CONTINUED) Northeast Optic Network 12.75% 08/15/08 $ 2,000 $ 2,040,000 Pogo Producing Co., Series 144A 10.38% 02/15/09 1,000 1,037,500 Polaroid Corp. 11.50% 02/15/06 1,000 1,043,750 PSINet Inc., Series 144A 11.00%+ 08/01/09 1,000 985,000 Repap New Brunswick 10.63% 04/15/05 1,000 872,500 Republic Tech RTI Capital, Series 144A 13.75% 07/15/09 1,000 950,000 Revlon Consumer Products 8.63%+ 02/01/08 2,000 1,630,000 Sinclair Broadcast Group 9.00% 07/15/07 2,000 1,895,000 St. John Knits Intl., Inc., Series 144A 12.50% 07/01/09 1,000 915,000 U.S. Home 8.88% 02/15/09 1,000 910,000 Veritas DGC, Inc. 9.75% 10/15/03 1,000 1,012,500 Waterford Gaming, LLC Sr. Notes, Series 144A 9.50% 03/15/10 1,000 972,500 Wec Co., Inc., Series 144A 12.00% 07/15/09 1,000 980,000 Willis Corroon Corp. 9.00% 02/01/09 1,000 905,000 ----------- 34,037,290 ----------- OIL AND GAS -- 9.9% Chesapeake Energy Corp. 9.13%+ 04/15/06 1,500 1,380,000 Dual Drilling Co. 9.88% 01/15/04 100 104,000 Grey Wolf, Inc., Series C 8.88% 07/01/07 1,500 1,350,000 Key Energy Services, Inc., Series B 14.00% 01/15/09 1,000 1,065,000 R&B Falcon Corp. 12.25% 03/15/06 2,000 2,110,000 Swift Energy Co. 10.25% 08/01/09 1,550 1,557,750 Western Gas Resources, Series 144A 10.00% 06/15/09 1,500 1,533,750 ----------- 9,100,500 ----------- RETAIL -- 7.1% Group One Automotive, Inc. 10.88% 03/01/09 1,000 950,000 J. Crew Group, Inc., Series B (STEP) 13.44%*** 10/15/08 1,500 787,500 J.H. Heafner Co., Series D 10.00% 05/15/08 1,000 940,000 Mattress Discounters Corp. 12.63% 07/15/07 1,000 950,000 Sbarro, Inc., Sr. Notes, Series 144A 11.00% 09/15/09 1,000 988,750 Sonic Automotive, Inc., Series B 11.00% 08/01/08 2,000 1,910,000 ----------- 6,526,250 ----------- See accompanying notes to financial statements. 43 BLACKROCK FUNDS SCHEDULE OF INVESTMENTS HIGH YIELD BOND PORTFOLIO (CONCLUDED) Par AS OF SEPTEMBER 30, 1999 Maturity (000) Value ---------- ------- ----------- CORPORATE BONDS (CONTINUED) SPECIAL PURPOSE -- 7.8% Nextel Partners, Inc. (STEP) 13.57%*** 02/01/09 $ 4,100 $ 2,439,500 Penhall Acquisition Corp.(STEP) 12.00%*** 08/01/06 2,000 1,960,000 Pinnacle Hldgs., Inc. (STEP) 12.26%*** 03/15/08 3,000 1,732,500 Zais Investment Grade Ltd. 9.95% 09/23/14 1,000 990,000 ----------- 7,122,000 ----------- TELECOMMUNICATIONS -- 24.8% Allegiance Telecom, Inc., Series 144A (STEP) 12.52%*** 02/15/08 3,000 1,935,000 Diamond Cable Communications PLC 10.62% 12/15/05 1,000 902,500 Echostar DBS Corp. 9.38%+ 02/01/09 2,000 1,975,000 Echostar DBS Corp., Series 144A 9.25% 02/01/06 1,000 987,500 Globenet Communications Group Ltd., Series 144A 13.00% 07/15/07 1,500 1,485,000 Hyperion Telecommunications, Series B (STEP) 12.29%*** 04/15/03 2,000 1,690,000 IPC Info. Systems (STEP) 11.92%*** 05/01/08 3,000 2,280,000 James Cable Partners LP, Series B 10.75% 08/15/04 1,000 1,005,000 Spectrasite Holdings, Inc., Series 144A (STEP) 11.25%*** 04/15/09 2,000 1,000,000 Teligent, Inc. 11.50% 12/01/07 2,000 1,840,000 United Pan-Europe Communications, Series 144A (STEP) 12.50%*** 08/01/09 4,000 2,240,000 United Pan-Europe Communications, NV, Series 144A 10.88% 08/01/09 1,500 1,522,500 Versatel Telecom BV, Sr. Notes 11.88% 07/15/09 1,000 950,000 Viatel, Inc. (STEP) 11.93%*** 04/15/08 1,600 928,000 Williams Communications Group, Inc., Sr. Notes 10.88% 10/01/09 1,000 992,490 Worldwide Fiber, Inc., Series 144A 12.00% 08/01/09 1,000 975,000 ----------- 22,707,990 ----------- TOTAL CORPORATE BONDS (Cost $85,207,468) 83,004,030 ----------- Shares Value ---------- ----------- SHORT TERM INVESTMENTS -- 0.2% Galileo Money Market Fund 194,162 $ 194,162 (Cost $194,162) ----------- TOTAL INVESTMENTS IN SECURITIES -- 100.0% (Cost $94,176,716*) $91,575,007 =========== - ----------------------- * Also cost for Federal income tax purposes. The gross unrealized appreciation (depreciation) on a tax basis is as follows: Gross unrealized appreciation $ 753,363 Gross unrealized depreciation (3,355,072) ----------- $(2,601,709) =========== ** Rates shown are the rates as of September 30, 1999. ***Rates shown are the effective yields as of September 30, 1999. +Partial principal in the amount of $9,250,000 has been pledged as collateral for reverse repurchase agreements. -------------------------------------------------- INVESTMENT ABBREVIATIONS CPI Consumer Price Index IO Interest Only PIK Payment In Kind PO Principal Only STEP Step Bonds -------------------------------------------------- See accompanying notes to financial statements. 44 BLACKROCK FUNDS STATEMENT OF ASSETS AND LIABILITIES HIGH YIELD BOND PORTFOLIO SEPTEMBER 30, 1999 ASSETS Investments at value (Cost $94,176,716) .................... $91,575,007 Interest receivable ........................................ 1,593,994 Investments sold receivable ................................ 3,068,771 Capital shares sold receivable ............................. 177,857 Prepaid expenses ........................................... 30,644 ----------- Total assets ........................................ 96,446,273 ----------- LIABILITIES Investments purchased payable .............................. 5,475,188 Capital shares redeemed payable ............................ 5,964 Distributions payable ...................................... 696,704 Transfer agent fees payable ................................ 8,913 Other accrued expenses payable ............................. 103,050 Reverse repurchase agreements payable ...................... 6,831,443 ----------- Total liabilities ................................... 13,121,262 ----------- NET ASSETS (Applicable to 11 BlackRock shares, 6,561,608 Institutional shares, 11 Service shares, 453,319 Investor A shares, 1,274,781 Investor B shares and 271,952 Investor C shares outstanding) ........................................ $83,325,011 =========== NET ASSET VALUE AND REDEMPTION PRICE PER BLACKROCK, INSTITUTIONAL, SERVICE AND INVESTOR A SHARE ($68,271,709 (DIVIDE) 7,014,949) ........................... $ 9.73 =========== OFFERING PRICE PER BLACKROCK, INSTITUTIONAL AND SERVICE SHARE .......................................... $ 9.73 =========== MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($9.73 (DIVIDE) 0.950) ..................................... $ 10.24 =========== NET ASSET VALUE AND REDEMPTION PRICE (subject to a maximum contingent deferred sales charge of 4.5%) PER INVESTOR B SHARE ($12,406,541 (DIVIDE) 1,274,781) ........................... $ 9.73 =========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE (subject to a maximum contingent deferred sales charge of 1.0%) PER INVESTOR C SHARE ($2,646,761 (DIVIDE) 271,952) .............................. $ 9.73 =========== See accompanying notes to financial statements. 45 BLACKROCK FUNDS STATEMENT OF OPERATIONS Intermediate Low Duration Government Intermediate Core Bond Bond Bond Bond FOR THE PERIOD ENDED SEPTEMBER 30, 1999 Portfolio Portfolio Portfolio Portfolio ------------ ------------ ------------ ------------ Investment income: Interest ...................................... $ 24,421,063 $ 29,864,362 $ 43,481,151 $ 63,329,067 Dividend ...................................... -- -- -- 349,605 ------------ ------------ ------------ ------------ Total Investment Income .............. 24,421,063 29,864,362 43,481,151 63,678,672 ------------ ------------ ------------ ------------ Expenses: Investment advisory fee ....................... 1,474,052 2,269,860 2,765,839 4,630,434 Administration fee ............................ 613,780 1,044,136 1,233,704 1,952,797 Custodian fee ................................. 85,328 100,156 134,224 189,847 Transfer agent fee ............................ 73,232 152,503 168,894 277,362 Shareholders servicing fees ................... 42,659 71,423 46,537 173,513 Shareholders processing fees .................. 36,024 60,266 43,405 148,549 Distribution fees ............................. 29,672 6,773 5,874 140,631 Legal and audit ............................... 16,792 27,917 43,468 44,979 Printing ...................................... 30,105 53,644 56,820 90,126 Registration fees and expenses ................ 42,344 42,853 43,454 89,362 Trustees' fees and officers' salary ........... 5,310 7,481 9,228 15,152 Other ......................................... 26,824 15,506 35,003 54,333 ------------ ------------ ------------ ------------ 2,476,122 3,852,518 4,586,450 7,807,085 Less fees waived .............................. (865,919) (982,062) (1,219,418) (2,378,468) ------------ ------------ ------------ ------------ Total operating expenses .................... 1,610,203 2,870,456 3,367,032 5,428,617 ------------ ------------ ------------ ------------ Interest expense .............................. 5,415,586 931,838 6,296,639 3,507,923 ------------ ------------ ------------ ------------ Total expenses ....................... 7,025,789 3,802,294 9,663,671 8,936,540 ------------ ------------ ------------ ------------ Net investment income ......................... 17,395,274 26,062,068 33,817,480 54,742,132 ------------ ------------ ------------ ------------ Realized and unrealized gain (loss) on investments and foreign currency transactions: Net realized gain (loss) from: Investment transactions ..................... (896,197) (2,881,688) (4,686,514) (14,819,766) Futures, options and swap contracts ......... 774,798 (213,396) 585,468 4,402,103 Foreign currency and forward foreign currency transactions ............ 22,966 -- -- -- ------------ ------------ ------------ ------------ (98,433) (3,095,084) (4,101,046) (10,417,663) ------------ ------------ ------------ ------------ Change in unrealized appreciation (depreciation) from: Investments ................................ (6,238,651) (18,532,012) (22,466,057) (47,011,093) Futures .................................... 110,076 (1,198,976) (1,141,333) 743,381 Foreign currency and forward foreign currency transactions ............ (5,150) -- -- -- ------------ ------------ ------------ ------------ (6,133,725) (19,730,988) (23,607,390) (46,267,712) ------------ ------------ ------------ ------------ Net loss on investments and foreign currency transactions ................. (6,232,158) (22,826,072) (27,708,436) (56,685,375) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations ..................... $ 11,163,116 $ 3,235,996 $ 6,109,044 $ (1,943,243) ============ ============ ============ ============ Government Managed International High Yeild Income GNMA Income Bond Bond FOR THE PERIOD ENDED SEPTEMBER 30, 1999 Portfolio Portfolio Portfolio Portfolio Portfolio 1 ----------- ------------ ------------- -------------- ------------ Investment income: Interest ...................................... $ 3,140,950 $ 8,090,139 $ 120,078,257 $ 2,865,867 $ 5,569,680 Dividend ...................................... -- -- 673,973 -- 572,176 ----------- ------------ ------------- ----------- ----------- Total Investment Income .............. 3,140,950 8,090,139 120,752,230 2,865,867 6,141,856 ----------- ------------ ------------- ----------- ----------- Expenses: Investment advisory fee ....................... 216,293 634,360 7,687,219 327,368 263,946 Administration fee ............................ 99,496 265,278 3,351,362 136,887 94,182 Custodian fee ................................. 34,483 45,845 300,760 70,756 17,609 Transfer agent fee ............................ 46,780 37,296 499,357 24,110 26,377 Shareholders servicing fees ................... 107,761 3,370 471,603 19,062 25,179 Shareholders processing fees .................. 64,657 2,050 449,461 13,206 15,107 Distribution fees ............................. 271,685 1,722 41,453 28,673 57,531 Legal and audit ............................... 2,126 21,776 96,073 2,818 146,826 Printing ...................................... 6,868 29,161 192,888 6,298 94,238 Registration fees and expenses ................ 28,563 46,662 68,866 40,868 74,621 Trustees' fees and officers' salary ........... 2,132 2,331 26,111 1,112 818 Other ......................................... 9,276 9,153 86,236 6,200 9,175 ----------- ------------ ------------- ----------- ----------- 890,120 1,099,004 13,271,389 677,358 825,609 Less fees waived .............................. (156,328) (398,908) (1,897,607) -- (346,897) ----------- ------------ ------------- ----------- ----------- Total operating expenses .................... 733,792 700,096 11,373,782 677,358 478,712 ----------- ------------ ------------- ----------- ----------- Interest expense .............................. 388,568 299,401 12,816,441 -- 175,871 ----------- ------------ ------------- ----------- ----------- Total expenses ....................... 1,122,360 999,497 24,190,223 677,358 654,583 ----------- ------------ ------------- ----------- ----------- Net investment income ......................... 2,018,590 7,090,642 96,562,007 2,188,509 5,487,273 ----------- ------------ ------------- ----------- ----------- Realized and unrealized gain (loss) on investments and foreign currency transactions: Net realized gain (loss) from: Investment transactions ..................... (1,136,136) (1,603,496) (22,540,668) 430,530 (683,582) Futures, options and swap contracts ......... (14,127) 850,856 13,215,459 69,671 -- Foreign currency and forward foreign currency transactions ............ -- -- 50,945 (574,817) -- ----------- ------------ ------------- ----------- ----------- (1,150,263) (752,640) (9,274,264) (74,616) (683,582) ----------- ------------ ------------- ----------- ----------- Change in unrealized appreciation (depreciation) from: Investments ................................ (2,006,796) (5,547,769) (88,092,007) (3,737,533) (2,601,709) Futures .................................... 208,625 630,299 8,228,816 427,893 -- Foreign currency and forward foreign currency transactions ............ -- -- (8,839) 1,758,171 -- ----------- ------------ ------------- ----------- ----------- (1,798,171) (4,917,470) (79,872,030) (1,551,469) (2,601,709) ----------- ------------ ------------- ----------- ----------- Net loss on investments and foreign currency transactions ................. (2,948,434) (5,670,110) (89,146,294) (1,626,085) (3,285,291) ----------- ------------ ------------- ----------- ----------- Net increase (decrease) in net assets resulting from operations ..................... $ (929,844) $ 1,420,532 $ 7,415,713 $ 562,424 $ 2,201,982 =========== ============ ============= =========== =========== - -------------- 1 For the period November 19, 1998 (commencement of operations) through September 30, 1999. See accompanying notes to financial statements. 46 & 47 BLACKROCK FUNDS STATEMENT OF CASH FLOWS LOW DURATION BOND PORTFOLIO FOR THE YEAR ENDED SEPTEMBER 30, 1999 Cash provided by (used in) Operating Activities Investment income received ................................. $ 24,562,030 Operating expenses paid .................................... (1,666,623) Interest expense paid ...................................... (5,415,586) ------------- Net increase in cash from operating activities ................ 17,479,821 ------------- Cash provided by (used in) Investing Activities Purchases of long-term investments ......................... (750,177,615) Proceeds from disposition of long-term portfolio investments ................................... 812,098,531 Net proceeds from disposition of short-term investments .... 800,520 ------------- Net increase in cash from investing activities ................ 62,721,436 ------------- Cash provided by (used in) Financing Activities Cash dividends paid ........................................ (12,222,198) Net borrowing relative to reverse repurchase agreements .... (4,822,010) Proceeds related to capital stock purchases ................ 153,592,782 Cash paid related to capital stock redemptions ............. (216,749,831) ------------- Net decrease in cash from financing activities ................ (80,201,257) ------------- Net increase (decrease) in cash ............................... -- Cash at beginning of year ..................................... -- ------------- Cash at end of year ........................................... $ -- ============= Net increase in net assets resulting from operations .......... $ 11,163,116 Adjustments: Increase in interest receivable ............................ (160,154) Amortization of premium and accretion of discount .......... 301,121 Decrease in accrued expenses ............................... (32,734) Increase in prepaid expenses ............................... (23,686) Net realized and changes in unrealized gain (loss) on investments .................................... 6,232,158 ------------- Total adjustments ............................................. 6,316,705 ------------- NET INCREASE IN CASH FROM OPERATING ACTIVITIES ................ $ 17,479,821 ============= See accompanying notes to financial statements. 48 BLACKROCK FUNDS STATEMENT OF CASH FLOWS INTERMEDIATE BOND PORTFOLIO FOR THE YEAR ENDED SEPTEMBER 30, 1999 Cash provided by (used in) Operating Activities Investment income received ............................ $ 41,597,201 Operating expenses paid ............................... (3,408,378) Interest expense paid ................................. (6,296,639) --------------- Net increase in cash from operating activities ........... 31,892,184 --------------- Cash provided by (used in) Investing Activities Purchases of long-term investments .................... (1,616,050,671) Proceeds from disposition of long-term portfolio investments ............................... 1,626,300,625 Net proceeds from disposition of short-term investments 4,572,225 --------------- Net increase in cash from investing activities ........... 14,822,179 --------------- Cash provided by (used in) Financing Activities Cash dividends paid ................................... (32,548,025) Net borrowing relative to reverse repurchase agreements (19,518,775) Proceeds related to capital stock purchases ........... 125,647,027 Cash related to capital stock redemptions ............. (120,294,590) --------------- Net decrease in cash from financing activities ........... (46,714,363) --------------- Net increase (decrease) in cash .......................... -- Cash at beginning of year ................................ -- --------------- Cash at end of year ...................................... $ -- =============== Net increase in net assets resulting from operations ..... $ 6,109,044 Adjustments: Increase in interest receivable ....................... (2,433,135) Amortization of premium and accretion of discount ..... 549,185 Decrease in accrued expenses .......................... (15,968) Increase in prepaid expenses .......................... (25,378) Net realized and changes in unrealized gain (loss) on investments ............................... 27,708,436 --------------- Total adjustments ........................................ 25,783,140 --------------- NET INCREASE IN CASH FROM OPERATING ACTIVITIES ........... $ 31,892,184 =============== See accompanying notes to financial statements. 49 BLACKROCK FUNDS STATEMENT OF CASH FLOWS GOVERNMENT INCOME PORTFOLIO FOR THE YEAR ENDED SEPTEMBER 30, 1999 Cash provided by (used in) Operating Activities Investment income received ............................ $ 2,895,655 Operating expenses paid ............................... (685,292) Interest expense paid ................................. (388,568) ------------- Net increase in cash from operating activities ........... 1,821,795 ------------- Cash provided by (used in) Investing Activities Purchases of long-term investments .................... (136,881,669) Proceeds from disposition of long-term portfolio investments ............................... 108,073,146 Net proceeds from disposition of short-term investments ......................................... 142,890 ------------- Net decrease in cash from investing activities ........... (28,665,633) ------------- Cash provided by (used in) Financing Activities Cash dividends paid ................................... (1,211,598) Net proceeds relative to reverse repurchase agreements .......................................... 14,372,726 Proceeds related to capital stock purchases ........... 26,236,581 Cash paid related to capital stock redemptions ........ (12,553,871) ------------- Net increase in cash from financing activities ........... 26,843,838 ------------- Net increase (decrease) in cash .......................... -- Cash at beginning of year ................................ -- ------------- Cash at end of year ...................................... $ -- ============= Net decrease in net assets resulting from operations ..... $ (929,844) Adjustments: Increase in interest receivable ....................... (340,867) Amortization of premium and accretion of discount ..... 95,572 Increase in accrued expenses .......................... 49,370 Increase in prepaid expenses .......................... (870) Net realized and changes in unrealized gain (loss) on investments ................................ 2,948,434 ------------- Total adjustments ........................................ 2,751,639 ------------- NET INCREASE IN CASH FROM OPERATING ACTIVITIES ........... $ 1,821,795 ============= See accompanying notes to financial statements. 50 BLACKROCK FUNDS STATEMENT OF CASH FLOWS MANAGED INCOME PORTFOLIO FOR THE YEAR ENDED SEPTEMBER 30, 1999 Cash provided by (used in) Operating Activities Investment income received ...................... $ 121,912,607 Operating expenses paid ......................... (11,425,363) Interest expense paid ........................... (12,816,441) --------------- Net increase in cash from operating activities ..... 97,670,803 --------------- Cash provided by (used in) Investing Activities Purchases of long-term investments .............. (5,005,986,179) Proceeds from disposition of long-term portfolio investments ......................... 4,843,887,655 Net proceeds from disposition of short-term investments ................................... 36,758,130 --------------- Net decrease in cash from investing activities ..... (125,340,394) --------------- Cash provided by (used in) Financing Activities Cash dividends paid ............................. (92,221,837) Net proceeds relative to reverse repurchase agreements .................................... 101,908,367 Proceeds related to capital stock purchases ..... 464,949,516 Cash paid related to capital stock redemptions .. (447,106,731) --------------- Net increase in cash from financing activities ..... 27,529,315 --------------- Net increase (decrease) in cash .................... (140,276) Cash at beginning of year .......................... -- --------------- Cash at end of year ................................ $ (140,276) =============== Net increase in net assets resulting from operations $ 7,415,713 Adjustments: Decrease in interest receivable ................. 385,655 Amortization of premium and accretion of discount 774,722 Decrease in accrued expenses .................... (45,586) Increase in prepaid expenses .................... (5,995) Net realized and changes in unrealized gain (loss) on investments ......................... 89,146,294 --------------- Total adjustments .................................. 90,255,090 --------------- NET INCREASE IN CASH FROM OPERATING ACTIVITIES ..... $ 97,670,803 =============== See accompanying notes to financial statements. 51 BLACKROCK FUNDS STATEMENT OF CHANGES IN NET ASSETS Low Duration Intermediate Government Bond Portfolio Bond Portfolio ----------------------------- ----------------------------- For the For the For the For the Year Ended Year Ended Year Ended Year Ended 9/30/99 9/30/98 9/30/99 9/30/98 ------------- ------------- ------------- ------------- Increase (decrease) in net assets: Operations: Net investment income ....................... $ 17,395,274 $ 17,152,014 $ 26,062,068 $ 15,170,724 Net realized gain (loss) on investments, futures, swap contracts and foreign currency related transactions ............. (98,433) 1,489,712 (3,095,084) 5,199,304 Net unrealized gain (loss) on investments, futures contracts and foreign currency related transactions ...................... (6,133,725) 2,743,208 (19,730,988) 9,657,287 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations ................. 11,163,116 21,384,934 3,235,996 30,027,315 ------------- ------------- ------------- ------------- Distributions to shareholders from: Net investment income: BlackRock Class ............................. (6,048,576) (6,991,384) -- -- Institutional Class ......................... (10,205,420) (5,569,323) (23,884,375) (11,983,641) Service Class ............................... (982,999) (4,082,739) (1,570,838) (2,952,271) Investor A Class ............................ (146,545) (80,989) (566,000) (313,796) Investor B Class ............................ (153,762) (8,711) (25,528) (5,639) Investor C Class ............................ (33,050) (8,683) (15,327) (7,054) ------------- ------------- ------------- ------------- Total distribution from net investment income (17,570,352) (16,741,829) (26,062,068) (15,262,401) ------------- ------------- ------------- ------------- Net realized gains: BlackRock Class ............................. -- -- -- -- Institutional Class ......................... -- -- (3,300,185) -- Service Class ............................... -- -- (226,970) -- Investor A Class ............................ -- -- (64,227) -- Investor B Class ............................ -- -- (3,359) -- Investor C Class ............................ -- -- (2,283) -- ------------- ------------- ------------- ------------- Total distributions from net realized gains . -- -- (3,597,024) -- ------------- ------------- ------------- ------------- Total distributions to shareholders ......... (17,570,352) (16,741,829) (29,659,092) (15,262,401) ------------- ------------- ------------- ------------- Capital share transactions ...................... (57,491,456) 69,892,569 (29,475,513) 312,660,657 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets ..... (63,898,692) 74,535,674 (55,898,609) 327,425,571 ------------- ------------- ------------- ------------- Net assets: Beginning of period ......................... 329,362,987 254,827,313 480,018,299 152,592,728 ------------- ------------- ------------- ------------- End of period ............................... $ 265,464,295 $ 329,362,987 $ 424,119,690 $ 480,018,299 ============= ============= ============= ============= Intermediate Core Bond Portfolio Bond Portfolio ----------------------------- ----------------------------- For the For the For the For the Year Ended Year Ended Year Ended Year Ended 9/30/99 9/30/98 9/30/99 9/30/98 ------------- ------------- ------------- ------------- Increase (decrease) in net assets: Operations: Net investment income ....................... $ 33,817,480 $ 25,472,505 $ 54,742,132 $ 42,612,702 Net realized gain (loss) on investments, futures, swap contracts and foreign currency related transactions ............. (4,101,046) 5,387,354 (10,417,663) 17,428,853 Net unrealized gain (loss) on investments, futures contracts and foreign currency related transactions ...................... (23,607,390) 8,072,392 (46,267,712) 13,393,733 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations ................. 6,109,044 38,932,251 (1,943,243) 73,435,288 ------------- ------------- ------------- ------------- Distributions to shareholders from: Net investment income: BlackRock Class ............................. (2,641,213) -- (7,653,342) (5,050,600) Institutional Class ......................... (29,342,529) (20,947,487) (41,755,750) (28,236,789) Service Class ............................... (1,493,193) (3,490,893) (4,174,386) (194,059) Investor A Class ............................ (132,451) (68,932) (341,839) (9,446,081) Investor B Class ............................ (30,269) (1,147) (640,192) (398,527) Investor C Class ............................ (7,995) (817,619) (249,542) (27,851) ------------- ------------- ------------- ------------- Total distribution from net investment income (33,647,650) (25,326,078) (54,815,051) (43,353,907) ------------- ------------- ------------- ------------- Net realized gains: BlackRock Class ............................. (510,365) -- (13,815,881) (3,729,958) Institutional Class ......................... (5,190,232) (1,533,689) (2,995,248) (450,932) Service Class ............................... (290,823) (278,199) (1,570,759) (1,587,760) Investor A Class ............................ (21,977) (5,904) (119,321) (23,612) Investor B Class ............................ (1,947) -- (277,734) (55,299) Investor C Class ............................ (132) -- (73,497) (1,658) ------------- ------------- ------------- ------------- Total distributions from net realized gains . (6,015,476) (1,817,792) (18,852,440) (5,849,219) ------------- ------------- ------------- ------------- Total distributions to shareholders ......... (39,663,126) (27,143,870) (73,667,491) (49,203,126) ------------- ------------- ------------- ------------- Capital share transactions ...................... 13,472,500 205,815,141 187,075,237 259,333,943 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets ..... (20,081,582) 217,603,522 111,464,503 283,566,105 ------------- ------------- ------------- ------------- Net assets: Beginning of period ......................... 566,744,493 349,140,971 855,534,355 571,968,250 ------------- ------------- ------------- ------------- End of period ............................... $ 546,662,911 $ 566,744,493 $ 966,998,858 $ 855,534,355 ============= ============= ============= ============= See accompanying notes to financial statements. 52 & 53 BLACKROCK FUNDS STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) Government Income Portfolio ----------------------------- For the For the Year Ended Year Ended 9/30/99 9/30/98 ------------- ------------- Increase (decrease) in net assets: Operations: Net investment income .......................................... $ 2,018,590 $ 1,235,776 Net realized gain (loss)on investments, futures, swap contracts and foreign currency related transactions ................................ (1,150,263) 754,990 Net unrealized gain (loss) on investments, futures contracts and foreign currency related transactions ................................ (1,798,171) 607,625 ------------ ------------ Net increase (decrease) in net assets resulting from operations .................................... (929,844) 2,598,391 ------------ ------------ Distributions to shareholders from: Net investment income: BlackRock Class ................................................ -- -- Institutional Class ............................................ -- -- Service Class .................................................. -- -- Investor A Class ............................................... (362,323) (331,498) Investor B Class ............................................... (1,504,558) (965,806) Investor C Class ............................................... (119,390) (69,148) ------------ ------------ Total distribution from net investment income................... (1,986,271) (1,366,452) ------------ ------------ Capital: BlackRock Class ................................................ -- -- Institutional Class ............................................ -- -- Service Class .................................................. -- -- Investor A Class ............................................... (44,311) -- Investor B Class ............................................... (229,401) -- Investor C Class ............................................... (16,072) -- ------------ ------------ Total distributions from capital ............................... (289,784) -- ------------ ------------ Net realized gains: BlackRock Class ................................................ -- -- Institutional Class ............................................ -- -- Service Class .................................................. -- -- Investor A Class ............................................... (101,189) (51,565) Investor B Class ............................................... (445,394) (226,059) Investor C Class ............................................... (37,364) (9,696) ------------ ------------ Total distributions from net realized gains .................... (583,947) (287,320) ------------ ------------ Total distributions to shareholders ............................ (2,860,002) (1,653,772) ------------ ------------ Capital share transactions ......................................... 14,927,649 11,295,834 ------------ ------------ Total increase (decrease) in net assets ........................ 11,137,803 12,240,453 ------------ ------------ Net assets: Beginning of period ............................................ 32,761,188 20,520,735 ------------ ------------ End of period .................................................. $ 43,898,991 $ 32,761,188 ============ ============ GNMA Managed Portfolio Income Portfolio ------------------------------- ---------------------------------- For the For the Period 5/18/98 1 For the For the Year Ended through Year Ended Year Ended 9/30/99 9/30/98 9/30/99 9/30/98 ------------- ---------------- --------------- --------------- Increase (decrease) in net assets: Operations: Net investment income ....................... $ 7,090,642 $ 2,681,619 $ 96,562,007 $ 67,146,905 Net realized gain (loss)on investments, futures, swap contracts and foreign currency related transactions ............. (752,640) 687,615 (9,274,264) 25,885,211 Net unrealized gain (loss) on investments, futures contracts and foreign currency related transactions ............. (4,917,470) 482,471 (79,872,030) 12,918,888 ------------- ---------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations ................. 1,420,532 3,851,705 7,415,713 105,951,004 ------------- ---------------- --------------- --------------- Distributions to shareholders from: Net investment income: BlackRock Class ............................. -- -- -- -- Institutional Class ......................... (6,866,829) (2,564,992) (79,275,756) (47,894,845) Service Class ............................... (2,614) (2) (16,129,657) (19,460,184) Investor A Class ............................ (60,535) (2,179) (938,291) (829,070) Investor B Class ............................ (10,508) (923) (267,898) (111,579) Investor C Class ............................ (485) (2) (1,887) -- ------------- ---------------- --------------- --------------- Total distribution from net investment income (6,940,971) (2,568,098) (96,613,489) (68,295,678) ------------- ---------------- --------------- --------------- Capital: BlackRock Class ............................. -- -- -- -- Institutional Class ......................... -- -- -- -- Service Class ............................... -- -- -- -- Investor A Class ............................ -- -- -- -- Investor B Class ............................ -- -- -- -- Investor C Class ............................ -- -- -- -- ------------- ---------------- --------------- --------------- Total distributions from capital ............ -- -- -- -- ------------- ---------------- --------------- --------------- Net realized gains: BlackRock Class ............................. -- -- -- -- Institutional Class ......................... (216,280) -- (19,011,738) (2,168,258) Service Class ............................... -- -- (3,866,356) (1,199,800) Investor A Class ............................ (1,241) -- (252,718) (70,278) Investor B Class ............................ (413) -- (71,999) (4,924) Investor C Class ............................ (1) -- -- -- ------------- ---------------- --------------- --------------- Total distributions from net realized gains . (217,935) -- (23,202,811) (3,443,260) ------------- ---------------- --------------- --------------- Total distributions to shareholders ......... (7,158,906) (2,568,098) (119,816,300) (71,738,938) ------------- ---------------- --------------- --------------- Capital share transactions ...................... (1,486,779) 117,456,386 45,013,063 758,310,929 ------------- ---------------- --------------- --------------- Total increase (decrease) in net assets ..... (7,225,153) 118,739,993 (67,387,524) 792,522,995 ------------- ---------------- --------------- --------------- Net assets: Beginning of period ......................... 118,739,993 -- 1,612,231,266 819,708,271 ------------- ---------------- --------------- --------------- End of period ............................... $ 111,514,840 $ 118,739,993 $ 1,544,843,742 $ 1,612,231,266 ============= ================ =============== =============== International High Yield Bond Portfolio Bond Portfolio ----------------------------- ----------------- For the For the For the Year ended Year ended Period 11/19/98 1 9/30/99 9/30/98 through 9/30/99 ------------- ------------ ----------------- Increase (decrease) in net assets: Operations: Net investment income .................................... $ 2,188,509 $ 1,952,167 $ 5,487,273 Net realized gain (loss)on investments, futures, swap contracts and foreign currency related transactions .......................... (74,616) 3,224,013 (683,582) Net unrealized gain (loss) on investments, futures contracts and foreign currency related transactions .......................... (1,551,469) 576,217 (2,601,709) ------------ ------------ ----------------- Net increase (decrease) in net assets resulting from operations .............................. 562,424 5,752,397 2,201,982 ------------ ------------ ----------------- Distributions to shareholders from: Net investment income: BlackRock Class .......................................... -- -- (8) Institutional Class ...................................... (2,894,971) (2,043,103) (4,262,789) Service Class ............................................ (158,774) (320,780) (8) Investor A Class ......................................... (107,062) (64,752) (231,248) Investor B Class ......................................... (88,432) (51,701) (554,384) Investor C Class ......................................... (80,994) (37,046) (124,941) ------------ ------------ ----------------- Total distribution from net investment income............. (3,330,233) (2,517,382) (5,173,378) ------------ ------------ ----------------- Capital: BlackRock Class .......................................... -- -- -- Institutional Class ...................................... -- -- -- Service Class ............................................ -- -- -- Investor A Class ......................................... -- -- -- Investor B Class ......................................... -- -- -- Investor C Class ......................................... -- -- -- ------------ ------------ ----------------- Total distributions from capital ......................... -- -- -- ------------ ------------ ----------------- Net realized gains: BlackRock Class .......................................... -- -- -- Institutional Class ...................................... -- (1,522,323) -- Service Class ............................................ -- (266,359) -- Investor A Class ......................................... -- (41,747) -- Investor B Class ......................................... -- (38,402) -- Investor C Class ......................................... -- (21,891) -- ------------ ------------ ----------------- Total distributions from net realized gains .............. -- (1,890,722) -- ------------ ------------ ----------------- Total distributions to shareholders ...................... (3,330,233) (4,408,104) (5,173,378) ------------ ------------ ----------------- Capital share transactions ................................... 22,619,783 (3,333,959) 86,296,407 ------------ ------------ ----------------- Total increase (decrease) in net assets .................. 19,851,974 (1,989,666) 83,325,011 ------------ ------------ ----------------- Net assets: Beginning of period ...................................... 50,497,190 52,486,856 -- ------------ ------------ ----------------- End of period ............................................ $ 70,349,164 $ 50,497,190 $ 83,325,011 ============ ============ ================= - ------------------- 1 Commencement of operations. See accompanying notes to financial statements. 54 & 55 BLACKROCK FUNDS FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Net Net gain Distributions Distributions Net asset (loss) on Distributions in excess Distributions in excess asset value Net investments from net of net from net of net value beginning Investment (both realized investment investment realized realized end of of period income and unrealized) income income gains gains period - ------------------------------------------------------------------------------------------------------------------------------------ - --------------------------- LOW DURATION BOND PORTFOLIO - --------------------------- BLACKROCK CLASS 9/30/99 $10.03 $ 0.61 $(0.22) $(0.60) $-- $ -- $-- $ 9.82 9/30/98 9.89 0.59 0.12 (0.57) -- -- -- 10.03 6/3/97 1 through 9/30/97 9.82 0.19 0.07 (0.19) -- -- -- 9.89 INSTITUTIONAL CLASS 9/30/99 $10.03 $ 0.58 $(0.20) $(0.59) $-- $ -- $-- $ 9.82 9/30/98 9.89 0.56 0.14 (0.56) -- -- -- 10.03 9/30/97 9.79 0.58 0.08 (0.56) -- -- -- 9.89 4/1/96 through 9/30/96 9.79 0.28 (0.01) (0.27) -- -- -- 9.79 7/1/95 through 3/31/96 9.83 0.42 -- (0.41) -- (0.01) -- 9.79 6/30/95 9.71 0.58 0.13 (0.58) -- (0.01) -- 9.83 SERVICE CLASS 9/30/99 $10.03 $ 0.55 $(0.20) $(0.56) $-- $ -- $-- $ 9.82 9/30/98 9.89 0.66 0.01 (0.53) -- -- -- 10.03 9/30/97 9.79 0.54 0.09 (0.53) -- -- -- 9.89 4/1/96 through 9/30/96 9.79 0.26 (0.01) (0.25) -- -- -- 9.79 1/12/96 1 through 3/31/96 9.91 0.11 (0.12) (0.11) -- -- -- 9.79 INVESTOR A CLASS 9/30/99 $10.03 $ 0.54 $(0.21) $(0.54) $-- $ -- $-- $ 9.82 9/30/98 9.89 0.51 0.14 (0.51) -- -- -- 10.03 9/30/97 9.79 0.52 0.09 (0.51) -- -- -- 9.89 4/1/96 through 9/30/96 9.79 0.25 (0.01) (0.24) -- -- -- 9.79 1/12/96 1 through 3/31/96 9.91 0.10 (0.12) (0.10) -- -- -- 9.79 INVESTOR B CLASS 9/30/99 $10.03 $ 0.45 $(0.19) $(0.47) $-- $ -- $-- $ 9.82 9/30/98 9.89 0.41 0.17 (0.44) -- -- -- 10.03 11/18/96 1 through 9/30/97 9.86 0.41 -- (0.38) -- -- -- 9.89 INVESTOR C CLASS 9/30/99 $10.03 $ 0.46 $(0.20) $(0.47) $-- $ -- $-- $ 9.82 9/30/98 9.89 0.44 0.14 (0.44) -- -- -- 10.03 2/24/97 1 through 9/30/97 9.87 0.26 0.02 (0.26) -- -- -- 9.89 - -------------------------------------- INTERMEDIATE GOVERNMENT BOND PORTFOLIO - -------------------------------------- INSTITUTIONAL CLASS 9/30/99 $10.48 $ 0.59 $(0.51) $(0.59) $-- $(0.08) $-- $ 9.89 9/30/98 10.11 0.57 0.39 (0.59) -- -- -- 10.48 9/30/97 9.92 0.59 0.19 (0.59) -- -- -- 10.11 9/30/96 10.02 0.58 (0.11) (0.57) -- -- -- 9.92 9/30/95 9.64 0.58 0.38 (0.58) -- -- -- 10.02 SERVICE CLASS 9/30/99 $10.48 $ 0.56 $(0.51) $(0.56) $-- $(0.08) $-- $ 9.89 9/30/98 10.11 0.58 0.35 (0.56) -- -- -- 10.48 9/30/97 9.92 0.56 0.19 (0.56) -- -- -- 10.11 9/30/96 10.02 0.56 (0.12) (0.54) -- -- -- 9.92 9/30/95 9.64 0.56 0.37 (0.55) -- -- -- 10.02 INVESTOR A CLASS 9/30/99 $10.48 $ 0.54 $(0.51) $(0.54) $-- $(0.08) $-- $ 9.89 9/30/98 10.11 0.53 0.38 (0.54) -- -- -- 10.48 9/30/97 9.92 0.54 0.19 (0.54) -- -- -- 10.11 9/30/96 10.03 0.55 (0.13) (0.53) -- -- -- 9.92 9/30/95 9.64 0.55 0.39 (0.55) -- -- -- 10.03 INVESTOR B CLASS 9/30/99 $10.48 $ 0.46 $(0.51) $(0.46) $-- $(0.08) $-- $ 9.89 9/30/98 10.11 0.47 0.37 (0.47) -- -- -- 10.48 10/11/96 1 through 9/30/97 9.98 0.45 0.13 (0.45) -- -- -- 10.11 INVESTOR C CLASS 9/30/99 $10.48 $ 0.46 $(0.51) $(0.46) $-- $(0.08) $-- $ 9.89 9/30/98 10.11 0.47 0.37 (0.47) -- -- -- 10.48 10/8/96 1 through 9/30/97 9.98 0.45 0.13 (0.45) -- -- -- 10.11 - --------------------------- INTERMEDIATE BOND PORTFOLIO - --------------------------- BLACKROCK CLASS 9/30/99 $ 9.67 $ 0.58 $(0.47) $(0.58) $-- $(0.10) $-- $ 9.10 5/1/98 1 through 9/30/98 9.46 0.24 0.26 (0.24) -- (0.05) -- 9.67 Ratio of Net expenses to Ratio of expenses assets Ratio of average net to average Ratio of net end of expenses to assets net assets investment income Total period average net (excluding (excluding to average net return (000) assets interest expense) waivers) assets - ----------------------------------------------------------------------------------------------------------------------------------- - --------------------------- LOW DURATION BOND PORTFOLIO - --------------------------- BLACKROCK CLASS 9/30/99 4.06% $ 79,326 2.26% 0.41% 2.59% 6.04% 9/30/98 7.44 140,493 1.59 0.40 1.99 5.93 6/3/97 1 through 9/30/97 2.68 68,300 1.01 2 0.40 2 1.34 2 5.97 2 INSTITUTIONAL CLASS 9/30/99 3.91% $ 157,553 2.39% 0.56% 2.67% 5.89% 9/30/98 7.28 166,887 1.80 0.55 2.20 5.77 9/30/97 6.89 102,490 1.54 0.55 1.87 5.15 4/1/96 through 9/30/96 2.70 135,686 0.64 2 0.55 2 0.92 2 5.63 2 7/1/95 through 3/31/96 4.25 52,843 0.96 2 0.63 2 1.16 2 4.92 2 6/30/95 6.99 44,486 0.57 0.57 1.05 6.08 SERVICE CLASS 9/30/99 3.60% $ 16,872 2.70% 0.86% 2.97% 5.59% 9/30/98 6.96 18,393 1.98 0.85 2.38 5.49 9/30/97 6.57 82,873 1.85 0.85 2.18 4.86 4/1/96 through 9/30/96 2.54 91,870 0.97 2 0.85 2 1.25 2 5.28 2 1/12/96 1 through 3/31/96 (0.11) 181,670 1.18 2 0.85 2 1.38 2 4.92 2 INVESTOR A CLASS 9/30/99 3.42%3 $ 2,594 2.79% 1.02% 3.07% 5.38% 9/30/98 6.78 3 2,850 2.32 1.02 2.72 5.29 9/30/97 6.39 3 1,079 2.02 1.02 2.35 4.72 4/1/96 through 9/30/96 2.46 3 938 1.12 1.02 2 1.40 2 5.10 2 1/12/96 1 through 3/31/96 (0.15)3 719 1.34 2 1.01 2 1.54 2 4.61 2 INVESTOR B CLASS 9/30/99 2.65%4 $ 7,549 3.41% 1.75% 3.67% 4.59% 9/30/98 5.99 4 398 3.08 1.76 3.48 4.50 11/18/96 1 through 9/30/97 4.31 4 13 2.19 2 1.73 2 2.52 2 4.50 2 INVESTOR C CLASS 9/30/99 2.65%4 $ 1,570 3.47% 1.77% 3.72% 4.62% 9/30/98 5.99 4 342 2.98 1.75 3.38 4.47 2/24/97 1 through 9/30/97 2.91 4 72 2.23 2 1.72 2 2.56 2 4.49 2 - -------------------------------------- INTERMEDIATE GOVERNMENT BOND PORTFOLIO - -------------------------------------- INSTITUTIONAL CLASS 9/30/99 0.75% $ 388,917 0.81% 0.60% 1.02% 5.77% 9/30/98 9.83 441,691 0.63 0.59 0.89 5.72 9/30/97 8.08 96,605 0.67 0.55 0.98 5.88 9/30/96 4.82 126,312 0.70 0.53 1.00 5.86 9/30/95 10.28 134,835 0.42 0.42 0.79 5.94 SERVICE CLASS 9/30/99 0.45% $ 26,687 1.11% 0.90% 1.32% 5.47% 9/30/98 9.50 29,697 0.91 0.88 1.17 5.51 9/30/97 7.75 50,535 0.97 0.85 1.28 5.58 9/30/96 4.51 47,494 1.00 0.83 1.30 5.56 9/30/95 9.99 49,762 0.69 0.69 1.06 5.67 INVESTOR A CLASS 9/30/99 0.28%3 $ 7,239 1.25% 1.06% 1.46% 5.29% 9/30/98 9.32 3 7,972 1.09 1.05 1.35 5.33 9/30/97 7.57 3 5,374 1.14 1.02 1.45 5.42 9/30/96 4.36 3 5,903 1.14 0.95 1.44 5.45 9/30/95 9.98 3 9,802 0.70 0.70 1.07 5.67 INVESTOR B CLASS 9/30/99 (0.47)%4 $ 809 1.97% 1.80% 2.19% 4.57% 9/30/98 8.51 4 361 1.84 1.79 2.10 4.61 10/11/96 1 through 9/30/97 5.94 4 28 1.90 2 1.77 2 2.21 2 4.62 2 INVESTOR C CLASS 9/30/99 (0.47)%4 $ 468 2.00% 1.81% 2.22% 4.56% 9/30/98 8.51 4 299 1.81 1.78 2.07 4.48 10/8/96 1 through 9/30/97 5.94 4 51 1.78 2 1.71 2 2.09 2 4.50 2 - --------------------------- INTERMEDIATE BOND PORTFOLIO - --------------------------- BLACKROCK CLASS 9/30/99 1.25% $ 42,311 1.61% 0.44% 1.87% 6.27% 5/1/98 1 through 9/30/98 8.86 48,365 1.43 2 0.45 2 1.70 2 5.98 2 Ratio of net investment income to average net assets Portfolio (excluding turnover waivers) rate - --------------------------------------------------------------------- - --------------------------- LOW DURATION BOND PORTFOLIO - --------------------------- BLACKROCK CLASS 9/30/99 5.71% 177% 9/30/98 5.53 227 6/3/97 1 through 9/30/97 5.64 2 371 INSTITUTIONAL CLASS 9/30/99 5.62% 177% 9/30/98 5.37 227 9/30/97 4.82 371 4/1/96 through 9/30/96 5.36 2 228 7/1/95 through 3/31/96 4.72 2 185 6/30/95 5.60 586 SERVICE CLASS 9/30/99 5.32% 177% 9/30/98 5.09 227 9/30/97 4.53 371 4/1/96 through 9/30/96 5.01 2 228 1/12/96 1 through 3/31/96 4.72 2 185 INVESTOR A CLASS 9/30/99 5.10% 177% 9/30/98 4.89 227 9/30/97 4.39 371 4/1/96 through 9/30/96 4.82 2 228 1/12/96 1 through 3/31/96 4.41 2 185 INVESTOR B CLASS 9/30/99 4.34% 177% 9/30/98 4.10 227 11/18/96 1 through 9/30/97 4.17 2 371 INVESTOR C CLASS 9/30/99 4.37% 177% 9/30/98 4.07 227 2/24/97 1 through 9/30/97 4.16 2 371 - -------------------------------------- INTERMEDIATE GOVERNMENT BOND PORTFOLIO - -------------------------------------- INSTITUTIONAL CLASS 9/30/99 5.56% 191% 9/30/98 5.46 272 9/30/97 5.57 291 9/30/96 5.56 580 9/30/95 5.57 247 SERVICE CLASS 9/30/99 5.26% 191% 9/30/98 5.25 272 9/30/97 5.27 291 9/30/96 5.26 580 9/30/95 5.30 247 INVESTOR A CLASS 9/30/99 5.08% 191% 9/30/98 5.07 272 9/30/97 5.11 291 9/30/96 5.16 580 9/30/95 5.30 247 INVESTOR B CLASS 9/30/99 4.34% 191% 9/30/98 4.35 272 10/11/96 1 through 9/30/97 4.31 2 291 INVESTOR C CLASS 9/30/99 4.34% 191% 9/30/98 4.22 272 10/8/96 1 through 9/30/97 4.19 2 291 - --------------------------- INTERMEDIATE BOND PORTFOLIO - --------------------------- BLACKROCK CLASS 9/30/99 6.00% 221% 5/1/98 1 through 9/30/98 5.71 2 221 See accompanying notes to financial statements. 56 & 57 BLACKROCK FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Net Net gain Distributions Distributions asset (loss) on Distributions in excess Distributions in excess value Net investments from net of net Distributions from net of net beginning investment (both realized investment investment from realized realized of period income and unrealized) income income capital gains gains - ----------------------------------------------------------------------------------------------------------------------------------- INSTITUTIONAL CLASS 9/30/99 $ 9.67 $ 0.57 $(0.47) $(0.57) $-- $ -- $(0.10) $-- 9/30/98 9.49 0.57 0.23 (0.57) -- -- (0.05) -- 9/30/97 9.32 0.58 0.17 (0.58) -- -- -- -- 9/30/96 9.43 0.56 (0.09) (0.55) -- -- (0.03) -- 9/30/95 9.05 0.56 0.38 (0.56) -- -- -- -- SERVICE CLASS 9/30/99 $ 9.67 $ 0.54 $(0.47) $(0.54) $-- $ -- $(0.10) $-- 9/30/98 9.49 0.58 0.20 (0.55) -- -- (0.05) -- 9/30/97 9.32 0.55 0.17 (0.55) -- -- -- -- 9/30/96 9.43 0.53 (0.09) (0.52) -- -- (0.03) -- 9/30/95 9.05 0.54 0.38 (0.54) -- -- -- -- INVESTOR A CLASS 9/30/99 $ 9.67 $ 0.52 $(0.47) $(0.52) $-- $ -- $(0.10) $-- 9/30/98 9.49 0.53 0.23 (0.53) -- -- (0.05) -- 9/30/97 9.32 0.53 0.17 (0.53) -- -- -- -- 9/30/96 9.43 0.52 (0.09) (0.51) -- -- (0.03) -- 9/30/95 9.05 0.54 0.38 (0.54) -- -- -- -- INVESTOR B CLASS 9/30/99 $ 9.67 $ 0.45 $(0.47) $(0.45) $-- $ -- $(0.10) $-- 2/5/98 1 through 9/30/98 9.51 0.29 0.21 (0.29) -- -- (0.05) -- INVESTOR C CLASS 10/16/98 1 THROUGH 9/30/99 $ 9.65 $ 0.43 $(0.45) $(0.43) $-- $ -- $(0.10) $-- - ------------------- CORE BOND PORTFOLIO - ------------------- BLACKROCK CLASS 9/30/99 $10.12 $ 0.59 $(0.60) $(0.58) $-- $ -- $(0.22) $-- 9/30/98 9.82 0.61 0.40 (0.62) -- -- (0.09) -- 5/1/97 1 through 9/30/97 9.57 0.26 0.24 (0.25) -- -- -- -- INSTITUTIONAL CLASS 9/30/99 $10.12 $ 0.57 $(0.59) $(0.57) $-- $ -- $(0.22) $-- 9/30/98 9.82 0.59 0.40 (0.60) -- -- (0.09) -- 9/30/97 9.55 0.62 0.26 (0.61) -- -- -- -- 4/1/96 through 9/30/96 9.61 0.30 (0.06) (0.30) -- -- -- -- 7/1/95 though 3/31/96 9.85 0.47 (0.07) (0.47) -- -- (0.17) -- 6/30/95 9.36 0.62 0.50 (0.62) -- -- (0.01) -- SERVICE CLASS 9/30/99 $10.12 $ 0.54 $(0.59) $(0.54) $-- $ -- $(0.22) $-- 9/30/98 9.82 0.56 0.40 (0.57) -- -- (0.09) -- 9/30/97 9.55 0.59 0.26 (0.58) -- -- -- -- 4/1/96 through 9/30/96 9.61 0.30 (0.07) (0.29) -- -- -- -- 1/12/96 1 through 3/31/96 9.91 0.11 (0.30) (0.11) -- -- -- -- INVESTOR A CLASS 9/30/99 $10.12 $ 0.53 $(0.60) $(0.52) $-- $ -- $(0.22) $-- 9/30/98 9.82 0.55 0.40 (0.56) -- -- (0.09) -- 9/30/97 9.55 0.58 0.26 (0.57) -- -- -- -- 4/1/96 through 9/30/96 9.61 0.28 (0.06) (0.28) -- -- -- -- 1/31/96 1 through 3/31/96 9.99 0.08 (0.38) (0.08) -- -- -- -- Investor B Class 9/30/99 $10.12 $ 0.46 $(0.60) $(0.45) $-- $ -- $(0.22) $-- 9/30/98 9.82 0.47 0.40 (0.48) -- -- (0.09) -- 9/30/97 9.55 0.51 0.26 (0.50) -- -- -- -- 4/1/96 through 9/30/96 9.61 0.26 (0.07) (0.25) -- -- -- -- 3/18/96 1 through 3/31/96 9.58 0.01 0.03 (0.01) -- -- -- -- INVESTOR C CLASS 9/30/99 $10.12 $ 0.47 $(0.61) $(0.45) $-- $ -- $(0.22) $-- 9/30/98 9.82 0.47 0.40 (0.48) -- -- (0.09) -- 2/28/97 1 through 9/30/97 9.64 0.29 0.17 (0.28) -- -- -- -- - --------------------------- GOVERNMENT INCOME PORTFOLIO - --------------------------- INVESTOR A CLASS 9/30/99 $10.84 $ 0.55 $(0.70) $(0.54) $-- $(0.07) $(0.16) $-- 9/30/98 10.49 0.53 0.54 (0.61) -- -- (0.11) -- 9/30/97 10.20 0.73 0.30 (0.74) -- -- -- -- 9/30/96 10.68 0.68 (0.22) (0.66) -- -- (0.28) -- 10/3/94 1 though 9/30/95 10.00 0.55 0.68 (0.55) -- -- -- -- Ratio of Net Net expenses to Ratio of expenses asset assets Ratio of average net to average Ratio of net value end of expenses to assets net assets investment income end of Total period average net (excluding (excluding to average net period return (000) assets interest expense) waivers) assets - -------------------------------------------------------------------------------------------------------------------------------- INSTITUTIONAL CLASS 9/30/99 $ 9.10 1.10% $ 476,236 1.74% 0.60% 1.96% 6.12% 9/30/98 9.67 8.81 490,674 1.72 0.59 1.99 6.05 9/30/97 9.49 8.40 295,709 0.98 0.53 1.27 6.18 9/30/96 9.32 5.10 207,909 0.83 0.53 1.13 5.97 9/30/95 9.43 10.76 124,979 0.55 0.47 0.89 6.10 SERVICE CLASS 9/30/99 $ 9.10 0.80% $ 24,299 2.05% 0.90% 2.26% 5.81% 9/30/98 9.67 8.48 25,946 2.06 0.89 2.33 5.78 9/30/97 9.49 8.07 52,316 1.27 0.83 1.56 5.88 9/30/96 9.32 4.79 45,362 1.14 0.83 1.44 5.67 9/30/95 9.43 10.46 36,718 0.82 0.74 1.17 5.82 INVESTOR A CLASS 9/30/99 $ 9.10 0.62%3 $ 2,387 2.21% 1.08% 2.43% 5.70% 9/30/98 9.67 8.30 3 1,648 2.22 1.06 2.49 5.64 9/30/97 9.49 7.89 3 1,116 1.44 1.00 1.73 5.70 9/30/96 9.32 4.74 3 935 1.27 0.97 1.57 5.53 9/30/95 9.43 10.35 3 647 0.84 0.76 1.19 5.81 INVESTOR B CLASS 9/30/99 $ 9.10 (0.13)%4 $ 1,010 2.81% 1.79% 3.02% 4.89% 2/5/98 1 through 9/30/98 9.67 7.83 4 111 2.79 2 1.75 2 3.06 2 4.50 2 INVESTOR C CLASS 10/16/98 1 THROUGH 9/30/99 $ 9.10 (0.18)%4 $ 420 2.81%2 1.82%2 3.02%2 4.99%2 - ------------------- CORE BOND PORTFOLIO - ------------------- BLACKROCK CLASS 9/30/99 $ 9.31 (0.02)% $ 160,791 0.79% 0.40% 1.07% 6.13% 9/30/98 10.12 10.74 92,723 0.68 0.40 1.02 6.14 5/1/97 1 through 9/30/97 9.82 5.30 48,139 0.56 2 0.40 2 0.85 2 6.54 2 INSTITUTIONAL CLASS 9/30/99 $ 9.31 (0.17)% $ 712,529 0.93% 0.55% 1.19% 5.94% 9/30/98 10.12 10.57 673,823 0.83 0.55 1.17 6.00 9/30/97 9.82 10.03 393,657 0.84 0.55 1.14 6.52 4/1/96 through 9/30/96 9.55 2.55 162,626 0.80 2 0.55 2 1.09 2 6.50 2 7/1/95 though 3/31/96 9.61 3.93 64,707 0.75 2 0.66 2 1.00 2 5.80 2 6/30/95 9.85 11.79 32,191 0.55 0.55 1.75 6.62 SERVICE CLASS 9/30/99 $ 9.31 (0.47)% $ 65,758 1.23% 0.86% 1.48% 5.63% 9/30/98 10.12 10.24 70,111 1.18 0.85 1.52 5.72 9/30/97 9.82 9.71 122,308 1.35 0.85 1.64 6.09 4/1/96 through 9/30/96 9.55 2.40 117,207 1.082 0.85 2 1.372 6.102 1/12/96 1 through 3/31/96 9.61 (1.90) 232,040 0.942 0.85 2 1.192 5.372 INVESTOR A CLASS 9/30/99 $ 9.31 (0.64)%3 $ 6,776 1.41% 1.03% 1.66% 5.48% 9/30/98 10.12 10.04 3 5,108 1.27 0.98 1.61 5.49 9/30/97 9.82 9.52 3 2,441 1.36 1.01 1.65 5.96 4/1/96 through 9/30/96 9.55 2.36 3 320 1.27 2 1.02 2 1.56 2 6.04 2 1/31/96 1 through 3/31/96 9.61 (2.96)3 80 1.11 2 1.02 2 1.36 2 5.34 2 INVESTOR B CLASS 9/30/99 $ 9.31 (1.38)%4 $ 14,383 2.15% 1.77% 2.41% 4.72% 9/30/98 10.12 9.20 4 11,734 2.01 1.76 2.35 4.78 9/30/97 9.82 8.71 4 5,295 2.17 1.75 2.46 5.19 4/1/96 through 9/30/96 9.55 1.98 4 1,497 2.00 2 1.72 2 2.29 2 5.40 2 3/18/96 1 through 3/31/96 9.61 (0.33)4 77 1.86 2 1.77 2 2.11 2 4.62 2 INVESTOR C CLASS 9/30/99 $ 9.31 (1.38)%4 $ 6,762 2.16% 1.76% 2.40% 4.81% 9/30/98 10.12 9.20 4 2,035 1.90 1.73 2.24 4.75 2/28/97 1 through 9/30/97 9.82 4.82 4 128 1.93 2 1.74 2 2.22 2 5.22 2 - ------------------------- GOVERNMENT INCOME PORTFOL - ------------------------- INVESTOR A CLASS 9/30/99 $ 9.92 (1.40)%3 $ 6,713 1.96% 1.07% 2.32% 5.30% 9/30/98 10.84 11.13 3 6,045 1.46 1.05 2.04 5.45 9/30/97 10.49 10.48 3 4,876 1.41 1.02 2.13 7.63 9/30/96 10.20 4.43 3 3,651 2.96 0.91 3.72 6.54 10/3/94 1 though 9/30/95 10.68 14.27 3 2,990 0.92 2 0.37 2 2.36 2 6.34 2 Ratio of net investment income to average net assets Portfolio (excluding turnover waivers) rate - ----------------------------------------------------- INSTITUTIONAL CLASS 9/30/99 5.90% 221% 9/30/98 5.78 221 9/30/97 5.89 321 9/30/96 5.67 670 9/30/95 5.76 262 Service Class 9/30/99 5.60% 221% 9/30/98 5.51 221 9/30/97 5.59 321 9/30/96 5.36 670 9/30/95 5.47 262 INVESTOR A CLASS 9/30/99 5.49% 221% 9/30/98 5.37 221 9/30/97 5.41 321 9/30/96 5.23 670 9/30/95 5.47 262 INVESTOR B CLASS 9/30/99 4.68% 221% 2/5/98 1 through 9/30/98 4.23 2 221 INVESTOR C CLASS 10/16/98 1 THROUGH 9/30/99 4.77%2 221% - ------------------- CORE BOND PORTFOLIO - ------------------- BLACKROCK CLASS 9/30/99 5.85% 328% 9/30/98 5.80 405 5/1/97 1 through 9/30/97 6.25 2 441 INSTITUTIONAL CLASS 9/30/99 5.68% 328% 9/30/98 5.66 405 9/30/97 6.23 441 4/1/96 through 9/30/96 6.20 2 308 7/1/95 though 3/31/96 5.55 2 723 6/30/95 5.43 435 SERVICE CLASS 9/30/99 5.37% 328% 9/30/98 5.38 405 9/30/97 5.81 441 4/1/96 through 9/30/96 5.81 2 308 1/12/96 1 through 3/31/96 5.12 2 723 INVESTOR A CLASS 9/30/99 5.23% 328% 9/30/98 5.15 405 9/30/97 5.67 441 4/1/96 through 9/30/96 5.75 2 308 1/31/96 1 through 3/31/96 5.10 2 723 INVESTOR B CLASS 9/30/99 4.47% 328% 9/30/98 4.44 405 9/30/97 4.90 441 4/1/96 through 9/30/96 5.11 2 308 3/18/96 1 through 3/31/96 4.37 2 723 INVESTOR C CLASS 9/30/99 4.56% 328% 9/30/98 4.41 405 2/28/97 1 through 9/30/97 4.93 2 441 - -------------------------- GOVERNMENT INCOME PORTFOIO - -------------------------- INVESTOR A CLASS 9/30/99 4.94% 195% 9/30/98 4.87 477 9/30/97 6.91 393 9/30/96 5.78 434 10/3/94 1 though 9/30/95 4.89 2 258 See accompanying notes to financial statements. 58 & 59 BLACKROCK FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Net Net gain Distributions Distributions asset (loss) on Distributions in excess Net Distributions in excess value Net investments from net of net Distributions from net of net beginning investment (both realized investment investment from realized realized of period income and unrealized) income income capital gains gains - ---------------------------------------------------------------------------------------------------------------------------------- INVESTOR B CLASS 9/30/99 $10.84 $ 0.47 $(0.70) $(0.46) $ -- $(0.07) $(0.16) $-- 9/30/98 10.49 0.54 0.50 (0.58) -- -- (0.11) -- 9/30/97 10.20 0.66 0.30 (0.67) -- -- -- -- 9/30/96 10.68 0.60 (0.21) (0.59) -- -- (0.28) -- 10/3/94 1 through 9/30/95 10.00 0.50 0.68 (0.50) -- -- -- -- INVESTOR C CLASS 9/30/99 $10.84 $ 0.47 $(0.70) $(0.46) $ -- $(0.07) $(0.16) $-- 9/30/98 10.49 0.51 0.53 (0.58) -- -- (0.11) -- 2/28/97 1 through 9/30/97 10.30 0.37 0.20 (0.38) -- -- -- -- - -------------- GNMA PORTFOLIO - -------------- INSTITUTIONAL CLASS 9/30/99 $10.11 $0.61 $(0.49) $(0.60) $ -- $ -- $(0.02) $-- 5/18/98 1 through 9/30/98 10.00 0.23 0.10 (0.22) -- -- -- -- Service Class 9/30/99 $10.11 $ 0.58 $(0.49) $(0.57) $ -- $ -- $(0.02) $-- 5/18/98 1 through 9/30/98 10.00 0.27 0.04 (0.20) -- -- -- -- INVESTOR A CLASS 9/30/99 $10.11 $ 0.56 $(0.49) $(0.55) $ -- $ -- $(0.02) $-- 5/18/98 1 through 9/30/98 10.00 0.20 0.11 (0.20) -- -- -- -- Investor B Class 9/30/99 $10.11 $ 0.48 $(0.49) $(0.47) $ -- $ -- $(0.02) $-- 5/18/98 1 through 9/30/98 10.00 0.17 0.11 (0.17) -- -- -- -- INVESTOR C CLASS 9/30/99 $10.11 $ 0.48 $(0.49) $(0.47) $ -- $ -- $(0.02) $-- 5/18/98 1 through 9/30/98 10.00 0.23 0.05 (0.17) -- -- -- -- - ------------------------ MANAGED INCOME PORTFOLIO - ------------------------ INSTITUTIONAL CLASS 9/30/99 $10.64 $ 0.62 $(0.57) $(0.62) $ -- $ -- $(0.15) $-- 9/30/98 10.41 0.67 0.26 (0.65) -- -- (0.05) -- 9/30/97 10.09 0.68 0.32 (0.68) -- -- -- -- 9/30/96 10.38 0.64 (0.21) (0.62) -- -- (0.10) -- 9/30/95 9.79 0.65 0.60 (0.65) (0.01) -- -- -- SERVICE CLASS 9/30/99 $10.64 $ 0.59 $(0.57) $(0.59) $ -- $ -- $(0.15) $-- 9/30/98 10.41 0.60 0.30 (0.62) -- -- (0.05) -- 9/30/97 10.09 0.66 0.31 (0.65) -- -- -- -- 9/30/96 10.38 0.61 (0.20) (0.60) -- -- (0.10) -- 9/30/95 9.79 0.63 0.60 (0.63) (0.01) -- -- -- INVESTOR A CLASS 9/30/99 $10.64 $ 0.58 $(0.57) $(0.58) $ -- $ -- $(0.15) $-- 9/30/98 10.41 0.59 0.29 (0.60) -- -- (0.05) -- 9/30/97 10.09 0.65 0.31 (0.64) -- -- -- -- 9/30/96 10.38 0.59 (0.20) (0.58) -- -- (0.10) -- 9/30/95 9.79 0.60 0.60 (0.60) (0.01) -- -- -- INVESTOR B CLASS 9/30/99 $10.64 $ 0.50 $(0.57) $(0.50) $ -- $ -- $(0.15) $-- 9/30/98 10.41 0.52 0.29 (0.53) -- -- (0.05) -- 7/15/97 1 through 9/30/97 10.39 0.09 0.02 (0.09) -- -- -- -- INVESTOR C CLASS 5/19/99 1 through 9/30/99 $10.14 $ 0.08 $(0.22) $(0.08) $ -- $ -- $ -- $-- - ---------------------------- INTERNATIONAL BOND PORTFOLIO - ---------------------------- INSTITUTIONAL CLASS 9/30/99 $11.24 $ 0.30 $(0.09) $(0.64) $ -- $ -- $ -- $-- 9/30/98 10.95 0.45 0.83 (0.57) -- -- (0.42) -- 9/30/97 11.71 0.78 0.42 (1.47) -- -- (0.49) -- 6/10/96 1 through 9/30/96 11.37 0.21 0.30 (0.17) -- -- -- -- SERVICE CLASS 9/30/99 $11.24 $ 0.24 $(0.06) $(0.61) $ -- $ -- $ -- $-- 9/30/98 10.95 0.18 1.06 (0.53) -- -- (0.42) -- 9/30/97 11.71 1.36 (0.19) (1.44) -- -- (0.49) -- 2/1/96 through 9/30/96 11.39 0.89 (0.29) (0.28) -- -- -- -- 3/1/95 through 1/31/96 10.52 0.62 1.13 (0.88) -- -- -- -- 2/28/95 10.75 0.62 (0.48) (0.13) -- -- (0.24) -- Ratio of Net Net expenses to Ratio of expenses asset assets Ratio of average net to average Ratio of net value end of expenses to assets net assets investment income end of Total period average net (excluding (excluding to average net period return (000) assets interest expense) waivers) assets - ----------------------------------------------------------------------------------------------------------------------------------- INVESTOR B CLASS 9/30/99 $ 9.92 (2.14)%4 $ 34,753 2.72% 1.81% 3.08% 4.55% 9/30/98 10.84 10.31 4 25,165 2.01 1.80 2.59 4.82 9/30/97 10.49 9.66 4 14,796 2.14 1.77 2.86 6.89 9/30/96 10.20 3.68 4 11,119 3.69 1.64 4.45 5.76 10/3/94 1 through 9/30/95 10.68 13.52 4 10,188 1.60 2 1.05 2 3.05 2 5.62 2 INVESTOR C CLASS 9/30/99 $ 9.92 (2.14)%4 $ 2,435 2.70% 1.81% 3.06% 4.52% 9/30/98 10.84 10.31 4 1,551 2.14 1.80 2.72 4.64 2/28/97 1 through 9/30/97 10.49 5.64 4 849 3.24 2 1.70 2 3.96 2 5.57 2 - -------------- GNMA PORTFOLIO - -------------- INSTITUTIONAL CLASS 9/30/99 $ 9.61 1.14% $ 110,611 0.86% 0.60% 1.21% 6.15% 5/18/98 1 through 9/30/98 10.11 1.36 -- 0.63 2 0.60 2 1.00 2 6.09 2 Service Class 9/30/99 $ 9.61 0.84% $ 97 1.31% 0.88% 1.64% 6.12% 5/18/98 1 through 9/30/98 10.11 3.18 -- 0.74 2 0.57 2 1.11 2 8.78 2 INVESTOR A CLASS 9/30/99 $ 9.61 0.67%3 $ 1,106 1.37% 1.08% 1.69% 5.76% 5/18/98 1 through 9/30/98 10.11 3.12 3 535 1.10 2 1.06 2 1.47 2 5.65 2 Investor B Class 9/30/99 $ 9.61 (0.09)%4 $ 229 2.08% 1.81% 2.43% 4.94% 5/18/98 1 through 9/30/98 10.11 2.85 4 166 1.73 2 1.70 2 2.10 2 4.50 2 INVESTOR C CLASS 9/30/99 $ 9.61 (0.09)%4 $ 24 2.16% 1.71% 2.50% 5.15% 5/18/98 1 through 9/30/98 10.11 2.85 4 -- 0.57 2 0.57 2 0.94 2 5.26 2 - ------------------------ MANAGED INCOME PORTFOLIO - ------------------------ INSTITUTIONAL CLASS 9/30/99 $ 9.92 0.57% $1,252,991 1.45% 0.65% 1.57% 6.11% 9/30/98 10.64 9.25 1,335,054 1.30 0.63 1.48 6.04 9/30/97 10.41 10.25 537,260 0.92 0.58 1.17 6.65 9/30/96 10.09 4.33 564,744 0.58 0.58 0.81 6.17 9/30/95 10.38 13.27 443,148 0.57 0.57 0.77 6.44 SERVICE CLASS 9/30/99 $ 9.92 0.26% $ 270,943 1.76% 0.95% 1.88% 5.81% 9/30/98 10.64 8.93 257,641 1.69 0.93 1.87 5.76 9/30/97 10.41 9.93 266,750 1.27 0.88 1.52 6.37 9/30/96 10.09 4.05 165,073 0.88 0.88 1.11 5.87 9/30/95 10.38 12.97 116,846 0.85 0.85 1.05 6.14 INVESTOR A CLASS 9/30/99 $ 9.92 0.09%3 $ 15,092 1.93% 1.12% 2.04% 5.62% 9/30/98 10.64 8.74 3 14,897 1.90 1.10 2.08 5.64 9/30/97 10.41 9.74 3 15,230 1.41 1.05 1.66 6.18 9/30/96 10.09 3.83 3 11,193 1.05 1.05 1.29 5.67 9/30/95 10.38 12.74 3 11,977 1.05 1.05 1.25 5.96 INVESTOR B CLASS 9/30/99 $ 9.92 (0.66)%4 $ 5,818 2.68% 1.87% 2.80% 4.88% 9/30/98 10.64 7.94 4 4,639 2.43 1.82 2.61 4.71 7/15/97 1 through 9/30/97 10.41 1.35 4 468 2.14 2 1.31 2 2.39 2 3.85 INVESTOR C CLASS 5/19/99 1 through 9/30/99 $ 9.92 --% $ --5 2.53%2 1.79%2 2.64%2 4.93% - ---------------------------- INTERNATIONAL BOND PORTFOLIO - ---------------------------- INSTITUTIONAL CLASS 9/30/99 $10.81 1.91% $ 59,265 1.03% 1.03% 1.03% 3.79% 9/30/98 11.24 12.51 43,672 1.01 1.01 1.16 4.08 9/30/97 10.95 11.59 43,310 0.98 0.98 1.08 5.28 6/10/96 1 through 9/30/96 11.71 4.48 30,882 0.92 2 0.92 2 1.32 2 6.28 2 SERVICE CLASS 9/30/99 $10.81 1.60% $ 3,730 1.33% 1.33% 1.33% 3.50% 9/30/98 11.24 12.17 2,359 1.31 1.31 1.46 3.79 9/30/97 10.95 11.23 6,708 1.30 1.29 1.40 5.01 2/1/96 through 9/30/96 11.71 5.39 7,836 1.09 2 1.09 2 1.20 2 3.82 2 3/1/95 through 1/31/96 11.39 16.79 37,627 1.23 2 1.23 2 1.23 2 5.62 2 2/28/95 10.52 1.50 45,657 1.24 1.24 1.24 5.96 Ratio of net investment income to average net assets Portfolio (excluding turnover waivers) rate - --------------------------------------------------------- INVESTOR B CLASS 9/30/99 4.19% 195% 9/30/98 4.24 477 9/30/97 6.17 393 9/30/96 5.00 434 10/3/94 1 through 9/30/95 4.17 2 258 INVESTOR C CLASS 9/30/99 4.16% 195% 9/30/98 4.06 477 2/28/97 1 through 9/30/97 4.85 2 393 - -------------- GNMA PORTFOLIO - -------------- INSTITUTIONAL CLASS 9/30/99 5.81% 124% 5/18/98 1 through 9/30/98 5.72 2 56 Service Class 9/30/99 5.79% 124% 5/18/98 1 through 9/30/98 8.41 2 56 INVESTOR A CLASS 9/30/99 5.44% 124% 5/18/98 1 through 9/30/98 5.28 2 56 Investor B Class 9/30/99 4.59% 124% 5/18/98 1 through 9/30/98 4.13 2 56 INVESTOR C CLASS 9/30/99 4.81% 124% 5/18/98 1 through 9/30/98 4.90 2 56 - ------------------------ MANAGED INCOME PORTFOLIO - ------------------------ INSTITUTIONAL CLASS 9/30/99 5.99% 239% 9/30/98 5.86 376 9/30/97 6.40 428 9/30/96 5.95 638 9/30/95 6.24 203 SERVICE CLASS 9/30/99 5.69% 239% 9/30/98 5.58 376 9/30/97 6.12 428 9/30/96 5.65 638 9/30/95 5.94 203 INVESTOR A CLASS 9/30/99 5.50% 239% 9/30/98 5.46 376 9/30/97 5.93 428 9/30/96 5.44 638 9/30/95 5.76 203 INVESTOR B CLASS 9/30/99 4.77% 239% 9/30/98 4.53 376 7/15/97 1 through 9/30/97 3.60 2 428 INVESTOR C CLASS 5/19/99 1 through 9/30/99 4.82% 2 239% - ---------------------------- INTERNATIONAL BOND PORTFOLIO - ---------------------------- INSTITUTIONAL CLASS 9/30/99 3.79% 317% 9/30/98 3.93 225 9/30/97 5.18 272 6/10/96 1 through 9/30/96 5.88 2 108 SERVICE CLASS 9/30/99 3.50% 317% 9/30/98 3.64 225 9/30/97 4.91 272 2/1/96 through 9/30/96 3.72 2 108 3/1/95 through 1/31/96 5.62 2 159 2/28/95 5.96 131 See accompanying notes to financial statements. 60 & 61 BLACKROCK FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Net Net gain Distributions Distributions Net asset (loss) on Distributions in excess Distributions in excess asset value Net investments from net of net from net of net value beginning investment (both realized investment investment realized realized end of of period income and unrealized) income income gains gains period - ------------------------------------------------------------------------------------------------------------------------------- INVESTOR A CLASS 9/30/99 $11.24 $ 0.23 $(0.07) $(0.59) $-- $ -- $-- $10.81 9/30/98 10.95 0.47 0.76 (0.52) -- (0.42) -- 11.24 9/30/97 11.71 1.10 0.05 (1.42) -- (0.49) -- 10.95 4/22/96 1 through 9/30/96 11.37 0.26 0.32 (0.24) -- -- -- 11.71 INVESTOR B CLASS 9/30/99 $11.24 $ 0.13 $(0.05) $(0.51) $-- $ -- $-- $10.81 9/30/98 10.95 0.40 0.74 (0.43) -- (0.42) -- 11.24 9/30/97 11.71 1.06 -- (1.33) -- (0.49) -- 10.95 4/19/96 1 through 9/30/96 11.36 0.22 0.33 (0.20) -- -- -- 11.71 INVESTOR C CLASS 9/30/99 $11.24 $ 0.13 $(0.05) $(0.51) $-- $ -- $-- $10.81 9/30/98 10.95 0.54 0.60 (0.43) -- (0.42) -- 11.24 9/30/97 11.71 1.15 (0.09) (1.33) -- (0.49) -- 10.95 9/11/96 1 through 9/30/96 11.58 0.02 0.12 (0.01) -- -- -- 11.71 - ------------------------- HIGH YIELD BOND PORTFOLIO - ------------------------- BLACKROCK CLASS 11/19/98 1 through 9/30/99 $10.00 $ 0.90 $(0.32) $(0.85) $-- $ -- $-- $ 9.73 INSTITUTIONAL CLASS 11/19/98 1 through 9/30/99 $10.00 $ 0.90 $(0.31) $(0.86) $-- $ -- $-- $ 9.73 SERVICE CLASS 11/19/98 1 through 9/30/99 $10.00 $ 0.85 $(0.31) $(0.81) $-- $ -- $-- $ 9.73 INVESTOR A CLASS 11/19/98 1 through 9/30/99 $10.00 $ 0.86 $(0.31) $(0.82) $-- $ -- $-- $ 9.73 INVESTOR B CLASS 11/19/98 1 through 9/30/99 $10.00 $ 0.79 $(0.31) $(0.75) $-- $ -- $-- $ 9.73 INVESTOR C CLASS 11/19/98 1 through 9/30/99 $10.00 $ 0.78 $(0.31) $(0.74) $-- $ -- $-- $ 9.73 Ratio of Net expenses to Ratio of expenses assets Ratio of average net to average Ratio of net end of expenses to assets net assets investment income Total period average net (excluding (excluding to average net return (000) assets interest expense) waivers) assets - ---------------------------------------------------------------------------------------------------------------------------- INVESTOR A CLASS 9/30/99 1.43%3 $ 2,638 1.49% 1.49% 1.49% 3.30% 9/30/98 11.98 3 1,705 1.48 1.48 1.63 3.59 9/30/97 11.02 3 1,015 1.42 1.42 1.52 4.49 4/22/96 1 through 9/30/96 5.13 3 176 1.45 2 1.45 2 1.86 2 5.29 2 INVESTOR B CLASS 9/30/99 0.67%4 $ 2,447 2.24% 2.24% 2.24% 2.56% 9/30/98 11.15 4 1,512 2.22 2.22 2.37 2.83 9/30/97 10.11 4 979 2.12 2.12 2.22 3.65 4/19/96 1 through 9/30/96 4.90 4 136 2.09 2 2.09 2 2.49 2 4.61 2 INVESTOR C CLASS 9/30/99 0.67%4 $ 2,269 2.24% 2.24% 2.24% 2.55% 9/30/98 11.15 4 1,249 2.22 2.22 2.37 2.83 9/30/97 10.13 4 474 2.11 2.11 2.21 3.57 9/11/96 1 through 9/30/96 1.24 4 19 1.53 2 1.53 2 1.93 2 2.79 2 - ------------------------- HIGH YIELD BOND PORTFOLIO - ------------------------- BLACKROCK CLASS 11/19/98 1 through 9/30/99 5.87% $ -- 0.33%2 0.28%2 0.41%2 10.45%2 INSTITUTIONAL CLASS 11/19/98 1 through 9/30/99 5.93% $ 63,860 1.02%2 0.71%2 1.67%2 10.49%2 SERVICE CLASS 11/19/98 1 through 9/30/99 5.47% $ -- 2.21%2 1.59%2 3.33%2 9.93%2 INVESTOR A CLASS 11/19/98 1 through 9/30/99 5.50%3 $ 4,412 1.54%2 1.15%2 2.21%2 10.17%2 INVESTOR B CLASS 11/19/98 1 through 9/30/99 4.78%4 $ 12,407 2.27%2 1.88%2 2.94%2 9.41%2 INVESTOR C CLASS 11/19/98 1 through 9/30/99 4.69%4 $ 2,647 2.25%2 1.88%2 2.92%2 9.36%2 Ratio of net investment income to average net assets Portfolio (excluding turnover waivers) rate - ----------------------------------------------------------- INVESTOR A CLASS 9/30/99 3.30% 317% 9/30/98 3.44 225 9/30/97 4.39 272 4/22/96 1 through 9/30/96 4.88 2 108 INVESTOR B CLASS 9/30/99 2.56% 317% 9/30/98 2.68 225 9/30/97 3.55 272 4/19/96 1 through 9/30/96 4.21 2 108 INVESTOR C CLASS 9/30/99 2.55% 317% 9/30/98 2.68 225 9/30/97 3.47 272 9/11/96 1 through 9/30/96 2.38 2 108 - ------------------------- HIGH YIELD BOND PORTFOLIO - ------------------------- BLACKROCK CLASS 11/19/98 1 through 9/30/99 10.38%2 185% INSTITUTIONAL CLASS 11/19/98 1 through 9/30/99 9.85%2 185% SERVICE CLASS 11/19/98 1 through 9/30/99 8.81%2 185% INVESTOR A CLASS 11/19/98 1 through 9/30/99 9.49%2 185% INVESTOR B CLASS 11/19/98 1 through 9/30/99 8.73%2 185% INVESTOR C CLASS 11/19/98 1 through 9/30/99 8.69%2 185% <FN> 1 Commencement of operations of share class. 2 Annualized. 3 Sales load not relected in total return. 4 Contingent deferred sales load not relected in total return. 5 There were no Investor C shares outstanding as of September 30, 1999. </FN> See accompanying notes to financial statements. 62 & 63 BLACKROCK FUNDS NOTES TO FINANCIAL STATEMENTS BlackRock Funds SM ("the Fund") was organized on December 22, 1988, as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund currently has 36 publicly-offered portfolios, 9 of which are included in these financial statements (the "Portfolios"). Each Portfolio is authorized to issue an unlimited number of shares with a par value of $0.001. Portfolios of the Fund offer as many as six classes of shares. Shares of all classes of a Portfolio represent equal pro rata interests in such Portfolio, except that each class bears different expenses which reflect the difference in the range of services provided to them. The following table provides a list of the Portfolios included in this report along with a summary of their respective class-specific fee arrangements as provided under the Fund's Amended and Restated Distribution and Service Plan (the "Plan"). Fees are expressed as a percentage of average daily net asset values of the respective classes. - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio Share Classes - ------------------------------------------------------------------------------------------------------------------------------------ BlackRock Institutional Service Investor A Investor B Investor C - ------------------------------------------------------------------------------------------------------------------------------------ Contractual Actual Contractual Actual Contractual Actual Contractual Actual Contractual Actual Contractual Actual Fees Fees(4) Fees Fees(4) Fees(1) Fees(4) Fees(2) Fees(4) Fees(3) Fees(4) Fees(3) Fees(4) - ------------------------------------------------------------------------------------------------------------------------------------ Low Duration Bond None None None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15% - ------------------------------------------------------------------------------------------------------------------------------------ Intermediate Government Bond N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15% - ------------------------------------------------------------------------------------------------------------------------------------ Intermediate Bond None None None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15% - ------------------------------------------------------------------------------------------------------------------------------------ Core Bond None None None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15% - ------------------------------------------------------------------------------------------------------------------------------------ Government Income N/A N/A N/A N/A N/A N/A 0.50% 0.40% 1.15% 1.15% 1.15% 1.15% - ------------------------------------------------------------------------------------------------------------------------------------ GNMA N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15% - ------------------------------------------------------------------------------------------------------------------------------------ Managed Income N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15% - ------------------------------------------------------------------------------------------------------------------------------------ International Bond N/A N/A None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15% - ------------------------------------------------------------------------------------------------------------------------------------ High Yield Bond None None None None 0.30% 0.30% 0.50% 0.40% 1.15% 1.15% 1.15% 1.15% - ------------------------------------------------------------------------------------------------------------------------------------ (1) -- the maximum annual contractual fees are comprised of a .15% service fee and .15% shareholder processing fee. (2) -- the maximum annual contractual fees are comprised of a .10% distribution fee, .25% service fee and .15% shareholder processing fee. (3) -- the maximum annual contractual fees are comprised of a .75% distribution fee, .25% service fee and .15% shareholder processing fee. (4) -- the actual fees are as of September 30, 1999. In addition, Institutional and Service shares bear a Transfer Agent fee at an annual rate not to exceed .03% and Investor A, Investor B and Investor C shares bear a Transfer Agent fee at an annual rate not to exceed .10% of the average daily net asset of such respective classes. (A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management estimates. Actual results could differ from these estimates. SECURITY VALUATION -- Portfolio securities for which market quotations are readily available are valued at market value, which is currently determined using the last reported sales price. If no sales are reported, as in the case of some securities traded over-the-counter, portfolio securities are valued at the mean between the last reported bid and asked prices or on the basis of quotations provided by a pricing service or dealer which uses information with respect to transactions on bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. Short-term obligations with maturities of 60 days or less are valued at amortized cost which approximates market value. Discounts and premiums on debt securities are amortized for book and tax purposes using the effective yield-to-maturity method over the term of the instrument. Securities for which market quotations are not readily available are carried at fair value as determined in accordance with procedures adopted by the Board of Directors. 64 BLACKROCK FUNDS DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income are declared by each Portfolio each day on "settled" shares (i.e. shares for which the particular Portfolio has received payment in federal funds) and are paid monthly. Over the course of a year, substantially all of each Portfolio's net investment income will be declared as dividends. The amount of the daily dividend for each Portfolio will be based on periodic projections of its net investment income. Net realized capital gains, if any, are distributed at least annually. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes due to differences between generally accepted accounting principles and tax accounting principles related to the character of income and expense recognition. FEDERAL TAXES -- No provision is made for federal taxes as it is the Fund's intention to have each Portfolio continue to qualify for and elect the tax treatment applicable to regulated investment companies under subchapter M of the Internal Revenue Code of 1986, as amended, and to make the requisite distributions to its shareholders which will be sufficient to relieve it from federal income and excise taxes. FOREIGN CURRENCY TRANSLATION -- The books and records of the Low Duration Bond, Managed Income and International Bond Portfolios are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: (I) market value of investment securities, assets and liabilities at the current rate of exchange; and (II)purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions. The Portfolios isolate that portion of gains and losses on investment securities which is due to changes in the foreign exchange rates from that which is due to changes in market prices of such securities. The Portfolios report certain foreign currency related transactions as components of realized and unrealized gains for financial reporting purposes, whereas such components are treated as ordinary income for federal income tax purposes. FORWARD FOREIGN CURRENCY CONTRACTS -- The Low Duration Bond, Managed Income and International Bond Portfolios enter into forward foreign currency contracts as a hedge against either specific transactions or portfolio positions. These contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until the contract settlement date. Such contracts, which protect the value of the Portfolios' investment securities against a decline in the value of currency, do not eliminate fluctuations in the underlying prices of the securities. They simply establish an exchange rate at a future date. Also, although such contracts tend to minimize the risk of loss due to a decline in the value of a hedged currency, at the same time they tend to limit any potential gain that might be realized should the value of such foreign currency increase. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The aggregate principal amounts of the contracts are not recorded as the Portfolios intend to settle the contracts prior to delivery. Under the terms of foreign currency contracts open at September 30, 1999, the Portfolios are obligated to deliver or receive currency in exchange for U.S. dollars as indicated below: Unrealized Value at Foreign Settlement Currency Currency Contract September 30, Exchange Date Amount Sold Amount 1999 Gain/(Loss) - --------- ------------- ----------------------- ----------- ------------- ------------ Low Duration Bond Portfolio 11/05/99 2,742,981 Canadian Dollar .......... $ 1,861,680 $ 1,867,218 $ (5,538) =========== =========== ========= Managed Income Portfolio 11/05/99 4,764,660 Canadian Dollar .......... $ 3,233,808 $ 3,243,428 $ (9,620) =========== =========== ========= International Bond Portfolio 10/18/99 16,000,000 European Currency Unit ... $16,704,000 $17,039,041 $(335,041) 10/18/99 450,000,000 Japanese Yen ............. 4,273,301 4,215,851 57,450 10/27/99 17,338,000 Danish Krone ............. 2,438,537 2,487,089 (48,552) 10/27/99 6,159,000 Great British Pound ...... 10,091,522 10,139,941 (48,419) 10/27/99 26,522,000 Swedish Krone ............ 3,226,521 3,242,378 (15,857) 11/05/99 7,886,000 Canadian Dollar .......... 5,352,283 5,368,205 (15,922) 07/19/00 11,777,700 Hong Kong Dollar ......... 1,500,000 1,505,376 (5,376) ----------- ----------- --------- $43,586,164 $43,997,881 $(411,717) =========== =========== ========= 65 BLACKROCK FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) UNREALIZED VALUE AT FOREIGN SETTLEMENT CURRENCY CURRENCY CONTRACT SEPTEMBER 30, EXCHANGE DATE AMOUNT BOUGHT AMOUNT 1999 GAIN/(LOSS) - --------- --------- ------------------------- ---------- ------------- ----------- International Bond Portfolio 11/05/99 4,000,000 Canadian Dollar ............. $2,713,262 $2,722,903 $9,641 ========== ========== ====== INTEREST RATE SWAPS -- The Fund may enter into interest rate swaps in accordance with its investment objectives. A swap agreement obligates two parties to exchange returns realized on a notional amount agreed upon by both parties. The obligations of the parties are calculated on a net basis on the daily fluctuations in the indices on which the contract is based. The daily net fluctuation is recorded as unrealized gains or losses by the Fund. At the termination of the agreement, the Fund will receive from or pay to the counter party, the accumulated net realized gain or loss, which will then be recorded as realized. The Fund did not hold any interest rate swaps at September 30, 1999. Risk may arise upon entering into interest rate swaps in the event of the default or bankruptcy of a swap agreement counter party. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Investment transactions are accounted for on the trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and federal income tax purposes. Interest income is recorded on the accrual basis. Expenses not directly attributable to a specific Portfolio or class are allocated among all of the Portfolios or classes of the Fund based on their relative net assets. REPURCHASE AGREEMENTS -- Money market instruments may be purchased from banks and non-bank dealers subject to the seller's agreement to repurchase them at an agreed upon date and price. Collateral for repurchase agreements may have longer maturities than the maximum permissible remaining maturity of portfolio investments. The seller is required on a daily basis to maintain the value of the securities subject to the agreement at not less than the repurchase price. The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system or held in a separate account by the Fund's custodian or an authorized securities depository. REVERSE REPURCHASE AGREEMENTS -- The Fund enters into reverse repurchase agreements with qualified, third party brokers-dealers as determined by and under the direction of the Fund's Board of Trustees. Interest on the value of the reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time the Fund enters into a reverse repurchase agreement, it identifies for segregation certain liquid securities having a value not less than the repurchase price, including accrued interest, of the reverse repurchase agreement. Low Duration Intermediate Government Managed Bond Bond Income Income Portfolio Portfolio Portfolio Portfolio --------------- --------------- --------------- --------------- Average daily balance of reverse repurchase agreements outstanding during the period ended September 30, 1999 $ 103,186,593 $ 121,455,918 $ 7,672,140 $ 254,292,397 Weighted Average Interest Rate 4.79% 4.91% 4.95% 4.13% Maximum Amount of reverse repurchase agreements outstanding at any month-end during the period ended September 30, 1999 1 $ 151,662,727 $ 185,041,187 $ 18,792,769 $ 391,893,759 Percentage of total assets 33.55% 24.78% 28.13% 18.86% Amount of reverse repurchase agreements outstanding at September 30, 1999 $ 105,456,761 $ 104,099,204 $ 18,792,769 $ 262,485,201 Percentage of total assets 27.98% 15.64% 28.13% 13.89% ____________ 1 The maximum amount of reverse repurchase agreements outstanding at any month end occurred on December 31, 1998, February 28, 1999, September 30, 1999 and February 28, 1999, respectively. FUTURES TRANSACTIONS -- The Fund invests in financial futures contracts solely for the purpose of hedging its existing portfolio securities, or securities that the Fund intends to purchase, against fluctuations in fair value caused by changes in prevailing market interest rates. Certain Portfolios may enter into futures contracts subject to certain limitations. Upon entering into a futures contract, the Portfolio is required to deposit cash or pledge securities of an initial margin. Subsequent payments, which are dependent on the daily fluctuations in the value of the underlying security or securities, are made or 66 BLACKROCK FUNDS received by the Portfolio each day (daily variation margin) and are recorded as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Portfolio records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Portfolio's basis in the contracts. Risks of entering into futures contracts include the possibility that there will not be a perfect price correlation between the futures contracts and the underlying securities. Second, it is possible that a lack of liquidity for futures contracts could exist in the secondary market, resulting in an inability to close a futures position prior to its maturity date. Third, the purchase of a futures contract involves the risk that a Portfolio could lose more than the original margin deposit required to initiate a futures transaction. OPTION SELLING/PURCHASING -- The Fund invests in financial options contracts solely for the purpose of hedging its existing portfolio securities, or securities that the Fund intends to purchase, against fluctuations in fair value caused by changes in prevailing market interest rates. When the Fund sells or purchases an option, an amount equal to the premium received or paid by the Fund is recorded as a liability or an asset and is subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options which expire unexercised are treated by the Fund on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commissions, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the cost of the purchase or proceeds from the sale in determining whether the Fund has realized a gain or a loss on investment transactions. The Fund as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. Written Option transactions entered into during the year ended September 30, 1999 are summarized as follows: Intermediate Government Managed Bond Intermediate Bond Core Bond Income --------------------- ---------------------- ---------------------- ---------------------- Number of Number of Number of Number of Contracts Premium Contracts Premium Contracts Premium Contracts Premium --------- -------- --------- -------- --------- -------- --------- -------- Balance at 9/30/98 -- $ -- -- $ -- -- $ -- -- $ -- Written 900 40,781 1,100 49,844 5,450 484,767 8,750 780,080 Closed/Expired (900) (40,781) (1,100) (49,844) (5,450) (484,767) (8,750) (780,080) --------- -------- --------- -------- --------- --------- --------- --------- Balance at 9/30/99 -- $ -- -- $ -- -- $ -- -- $ -- ========= ======== ========= ======== ========= ========= ========= ========= TBA PURCHASE COMMITMENTS -- The Portfolios may enter into "TBA" (to be announced) purchase commitments to purchase securities for a fixed price at a future date, typically not exceeding 45 days. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to settlement date, which risk is in addition to the risk of decline in the value of a Portfolio's other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities, according to the procedures described under "Security Valuation" above. MORTGAGE DOLLAR ROLLS -- Each Portfolio may enter into mortgage dollar rolls (principally using TBA's) in which the Portfolio sells mortgage securities for delivery in the current month and simultaneously contracts to repurchase similar, but not identical, securities at an agreed-upon price on a fixed date. The Portfolio accounts for such dollar rolls as purchases and sales and receives compensation as consideration for entering into the commitment to repurchase. A Portfolio must maintain liquid securities having a value not less than the repurchase price (including accrued interest) for such dollar rolls. In a "fee" roll, the compensation is recorded as deferred income and amortized to income over the roll period. In a "drop" roll, the compensation is paid via a lower price for the security upon its repurchase. The counterparty receives all principal and interest payments, including prepayments, made in respect of a security subject to such a contract while it is the holder. Mortgage dollar rolls may be renewed with a new purchase and repurchase price and a cash settlement made on settlement date without physical delivery of the securities subject to the contract. A Portfolio engages in dollar rolls for the purpose of enhancing its yield, principally by earning a negotiated fee. 67 BLACKROCK FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) SECURITIES LENDING -- Prior to the close of each business day, loans of securities are secured by collateral at least equal to 102% of the market value of the securities on loan. However, due to market fluctuations, the collateral may fall under 102% of the market value of the securities on loan. On the next business day the collateral is adjusted to meet the 102% requirement based on the prior day's market fluctuations and the current day's security lending activity. However, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings. The market value of securities on loan to brokers and the value of collateral held by the Fund with respect to such loans (including rights to draw on letters of credit) at September 30, 1999, is as follows: Value of Income Market Value of Collateral Earned on Portfolio Securities On Loan Received Securities Loaned* --------- ------------------ ----------- ----------------- Intermediate Bond Portfolio .... $ 577,250 $ 605,550 $ 5,362 Core Bond Portfolio ............ 36,753,616 37,971,708 46,127 Managed Income Portfolio ....... 62,884,292 64,906,405 59,415 <FN> *Income is included in interest income on the Statement of Operations. </FN> Other -- Securities denominated in currencies other than U.S. dollars are subject to changes in value due to fluctuations in exchange rates. Some countries in which the Portfolios invest require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if there is a deterioration in a country's balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad. The securities exchanges of certain foreign markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Portfolios may be inhibited. (B) TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES Pursuant to an Investment Advisory Agreement, BlackRock Advisors, Inc. ("BlackRock"), a wholly-owned subsidiary of BlackRock, Inc., serves as investment adviser to the Portfolios. BlackRock Financial Management, Inc., ("BFM") a wholly-owned subsidiary of BlackRock, serves as sub-adviser for all of the Portfolios. BlackRock, Inc. is an indirect majority-owned subsidiary of PNC Bank Corp. For its advisory services, BlackRock is entitled to receive fees, computed daily and paid monthly, at the following annual rates, based on each Portfolio's average daily net assets: Each Portfolio Except the International International Bond Portfolio Bond Portfolio & GNMA Portfolio & GNMA Portfolio ------------------------------- ---------------------------- Investment Investment Average Daily Net Assets Advisory Fee Advisory Fee ----------------------------- ------------------------------- ---------------------------- first $1 billion ..................... .500% .550% $1 billion-- $2 billion .............. .450 .500 $2 billion-- $3 billion .............. .425 .475 greater than $3 billion .............. .400 .450 For the year ended September 30, 1999, advisory fees and waivers for each Portfolio were as follows: Gross Net Advisory Advisory Fee Waiver Fee -------------- ------------- -------------- Low Duration Bond Portfolio ..................... $ 1,474,052 $ 754,500 $ 719,552 Intermediate Government Bond Portfolio .......... 2,269,860 716,541 1,553,319 Intermediate Bond Portfolio ..................... 2,765,839 1,051,834 1,714,005 Core Bond Portfolio ............................. 4,630,434 2,137,403 2,493,031 Government Income Portfolio ..................... 216,293 106,976 109,317 GNMA Portfolio .................................. 634,360 304,908 329,452 Managed Income Portfolio ........................ 7,687,219 1,600,525 6,086,694 International Bond Portfolio .................... 327,368 -- 327,368 High Yield Bond Portfolio ....................... 263,946 260,621 3,325 BlackRock pays BFM, Inc. fees for its sub-advisory services. 68 BLACKROCK FUNDS PFPC, Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank Corp., BlackRock and BlackRock Distributors, Inc. ("BDI") act as co-administrators for the Fund. For these services, the co-administrators receive a combined administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of each Portfolio, at the following annual rates: .085% of the first $500 million, .075% of the next $500 million and .065% of assets in excess of $1 billion. In addition, each of the classes, except for the BlackRock Class, are charged an administration fee based on the following percentage of average daily net assets of each respective class: .145% of the first $500 million, .135% of the next $500 million and .125% of assets in excess of $1 billion. The BlackRock Class is charged an administration fee of .035% of the first $500 million, .025% of the next $500 million and .015% of assets in excess of $1 billion based upon average daily net assets of its class. For the year ended September 30, 1999, administration fees and waivers for each Portfolio were as follows: Gross Net Administration Administration Fee Waiver Fee -------------- ---------- -------------- Low Duration Bond Portfolio ................... $ 613,780 $111,419 $ 502,361 Intermediate Government Bond Portfolio ........ 1,044,136 265,521 778,615 Intermediate Bond Portfolio ................... 1,233,704 167,584 1,066,120 Core Bond Portfolio ........................... 1,952,797 241,065 1,711,732 Government Income Portfolio ................... 99,496 49,352 50,144 GNMA Portfolio ................................ 265,278 94,000 171,278 Managed Income Portfolio ...................... 3,351,362 297,082 3,054,280 International Bond Portfolio .................. 136,887 -- 136,887 High Yield Bond Portfolio ..................... 94,182 86,276 7,906 Prior to February 1, 1999, BlackRock may have, at its discretion, waived all or any portion of its advisory fees for any Portfolio. In addition, PFPC, BlackRock and BDI may have, at their discretion, voluntarily waived all or any portion of their administration fees for any Portfolio. In the interest of limiting the expenses of the Portfolios, BlackRock and the Fund have entered into an expense limitation agreement effective February 1, 1999. The agreement sets a limit on certain of the operating expenses of each Portfolio for the next year and requires BlackRock to waive or reimburse fees or expenses if these operating expenses exceed that limit. These expense limits apply to expenses charged on Portfolio assets as a whole, but not expenses separately charged to the different share classes of a Portfolio. If in the following two years the operating expenses of a Portfolio that previously received a waiver or reimbursement from BlackRock are less than the expense limit for that Portfolio, the Portfolio is required to repay BlackRock up to the amount of fees waived or expenses reimbursed under the agreement if: (1) the Portfolio has more than $50 million in assets, (2) BlackRock continues to be the Portfolio's investment adviser and (3) the Board of Trustees of the Fund has approved the payments to BlackRock on a quarterly basis. The expense limits as a percentage of average daily net assets and amounts subject to possible reimbursement under the expense limitation agreement were as follows: Low Duration Bond Portfolio .................... .385% $ 506,416 Intermediate Government Bond Portfolio ......... .475% 594,654 Intermediate Bond Portfolio .................... .435% 727,071 Core Bond Portfolio ............................ .380% 1,515,671 Government Income Portfolio .................... .550% 104,469 GNMA Portfolio ................................. .485% 213,829 Managed Income Portfolio ....................... .485% 1,187,847 International Bond Portfolio ................... .865% -- High Yield Bond Portfolio ...................... .525% 331,554 PFPC Trust Co. (formerly PNC Bank, National Association) serves as custodian for each of the Fund's Portfolios. PFPC serves as transfer and dividend disbursing agent. Under the Fund's Distribution and Service Plan (the "Plan"), Investor Shares of the Portfolios bear the expense payments ("distribution fees") made to BDI, as the fund's distributor (the "Distributor"), or affiliates of PNC Bank, for distribution and sales support services. Under the Plan, the Fund has entered into arrangements with various Service Organizations (including PNC Bank and its affiliates) that provide support services to their customers who are the beneficial owners of shares in each Investor Class and the Service Class. Refer to the fee table in the "Notes to Financial Statements" for fee information. 69 BLACKROCK FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) (C) PURCHASES AND SALES OF SECURITIES For the year ended September 30, 1999, purchases and sales of securities, other than short-term and government securities, were as follows: Purchases Sales --------------- --------------- Low Duration Bond Portfolio ............. $ 245,016,961 $ 216,797,928 Intermediate Government Bond Portfolio .. 209,730,074 262,393,922 Intermediate Bond Portfolio ............. 571,651,372 519,579,315 Core Bond Portfolio ..................... 1,914,447,722 1,342,111,297 Government Income Portfolio ............. 60,893,283 43,555,706 GNMA Portfolio .......................... 121,211,526 77,461,387 Managed Income Portfolio ................ 2,160,886,839 1,927,868,299 International Bond Portfolio ............ 127,204,430 126,543,804 High Yield Bond Portfolio ............... 208,010,089 116,307,181 For the year ended September 30, 1999, purchases and sales of government securities were as follows: Purchases Sales -------------- -------------- Low Duration Bond Portfolio ............. $ 507,704,420 $ 474,005,359 Intermediate Government Bond Portfolio .. 695,058,750 663,274,452 Intermediate Bond Portfolio ............. 1,037,369,048 972,018,310 Core Bond Portfolio ..................... 1,775,221,918 1,638,293,564 Government Income Portfolio ............. 72,022,414 58,617,167 GNMA Portfolio .......................... 77,342,325 76,714,143 Managed Income Portfolio ................ 2,646,655,414 2,598,852,635 International Bond Portfolio ............ 18,685,823 20,493,594 High Yield Bond Portfolio ............... 2,004,063 2,000,781 (D) CAPITAL SHARES Transactions in capital shares for each period were as follows: Low Duration Bond Portfolio --------------------------------------------------------- For the Year Ended For the Year Ended 9/30/99 9/30/98 ------------------------- --------------------------- Shares Value Shares Value --------- ------------ ---------- ------------- Shares sold: BlackRock Class ........ 832,804 $ 8,225,913 10,953,938 $ 108,478,776 Institutional Class .... 5,049,746 50,160,391 7,756,306 77,356,855 Service Class .......... 481,738 4,773,870 804,858 7,979,540 Investor A Class ....... 7,997,051 79,368,911 3,255,674 32,355,524 Investor B Class ....... 849,840 8,398,923 44,066 437,617 Investor C Class ....... 295,280 2,913,761 31,759 314,906 Shares issued in conversion: Institutional Class .... -- -- 6,225,309 61,630,555 Shares issued in reinvestment of dividends: BlackRock Class ........ 437,739 4,345,898 506,324 5,019,138 Institutional Class .... 77,974 773,054 111,942 1,108,874 Service Class .......... 32,267 319,928 34,827 345,071 Investor A Class ....... 6,974 69,156 6,222 61,676 Investor B Class ....... 1,678 16,527 48 472 Investor C Class ....... 230 2,256 48 476 Shares redeemed: BlackRock Class ........ (7,196,600) (71,522,179) (4,357,893) (43,261,535) Institutional Class .... (5,717,416) (56,567,681) (7,815,690) (77,483,136) Service Class .......... (629,119) (6,237,880) (7,382,461) (73,660,500) Investor A Class ....... (8,023,994) (79,648,051) (3,086,710) (30,685,324) Investor B Class ....... (122,395) (1,210,268) (5,711) (56,529) Investor C Class ....... (169,657) (1,673,985) (5,037) (49,887) ---------- ------------ ----------- ------------- Net increase (decrease) ..... (5,795,860) $(57,491,456) 7,077,819 $ 69,892,569 ========== ============ =========== ============= 70 BLACKROCK FUNDS Intermediate Government Bond Portfolio ----------------------------------------------------------- For the Year Ended For the Year Ended 9/30/99 9/30/98 --------------------------- ----------------------------- Shares Value Shares Value ---------- ------------- ------------ ------------- Shares sold: Institutional Class .... 3,507,375 $ 35,391,770 5,388,703 $ 55,601,975 Service Class .......... 827,540 8,427,966 2,085,488 21,357,363 Investor A Class ....... 23,464,426 235,348,637 420,548 4,312,104 Investor B Class ....... 81,567 823,939 37,733 387,253 Investor C Class ....... 33,550 335,611 34,215 351,716 Shares issued in conversion: Institutional Class .... -- -- 33,310,235 339,098,189 Shares issued in reinvestment of dividends: Institutional Class .... 290,113 2,975,693 5,852 59,670 Service Class .......... 20,453 209,851 -- -- Investor A Class ....... 33,385 339,213 25,882 264,001 Investor B Class ....... 744 7,498 36 368 Investor C Class ....... 1 11 -- 7 Shares redeemed: Institutional Class .... (6,636,676) (67,012,012) (6,104,045) (62,424,167) Service Class .......... (984,744) (9,969,516) (4,249,778) (43,949,478) Investor A Class ....... (23,526,911) (235,853,068) (217,155) (2,225,240) Investor B Class ....... (35,011) (353,173) (6,083) (62,159) Investor C Class ....... (14,731) (147,933) (10,751) (110,945) ----------- ------------- ----------- ------------- Net increase (decrease) ..... (2,938,919) $ (29,475,513) 30,720,880 $ 312,660,657 =========== ============= =========== ============= Intermediate Bond Portfolio ---------------------------------------------------------- For the Year Ended For the Year Ended 9/30/99 9/30/98 -------------------------- ---------------------------- Shares Value Shares Value ---------- ------------ ----------- ------------- Shares sold: BlackRock Class ........ 1,378,815 $ 12,608,853 4,981,102 $ 47,321,273 Institutional Class .... 10,315,220 96,225,816 11,557,172 110,245,081 Service Class .......... 1,242,448 11,610,084 3,123,968 29,665,129 Investor A Class ....... 370,766 3,469,555 149,506 1,420,708 Investor B Class ....... 109,782 1,027,624 17,767 169,383 Investor C Class ....... 74,567 685,199 -- -- Shares issued in conversion: Institutional Class .... -- -- 25,659,119 242,478,670 Shares issued in reinvestment of dividends: BlackRock Class ........ 134,838 1,259,759 18,335 174,351 Institutional Class .... 533,001 5,011,399 151,911 1,435,680 Service Class .......... 62,444 584,579 33,520 317,235 Investor A Class ....... 9,745 91,018 6,876 65,200 Investor B Class ....... 2,299 21,264 73 697 Investor C Class ....... 112 1,043 -- -- Shares redeemed: BlackRock Class ........ (1,865,426) (17,440,794) (262) (2,485) Institutional Class .... (9,255,425) (86,356,153) (17,805,567) (169,025,115) Service Class .......... (1,317,770) (12,268,337) (5,989,510) (57,406,495) Investor A Class ....... (288,703) (2,680,316) (103,601) (983,789) Investor B Class ....... (12,658) (116,792) (6,332) (60,382) Investor C Class ....... (28,545) (261,301) -- -- ----------- ------------ ----------- ------------- Net increase ................ 1,465,510 $ 13,472,500 21,794,077 $ 205,815,141 =========== ============ =========== ============= 71 BLACKROCK FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) Core Bond Portfolio ----------------------------------------------------------- For the Year Ended For the Year Ended 9/30/99 9/30/98 --------------------------- ----------------------------- Shares Value Shares Value ---------- ------------- ------------ -------------- Shares sold: BlackRock Class ........ 12,304,751 $ 117,815,392 4,306,598 $ 42,116,116 Institutional Class .... 22,622,724 217,677,987 34,726,690 344,428,847 Service Class .......... 3,059,912 29,525,974 8,725,323 86,107,989 Investor A Class ....... 449,024 4,340,261 361,195 3,567,308 Investor B Class ....... 670,156 6,468,706 763,581 7,536,362 Investor C Class ....... 732,575 7,100,978 212,705 2,114,971 Shares issued in reinvestment of dividends: BlackRock Class ........ 686,453 6,616,617 330,228 3,250,694 Institutional Class .... 1,547,546 15,039,732 555,928 5,446,836 Service Class .......... 176,475 1,716,378 168,746 1,651,673 Investor A Class ....... 38,763 373,736 19,882 195,729 Investor B Class ....... 58,104 561,236 31,539 310,362 Investor C Class ....... 6,424 60,884 768 7,570 Shares redeemed: BlackRock Class ........ (4,888,053) (46,820,534) (376,161) (3,709,600) Institutional Class .... (14,235,545) (136,184,476) (8,783,259) (86,598,628) Service Class .......... (3,102,768) (29,354,941) (14,421,591) (143,884,759) Investor A Class ....... (264,885) (2,547,956) (124,790) (1,229,336) Investor B Class ....... (343,118) (3,277,734) (174,749) (1,726,105) Investor C Class ....... (213,866) (2,037,003) (25,456) (252,086) ----------- ------------- ----------- ------------- Net increase ................ 19,304,672 $ 187,075,237 26,297,177 $ 259,333,943 =========== ============= =========== ============= Government Income Portfolio ------------------------------------------------------- For the Year Ended For the Year Ended 9/30/99 9/30/98 ------------------------- ------------------------- Shares Value Shares Value --------- ------------ --------- ------------ Shares sold: Investor A Class ....... 260,226 $ 2,715,739 325,203 $ 3,439,854 Investor B Class ....... 1,949,007 20,327,259 1,133,444 12,022,192 Investor C Class ....... 285,429 3,023,210 111,159 1,177,933 Shares issued in reinvestment of dividends: Investor A Class ....... 30,494 315,789 31,395 330,860 Investor B Class ....... 116,786 1,207,289 67,664 713,719 Investor C Class ....... 5,135 53,075 2,312 24,407 Shares redeemed: Investor A Class ....... (171,587) (1,749,782) (263,954) (2,785,911) Investor B Class ....... (883,791) (9,009,692) (290,930) (3,081,821) Investor C Class ....... (188,143) (1,955,238) (51,448) (545,399) ---------- ------------ ---------- ------------ Net increase ................ 1,403,556 $ 14,927,649 1,064,845 $ 11,295,834 ========== ============ ========== ============ 72 BLACKROCK FUNDS GNMA Portfolio --------------------------------------------------------- For the Year Ended For the Period 9/30/99 5/18/98 1 through 9/30/98 ------------------------- ---------------------------- Shares Value Shares Value --------- ------------ ----------- ------------- Shares sold: Institutional Class .... 1,140,847 $ 11,252,768 647,172 $ 6,506,570 Service Class .......... 10,000 100,000 10 100 Investor A Class ....... 163,262 1,623,804 57,226 576,633 Investor B Class ....... 15,005 149,441 16,426 165,246 Investor C Class ....... 2,509 24,987 10 100 Shares issued in conversion: Institutional Class .... -- -- 12,043,846 120,438,460 Shares issued in reinvestment of dividends: Institutional Class .... 20,941 210,041 -- 2 Service Class .......... 1 7 -- 2 Investor A Class ....... 953 9,420 29 291 Investor B Class ....... 837 8,294 37 370 Investor C Class ....... 1 5 -- 1 Shares redeemed: Institutional Class .... (1,390,033) $(13,772,698) (1,014,462) (10,187,732) Service Class .......... -- -- -- -- Investor A Class ....... (102,641) (1,006,748) (4,337) (43,657) Investor B Class ....... (8,598) (85,468) -- -- Investor C Class ....... (61) (632) -- -- ---------- ------------ ----------- ------------- Net increase (decrease) ..... (146,977) $ (1,486,779) 11,745,957 $ 117,456,386 ========== ============ =========== ============= Managed Income Portfolio ----------------------------------------------------------- For the Year Ended For the Year Ended 9/30/99 9/30/98 --------------------------- ---------------------------- Shares Value Shares Value ---------- ------------- ----------- ------------- Shares sold: Institutional Class .... 19,369,006 $ 198,295,963 28,686,745 $ 301,709,745 Service Class .......... 23,985,008 246,124,482 22,149,435 232,274,400 Investor A Class ....... 1,652,130 17,049,147 9,725,828 101,726,116 Investor B Class ....... 241,920 2,480,512 422,716 4,431,406 Investor C Class ....... 89,834 911,388 -- -- Shares issued in conversion: Institutional Class .... -- -- 70,076,349 730,896,316 Shares issued in reinvestment of dividends: Institutional Class .... 1,741,803 17,972,961 284,166 2,960,491 Service Class .......... 800,827 8,224,822 335,029 3,503,288 Investor A Class ....... 84,338 865,048 65,247 682,731 Investor B Class ....... 25,489 261,167 7,746 81,187 Investor C Class ....... 112 1,120 -- -- Shares redeemed: Institutional Class .... (20,180,012) (206,556,608) (25,254,987) (264,941,084) Service Class .......... (21,667,679) (221,936,261) (23,914,429) (251,581,067) Investor A Class ....... (1,614,057) (16,588,344) (9,855,158) (103,016,193) Investor B Class ....... (116,526) (1,183,067) (39,630) (416,407) Investor C Class ....... (89,946) (909,267) -- -- ----------- ------------- ----------- ------------- Net increase ................ 4,322,247 $ 45,013,063 72,689,057 $ 758,310,929 =========== ============= =========== ============= _____________ 1 Commencement of operations. 73 BLACKROCK FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) International Bond Portfolio ------------------------------------------------------- For the Year Ended For the Year Ended 9/30/99 9/30/98 ------------------------- -------------------------- Shares Value Shares Value --------- ------------ ---------- ------------ Shares sold: Institutional Class .... 2,263,708 $ 25,360,758 807,871 $ 8,882,021 Service Class .......... 273,669 3,040,289 100,604 1,092,321 Investor A Class ....... 110,247 1,215,695 90,092 969,639 Investor B Class ....... 120,051 1,333,373 63,765 687,221 Investor C Class ....... 146,359 1,627,582 95,780 1,035,900 Shares issued in reinvestment of dividends: Institutional Class .... 23,195 257,254 149,376 1,571,786 Service Class .......... 4,843 53,860 24,714 260,973 Investor A Class ....... 8,011 89,058 8,842 94,462 Investor B Class ....... 4,349 48,278 5,400 57,581 Investor C Class ....... 3,763 41,792 2,650 28,325 Shares redeemed: Institutional Class .... (688,344) (7,645,996) (1,026,741) (11,137,837) Service Class .......... (143,232) (1,588,480) (527,989) (5,850,929) Investor A Class ....... (25,793) (287,680) (39,912) (429,622) Investor B Class ....... (32,536) (356,783) (24,092) (263,096) Investor C Class ....... (51,322) (569,217) (30,616) (332,704) --------- ------------ ---------- ------------ Net increase (decrease) ..... 2,016,968 $ 22,619,783 (300,256) $ (3,333,959) ========= ============ ========== ============ High Yield Bond Portfolio -------------------------- For the Period 11/19/98 1 thru 9/30/99 -------------------------- Shares Value ---------- ------------ Shares sold: BlackRock Class ........ 11 $ 100 Institutional Class .... 6,762,768 68,071,217 Service Class .......... 11 100 Investor A Class ....... 479,652 4,861,542 Investor B Class ....... 1,695,082 17,092,840 Investor C Class ....... 285,616 2,901,857 Shares issued in reinvestment of dividends: BlackRock Class ........ -- 7 Institutional Class .... 88 880 Service Class .......... -- 7 Investor A Class ...... 6,305 63,254 Investor B Class ....... 15,397 154,087 Investor C Class ....... 2,815 28,278 Shares redeemed: BlackRock Class ........ -- -- Institutional Class .... (201,248) (2,030,800) Service Class .......... -- -- Investor A Class ...... (32,638) (329,155) Investor B Class ...... (435,698) (4,353,940) Investor C Class ...... (16,479) (163,867) ---------- ------------ Net increase ................ 8,561,682 $ 86,296,407 ========== ============ ____________ 1 Commencement of operations. 74 BLACKROCK FUNDS On September 30, 1999, one shareholder held approximately 12% of the outstanding shares of the Government Income Portfolio and one shareholder held approximately 15% of the outstanding shares of the High Yield Bond Portfolio. Some of the shareholders are actually omnibus accounts, which are held on behalf of several individual shareholders. (E) AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF: Low Intermediate Duration Government Intermediate Core Bond Bond Bond Bond Portfolio Portfolio Portfolio Portfolio ------------- ------------ ------------ -------------- Capital paid-in ................................... $269,516,553 $437,374,167 $562,998,093 $1,006,877,502 Undistributed net investment income ............... 344,097 -- 514,538 -- Distributions in excess of net investment income ............................... -- -- -- (72,919) Accumulated net realized gain (loss) on investment transactions, futures, options, swap contracts and foreign exchange contracts .................. (1,797,720) (5,273,272) (5,292,619) (14,324,928) Net unrealized depreciation on investment transactions, futures contracts and foreign exchange contracts .................. (2,598,635) (7,981,205) (11,557,101) (25,480,797) ------------- ------------ ------------ -------------- $265,464,295 $424,119,690 $546,662,911 $ 966,998,858 ============= ============ ============ ============== Government Managed International High Yield Income GNMA Income Bond Bond Portfolio Portfolio Portfolio Portfolio Portfolio ----------- ------------ -------------- ------------- ----------- Capital paid-in $45,989,278 $112,604,456 $1,602,554,335 $ 68,717,324 $86,296,407 Undistributed net investment income 32,319 263,192 -- 944,808 313,895 Accumulated net realized gain (loss) on investment transactions, futures, options, swap contracts and foreign exchange contracts (1,208,762) (282,960) (6,794,296) 1,139,886 (683,582) Net unrealized depreciation on investment transactions, futures contracts and foreign exchange contracts (913,844) (1,069,848) (50,916,307) (452,854) (2,601,709) ----------- ------------ -------------- ------------- ----------- $43,898,991 $111,514,840 $1,544,843,742 $ 70,349,164 $83,325,011 =========== ============ ============== ============= =========== (F) CAPITAL LOSS CARRYOVERS At September 30, 1999, capital loss carryovers were available to offset possible future realized capital gains as follows: Capital Loss Carryforward Year of Expiration ------------------------- ------------------ Low Duration Bond Portfolio: $470,894 9/30/04 767,646 9/30/03 170,313 9/30/02 High Yield Bond Portfolio: 683,582 9/30/07 On September 30, 1999, deferred post-October losses for the Intermediate Government Bond Portfolio were $5,104,142, for the Intermediate Bond Portfolio were $4,074,417, for the Core Bond Portfolio were $11,549,317, for the Government Income Portfolio were $637,620, for the GNMA Portfolio were $206,164 and for the Managed Income Portfolio were $2,931,382. 75 BLACKROCK FUNDS NOTES TO FINANCIAL STATEMENTS (CONTINUED) (G) CONVERSION OF COMMON TRUST FUNDS On January 13, 1998, January 22, 1998 and February 9, 1998, the Board of Trustees of the Fund, the Board of Directors of PNC Bank and the Board of directors of PNC Bank, Delaware, respectively, approved an asset purchase agreement among the Fund, PNC Bank, Delaware regarding 25 common trust funds for which either PNC Bank or PNC Bank Delaware serve as trustee (each a "PNC Common Trust Fund"). The agreement provided for the acquisition by the Fund of all of the assets and liabilities of each PNC Common Trust Fund managed by the Advisor in a tax-free exchange for Institutional shares of the corresponding portfolio(s) of the Fund and the distribution of such Institutional shares to the participating trusts of the PNC Common Trust Funds in liquidation of the PNC Common Trust Funds. The following is a summary of shares issued, net assets converted, net assets value per share issued and unrealized appreciation of assets acquired as of the conversion date. FUNDS CONVERTED ON MAY 18, 1998: Unrealized PNC BlackRock Shares Net Assets Net Assets Value Appreciation Common Trust Fund Fund Issued Converted Per Share Issued (Depreciation) - --------------------------- ---------------------- ---------- ------------ ---------------- -------------- PNC Short Term Bond Low Duration Bond 3,805,870 $ 37,678,109 $ 9.90 $ 48,131 PNC Short Term Government Low Duration Bond Bond 2,419,439 23,952,446 9.90 (4,521) PNC Intermediate Government Intermediate Government Bond Bond 33,310,235 339,098,189 10.18 1,048,107 PNC Intermediate Bond Intermediate Bond 25,659,119 242,478,670 9.45 938,554 PNC Managed Income Managed Income 53,447,855 557,461,128 10.43 4,696,910 PNC Income Managed Income 16,628,494 173,435,188 10.43 1,754,561 PNC GNMA GNMA 12,043,846 120,438,460 10.00 3,432,748 76 BLACKROCK FUNDS REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF THE BLACKROCK FUNDS: In our opinion, the accompanying statements of net assets of the Low Duration Bond, Intermediate Government Bond, Intermediate Bond, Government Income, GNMA, and International Bond Portfolios and the statements of assets and liabilities, including the schedules of investments, of the Core Bond, Managed Income, and High Yield Bond Portfolios of the BlackRock Funds (the "Fund") and the related statements of operations and of changes in net assets, of cash flows of the Low Duration Bond, Intermediate Bond, Government Income and Managed Income Portfolios and the financial highlights present fairly, in all material respects, the financial position of the Low Duration Bond, Intermediate Government Bond, Intermediate Bond, Core Bond, Government Income, GNMA, Managed Income, International Bond, and High-Yield Bond Portfolios of the Fund at September 30, 1999, the results of their operations, the changes in their net assets, their cash flows for the Low Duration Bond, Intermediate Bond, Government Income and Managed Income Portfolios and the financial highlights for each of the periods presented (except for the year ended June 30, 1995 for the Low Duration Bond and Core Bond Portfolios, formerly the BFM Institutional Trust Short Duration and Core Fixed Income Portfolios, respectively, which were audited by other auditors, whose report dated August 7, 1995 expressed an unqualified opinion thereon), in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities owned at September 30, 1999 by correspondence with the custodians and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania November 15, 1999 77 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] BLACKROCK FUNDS Investment Adviser BlackRock Advisors, Inc. New York, New York 10154 Sub-Adviser BlackRock Financial Management, Inc. New York, New York 10154 Custodian PFPC Trust Co. Philadelphia, Pennsylvania 19103 Co-Administrator and Transfer Agent PFPC Inc. Wilmington, Delaware 19809 Co-Administrator and Distributor BlackRock Distributors, Inc. West Conshohocken, Pennsylvania 19428 Co-Administrator BlackRock Advisors, Inc. New York, New York 10154 Counsel Simpson, Thacher & Bartlett New York, New York 10017 (A partnership which includes professional corporations) Independent Accountants PricewaterhouseCoopers LLP Philadelphia, Pennsylvania 19103 To reduce expenses, the Fund will mail only one copy of annual and semi-annual reports and most prospectuses to your household, even if more than one person in the household has a Fund account. Please call (800) 441-7762 if you would like to receive additional reports or prospectuses. BLACKROCK FUNDS FUND SPECTRUM BLACKROCK FUNDS IS A LEADING MUTUAL FUND COMPANY CURRENTLY MANAGING IN EXCESS OF $25 BILLION IN 36 PORTFOLIOS DESIGNED TO FIT A BROAD RANGE OF INVESTMENT GOALS. EACH PORTFOLIO IS MANAGED BY RECOGNIZED EXPERTS IN EQUITY, FIXED INCOME, INTERNATIONAL, AND TAX-FREE INVESTING WHO ADHERE TO A PURE INVESTMENT STYLE.(REGISTRATION MARK) STOCK PORTFOLIOS - ---------------- Large Cap Value Equity Micro-Cap Equity Large Cap Growth Equity International Equity Mid-Cap Value Equity International Small Cap Equity Mid-Cap Growth Equity International Emerging Markets Small Cap Value Equity Select Equity Small Cap Growth Equity Index Equity STOCK & BOND PORTFOLIOS - ----------------------- Balanced BOND PORTFOLIOS - --------------- Low Duration Bond Intermediate Government Bond GNMA Intermediate Bond Managed Income Core Bond International Bond Government Income High Yield Bond TAX-FREE BOND PORTFOLIOS - ------------------------ Tax-Free Income Ohio Tax-Free Income Pennsylvania Tax-Free Income Delaware Tax-Free Income New Jersey Tax-Free Income Kentucky Tax-Free Income MONEY MARKET PORTFOLIOS - ----------------------- Money Market North Carolina Municipal Money Market U.S. Treasury Money Market Ohio Municipal Money Market Municipal Money Market Pennsylvania Municipal Money Market New Jersey Municipal Money Market Virginia Municipal Money Market SHAREHOLDER PRIVILEGES 24 HOUR ACCOUNT INFORMATION Call us at 1-800-441-7762, 24 hours a day, 7 days a week to get information about your account balances, recent transactions and share prices. Note: Institutional and Service Share Class investors should call 1-800-441-7764. You can also reach us on the Internet through the World Wide Web by accessing http://www.blackrock.com. EXCHANGE PRIVILEGES Should your investment goals change, shareholders in our Investor Class shares may exchange all or part of their investments into the same share class of any other portfolio of BlackRock Funds. (1) AUTOMATIC INVESTMENT PLANS Investor Class shareholders who want to invest regularly can arrange to have $50 or more automatically deducted from their checking or savings account and invested in any of the BlackRock portfolios. SYSTEMATIC WITHDRAWAL PLANS Investor Class shareholders can establish a systematic withdrawal plan and receive periodic payments of $100 or more from their BlackRock portfolios, as long as their account is at least $1,000. RETIREMENT PLANS Shareholders may make investments in conjunction with individual IRAaccounts or rollover IRAs. GENERAL INFORMATION ABOUT THE BLACKROCK FUNDS If you would like additional reports or have questions regarding any of the 36 BlackRock Funds, please call 1-800-FUTURE4 (1-800-388-8734) (1) BLACKROCK FUNDS RESERVES THE RIGHT TO MODIFY OR TERMINATE THE EXCHANGE PRIVILEGES AT ANY TIME. BLACKROCK FUNDS (LOGO) [GRAPHIC OMITTED] P.O. Box 8907 Wilmington, DE 19899 Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed by PNC Bank, National Association or any other bank and shares are not federally insured by, guaranteed by, obligations of or otherwise supported by the U.S. Government, the Federal Deposit Insurance Corporation, The Federal Reserve Board, or any other governmental agency. Investments in shares of the fund involve investment risks, including the possible loss of the principal amount invested.