N-CSRS 1 d901765dncsrs.htm BLACKROCK FUNDS BLACKROCK FUNDS

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT

COMPANIES

Investment Company Act file number: 811-05742

Name of Fund: BlackRock Funds

BlackRock All-Cap Energy & Resources Portfolio

BlackRock Emerging Markets Dividend Fund

BlackRock Energy & Resources Portfolio

BlackRock Flexible Equity Fund

BlackRock Global Opportunities Portfolio

BlackRock Health Sciences Opportunities Portfolio

BlackRock International Opportunities Portfolio

BlackRock Managed Volatility Portfolio

BlackRock Mid-Cap Growth Equity Portfolio

BlackRock Science & Technology Opportunities Portfolio

BlackRock Small Cap Growth Equity Portfolio

BlackRock U.S. Opportunities Portfolio

Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809

Name and address of agent for service: John M. Perlowski, Chief Executive Officer, BlackRock Funds, 55 East 52nd           Street, New York, NY 10055

Registrant’s telephone number, including area code: (800) 441-7762

Date of fiscal year end: 09/30/2015

Date of reporting period: 03/31/2015


Item 1 – Report to Stockholders

 


MARCH 31, 2015        

 

 

SEMI-ANNUAL REPORT (UNAUDITED)

 

      BLACKROCK®

 

BlackRock FundsSM

  BlackRock All-Cap Energy & Resources Portfolio

  BlackRock Emerging Markets Dividend Fund

  BlackRock Energy & Resources Portfolio

 

 

 

 

 

Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee  

 


Table of Contents     

 

       Page   

The Markets in Review

     3   

Semi-Annual Report:

  

Fund Summaries

     4   

About Fund Performance

     10   

Disclosure of Expenses

     11   

Derivative Financial Instruments

     11   

Financial Statements:

  

Schedules of Investments

     12   

Statements of Assets and Liabilities

     20   

Statements of Operations

     22   

Statements of Changes in Net Assets

     23   

Financial Highlights

     24   

Notes to Financial Statements

     36   

Officers and Trustees

     49   

Additional Information

     50   

 

 

LOGO

 

2    BLACKROCK FUNDS    MARCH 31, 2015     


The Markets in Review

Dear Shareholder,

Market volatility has remained low from a long-term perspective, but increased over the course of 2014 amid higher valuations in risk assets (such as equities and high yield bonds), geopolitical risks, uneven global economic growth and uncertainty around policy moves from the world’s largest central banks. As the U.S. Federal Reserve (the “Fed”) gradually reduced its bond buying program (which ultimately ended in October 2014), U.S. interest rates surprisingly trended lower and stock prices forged ahead despite high valuations on the back of a multi-year bull market. Geopolitical tensions intensified in Ukraine and the Middle East and oil prices became highly volatile in the middle of the summer, stoking worries about economic growth outside the United States. As the U.S. economy continued to show steady improvement, the stronger data caused concern among investors that the Fed would raise short-term rates sooner than previously anticipated. The U.S. dollar appreciated and global credit markets tightened, ultimately putting a strain on investor flows, and financial markets broadly weakened in the third quarter.

U.S. economic growth picked up considerably in the fourth quarter while the broader global economy showed signs of slowing. U.S. markets significantly outperformed international markets even as the European Central Bank (“ECB”) and the Bank of Japan eased monetary policy, which drove further strengthening in the U.S. dollar. Oil prices plummeted in the fourth quarter due to a global supply-and-demand imbalance, sparking a selloff in energy-related assets and stress in emerging markets. Fixed income investors piled into U.S. Treasuries as their persistently low yields became relatively attractive as compared to international sovereign debt.

Equity markets reversed in the first quarter of 2015 and U.S. stocks underperformed international markets, notably Europe and Japan, but also emerging markets. Investors had held high expectations for the U.S. economy, but after a harsh winter, first-quarter data disappointed and high valuations took their toll on U.S. stocks. Meanwhile, economic reports in Europe and Asia easily beat investors’ very low expectations for those economies, and accommodative policies from global central banks helped international equities rebound. The ECB’s asset purchase program (announced in January and commenced in March) was the largest in scale and effect on the markets. Overall, market volatility decreased in the first quarter as global risks abated, with a ceasefire in Ukraine and an improving outlook for Greece’s continued membership in the Eurozone.

At BlackRock, we believe investors need to think globally, extend their scope across a broad array of asset classes and be prepared to move freely as market conditions change over time. We encourage you to talk with your financial advisor and visit blackrock.com for further insight about investing in today’s markets.

Sincerely,

 

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

    

    

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

Total Returns as of March 31, 2015  
     6-month     12-month  

U.S. large cap equities (S&P 500® Index)

     5.93     12.73

U.S. small cap equities (Russell 2000® Index)

     14.46        8.21   

International equities (MSCI Europe, Australasia, Far East Index)

     1.13        (0.92

Emerging market equities (MSCI Emerging Markets Index)

     (2.37     0.44   

3-month Treasury bill (BofA Merrill Lynch 3-Month U.S. Treasury Bill Index)

     0.01        0.03   

U.S. Treasury securities (BofA Merrill Lynch 10- Year U.S. Treasury Index)

     6.25        9.88   

U.S. investment grade bonds (Barclays U.S. Aggregate Bond Index)

     3.43        5.72   

Tax-exempt municipal bonds (S&P Municipal Bond Index)

     2.29        6.60   

U.S. high yield bonds (Barclays U.S. Corporate High Yield 2% Issuer Capped Index)

     1.50        2.00   
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.     
 

 

     THIS PAGE NOT PART OF YOUR FUND REPORT         3


Fund Summary as of March 31, 2015      BlackRock All-Cap Energy & Resources  Portfolio   

 

Investment Objective

BlackRock All-Cap Energy & Resources Portfolio’s (the “Fund”) investment objective is to provide long-term growth of capital.

 

Portfolio Management Commentary

 

How did the Fund perform?

 

Ÿ  

For the six-month period ended March 31, 2015, the Fund underperformed the MSCI World Energy Index.

What factors influenced performance?

 

Ÿ  

The Fund’s overweight positions in the North American exploration and production (E&P) stocks Encana Corp. and Laredo Petroleum, Inc. weighed on relative returns, as the companies’ growth rates appeared to be at risk following the drop in oil prices. Encana Corp. came under further pressure after announcing it was raising funds by issuing new equity.

 

Ÿ  

Toward the end of the period, a divergence in oil prices between Brent (international crude) and West Texas Intermediate (U.S. crude) was beneficial for the Gulf Coast refiners Valero Energy Corp. and Marathon Oil Corp., as these companies took advantage of the spread between the prices of the two types of oil. The Fund’s underweight in these stocks detracted from relative performance.

 

Ÿ  

Well-capitalized E&P companies with stronger-than-average balance sheets and tier one assets generally outperformed during the first quarter. Devon Energy Corp. and Cimarex Energy Co., both of which outpaced the broader sector, were prime examples of this trend. The Fund held overweights in the two stocks, aiding performance.

 

Ÿ  

Eni S.p.A., a European integrated energy company, announced a cut to its dividend near the end of the period. This was the first instance of a dividend cut by one of the major energy companies during this downturn. The stock fell sharply as a result, so the Fund’s underweight was a positive contributor to relative performance. At the close of the period, the Fund remained underweight in Eni S.p.A. in favor of more compelling value opportunities elsewhere in the sector.

 

Describe recent portfolio activity.

 

Ÿ  

The Fund initiated a position in Marathon Oil Corp., a high-quality, U.S.-focused oil producer, during the period. This purchase was funded through the sales of CONSOL Energy, Inc. and Laredo Petroleum, Inc. and the distribution company TransCanada Corp. The Fund also exited its position in the offshore service company Cameron International Corp. on concerns that the company’s business model will be particularly challenged by lower oil prices. The proceeds of these sales were rotated into a new position in the U.S.-focused land driller Helmerich & Payne, Inc.

Describe portfolio positioning at period end.

 

Ÿ  

The Fund retained a bias toward higher-quality companies, and a number of the major integrated energy companies remained in its top-ten holdings. The Fund’s investment advisor believed these companies’ strong asset bases and financial flexibility gave them the ability to adapt to a weak oil price environment.

 

Ÿ  

The Fund maintained an overweight to the E&P industry, and it also had significant exposure to U.S. onshore unconventional producers and international E&P companies. The Fund retained a strong focus on assessing valuations, asset bases and companies’ financial flexibility.

 

Ÿ  

Believing lower oil prices will lead to falling profit margins for offshore oil services companies, the Fund’s investment advisor remained cautious with respect to this industry group. In addition, these companies tend to be key beneficiaries of the major integrated companies’ capital expenditures (capex). As a result, the capex cuts that have occurred across the energy sector represent a potential headwind for oil services companies.

 

 

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

Portfolio Information

 

Ten Largest Holdings   

Percent of

Long-Term  Investments

Exxon Mobil Corp.

     11

Chevron Corp.

     8   

Royal Dutch Shell PLC, A Shares - ADR

     7   

ConocoPhillips

     6   

Anadarko Petroleum Corp.

     5   

BP PLC

     5   

TOTAL SA

     5   

Pioneer Natural Resources Co.

     4   

Marathon Oil Corp.

     4   

Enbridge, Inc.

     4   
Industry Allocation   

Percent of

Long-Term  Investments

Oil, Gas & Consumable Fuels

     93

Energy Equipment & Services

     7   

For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 

 

4    BLACKROCK FUNDS    MARCH 31, 2015     


       BlackRock All-Cap Energy & Resources  Portfolio   

 

 

Total Return Based on a $10,000 Investment

 

 

LOGO

 

  1 

Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees and administration fees, if any. Institutional Shares do not have a sales charge.

 

  2 

Under normal market conditions, the Fund invests at least 80% of its total assets in equity securities of global energy and natural resources companies and companies in associated businesses, as well as utilities (such as gas, water, cable, electrical and telecommunications utilities).

 

  3 

A free float-adjusted market capitalization index that represents the energy segment in global developed market equity performance.

 

Performance Summary for the Period Ended March 31, 2015   
                Average Annual Total Returns4  
                1 Year        5 Years        10 Years  
       

6-Month

Total Returns

      

w/o sales

charge

      

w/ sales

charge

      

w/o sales

charge

      

w/ sales

charge

      

w/o sales

charge

      

w/ sales

charge

 

Institutional

       (18.91 )%         (17.18 )%         N/A           (0.41 )%         N/A           5.44        N/A   

Service

       (19.08        (17.46        N/A           (0.80        N/A           5.02           N/A   

Investor A

       (19.04        (17.52        (21.85 )%         (0.83        (1.90 )%         5.00           4.43

Investor B

       (19.38        (18.12        (21.80        (1.57        (1.97        4.39           4.39   

Investor C

       (19.38        (18.12        (18.94        (1.55        (1.55        4.24           4.24   

MSCI World Energy Index

       (17.67        (16.58        N/A           2.96           N/A           4.59           N/A   

 

  4   

Assuming maximum sales charges, if any. Average annual total returns with and without sales charges reflect reductions for distribution and service fees. See “About Fund Performance” on page 10 for a detailed description of share classes, including any related sales charges and fees.

 

       N/A—Not applicable as share class and index do not have a sales charge.

 

       Past performance is not indicative of future results.

 

Expense Example
   

Actual

 

Hypothetical6

   
     Beginning
Account Value
October 1, 2014
  Ending
Account Value
March 31, 2015
  Expenses Paid
During the Period5
  Beginning
Account Value
October 1, 2014
  Ending
Account Value
March 31, 2015
  Expenses Paid
During the Period5
  Annualized
Expense Ratio

Institutional

  $1,000.00   $810.90   $4.33   $1,000.00   $1,020.14   $4.84   0.96%

Service

  $1,000.00   $809.20   $6.22   $1,000.00   $1,018.05   $6.94   1.38%

Investor A

  $1,000.00   $809.60   $6.23   $1,000.00   $1,018.05   $6.94   1.38%

Investor B

  $1,000.00   $806.20   $9.46   $1,000.00   $1,014.46   $10.55   2.10%

Investor C

  $1,000.00   $806.20   $9.46   $1,000.00   $1,014.46   $10.55   2.10%

 

 

  5  

For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period shown).

 

  6   

Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.

 

      See “Disclosure of Expenses” on page 11 for further information on how expenses were calculated.

 

     BLACKROCK FUNDS    MARCH 31, 2015    5


Fund Summary as of March 31, 2015      BlackRock Emerging Markets Dividend Fund   

 

 

Investment Objective

BlackRock Emerging Markets Dividend Fund’s (the “Fund”) investment objective is primarily to seek investment income and, as a secondary objective, to seek capital appreciation.

 

Portfolio Management Commentary

 

How did the Fund perform?

 

Ÿ  

For the six-month period ended March 31, 2015, the Fund underperformed its benchmark, the MSCI Emerging Markets Index.

What factors influenced performance?

 

Ÿ  

Stock selection in China was the largest detractor from performance during the semi-annual period, with the largest negative contribution coming from the Fund’s lack of a position in the internet provider Tencent Holdings Ltd. Stock selection in South Korea also weighed on returns. A lack of exposure to Samsung Co. Ltd., which the Fund does not own due to its low yield, was a notable detractor. The Brazilian industrial stock Marcopolo SA, which suffered as a result of macroeconomic headwinds in Brazil, was the largest detractor among individual stocks.

 

Ÿ  

The most significant contributions to relative performance came from stock selection in Russia, Taiwan and South Africa. The largest individual contributor was the Fund’s lack of exposure to the Brazilian oil & gas stock Petrobras SA, which suffered from an ongoing corruption scandal investigation and the volatility in oil prices. Positions in the Chinese paper products manufacturer Hengan International Group Co. Ltd. and Taiwan Semiconductor Manufacturing Co. Ltd. also contributed positively.

Describe recent portfolio activity.

Ÿ  

During the period, the Fund added to its positions in Taiwan, China and Thailand while reducing its weighting in Brazil and deploying cash. At the sector level, the Fund increased its weightings in information technology and financials while reducing its positions in materials and energy. The Fund initiated a position in Industrial & Commercial Bank of China Ltd. and increased its weighting in the Russian food retailer Magnit PJSC. These moves were partially funded by reducing exposure to MMC Norilsk Nickel OJSC, a Russian mining company, and exiting China Petroleum & Chemical Corp.

Describe portfolio positioning at period end.

 

Ÿ  

Divergence in the performance of individual countries continued to be a theme within the emerging markets. However, the moderation of economic growth, policy reforms and interest rate changes became larger drivers of performance across the asset class. The Fund’s investment advisor retained a positive view on the emerging markets, as valuations remained inexpensive relative to both their own history and valuations in the developed markets.

 

Ÿ  

The Fund held overweight positions in Thailand, Mexico and Taiwan at the close of the period, while its largest underweights were in South Korea, China, Malaysia and Brazil. The underweight position in South Korea was a result of the low dividend yields in that market. At the sector level, the Fund was overweight in industrials and financials and underweight in information technology and utilities.

 

 

 

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

Portfolio Information

 

Ten Largest Holdings    Percent of
Long-Term  Investments

Taiwan Semiconductor Manufacturing Co. Ltd. - ADR

     6

Industrial & Commercial Bank of China Ltd., H Shares

     4   

Hengan International Group Co. Ltd.

     4   

SK Telecom Co. Ltd.

     3   

Itau Unibanco Holding SA - ADR

     3   

Powszechny Zaklad Ubezpieczen SA

     3   

FirstRand Ltd.

     3   

Grupo Aeroportuario del Pacifico SAB de CV, Class B

     3   

Sanlam Ltd.

     3   

China Merchants Holdings International Co. Ltd.

     3   
Geographic Allocation    Percent of
Long-Term Investments

Taiwan

     19

China

     17   

Mexico

     12   

Thailand

     9   

South Africa

     8   

Russia

     5   

South Korea

     5   

Brazil

     5   

Indonesia

     3   

Poland

     3   

Other1

     14   

 

  1   

Includes holdings within countries that are 2% or less of long-term investments. Please refer to the Schedule of Investments for such countries.

 

 

6    BLACKROCK FUNDS    MARCH 31, 2015     


       BlackRock Emerging Markets Dividend Fund   

 

 

Total Return Based on a $10,000 Investment

 

 

LOGO

 

  1 

Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees and administration fees, if any. Institutional Shares do not have a sales charge. The Fund’s total returns prior to August 16, 2013, are the returns of the Fund when it followed different investment strategies under the name BlackRock China Fund.

 

  2 

Under normal circumstances, the Fund will invest at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of, or derivatives having economic characteristics similar to the dividend-paying equity securities of companies domiciled in, or tied economically to, emerging market countries.

 

  3 

A free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 23 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.

 

  4 

Commencement of operations.

 

Performance Summary for the Period Ended March 31, 2015   
                Average Annual Total Returns5  
                1 Year        Since Inception6  
       

6-Month

Total Returns

      

w/o sales

charge

      

w/ sales

charge

      

w/o sales

charge

      

w/ sales

charge

 

Institutional

       (3.65 )%         (1.99 )%         N/A           (2.76 )%         N/A   

Investor A

       (3.80        (2.24        (7.37 )%         (3.01        (4.34 )% 

Investor C

       (4.31        (3.04        (3.99        (3.71        (3.71

MSCI Emerging Markets Index

       (2.37        0.44           N/A           (2.85        N/A   

 

 

  5  

Assuming maximum sales charges, if any. Average annual total returns with and without sales charges reflect reductions for distribution and service fees. See “About Fund Performance” on page 10 for a detailed description of share classes, including any related sales charges and fees.

 

  6   

The Fund commenced operations on April 29, 2011.

 

       N/A—Not applicable as share class and index do not have a sales charge.

 

       Past performance is not indicative of future results.

 

Expense Example
   

Actual

 

Hypothetical8

   
     Beginning
Account Value
October 1, 2014
  Ending
Account Value
March 31, 2015
  Expenses Paid
During the Period7
  Beginning
Account Value
October 1, 2014
  Ending
Account Value
March 31, 2015
  Expenses Paid
During the Period7
  Annualized
Expense Ratio

Institutional

  $1,000.00   $963.50   $7.39   $1,000.00   $1,017.40   $7.59   1.51%

Investor A

  $1,000.00   $962.00   $8.61   $1,000.00   $1,016.16   $8.85   1.76%

Investor C

  $1,000.00   $956.90   $12.25   $1,000.00   $1,012.42   $12.59   2.51%

 

  7   

For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period shown). The fees and expenses of the underlying funds in which the Fund invests are not included in the Fund’s annualized expense ratio.

 

  8   

Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.

 

      See “Disclosure of Expenses” on page 11 for further information on how expenses were calculated.

 

     BLACKROCK FUNDS    MARCH 31, 2015    7


Fund Summary as of March 31, 2015      BlackRock Energy & Resources Portfolio   

 

 

Investment Objective

BlackRock Energy & Resources Portfolio’s (the “Fund”) investment objective is to provide long-term growth of capital.

 

Portfolio Management Commentary

 

How did the Fund perform?

 

Ÿ  

For the six-month period ended March 31, 2015, the Fund’s Institutional, Investor A and Investor C Shares outperformed the MSCI World Small and Mid-Cap Energy Index, while the Investor B Shares performed inline with the benchmark index.

What factors influenced performance?

 

Ÿ  

Well-capitalized exploration and production (E&P) companies with stronger-than-average balance sheets and tier one assets generally outperformed during the period. Carrizo Oil & Gas, Inc. and EOG Resources, Inc., both of which outpaced the broader sector, were prime examples of this trend. The Fund held over-weights in the two stocks, aiding performance.

 

Ÿ  

The Fund’s overweight position in the distribution company Enbridge, Inc. was a notable contributor to relative performance. As a distribution company, its share price was less impacted by the decline in oil prices. The market also reacted favorably to the company’s increase in its quarterly dividend and its announcement of a financial restructuring plan.

 

Ÿ  

The Fund’s overweight position in Canadian Oil Sands Ltd. was the largest detractor during the period. The company has relatively high operational costs, which meant that the stock was especially vulnerable to the drop in oil prices. The market also reacted negatively to the company’s announcement of its 2015 outlook. While Canadian Oil Sands Ltd. indicated that it would generate production growth in 2015, its estimate was below investor expectations. The company also made a substantial cut to its dividend.

 

Ÿ  

An overweight positions in North American E&P companies Encana Corp. and Ithaca Energy, Inc. weighed on relative returns, as the companies’ growth rates

   

appeared to be at risk following the drop in oil prices. Encana Corp. came under further pressure after announcing it was raising funds by issuing new equity.

Describe recent portfolio activity.

 

Ÿ  

The Fund initiated a position in Marathon Oil Corp., a high-quality, U.S.-focused oil producer, during the period. This purchase was funded through the sales of two U.S. E&P stocks, Denbury Resources, Inc. and Stone Energy Corp. The Fund also initiated a position in the distribution company Enbridge, Inc. due to its lower sensitivity to oil prices weakness compared to the energy sector as a whole.

Describe portfolio positioning at period end.

 

Ÿ  

The Fund retained a bias toward higher-quality companies, and it maintained an overweight to the E&P industry. The Fund also had significant exposure to U.S. onshore unconventional producers and international E&P companies. The Fund retained a strong focus on assessing valuations, asset bases and companies’ financial flexibility.

 

Ÿ  

Believing lower oil prices will lead to falling profit margins for offshore oil services companies, the Fund’s investment advisor remained cautious with respect to this industry group. In addition, these companies tend to be key beneficiaries of the major integrated companies’ capital expenditures (capex). As a result, the capex cuts that have occurred across the energy sector represent a potential headwind for oil services companies.

 

 

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

Portfolio Information

 

Ten Largest Holdings    Percent of
Long-Term Investments

Enbridge, Inc.

     7

Cimarex Energy Co.

     6   

Cabot Oil & Gas Corp.

     5   

EQT Corp.

     5   

AltaGas Ltd.

     5   

Murphy Oil Corp.

     5   

Range Resources Corp.

     4   

Marathon Oil Corp.

     4   

Carrizo Oil & Gas, Inc.

     4   

Southwestern Energy Co.

     4   

 

Industry Allocation    Percent of
Long-Term Investments

Oil, Gas & Consumable Fuels

     93

Energy Equipment & Services

     7   

For Fund compliance purposes, the Fund’s industry classifications refer to any one

or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 

 

8    BLACKROCK FUNDS    MARCH 31, 2015     


       BlackRock Energy & Resources Portfolio   

 

Total Return Based on a $10,000 Investment

 

 

LOGO

 

  1 

Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees and administration fees, if any. Institutional Shares do not have a sales charge.

 

  2 

Under normal conditions, the Fund invests at least 80% of its total assets in equity securities of global energy and natural resources companies and companies in associated businesses, as well as utilities (such as gas, water, cable, electrical and telecommunications utilities).

 

  3 

An index comprised of the energy sector constituents of the MSCI World SMID Index, a free float-adjusted market capitalization weighted index designed to measure the equity market performance of the mid and small cap developed market.

 

Performance Summary for the Period Ended March 31, 2015   
            Average Annual Total Returns4  
            1 Year      5 Years      10 Years  
      6-Month
Total Returns
     w/o sales
charge
     w/ sales
charge
     w/o sales
charge
     w/ sales
charge
     w/o sales
charge
     w/ sales
charge
 

Institutional

     (28.72 )%       (31.79 )%       N/A         (5.17 )%       N/A         2.28      N/A   

Investor A

     (28.82      (31.99      (35.56 )%       (5.48      (6.49 )%       1.96         1.41

Investor B

     (29.12      (32.56      (35.59      (6.20      (6.56      1.35         1.35   

Investor C

     (29.07      (32.49      (33.16      (6.18      (6.18      1.22         1.22   

MSCI World Small and Mid-Cap Energy Index

     (29.14      (31.91      N/A         (1.74      N/A         3.71         N/A   

 

  4   

Assuming maximum sales charges, if any. Average annual total returns with and without sales charges reflect reductions for distribution and service fees. See “About Fund Performance” on page 10 for a detailed description of share classes, including any related sales charges and fees.

 

       N/A—Not applicable as share class and index do not have a sales charge.

 

       Past performance is not indicative of future results.

 

Expense Example
   

Actual

 

Hypothetical6

   
     Beginning
Account Value
October 1, 2014
  Ending
Account Value
March 31, 2015
  Expenses Paid
During the  Period5
  Beginning
Account Value
October 1, 2014
  Ending
Account Value
March 31, 2015
  Expenses Paid
During the  Period5
  Annualized
Expense Ratio

Institutional

  $1,000.00   $712.80   $4.57   $1,000.00   $1,019.60   $5.39   1.07%

Investor A

  $1,000.00   $711.80   $5.89   $1,000.00   $1,018.05   $6.94   1.38%

Investor B

  $1,000.00   $708.80   $8.95   $1,000.00   $1,014.46   $10.55   2.10%

Investor C

  $1,000.00   $709.30   $8.95   $1,000.00   $1,014.46   $10.55   2.10%

 

  5   

For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period shown). The fees and expenses of the underlying funds in which the Fund invests are not included in the Fund’s annualized expense ratio.

 

  6   

Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.

 

      See “Disclosure of Expenses” on page 11 for further information on how expenses were calculated.

 

     BLACKROCK FUNDS    MARCH 31, 2015    9


About Fund Performance     

 

Ÿ  

Institutional Shares are not subject to any sales charge. These shares bear no ongoing distribution or service fees and are available only to certain eligible investors.

 

Ÿ  

Service Shares are not subject to any sales charge. These shares are subject to a service fee of 0.25% per year (but no distribution fee) and are only available to certain eligible investors.

 

Ÿ  

Investor A Shares are subject to a maximum initial sales charge (front-end load) of 5.25% and a service fee of 0.25% per year (but no distribution fee). Certain redemptions of these shares may be subject to a contingent deferred sales charge (“CDSC”) where no initial sales charge was paid at the time of purchase. These shares are generally available through financial intermediaries.

 

Ÿ  

Investor B Shares are subject to a maximum CDSC of 4.50%, declining to 0% after six years. In addition, these shares are subject to a distribution fee of 0.75% per year and a service fee of 0.25% per year. These shares automatically convert to Investor A Shares after approximately eight years. (There is no initial sales charge for automatic share conversions.) All returns for periods greater than eight years reflect this conversion. These shares are only available through exchanges and distribution reinvestments by current holders and for purchase by certain employer-sponsored retirement plans.

 

Ÿ  

Investor C Shares are subject to a 1.00% CDSC if redeemed within one year of purchase. In addition, these shares are subject to a distribution fee of 0.75% per year and a service fee of 0.25% per year. These shares are generally available through financial intermediaries.

Performance information reflects past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Refer to www.blackrock.com/funds to obtain performance data current to the most recent month end. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Figures shown in the performance tables on the previous pages assume reinvestment of all distributions, if any, at net asset value (“NAV”) on the ex-dividend date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Distributions paid to each class of shares will vary because of the different levels of service, distribution and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders.

BlackRock Advisors, LLC (the “Manager”), the Funds’ investment advisor, has contractually agreed to waive and/or reimburse a portion of certain Funds’ expenses. Without such waiver and/or reimbursement, such Funds’ performance would have been lower. The Manager is under no obligation to continue waiving and/or reimbursing its fees after the applicable termination date of such agreement. See Note 5 of the Notes to Financial Statements for additional information on waivers and/or reimbursements.

 

 

10    BLACKROCK FUNDS    MARCH 31, 2015     


Disclosure of Expenses     

 

Shareholders of the Funds may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, administration fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses and other Fund expenses. The expense examples on the previous pages (which are based on a hypothetical investment of $1,000 invested on October 1, 2014 and held through March 31, 2015) are intended to assist shareholders both in calculating expenses based on an investment in each Fund and in comparing these expenses with similar costs of investing in other mutual funds.

The expense examples provide information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their Fund and share class under the headings entitled “Expenses Paid During the Period.”

 

The expense examples also provide information about hypothetical account values and hypothetical expenses based on a Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in these Funds and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in shareholder reports of other funds.

The expenses shown in the expense examples are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.

 

 

Derivative Financial Instruments     

 

The Funds may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the derivative financial

instrument. The Funds’ ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation a Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Funds’ investments in these instruments are discussed in detail in the Notes to Financial Statements.

 

 

     BLACKROCK FUNDS    MARCH 31, 2015    11


Schedule of Investments March 31, 2015 (Unaudited)      BlackRock All-Cap Energy & Resources  Portfolio   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Energy Equipment & Services — 7.0%

     

Halliburton Co.

     38,300       $ 1,680,604   

Helmerich & Payne, Inc.

     49,000         3,335,430   

Schlumberger Ltd.

     65,641         5,477,085   
     

 

 

 
                10,493,119   

Oil, Gas & Consumable Fuels — 92.4%

     

Anadarko Petroleum Corp.

     96,100         7,958,041   

BG Group PLC

     116,825         1,433,873   

BP PLC

     1,125,600         7,296,290   

Cabot Oil & Gas Corp.

     130,900         3,865,477   

Cairn Energy PLC (a)

     512,600         1,187,670   

Canadian Natural Resources Ltd.

     50,300         1,541,705   

Chevron Corp.

     109,098         11,453,108   

Cimarex Energy Co.

     29,200         3,360,628   

ConocoPhillips

     156,600         9,749,916   

Devon Energy Corp.

     92,100         5,554,551   

Enbridge, Inc.

     116,900         5,634,791   

Encana Corp.

     404,400         4,514,797   

EOG Resources, Inc.

     59,140         5,422,546   

Exxon Mobil Corp.

     190,900         16,226,500   

Kosmos Energy Ltd. (a)

     173,414         1,371,705   

Marathon Oil Corp.

     222,200         5,801,642   

Murphy Oil Corp.

     45,900         2,138,940   

Noble Energy, Inc.

     81,500         3,985,350   
Common Stocks    Shares      Value  

Oil, Gas & Consumable Fuels (concluded)

     

Oil Search Ltd.

     520,787       $ 2,841,519   

Phillips 66

     55,500         4,362,300   

Pioneer Natural Resources Co.

     37,600         6,147,976   

Range Resources Corp.

     60,000         3,122,400   

Royal Dutch Shell PLC, A Shares — ADR

     184,542         11,007,930   

Southwestern Energy Co. (a)

     138,700         3,216,453   

Statoil ASA

     151,612         2,680,714   

TOTAL SA

     141,700         7,043,456   
     

 

 

 
                138,920,278   

Total Long-Term Investments

(Cost — $154,561,727) — 99.4%

              149,413,397   
     
Short-Term Securities                

BlackRock Liquidity Funds, TempFund, Institutional Class, 0.06% (b)(c)

     1,312,983         1,312,983   

Total Short-Term Securities

(Cost — $1,312,983) — 0.9%

              1,312,983   

Total Investments (Cost — $155,874,710) — 100.3%

        150,726,380   

Liabilities in Excess of Other Assets — (0.3)%

        (515,247
     

 

 

 

Net Assets — 100.0%

      $ 150,211,133   
     

 

 

 
 
Notes to Schedule of Investments

 

(a) Non-income producing security.

 

(b) During the six months ended March 31, 2015, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate    Shares/
Beneficial
Interest
Held at
September  30,
2014
     Net Activity     Shares/
Beneficial
Interest
Held at
March  31,
2015
     Income  

BlackRock Liquidity Funds, TempFund, Institutional Class

     3,666,592         (2,353,609     1,312,983       $ 1,483   

BlackRock Liquidity Series, LLC, Money Market Series

                          $ 41   

 

(c) Represents the current yield as of report date.

 

Portfolio Abbreviations
ADR    American Depositary Receipts      NVDR    Non-Voting Depository Receipts    ZAR    South African Rand
GDR    Global Depositary Receipts      USD    U.S. Dollar      

 

See Notes to Financial Statements.

 

12    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (concluded)      BlackRock All-Cap Energy & Resources  Portfolio   

 

 

Ÿ  

For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 

Ÿ  

Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows:

 

  Ÿ  

Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

  Ÿ  

Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

  Ÿ  

Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Financial Statements.

As of March 31, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:

 

      Level 1      Level 2      Level 3    Total  

Assets:

           

Investments:

           

Long-Term Investments:

           

Common Stocks:

           

Energy Equipment & Services

   $ 10,493,119                  $ 10,493,119   

Oil, Gas & Consumable Fuels

     116,436,756       $ 22,483,522            138,920,278   

Short-Term Securities

     1,312,983                    1,312,983   
  

 

 

 

Total

   $ 128,242,858       $ 22,483,522          $ 150,726,380   
  

 

 

 

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of March 31, 2015, foreign currency at value of $24,324 is categorized as Level 1 within the disclosure hierarchy.

During the six months ended March 31, 2015, there were no transfers between levels.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    13


Schedule of Investments March 31, 2015 (Unaudited)      BlackRock Emerging Markets Dividend Fund   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Brazil — 4.7%

     

BB Seguridade Participacoes SA

     5,020       $ 51,450   

Itau Unibanco Holding SA — ADR

     11,983         132,532   

Marcopolo SA, Preference

     29,175         21,116   
     

 

 

 
                205,098   

Cambodia — 0.7%

     

NagaCorp Ltd.

     48,000         31,870   

Chile — 2.0%

     

Banco de Chile — ADR

     1,301         87,245   

China — 16.5%

     

Beijing Capital International Airport Co. Ltd., H Shares

     66,000         64,452   

China Hongqiao Group Ltd.

     40,500         24,261   

China Merchants Holdings International Co. Ltd.

     28,432         111,419   

China Mobile Ltd.

     3,500         45,613   

Hengan International Group Co. Ltd.

     13,000         156,479   

Industrial & Commercial Bank of China Ltd., H Shares

     218,000         161,251   

Jiangsu Expressway Co. Ltd., H Shares

     56,000         75,198   

Want Want China Holdings Ltd.

     78,000         83,005   
     

 

 

 
                721,678   

Czech Republic — 1.1%

     

Komercni Banka AS

     224         48,316   

Greece — 0.5%

     

OPAP SA

     2,589         24,165   

Hong Kong — 0.9%

     

Chow Tai Fook Jewellery Group Ltd.

     17,600         18,977   

Sands China Ltd.

     5,200         21,503   
     

 

 

 
                40,480   

India — 2.3%

     

Infosys Ltd. — ADR

     2,932         102,855   

Indonesia — 3.5%

     

Bank Central Asia Tbk PT

     63,301         71,742   

Bank Mandiri Persero Tbk PT

     40,666         38,782   

Media Nusantara Citra Tbk PT

     186,524         40,832   
     

 

 

 
                151,356   

Kazakhstan — 0.3%

     

KCell JSC — GDR

     1,523         14,240   

Mexico — 11.4%

     

Bolsa Mexicana de Valores SAB de CV

     34,189         58,276   

Fibra Uno Administracion SA de CV

     16,418         43,484   

Fomento Economico Mexicano SAB de CV — ADR (a)

     666         62,271   

Grupo Aeroportuario del Pacifico SAB de CV, Class B

     18,101         118,941   

Grupo Aeroportuario del Sureste SAB de CV — ADR (a)

     699         93,960   

Kimberly-Clark de Mexico SAB de CV, Class A

     27,619         57,706   

Mexico Real Estate Management SA de CV

     41,142         64,814   
     

 

 

 
                499,452   

Peru — 1.6%

     

Credicorp Ltd.

     497         69,893   
Common Stocks    Shares      Value  

Philippines — 1.5%

     

Alliance Global Group, Inc.

     113,000       $ 66,845   

Poland — 3.4%

     

Powszechna Kasa Oszczednosci Bank Polski SA

     2,944         26,350   

Powszechny Zaklad Ubezpieczen SA

     964         124,382   
     

 

 

 
                150,732   

Russia — 5.4%

     

Lukoil OAO — ADR

     2,396         110,983   

Magnit PJSC — GDR

     1,566         79,944   

MMC Norilsk Nickel OJSC — ADR

     2,574         45,727   
     

 

 

 
                236,654   

South Africa — 8.3%

     

FirstRand Ltd.

     26,670         122,603   

Mr. Price Group Ltd.

     2,517         53,834   

Sanlam Ltd.

     18,110         116,715   

Truworths International Ltd.

     9,508         69,015   
     

 

 

 
                362,167   

South Korea — 3.8%

     

SK Telecom Co. Ltd.

     568         139,766   

SK Telecom Co. Ltd. — ADR

     929         25,278   
     

 

 

 
                165,044   

Taiwan — 19.1%

     

Chipbond Technology Corp.

     37,000         77,995   

Delta Electronics, Inc.

     8,000         50,412   

Eclat Textile Co. Ltd.

     2,000         26,208   

Far EasTone Telecommunications Co. Ltd.

     39,000         94,085   

Himax Technologies, Inc. — ADR

     2,853         18,059   

Lite-On Technology Corp.

     28,000         36,221   

Makalot Industrial Co. Ltd.

     4,000         28,713   

MediaTek, Inc.

     3,000         40,517   

Quanta Computer, Inc.

     21,000         50,687   

Taiwan Semiconductor Manufacturing Co. Ltd.

     9,000         41,828   

Taiwan Semiconductor Manufacturing Co. Ltd. — ADR

     10,311         242,102   

Tripod Technology Corp.

     20,000         40,226   

Yageo Corp.

     42,902         88,400   
     

 

 

 
                835,453   

Thailand — 8.8%

     

Advanced Info Service PCL — NVDR

     7,900         57,412   

Bangkok Expressway PCL — NVDR

     14,500         17,362   

BEC World PCL — NVDR

     33,200         41,819   

Kasikornbank PCL — NVDR

     15,700         110,394   

PTT PCL — NVDR

     4,500         44,639   

Siam City Cement PCL — NVDR

     2,284         26,796   

The Siam Commercial Bank PCL — NVDR

     11,700         63,989   

Thai Oil PCL — NVDR

     13,800         22,026   
     

 

 

 
                384,437   

Turkey — 0.6%

     

Tupras Turkiye Petrol Rafinerileri AS

     1,198         28,383   
 

 

See Notes to Financial Statements.

 

14    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (continued)      BlackRock Emerging Markets Dividend Fund   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

United Arab Emirates — 1.3%

     

Dragon Oil PLC

     6,228       $ 54,941   

Total Common Stocks — 97.7%

              4,281,304   
     
Participation Notes (a)                

South Korea — 1.3%

     

Deutsche Bank AG (Hyundai Motor & Finance Co.), due 8/12/23

     2,530         56,554   

Total Long-Term Investments

(Cost — $4,215,044) — 99.0%

              4,337,858   
Short-Term Securities    Shares      Value  

BlackRock Liquidity Funds, TempFund,
Institutional Class, 0.06% (b)(c)

     52,359       $ 52,359   

Total Short-Term Securities

(Cost — $52,359) — 1.2%

              52,359   

Total Investments (Cost — $4,267,403) — 100.2%

        4,390,217   

Liabilities in Excess of Other Assets — (0.2)%

        (6,788
     

 

 

 

Net Assets — 100.0%

      $ 4,383,429   
     

 

 

 
 
Notes to Schedule of Investments

 

(a) Non-income producing security.

 

(b) During the six months ended March 31, 2015, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate    Shares/ Beneficial
Interest Held at
September 30, 2014
     Net
Activity
    Shares/ Beneficial
Interest Held at
March  31, 2015
     Income  

BlackRock Liquidity Funds, TempFund, Institutional Class

     147,277         (94,918     52,359       $ 24   

BlackRock Liquidity Series, LLC, Money Market Series

                          $ 90   

 

(c) Represents the current yield as of report date.

 

Ÿ  

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows:

 

Currency
Purchased
       Currency
Sold
    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
USD        69,139           ZAR           802,351      Deutsche Bank AG     4/22/15         $ 3,241   
ZAR        802,351           USD           69,065      BNP Paribas S.A.     4/22/15           (3,167
Total                         $ 74   
                       

 

 

 

 

Ÿ  

Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows:

 

  Ÿ  

Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

  Ÿ  

Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

  Ÿ  

Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    15


Schedule of Investments (continued)      BlackRock Emerging Markets Dividend Fund   

 

As of March 31, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:

 

      Level 1    Level 2   Level 3    Total

Assets:

                  

Investments:

                  

Long-Term Investments:

                  

Common Stocks:

                  

Brazil

     $ 205,098                         $ 205,098  

Cambodia

              $ 31,870                  31,870  

Chile

       87,245                           87,245  

China

                721,678                  721,678  

Czech Republic

                48,316                  48,316  

Greece

                24,165                  24,165  

Hong Kong

                40,480                  40,480  

India

       102,855                           102,855  

Indonesia

                151,356                  151,356  

Kazakhstan

       14,240                           14,240  

Mexico

       499,452                           499,452  

Peru

       69,893                           69,893  

Philippines

                66,845                  66,845  

Poland

                150,732                  150,732  

Russia

       236,654                           236,654  

South Africa

                362,167                  362,167  

South Korea

       25,278          139,766                  165,044  

Taiwan

       260,161          575,292                  835,453  

Thailand

                384,437                  384,437  

Turkey

                28,383                  28,383  

United Arab Emirates

                54,941                  54,941  

Participation Notes:

                  

South Korea

                56,554                  56,554  

Short-Term Securities

       52,359                           52,359  
    

 

 

 

Total

     $ 1,553,235        $ 2,836,982                $ 4,390,217  
    

 

 

 
                  
      Level 1    Level 2   Level 3    Total

Derivative Financial Instruments1

                  

Assets:

                  

Forward foreign currency exchange contracts

                $3,241                $ 3,241  

Liabilities:

                  

Forward foreign currency exchange contracts

                (3,167)                  (3,167 )
    

 

 

 

Total

                $74                $ 74  
    

 

 

 

1    Derivative financial instruments are forward foreign currency exchange contracts, which are valued at the unrealized appreciation/depreciation on the instrument.

       

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of March 31, 2015, such assets are categorized within the disclosure hierarchy as follows:    
                  
      Level 1    Level 2   Level 3    Total

Assets:

                  

Cash

     $ 12,988                         $ 12,988  

Foreign currency at value

       6,045                           6,045  
    

 

 

 

Total

     $ 19,033                         $ 19,033  
    

 

 

 

 

See Notes to Financial Statements.

 

16    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (concluded)      BlackRock Emerging Markets Dividend Fund  

 

Transfers between Level 1 and Level 2 were as follows:

 

      Transfers into
Level 1
     Transfers out
of Level 11
    Transfers into
Level 21
     Transfers out
of Level 2
 

Assets:

          

Long-Term Investments:

          

Thailand

           $ (50,794   $ 50,794           

1   External pricing service used to reflect any significant market movements between the time the Fund valued such foreign securities and the earlier closing of foreign markets.

      

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    17


Schedule of Investments March 31, 2015 (Unaudited)      BlackRock Energy & Resources Portfolio   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Commercial Services & Supplies — 0.0%

     

Republic Resources, Inc. (Acquired 7/18/97 to 2/24/99, cost $779,869) (a)(b)

     28,750           

Energy Equipment & Services — 6.8%

     

Cameron International Corp. (b)

     181,200       $ 8,175,744   

Helmerich & Payne, Inc.

     180,500         12,286,635   

Poseidon Concepts Corp. (b)

     35,081         14   

Superior Energy Services, Inc.

     330,357         7,380,175   
     

 

 

 
                27,842,568   

Oil, Gas & Consumable Fuels — 93.4%

     

AltaGas Ltd.

     618,100         20,623,668   

Cabot Oil & Gas Corp.

     763,700         22,552,061   

Cairn Energy PLC (b)

     4,115,600         9,535,652   

Canadian Oil Sands Ltd.

     758,000         5,894,990   

Carrizo Oil & Gas, Inc. (b)

     349,800         17,367,570   

Cimarex Energy Co.

     197,510         22,731,426   

Concho Resources, Inc. (b)

     38,100         4,416,552   

CONSOL Energy, Inc.

     443,600         12,372,004   

Enbridge, Inc.

     561,000         27,041,214   

Encana Corp.

     1,341,000         14,971,174   

EOG Resources, Inc.

     174,800         16,027,412   

EQT Corp.

     265,744         22,022,205   

Genel Energy PLC (b)

     366,200         2,550,245   

Gulfport Energy Corp. (b)

     220,835         10,138,535   

Ithaca Energy, Inc. (b)

     4,702,200         2,376,067   

Kosmos Energy Ltd. (b)

     1,398,788         11,064,413   

Laredo Petroleum, Inc. (b)

     682,200         8,895,888   

Longview Energy Co. (Acquired 8/13/04, cost $1,281,000) (a)(b)

     85,400         150,304   

Marathon Oil Corp.

     674,500         17,611,195   

Murphy Oil Corp.

     419,900         19,567,340   

Noble Energy, Inc.

     218,600         10,689,540   

Oil Search Ltd.

     3,041,800         16,596,678   

Painted Pony Petroleum Ltd. (b)

     635,900         2,972,270   
Common Stocks    Shares      Value  

Oil, Gas & Consumable Fuels (concluded)

     

Pioneer Natural Resources Co.

     99,937       $ 16,340,699   

Range Resources Corp.

     346,940         18,054,758   

Rosetta Resources, Inc. (b)

     452,600         7,703,252   

RSP Permian, Inc. (b)

     303,342         7,641,185   

SM Energy Co.

     248,900         12,863,152   

Southwestern Energy Co. (b)

     744,600         17,267,274   

TransGlobe Energy Corp.

     817,600         2,911,355   
     

 

 

 
                380,950,078   

Total Common Stocks — 100.2%

              408,792,646   
     
Warrants (c)                

Oil, Gas & Consumable Fuels — 0.0%

     

Magnum Hunter Resources Corp. (Issued/Exercisable 10/15/13, 1 Share for 1 Warrant, Expires 4/15/16, Strike Price $8.50)

     235,700         2   

Total Warrants — 0.0%

              2   

Total Long-Term Investments

(Cost — $448,055,319) — 100.2%

  

  

     408,792,648   
     
Short-Term Securities                

BlackRock Liquidity Funds, TempFund, Institutional Class, 0.06% (d)(e)

     577,947         577,947   

Total Short-Term Securities

(Cost — $577,947) — 0.2%

  

  

     577,947   

Total Investments (Cost — $448,633,266) — 100.4%

  

     409,370,595   

Liabilities in Excess of Other Assets — (0.4)%

  

     (1,447,517
     

 

 

 

Net Assets — 100.0%

      $ 407,923,078   
     

 

 

 
 
Notes to Schedule of Investments

 

(a) Restricted security as to resale. As of report date, the Fund held restricted securities with a current value of $150,304 and an original cost of $2,060,869, which was less than 0.01% of its net assets.

 

(b) Non-income producing security.

 

(c) Warrants entitle the Fund to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date of the warrants, if any.

 

(d) During the six months ended March 31, 2015, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate    Shares Held at
September 30, 2014
    

Net

Activity

    Shares Held at
March 31, 2015
     Income      Realized
Gain
 

BlackRock Liquidity Funds, TempFund, Institutional Class

     9,547,958         (8,970,011     577,947       $ 3,011       $ 1,503   

 

(e) Represents the current yield as of report date.

 

See Notes to Financial Statements.

 

18    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (concluded)      BlackRock Energy & Resources Portfolio   

 

Ÿ  

For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 

Ÿ  

Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows:

 

  Ÿ  

Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

  Ÿ  

Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

  Ÿ  

Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Financial Statements.

As of March 31, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:

 

      Level 1      Level 2      Level 3      Total  

Assets:

           

Investments:

           

Long-Term Investments:

           

Common Stocks:

           

Energy Equipment & Services

   $ 27,842,554       $ 14               $ 27,842,568   

Oil, Gas & Consumable Fuels

     352,117,199         28,682,575       $ 150,304         380,950,078   

Warrants

             2                 2   

Short-Term Securities

     577,947                         577,947   
  

 

 

 

Total

   $ 380,537,700       $ 28,682,591       $ 150,304       $ 409,370,595   
  

 

 

 

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of March 31, 2015, foreign currency at value of $80,671 is categorized as Level 1 within the disclosure hierarchy.

During the six months ended March 31, 2015, there were no transfers between levels.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    19


Statements of Assets and Liabilities     

 

 

March 31, 2015 (Unaudited)    BlackRock
All-Cap Energy &
Resources
Portfolio
    BlackRock
Emerging
Markets
Dividend
Fund
    BlackRock
Energy &
Resources
Portfolio
 
      
Assets                         

Investments at value — unaffiliated1

   $     149,413,397      $     4,337,858      $ 408,792,648   

Investments at value — affiliated2

     1,312,983        52,359        577,947   

Cash

            12,988          

Foreign currency at value3

     24,324        6,045        80,671   

Investments sold receivable

            35,521          

Unrealized appreciation on forward foreign currency exchange contracts

            3,241          

Capital shares sold receivable

     273,353        11,968        513,972   

Dividends receivable — unaffiliated

     98,951        13,197        366,796   

Receivable from Manager

     17,841        13,989        14,306   

Dividends receivable — affiliated

     123        1        245   

Securities lending income receivable — affiliated

     41        79          

Prepaid expenses

     52,588        34,408        43,060   
  

 

 

 

Total assets

     151,193,601        4,521,654            410,389,645   
  

 

 

 
      
Liabilities                         

Investments purchased payable

            7,121          

Unrealized depreciation on forward foreign currency exchange contracts

            3,167          

Capital shares redeemed payable

     604,990        24,296        1,625,373   

Transfer agent fees payable

     137,478        1,509        339,081   

Investment advisory fees payable

     96,103               262,107   

Service and distribution fees payable

     57,445        639        100,267   

Professional fees payable

     40,318        64,779        40,006   

Other affiliates payable

     6,445        10        34,089   

Pricing fees payable

     5,802        22,438        6,920   

Officer’s and Trustees’ fees payable

     2,611        767        5,885   

Other accrued expenses payable

     31,276        13,499        52,839   
  

 

 

 

Total liabilities

     982,468        138,225        2,466,567   
  

 

 

 

Net Assets

   $ 150,211,133      $ 4,383,429      $ 407,923,078   
  

 

 

 
      
Net Assets Consist of                         

Paid-in capital

   $ 207,169,550      $ 5,126,786      $ 560,534,804   

Undistributed (distributions in excess of) net investment income (loss)

     849,177        (19,557     (2,390,690

Accumulated net realized loss

     (52,656,018     (846,323     (110,953,068

Net unrealized appreciation/depreciation

     (5,151,576     122,523        (39,267,968
  

 

 

 

Net Assets

   $ 150,211,133      $ 4,383,429      $ 407,923,078   
  

 

 

 

1       Investments at cost — unaffiliated

   $ 154,561,727      $ 4,215,044      $ 448,055,319   

2       Investments at cost — affiliated

   $ 1,312,983      $ 52,359      $ 577,947   

3       Foreign currency at cost

   $ 24,321      $ 6,050      $ 80,664   

 

See Notes to Financial Statements.

 

20    BLACKROCK FUNDS    MARCH 31, 2015     


Statements of Assets and Liabilities (concluded)     

 

March 31, 2015 (Unaudited)    BlackRock
All-Cap Energy
& Resources
Portfolio
     BlackRock
Emerging
Markets
Dividend
Fund
     BlackRock
Energy &
Resources
Portfolio
 
        
Net Asset Value                           

Institutional

        

Net assets

   $     30,878,629       $     2,702,577       $     119,420,591   
  

 

 

 

Shares outstanding1

     2,384,903         326,164         4,421,314   
  

 

 

 

Net asset value

   $ 12.95       $ 8.29       $ 27.01   
  

 

 

 

Service

        

Net assets

   $ 1,369,112                   
  

 

 

 

Shares outstanding1

     108,367                   
  

 

 

 

Net asset value

   $ 12.63                   
  

 

 

 

Investor A

        

Net assets

   $ 69,389,743       $ 1,290,234       $ 230,249,697   
  

 

 

 

Shares outstanding1

     5,502,499         156,394         9,866,359   
  

 

 

 

Net asset value

   $ 12.61       $ 8.25       $ 23.34   
  

 

 

 

Investor B

        

Net assets

   $ 2,439,670               $ 1,792,617   
  

 

 

 

Shares outstanding1

     202,915                 106,424   
  

 

 

 

Net asset value

   $ 12.02               $ 16.84   
  

 

 

 

Investor C

        

Net assets

   $ 46,133,979       $ 390,618       $ 56,460,173   
  

 

 

 

Shares outstanding1

     3,843,504         47,728         3,379,768   
  

 

 

 

Net asset value

   $ 12.00       $ 8.18       $ 16.71   
  

 

 

 

 

  1   

Unlimited number of shares authorized, $ 0.001 par value.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    21


Statements of Operations     

 

Six Months Ended March 31, 2015 (Unaudited)   

BlackRock

All-Cap Energy
& Resources
Portfolio

    BlackRock
Emerging
Markets
Dividend
Fund
    BlackRock
Energy &
Resources
Portfolio
 
      
Investment Income                         

Dividends — unaffiliated

   $ 2,256,833      $ 51,945      $ 2,904,105   

Dividends — affiliated

     1,483        24        3,011   

Other income — affiliated

            42          

Securities lending — affiliated — net

     41        90          

Foreign taxes withheld

     (152,513     (5,458     (238,617
  

 

 

 

Total income

     2,105,844        46,643        2,668,499   
  

 

 

 
      
Expenses                         

Investment advisory

     613,814        24,559        1,632,497   

Service and distribution — class specific

     366,872        4,500        644,826   

Transfer agent — class specific

     181,778        2,530        537,731   

Administration

     49,035        1,466        129,984   

Professional

     34,611        54,638        39,376   

Registration

     29,908        18,116        30,076   

Administration — class specific

     18,573        557        49,334   

Accounting services

     12,826        3,556        28,877   

Printing

     9,516        5,711        18,191   

Custodian

     7,759        8,255        15,587   

Officer and Trustees

     4,743        2,109        9,530   

Pricing

     2,678        10,356        3,194   

Miscellaneous

     6,985        3,475        8,945   

Recoupment of past waived and/or reimbursed fees — class specific

                   2,465   
  

 

 

 

Total expenses

     1,339,098        139,828        3,150,613   

Less fees waived by the Manager

     (1,551     (24,594     (4,680

Less administration fees waived

            (1,466       

Less administration fees waived — class specific

     (18,537     (550     (37,055

Less transfer agent fees waived — class specific

     (11,490     (151     (14,666

Less transfer agent fees reimbursed — class specific

     (51,466     (2,295     (33,754

Less expenses reimbursed by the Manager

            (69,114       
  

 

 

 

Total expenses after fees waived and/or reimbursed

     1,256,054        41,658        3,060,458   
  

 

 

 

Net investment income (loss)

     849,790        4,985        (391,959
  

 

 

 
      
Realized and Unrealized Gain (Loss)                         

Net realized gain (loss) from:

      

Investments

     (1,500,310     (185,452     (22,944,267

Capital gain distributions received from affiliated investment companies

                   1,503   

Foreign currency transactions

     (48,882     5,861        (99,770
  

 

 

 
     (1,549,192     (179,591     (23,042,534
  

 

 

 

Net change in unrealized appreciation/depreciation on:

      

Investments

     (36,453,414     (10,088     (139,468,681

Foreign currency translations

     (892     (13,217     (2,233
  

 

 

 
     (36,454,306     (23,305     (139,470,914
  

 

 

 

Net realized and unrealized loss

     (38,003,498     (202,896     (162,513,448
  

 

 

 

Net Decrease in Net Assets Resulting from Operations

   $     (37,153,708   $     (197,911   $     (162,905,407
  

 

 

 

 

See Notes to Financial Statements.

 

22    BLACKROCK FUNDS    MARCH 31, 2015     


Statements of Changes in Net Assets     

 

     BlackRock
All-Cap Energy &
Resources
Portfolio
    BlackRock
Emerging
Markets
Dividend
Fund
    BlackRock
Energy &
Resources
Portfolio
 
Increase (Decrease) in Net Assets:   

Six Months

Ended

March 31,

2015

(Unaudited)

    Year Ended
September 30,
2014
   

Six Months
Ended
March 31,

2015
(Unaudited)

    Year Ended
September 30,
2014
   

Six Months

Ended

March 31,

2015

(Unaudited)

    Year Ended
September 30,
2014
 
            
Operations                                                 

Net investment income (loss)

   $ 849,790      $ 1,182,643      $ 4,985      $ 111,342      $ (391,959   $ (4,840,727

Net realized gain (loss)

     (1,549,192     49,403,376        (179,591     (126,900     (23,042,534     114,806,534   

Net change in unrealized appreciation/depreciation

     (36,454,306     (36,681,534     (23,305     34,469        (139,470,914     (101,325,236
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     (37,153,708     13,904,485        (197,911     18,911        (162,905,407     8,640,571   
  

 

 

   

 

 

   

 

 

 
            
Distributions to Shareholders From1                                                 

Net investment income:

            

Institutional

     (552,322     (243,720     (44,898     (84,952              

Service

     (18,439     (7,889                            

Investor A

     (877,257     (428,293     (28,189     (44,272              

Investor C

     (179,698            (5,914     (7,777              
  

 

 

   

 

 

   

 

 

 

Decrease in net assets resulting from distributions to shareholders

     (1,627,716     (679,902     (79,001     (137,001              
  

 

 

   

 

 

   

 

 

 
            
Capital Share Transactions                                                 

Net increase (decrease) in net assets derived from capital share transactions

     (8,610,591     (36,929,775     (500,506     1,020,647        37,097,918        (113,778,135
  

 

 

   

 

 

   

 

 

 
            
Net Assets                                                 

Total increase (decrease) in net assets

     (47,392,015     (23,705,192     (777,418     902,557        (125,807,489         (105,137,564

Beginning of period

     197,603,148        221,308,340        5,160,847        4,258,290        533,730,567        638,868,131   
  

 

 

   

 

 

   

 

 

 

End of period

   $     150,211,133      $     197,603,148      $     4,383,429      $     5,160,847      $     407,923,078      $ 533,730,567   
  

 

 

   

 

 

   

 

 

 

Undistributed (distributions in excess of) net investment income (loss), end of period

   $ 849,177      $ 1,627,103      $ (19,557   $ 54,459      $ (2,390,690   $ (1,998,731
  

 

 

   

 

 

   

 

 

 

 

  1   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    23


Financial Highlights      BlackRock All-Cap Energy & Resources  Portfolio   

 

 

     Institutional  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 16.26      $ 15.28      $ 13.51      $ 12.14      $ 13.76      $ 12.46   
  

 

 

 

Net investment income1

     0.11        0.19        0.06        0.05        0.01        0.02   

Net realized and unrealized gain (loss)

     (3.18     0.90        1.71        1.32        (1.51 )2      1.382   
  

 

 

 

Net increase (decrease) from investment operations

     (3.07     1.09        1.77        1.37        (1.50     1.40   
  

 

 

 

Distributions from net investment income3

     (0.24     (0.11     (0.00 )4             (0.12     (0.10
  

 

 

 

Net asset value, end of period

   $ 12.95      $ 16.26      $ 15.28      $ 13.51      $ 12.14      $ 13.76   
  

 

 

 
            
Total Return5                                                 

Based on net asset value

     (18.91 )%6      7.16     13.13     11.29     (11.10 )%7      11.32 %7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.10 %8      1.00 %9      0.98 %9      0.95     0.93 %9      0.94 %9 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     0.96 %8      0.96     0.96     0.94     0.93     0.93
  

 

 

 

Net investment income

     1.64 %8      1.15     0.49     0.34     0.03     0.16
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 30,879      $ 36,865      $ 35,726      $ 272,779      $ 400,269      $ 420,071   
  

 

 

 

Portfolio turnover rate

     23     71     28     19     22     38
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Amount is greater than $(0.005) per share.

 

  5   

Where applicable, assumes the reinvestment of distributions.

 

  6   

Aggregate total return.

 

  7   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  8   

Annualized.

 

  9   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2011 and September 30, 2010, the ratio would have been 0.91% and 0.93%, respectively. There was no financial impact to the expense ratios for the years ended September 30, 2014 and September 30, 2013.

 

See Notes to Financial Statements.

 

24    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock All-Cap Energy & Resources  Portfolio   

 

     Service  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 15.81      $ 14.87      $ 13.20      $ 11.90      $ 13.49      $ 12.24   
  

 

 

 

Net investment income (loss)1

     0.08        0.12        0.02        0.00 2      (0.05     (0.03

Net realized and unrealized gain (loss)

     (3.09     0.88        1.65        1.30        (1.47 )3      1.35 3 
  

 

 

 

Net increase (decrease) from investment operations

     (3.01     1.00        1.67        1.30        (1.52     1.32   
  

 

 

 

Distributions from net investment income4

     (0.17     (0.06                   (0.07     (0.07
  

 

 

 

Net asset value, end of period

   $ 12.63      $ 15.81      $ 14.87      $ 13.20      $ 11.90      $ 13.49   
  

 

 

 
            
Total Return5                                                 

Based on net asset value

     (19.08 )%6      6.72     12.65     10.93     (11.36 )%7      10.79 %7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.42 %8      1.35 %9      1.34 %9      1.29 %9      1.27 %9      1.34 %9 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.38 %8      1.34     1.33     1.29     1.26     1.34
  

 

 

 

Net investment income (loss)

     1.18 %8      0.77     0.17     0.00     (0.30 )%      (0.25 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 1,369      $ 2,046      $ 2,298      $ 3,828      $ 4,816      $ 4,231   
  

 

 

 

Portfolio turnover rate

     23     71     28     19     22     38
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Amount is less than $0.005 per share.

 

  3   

Includes redemption fees, which are less than $0.005 per share.

 

  4   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  5   

Where applicable, assumes the reinvestment of distributions.

 

  6   

Aggregate total return.

 

  7   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  8   

Annualized.

 

  9   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2011 and September 30, 2010, the ratio would have been 1.24% and 1.27%, respectively. There was no financial impact to the expense ratios for the years ended September 30, 2014, September 30, 2013 and September 30, 2012.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    25


Financial Highlights (continued)      BlackRock All-Cap Energy & Resources  Portfolio   

 

 

     Investor A  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 15.77      $ 14.85      $ 13.19      $ 11.90      $ 13.50      $ 12.24   
  

 

 

 

Net investment income (loss)1

     0.08        0.12        0.02        (0.01     (0.06     (0.03

Net realized and unrealized gain (loss)

     (3.08     0.86        1.64        1.30        (1.47 )2      1.35 2 
  

 

 

 

Net increase (decrease) from investment operations

     (3.00     0.98        1.66        1.29        (1.53     1.32   
  

 

 

 

Distributions from net investment income3

     (0.16     (0.06                   (0.07     (0.06
  

 

 

 

Net asset value, end of period

   $ 12.61      $ 15.77      $ 14.85      $ 13.19      $ 11.90      $ 13.50   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     (19.04 )%5      6.65     12.59     10.84     (11.46 )%6      10.84 %6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.48 %7      1.40 %8      1.39 %8      1.35 %8      1.35 %8      1.34 %8 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.38 %7      1.38     1.37     1.34     1.34     1.34
  

 

 

 

Net investment income (loss)

     1.18 %7      0.73     0.12     (0.09 )%      (0.38 )%      (0.25 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 69,390      $ 91,625      $ 103,388      $ 137,765      $ 187,017      $ 207,523   
  

 

 

 

Portfolio turnover rate

     23     71     28     19     22     38
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Annualized.

 

  8   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2014, September 30, 2013, September 30, 2011 and September 30, 2010, the ratio would have been 1.38%, 1.37%, 1.28%, and 1.32%, respectively. There was no financial impact to the expense ratios for the year ended September 30, 2012.

 

See Notes to Financial Statements.

 

26    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock All-Cap Energy & Resources  Portfolio   

 

 

     Investor B  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 14.91      $ 14.08      $ 12.59      $ 11.45      $ 13.03      $ 11.84   
  

 

 

 

Net investment income (loss)1

     0.03        (0.00 )2      (0.08     (0.11     (0.18     (0.13

Net realized and unrealized gain (loss)

     (2.92     0.83        1.57        1.25        (1.40 )3      1.32 3 
  

 

 

 

Net increase (decrease) from investment operations

     (2.89     0.83        1.49        1.14        (1.58     1.19   
  

 

 

 

Net asset value, end of period

   $ 12.02      $ 14.91      $ 14.08      $ 12.59      $ 11.45      $ 13.03   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     (19.38 )%5      5.90     11.84     9.96     (12.13 )%6      10.05 %6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     2.56 %7      2.34 %8      2.28 %8      2.20 %8      2.11 %8      2.17 %8 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     2.10 %7      2.10     2.10     2.10     2.10     2.10
  

 

 

 

Net investment income (loss)

     0.47 %7      (0.02 )%      (0.60 )%      (0.83 )%      (1.15 )%      (1.03 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 2,440      $ 3,935      $ 9,802      $ 15,162      $ 18,872      $ 27,113   
  

 

 

 

Portfolio turnover rate

     23     71     28     19     22     38
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Amount is greater than $(0.005) per share.

 

  3   

Includes redemption fees, which are less than $0.005 per share.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Annualized.

 

  8   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2014, September 30, 2012, September 30, 2011 and September 30, 2010, the ratio would have been 2.33%, 2.19%, 2.09%, and 2.16%, respectively. There was no financial impact to the expense ratios for the year ended September 30, 2013.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    27


Financial Highlights (concluded)      BlackRock All-Cap Energy & Resources  Portfolio   

 

 

     Investor C  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 14.94      $ 14.10      $ 12.62      $ 11.47      $ 13.04      $ 11.85   
  

 

 

 

Net investment income (loss)1

     0.03        0.00 2      (0.07     (0.10     (0.17     (0.13

Net realized and unrealized gain (loss)

     (2.92     0.84        1.55        1.25        (1.40 )3      1.323   
  

 

 

 

Net increase (decrease) from investment operations

     (2.89     0.84        1.48        1.15        (1.57     1.19   
  

 

 

 

Distributions from net investment income4

     (0.05                                   
  

 

 

 

Net asset value, end of period

   $ 12.00      $ 14.94      $ 14.10      $ 12.62      $ 11.47      $ 13.04   
  

 

 

 
            
Total Return5                                                 

Based on net asset value

     (19.38 )%6      5.96     11.73     10.03     (12.04 )%7      10.04 %7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     2.17 %8      2.12 %9      2.12 %9      2.08     2.05 %9      2.08
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     2.10 %8      2.10     2.09     2.07     2.04     2.08
  

 

 

 

Net investment income (loss)

     0.47 %8      0.00     (0.59 )%      (0.79 )%      (1.08 )%      (1.00 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 46,134      $ 63,133      $ 70,094      $ 85,649      $ 99,433      $ 116,401   
  

 

 

 

Portfolio turnover rate

     23     71     28     19     22     38
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Amount is less than $0.005 per share.

 

  3   

Includes redemption fees, which are less than $0.005 per share.

 

  4   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  5   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  6   

Aggregate total return.

 

  7   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  8   

Annualized.

 

  9   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2014 and September 30, 2011, the ratio would have been 2.10% and 2.03%, respectively. There was no financial impact to the expense ratios for the year ended September 30, 2013.

 

See Notes to Financial Statements.

 

28    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights      BlackRock Emerging Markets Dividend Fund   

 

     Institutional  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,     Period
April 29,
20111 to
September  30,
2011
 
       2014     2013     2012    
Per Share Operating Performance                                         

Net asset value, beginning of period

   $ 8.75      $ 8.93      $ 7.79      $ 6.90      $ 10.00   
  

 

 

 

Net investment income2

     0.02        0.22        0.15        0.12        0.13   

Net realized and unrealized gain (loss)

     (0.34     (0.12     1.11        0.89        (3.23
  

 

 

 

Net increase (decrease) from investment operations

     (0.32     0.10        1.26        1.01        (3.10
  

 

 

 

Distributions from net investment income3

     (0.14     (0.28     (0.12     (0.12       
  

 

 

 

Net asset value, end of period

   $ 8.29      $ 8.75      $ 8.93      $ 7.79      $ 6.90   
  

 

 

 
          
Total Return4                                         

Based on net asset value

     (3.65 )%5      1.06     16.15 %6      14.82     (31.00 )%5 
  

 

 

 
          
Ratios to Average Net Assets                                         

Total expenses7

     5.44 %8      6.72     7.54     13.05     9.67 %8,9 
  

 

 

 

Total expenses after fees waived and/or reimbursed7

     1.51 %8      1.51     1.63     1.65     1.65 %8 
  

 

 

 

Net investment income7

     0.41 %8      2.41     1.71     1.55     3.39 %8 
  

 

 

 
          
Supplemental Data                                         

Net assets, end of period (000)

   $     2,703      $     2,774      $     2,736      $     2,355      $     2,049   
  

 

 

 

Portfolio turnover rate

     29     71     150     40     14
  

 

 

 

 

  1   

Commencement of operations.

 

  2   

Based on average shares outstanding.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Includes a payment from an affiliate related to securities lending which impacted the Fund’s total return. Not including this payment the Fund’s total return would have been 15.76%.

 

  7   

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

     Six Months
Ended
March 31,
2015
(Unaudited)
     Year Ended September 30,      Period
April 29, 20111
to
September 30,
2011
 
        2014     2013      2012     

Investments in underlying funds

             0.01                       

 

  8   

Annualized.

 

  9   

Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 13.81%.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    29


Financial Highlights (continued)      BlackRock Emerging Markets Dividend Fund   

 

     Investor A  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended
September 30,
   

Period
April 29,

20111 to
September 30,
2011

 
       2014     2013     2012    
Per Share Operating Performance                                         

Net asset value, beginning of period

   $ 8.71      $ 8.89      $ 7.77      $ 6.89      $ 10.00   
  

 

 

 

Net investment income2

     0.00 3      0.20        0.21        0.18        0.09   

Net realized and unrealized gain (loss)

     (0.33     (0.13     1.02        0.82        (3.20
  

 

 

 

Net increase (decrease) from investment operations

     (0.33     0.07        1.23        1.00        (3.11
  

 

 

 

Distributions from net investment income4

     (0.13     (0.25     (0.11     (0.12       
  

 

 

 

Net asset value, end of period

   $ 8.25      $ 8.71      $ 8.89      $ 7.77      $ 6.89   
  

 

 

 
          
Total Return5                                         

Based on net asset value

     (3.80 )%6      0.77     15.82 %7      14.64     (31.10 )%6 
  

 

 

 
          
Ratios to Average Net Assets                                         

Total expenses8

     5.83 %9      7.17     8.33     14.41     12.18 %9,10 
  

 

 

 

Total expenses after fees waived and/or reimbursed8

     1.76 %9      1.76     1.87     1.90     1.90 %9 
  

 

 

 

Net investment income8

     0.09 %9      2.30     2.44     2.24     2.47 %9 
  

 

 

 
          
Supplemental Data                                         

Net assets, end of period (000)

   $ 1,290      $ 1,887      $ 1,308      $ 360      $ 51   
  

 

 

 

Portfolio turnover rate

     29     71     150     40     14
  

 

 

 

 

  1   

Commencement of operations.

 

  2   

Based on average shares outstanding.

 

  3   

Amount is less than $0.005 per share.

 

  4   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  5   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  6   

Aggregate total return.

 

  7   

Includes a payment from an affiliate related to securities lending which impacted the Fund’s total return. Not including this payment the Fund’s total return would have been 15.43%.

 

  8   

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

     Six Months
Ended
March 31, 2015
(Unaudited)
     Year Ended September 30,     

Period
April 29,

20111 to
September 30,
2011

 
        2014     2013      2012     

Investments in underlying funds

             0.01                       

 

  9   

Annualized.

 

  10   

Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 18.86%.

 

See Notes to Financial Statements.

 

30    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (concluded)      BlackRock Emerging Markets Dividend Fund   

 

 

     Investor C  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,    

Period
April 29,

20111 to
September 30,
2011

 
       2014     2013     2012    
Per Share Operating Performance                                         

Net asset value, beginning of period

   $ 8.65      $ 8.84      $ 7.72      $ 6.87      $ 10.00   
  

 

 

 

Net investment income (loss)2

     (0.03     0.16        0.20        0.05        0.09   

Net realized and unrealized gain (loss)

     (0.34     (0.15     0.95        0.90        (3.22
  

 

 

 

Net increase (decrease) from investment operations

     (0.37     0.01        1.15        0.95        (3.13
  

 

 

 

Distributions from net investment income3

     (0.10     (0.20     (0.03     (0.10       
  

 

 

 

Net asset value, end of period.

   $ 8.18      $ 8.65      $ 8.84      $ 7.72      $ 6.87   
  

 

 

 
          
Total Return4                                         

Based on net asset value

     (4.31 )%5      0.10     14.95 %6      13.95     (31.30 )%5 
  

 

 

 
          
Ratios to Average Net Assets                                         

Total expenses7

     6.66 %8      8.11     9.53     14.94     11.73 %8,9 
  

 

 

 

Total expenses after fees waived and/or reimbursed7

     2.51 %8      2.51     2.61     2.65     2.65 %8 
  

 

 

 

Net investment income (loss)7

     (0.60 )%8      1.76     2.33     0.60     2.30 %8 
  

 

 

 
          
Supplemental Data                                         

Net assets, end of period (000)

   $ 391      $ 500      $ 214      $ 28      $ 19   
  

 

 

 

Portfolio turnover rate

     29     71     150     40     14
  

 

 

 

 

  1   

Commencement of operations.

 

  2   

Based on average shares outstanding.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Includes a payment from an affiliate related to securities lending which impacted the Fund’s total return. Not including this payment the Fund’s total return would have been 14.56%.

 

  7   

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

     Six Months
Ended
March 31,
2015
(Unaudited)
     Year Ended September 30,     

Period
April 29,

20111 to
September 30,
2011

 
        2014     2013      2012     

Investments in underlying funds

             0.01                       

 

  8   

Annualized.

 

  9   

Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 16.54%.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    31


Financial Highlights      BlackRock Energy & Resources Portfolio   

 

 

     Institutional  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 37.89      $ 37.36      $ 32.87      $ 31.70      $ 34.98      $ 32.61   
  

 

 

 

Net investment income (loss)1

     0.02        (0.17     (0.04     (0.16     (0.08     0.05   

Net realized and unrealized gain (loss)

     (10.90     0.70        4.56        2.79        (2.68     2.31   
  

 

 

 

Net increase (decrease) from investment operations

     (10.88     0.53        4.52        2.63        (2.76     2.36   
  

 

 

 

Distributions from:2

            

Net investment income

                          (0.25     (0.52       

Return of capital

                   (0.03     (0.47              

Net realized gain

                          (0.74              
  

 

 

 

Total distributions

                   (0.03     (1.46     (0.52       
  

 

 

 

Redemption fees added to paid-in capital

                                 0.00 3      0.01   
  

 

 

 

Net asset value, end of period

   $ 27.01      $ 37.89      $ 37.36      $ 32.87      $ 31.70      $ 34.98   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     (28.72 )%5      1.42     13.78     7.76     (8.28 )%      7.27 %6,7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses8

     1.08 %9,10      1.03 %9      1.04 %9      0.99 %9      0.93 %9      0.97 %9 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly8

     1.07 %10      1.02     1.03     0.99     0.92     0.97
  

 

 

 

Net investment income (loss)8

     0.15 %10      (0.43 )%      (0.11 )%      (0.44 )%      (0.18 )%      0.13
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 119,421      $ 92,994      $ 105,317      $ 222,034      $ 306,403      $ 274,009   
  

 

 

 

Portfolio turnover rate

     28     56     33     15     40     16
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  3   

Amount is less than $0.005 per share.

 

  4   

Where applicable, assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Includes proceeds received from a settlement of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would have been 7.20%.

 

  7   

Redemption fee of 2.00% is reflected in total return calculations. The impact to the return from redemption fees received during the period was an increase of 0.03%.

 

  8   

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014         2013              2012              2011              2010      

Investments in underlying funds

     0.01     0.01                               

 

  9   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the year ended September 30, 2013, the ratio would have been 1.03%. There was no financial impact to the expense ratios for the six months ended March 31, 2015, and the years ended September 30, 2014, September 30, 2012, September 30, 2011 and September 30, 2010.

 

  10   

Annualized.

 

See Notes to Financial Statements.

 

32    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock Energy & Resources Portfolio   

 

 

     Investor A  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 32.79      $ 32.42      $ 28.62      $ 27.73      $ 30.63      $ 28.67   
  

 

 

 

Net investment loss1

     (0.02     (0.25     (0.11     (0.24     (0.20     (0.12

Net realized and unrealized gain (loss)

     (9.43     0.62        3.94        2.46        (2.34     2.08   
  

 

 

 

Net increase (decrease) from investment operations

     (9.45     0.37        3.83        2.22        (2.54     1.96   
  

 

 

 

Distributions from:2

            

Net investment income

                          (0.17     (0.36       

Return of capital

                   (0.03     (0.42              

Net realized gain

                          (0.74              
  

 

 

 

Total distributions

                   (0.03     (1.33     (0.36       
  

 

 

 

Redemption fees added to paid-in capital

                                 0.00 3      0.00 3 
  

 

 

 

Net asset value, end of period

   $ 23.34      $ 32.79      $ 32.42      $ 28.62      $ 27.73      $ 30.63   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     (28.82 )%5      1.14     13.42     7.41     (8.61 )%      6.84 %6,7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses8

     1.43 %9      1.31 %10      1.34 %10      1.34 %10      1.28 %10      1.35 %10 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly8

     1.38 %9      1.31     1.34     1.34     1.27     1.35
  

 

 

 

Net investment loss8

     (0.15 )%9      (0.72 )%      (0.38 )%      (0.77 )%      (0.52 )%      (0.39 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 230,250      $ 353,706      $ 425,568      $ 539,085      $ 632,030      $ 644,786   
  

 

 

 

Portfolio turnover rate

     28     56     33     15     40     16
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  3   

Amount is less than $0.005 per share.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Includes proceeds received from a settlement of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would have been 6.77%.

 

  7   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  8   

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014         2013              2012              2011              2010      

Investments in underlying funds

     0.01     0.01                               

 

  9   

Annualized.

 

  10   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2013, September 30, 2012, September 30, 2011 and September 30, 2010, the ratio would have been 1.33%, 1.33%, 1.26% and 1.31%, respectively. There was no financial impact to the expense ratios for the year ended September 30, 2014.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    33


Financial Highlights (continued)      BlackRock Energy & Resources Portfolio   

 

 

     Investor B  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 23.76      $ 23.68      $ 21.07      $ 20.65      $ 22.86      $ 21.56   
  

 

 

 

Net investment loss1

     (0.08     (0.38     (0.25     (0.36     (0.38     (0.27

Net realized and unrealized gain (loss)

     (6.84     0.46        2.89        1.87        (1.73 )2      1.57 2 
  

 

 

 

Net increase (decrease) from investment operations

     (6.92     0.08        2.64        1.51        (2.11     1.30   
  

 

 

 

Distributions from:3

            

Net investment income

                          (0.06     (0.10       

Return of capital

                   (0.03     (0.29              

Net realized gain

                          (0.74              
  

 

 

 

Total distributions

                   (0.03     (1.09     (0.10       
  

 

 

 

Net asset value, end of period

   $ 16.84      $ 23.76      $ 23.68      $ 21.07      $ 20.65      $ 22.86   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     (29.12 )%5      0.34     12.57     6.63     (9.33 )%      6.03 %6,7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses8

     2.58 %9      2.32 %10      2.31 %10      2.16 %10      2.07 %10      2.10 %10 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly8

     2.10 %9      2.10     2.10     2.10     2.07     2.09
  

 

 

 

Net investment loss8

     (0.88 )%9      (1.53 )%      (1.15 )%      (1.56 )%      (1.31 )%      (1.17 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 1,793      $ 3,082      $ 4,576      $ 7,687      $ 16,450      $ 25,633   
  

 

 

 

Portfolio turnover rate

     28     56     33     15     40     16
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Includes proceeds received from a settlement of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would have been 5.94%.

 

  7   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  8   

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

    

Six Months
Ended
March 31,
2015
(Unaudited)

    Year Ended September 30,  
       2014       2013            2012              2011              2010      

Investments in underlying funds

     0.01     0.01                               

 

  9   

Annualized.

 

  10   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2014, September 30, 2013 and September 30, 2011, the ratio would have been 2.31%, 2.30% and 2.03%, respectively. There was no financial impact to the expense ratios for the years ended September 30, 2012 and September 30, 2010.

 

See Notes to Financial Statements.

 

34    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (concluded)      BlackRock Energy & Resources Portfolio   

 

 

     Investor C  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 23.56      $ 23.47      $ 20.88      $ 20.55      $ 22.81      $ 21.51   
  

 

 

 

Net investment loss1

     (0.08     (0.36     (0.24     (0.34     (0.37     (0.24

Net realized and unrealized gain (loss)

     (6.77     0.45        2.86        1.84        (1.69 )2      1.54 2 
  

 

 

 

Net increase (decrease) from investment operations

     (6.85     0.09        2.62        1.50        (2.06     1.30   
  

 

 

 

Distributions from:3

            

Net investment income

                          (0.09     (0.20       

Return of capital

                   (0.03     (0.34              

Net realized gain

                          (0.74              
  

 

 

 

Total distributions

                   (0.03     (1.17     (0.20       
  

 

 

 

Net asset value, end of period

   $ 16.71      $ 23.56      $ 23.47      $ 20.88      $ 20.55      $ 22.81   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     (29.07 )%5      0.38     12.59     6.57     (9.25 )%      6.04 %6,7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses8

     2.16 %9      2.06 %10      2.10 %10      2.07 %10      2.04 %10      2.06 %10 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly8

     2.10 %9      2.05     2.09     2.07     2.03     2.05
  

 

 

 

Net investment loss8

     (0.87 )%9      (1.47 )%      (1.12 )%      (1.50 )%      (1.29 )%      (1.07 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 56,460      $ 83,948      $ 103,407      $ 132,808      $ 146,186      $ 142,490   
  

 

 

 

Portfolio turnover rate

     28     56     33     15     40     16
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Includes proceeds received from a settlement of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would have been 5.95%.

 

  7   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  8   

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014       2013            2012              2011              2010      

Investments in underlying funds

     0.01     0.01                               

 

  9   

Annualized.

 

  10   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2014, September 30, 2011 and September 30, 2010, the ratio would have been 2.05%, 1.99% ,and 2.05%, respectively. There was no financial impact to the expense ratios for the years ended September 30, 2013 and September 30, 2012.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    35


Notes to Financial Statements (Unaudited)     

 

1. Organization:

BlackRock FundsSM (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust is organized as a Massachusetts business trust. The following are referred to herein collectively as the “Funds” or individually, a “Fund”:

 

Fund Name    Herein Referred To As    Diversification Classification

BlackRock All-Cap Energy & Resources Portfolio

   All-Cap Energy & Resources    Non-diversified

BlackRock Emerging Markets Dividend Fund

   Emerging Markets Dividend    Diversified

BlackRock Energy & Resources Portfolio

   Energy & Resources    Non-diversified

Each Fund offers multiple classes of shares. All classes of shares have identical voting, dividend, liquidation and other rights and are subject to the same terms and conditions, except that certain classes bear expenses related to the shareholder servicing and distribution of such shares. Institutional and Service Shares are sold only to certain eligible investors. Investor B Shares are only available through exchanges and distribution reinvestments by current holders and for purchase by certain employer-sponsored retirement plans. Investor A and Investor C Shares are generally available through financial intermediaries. Each class has exclusive voting rights with respect to matters relating to its shareholder servicing and distribution expenditures (except that Investor B shareholders may vote on material changes to the Investor A distribution and service plan).

 

Share Class    Initial Sales Charge    CDSC    Conversion Privilege

Institutional and Service Shares

   No    No    None

Investor A Shares

   Yes      No1    None

Investor B Shares

   No    Yes    To Investor A Shares after approximately 8 years

Investor C Shares

   No    Yes    None

 

  1   

Investor A Shares may be subject to a CDSC where no initial sales charge was paid at the time of purchase.

The Funds, together with certain other registered investment companies advised by the Manager or its affiliates, are included in a complex of open-end funds referred to as the Equity-Liquidity Complex.

2. Significant Accounting Policies:

The Funds’ financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Each Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies The following is a summary of significant accounting policies followed by the Funds:

Valuation: The Funds’ investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Funds would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Funds determine the fair values of their financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Trustees of the Trust (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Funds for all financial instruments.

Equity investments traded on a recognized securities exchange are valued at the official close each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Investments in open-end registered investment companies are valued at NAV each business day.

Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE. Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.

The Funds value their investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon their pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of

 

36    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. Each Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.

In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that each Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement, which include the market approach, income approach and/or in the case of recent investments, the cost approach, as appropriate. The market approach generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to present value and is adjusted for liquidity as appropriate. These factors include but are not limited to: (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates. Due to the inherent uncertainty of valuations of such investments, the fair values may differ from the values that would have been used had an active market existed. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Funds’ pricing vendors, regular reviews of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.

Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of each Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Investments and be valued at their fair value, as determined in good faith by the Global Valuation Committee, or its delegate, using a pricing service and/or policies approved by the Board. Each business day, the Funds use a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and over-the-counter (“OTC”) options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of business on the NYSE, which follows the close of the local markets.

Foreign Currency: Each Fund’s books and records are maintained in U.S. dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, each Fund’s investments denominated in that currency will lose value because that currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value.

Each Fund does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated in the Statements of Operations from the effects of changes in market prices of those investments, but are included as a component of net realized and unrealized gain (loss) from investments. Each Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for federal income tax purposes.

Segregation and Collateralization: In cases where a Fund enters into certain investments (e.g., forward foreign currency exchange contracts) that would be “senior securities” for 1940 Act purposes, a Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the amount of a Fund’s future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Funds may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when

 

     BLACKROCK FUNDS    MARCH 31, 2015    37


Notes to Financial Statements (continued)     

 

the Funds are informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Distributions: Distributions paid by the Funds are recorded on the ex-dividend dates. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.

Recent Accounting Standard: In June 2014, the Financial Accounting Standards Board issued guidance to improve the financial reporting of reverse repurchase agreements and other similar transactions. The guidance will require expanded disclosure for entities that enter into reverse repurchase agreements and similar transactions accounted for as secured borrowings. It is effective for financial statements with fiscal years beginning on or after December 15, 2014 and for interim periods beginning after March 15, 2015. Management is evaluating the impact, if any, of this guidance on the Funds’ financial statement disclosures.

Other: Expenses directly related to a Fund or its classes are charged to that Fund or the applicable class. Other operating expenses shared by several funds are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Funds and other shared expenses prorated to the Funds are allocated daily to each class based on its relative net assets or other appropriate methods.

The Funds have an arrangement with their custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statements of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.

3. Securities and Other Investments:

Participation Notes: Emerging Markets Dividend may invest in participation notes (“P-Notes”). P-Notes are promissory notes issued by banks or broker-dealers that are designed to offer Emerging Markets Dividend a return measured by the change in the value of the underlying security or basket of securities (the “underlying security”) while not holding the actual shares of the underlying security. P-Notes are typically used to allow Emerging Markets Dividend to gain exposure to securities traded in foreign markets that may be restricted due to country-specific regulations. When the P-Note matures, the issuer will pay to, or receive from, Emerging Markets Dividend the difference between the value of the underlying security at the time of the purchase and the underlying security’s value at maturity of the P-Notes. Income received on P-Notes is recorded by Emerging Markets Dividend as dividend income in the Statements of Operations. An investment in a P-Note involves additional risks beyond the risks normally associated with a direct investment in the underlying security. While the holder of a P-Note is entitled to receive from the bank or broker-dealer any dividends paid by the underlying security, the holder is not entitled to the same rights (e.g., voting rights) as a direct owner of the underlying security. P-Notes are considered general unsecured contractual obligations of the bank or broker-dealer. Emerging Markets Dividend must rely on the creditworthiness of the issuer for its investment returns on the P-Notes and has no rights against the issuer of the underlying security. A P-Note may be more volatile and less liquid than other investments held by Emerging Markets Dividend since the P-Note generally is dependent on the liquidity in the local trading market for the underlying security.

Securities Lending: Each Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Funds collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by each Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund on the next business day. During the term of the loan, each Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.

The market value of securities on loan and the value of the related collateral are shown separately in the Statements of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of March 31, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedules of Investments.

Securities lending transactions are entered into by the Funds under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the

 

38    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

defaulting party or request additional collateral. In the event that a borrower defaults, each Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Funds can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.

The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Funds benefit from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of borrower default. Each Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.

4. Derivative Financial Instruments:

Emerging Markets Dividend engages in various portfolio investment strategies using derivative contracts both to increase the returns of Emerging Markets Dividend and/or to economically manage its exposure to certain risks such as foreign currency exchange rate risk. These contracts may be transacted on an exchange or OTC.

Forward Foreign Currency Exchange Contracts: Emerging Markets Dividend enters into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by Emerging Markets Dividend, help to manage the overall exposure to the currencies in which some of the investments held by Emerging Markets Dividend are denominated. The contract is marked-to-market daily and the change in market value is recorded by Emerging Markets Dividend as an unrealized gain or loss. When the contract is closed, Emerging Markets Dividend records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.

The following is a summary of Emerging Markets Dividend’s derivative financial instruments categorized by risk exposure:

 

Fair Values of Derivative Financial Instruments as of March 31, 2015  
           Value  
      Statements of Assets and Liabilities Location    Derivative
Assets
     Derivative
Liabilities
 

Foreign currency exchange contracts

   Unrealized appreciation/depreciation on forward foreign currency exchange contracts    $ 3,241       $ 3,167   

 

The Effect of Derivative Financial Instruments in the Statements of Operations
Six Months Ended March 31, 2015
     Net Realized Gain (Loss) from    Net Change in Unrealized
Appreciation/Depreciation on

Foreign currency exchange contracts:

     

Foreign currency transactions/ translations

   $12,395    $(13,350)

For the six months ended March 31, 2015, the average quarterly balances of outstanding derivative financial instruments were as follows:

 

Forward foreign currency exchange contracts:

        

Average amounts purchased - in USD

   $ 147,514   

Average amounts sold - in USD

   $ 84,966   

Counterparty Credit Risk: A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.

A Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by such Fund.

 

     BLACKROCK FUNDS    MARCH 31, 2015    39


Notes to Financial Statements (continued)     

 

In order to better define its contractual rights and to secure rights that will help the Fund mitigate their counterparty risk, a Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between Emerging Markets Dividend and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, Emerging Markets Dividend may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrict or prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event Emerging Markets Dividend’s net assets decline by a stated percentage or Emerging Markets Dividend fails to meet the terms of its ISDA Master Agreements, which the result would cause Emerging Markets Dividend to accelerate payment of any net liability owed to the counterparty.

As of March 31, 2015, Emerging Markets Dividend’s derivative assets and liabilities (by type) are as follows:

 

      Assets      Liabilities  

Derivative Financial Instruments:

     

Forward foreign currency exchange contracts

   $ 3,241       $ 3,167   
  

 

 

 

Total derivative assets and liabilities subject to an Master Netting Agreement (“MNA”)

   $ 3,241       $ 3,167   
  

 

 

 

As of March 31, 2015, the following table presents Emerging Markets Dividend’s derivative assets and/or liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateral received and pledged by Emerging Markets Dividend:

 

Counterparty    Derivative Assets
Subject to an MNA by
Counterparty
   Derivatives Available
for Offset
   Non-cash
Collateral
Received
   Cash
Collateral
Received
   Net Amount of
Derivative Assets1

Deutsche Bank AG

   $3,241             $3,241
              
Counterparty    Derivative Liabilities
Subject to an MNA by
Counterparty
   Derivatives Available
for Offset
   Non-cash
Collateral
Pledged
   Cash
Collateral
Pledged
   Net Amount of
Derivative Liabilities2

BNP Paribas S.A

   $3,167             $3,167

 

  1   

Net amount represents the net amount receivable from the counterparty in the event of default.

  2   

Net amount represents the net amount payable due to the counterparty in the event of default.

5. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.

The Trust, on behalf of the Funds, entered into an Investment Advisory Agreement with the Manager, the Funds’ investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory services. The Manager is responsible for the management of each Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of each Fund. For such services, each Fund, except Emerging Markets Dividend, pays the Manager a monthly fee based on a percentage of each Fund’s average daily net assets at the following annual rates:

 

Average Daily Net Assets    Investment Advisory Fee  

First $1 Billion

     0.750

$1 Billion - $2 Billion

     0.700

$2 Billion - $3 Billion

     0.675

Greater than $3 Billion

     0.650

 

40    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

Emerging Markets Dividend pays the Manager a monthly fee based on a percentage of its average daily net assets at the following annual rates:

 

Average Daily Net Assets    Investment Advisory Fee  

First $1 Billion

     1.00

$1 Billion - $3 Billion

     0.94

$3 Billion - $5 Billion

     0.90

$5 Billion - $10 Billion

     0.87

Greater than $10 Billion

     0.85

The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees each Fund pays to the Manager indirectly through its investment in affiliated money market funds. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with each Fund’s investment in other affiliated investment companies, if any. These amounts are included in fees waived by the Manager in the Statements of Operations. For the six months ended March 31, 2015, the amounts waived were as follows:

 

All-Cap Energy & Resources

   $ 1,536   

Emerging Markets Dividend

   $ 35   

Energy & Resources

   $ 4,680   

The Manager, on behalf of each Fund, entered into sub-advisory agreements with BlackRock International Limited (“BIL”), an affiliate of the Manager. The Manager pays BIL, for services it provides, a monthly fee that is a percentage of the investment advisory fees paid by each Fund to the Manager.

The Trust, on behalf of the Funds, entered into a Distribution Agreement and a Distribution and Service Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution and Service Plan and in accordance with Rule 12b-1 under the 1940 Act, each Fund pays BRIL ongoing service and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the relevant share class of each Fund as follows:

 

      Service     Investor A     Investor B     Investor C  

Service Fee

     0.25     0.25     0.25     0.25

Distribution Fee

                   0.75     0.75

Pursuant to sub-agreements with BRIL, broker-dealers and BRIL provide shareholder servicing and distribution services to each Fund. The ongoing service and/or distribution fee compensates BRIL and each broker-dealer for providing shareholder servicing and/or distribution related services to Service, Investor A, Investor B and Investor C shareholders.

For the six months ended March 31, 2015, the following table shows the class specific service and distribution fees borne directly by each class of each Fund:

 

      Service      Investor A      Investor B      Investor C      Total  

All-Cap Energy & Resources

   $ 1,964       $ 94,009       $ 14,848       $ 256,051       $ 366,872   

Emerging Markets Dividend

           $ 2,108               $ 2,392       $ 4,500   

Energy & Resources

           $ 324,239       $ 10,735       $ 309,852       $ 644,826   

Pursuant to written agreements, certain financial intermediaries, some of which may be affiliates, provide the Funds with sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to sub-accounts they service. For these services, these entities receive an asset-based fee or an annual fee per shareholder account, which will vary depending on share class and/or net assets. For the six months ended March 31, 2015, Energy & Resources paid the following amounts to affiliates of BlackRock in return for these services, which are included in transfer agent — class specific in the Statements of Operations:

 

      Institutional      Investor A      Total  

Energy & Resources

   $ 19,575       $ 72       $ 19,647   

The Manager maintains a call center, which is responsible for providing certain shareholder services to the Funds, such as responding to shareholder inquiries and processing transactions based upon instructions from shareholders with respect to the subscription and redemption of Fund shares. For the six months ended March 31, 2015, each Fund reimbursed the Manager the following amounts for costs incurred in running the call center, which are included in transfer agent — class specific in the Statements of Operations:

 

     BLACKROCK FUNDS    MARCH 31, 2015    41


Notes to Financial Statements (continued)     

 

      Institutional      Service      Investor A      Investor B      Investor C      Total  

All-Cap Energy & Resources

   $ 513       $     22       $ 7,973       $ 952       $ 2,046       $ 11,506   

Emerging Markets Dividend

   $ 57               $ 51               $ 45       $ 153   

Energy & Resources

   $     893               $     19,452       $     833       $     2,549       $     23,727   

 

For the six months ended March 31, 2015, the following table shows the class specific transfer agent fees borne directly by each class of each Fund:

 

  

      Institutional      Service      Investor A      Investor B      Investor C      Total  

All-Cap Energy & Resources

   $     21,652       $     1,577       $ 98,027       $ 8,884       $ 51,638       $ 181,778   

Emerging Markets Dividend

   $ 344               $ 1,583               $ 603       $ 2,530   

Energy & Resources

   $ 98,972               $     352,492       $     7,295       $     78,972       $     537,731   

Effective January 1, 2015, the Trust, on behalf of the Funds, entered into an Administration Agreement with the Manager, an indirect, wholly owned subsidiary of BlackRock, to provide administrative services. For these services, the Manager receives an administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of the Funds. The administration fee, which is shown as administration in the Statements of Operations, is paid at the annual rates below.

 

Average Daily Net Assets    Administration Fee  

First $500 Million

     0.0425

$500 Million - $1 Billion

     0.0400

$1 Billion - $2 Billion

     0.0375

$2 Billion - $4 Billion

     0.0350

$4 Billion - $13 Billion

     0.0325

Greater than $13 Billion

     0.0300

In addition, the Manager charges each of the share classes an administration fee, which is shown as administration — class specific in the Statements of Operations, at an annual rate of 0.02% of the average daily net assets of each respective class.

Prior to January 1, 2015, BNY Mellon Investment Servicing (US) Inc. (“BNYMIS”) and the Manager act as co-administrators for the Funds. For these services, the co-administrators receive an administration fee computed daily and payable monthly to each administrator pursuant to separate fee arrangements, based on a percentage of the average daily net assets of each Fund. The combined administration fee, which is shown as administration in the Statements of Operations, was paid at the annual rates below. In addition, each of the share classes was charged an administration fee, which is shown as administration — class specific in the Statements of Operations, based on the following percentages of average daily net assets of each respective class:

 

Average Daily Net Assets    Administration Fee     Administration Fee —
Class Specific
 

First $500 Million

     0.075     0.025

$500 Million - $1 Billion

     0.065     0.015

Greater than $1 Billion

     0.055     0.005

For the six months ended March 31, 2015, the Funds paid the following to the Manager in return for these services, which are included in administration and administration — class specific in the Statements of Operations:

 

All-Cap Energy & Resources

   $ 53,242   

Emerging Markets Dividend

   $ 557   

Energy & Resources

   $ 147,047   

For the six months ended March 31, 2015, the following table shows the class specific administration fees borne directly by each class of each Fund:

 

      Institutional      Service      Investor A      Investor B      Investor C      Total  

All-Cap Energy & Resources

   $ 3,713       $     179       $ 8,530       $     340       $     5,811       $     18,573   

Emerging Markets Dividend

   $ 311               $ 192               $ 54       $ 557   

Energy & Resources

   $     12,478               $     29,561       $ 246       $ 7,049       $ 49,334   

BNYMIS and the Manager may have, at their discretion, voluntarily waived all or any portion of their administration fees for a Fund or a share class, which are included in administration fees waived and administration fees waived — class specific in the Statements of Operations.

 

42    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Funds’ business. The expense limitations as a percentage of average daily net assets are as follows:

 

      BlackRock     Institutional     Service     Investor A     Investor B     Investor C     Class R  

All-Cap Energy & Resources

     0.92 %1      0.96     1.38     1.38     2.10     2.10     1.83 %1 

Emerging Markets Dividend

     N/A        1.50     N/A        1.75     N/A        2.50     N/A   

Energy & Resources

     N/A        1.07     1.38 %1      1.38     2.10     2.10     1.94 %1 

 

  1   

There were no shares outstanding as of March 31, 2015.

The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to February 1, 2016, unless approved by the Board, including a majority of the independent Trustees.

These amounts waived or reimbursed are included in fees waived by the Manager, and shown as administration fees waived, administration fees waived — class specific, transfer agent fees waived — class specific, transfer agent fees reimbursed — class specific and expenses reimbursed by the Manager, respectively, in the Statements of Operations. For the six months ended March 31, 2015, the Manager waived $15 and $24,559 of investment advisory fees for All-Cap Energy & Resources and Emerging Markets Dividend, respectively, which is included in fees waived by the Manager.

Class specific expense waivers or reimbursements are as follows:

 

Administration Fees Waived    Institutional      Service      Investor A      Investor B      Investor C      Total  

All-Cap Energy & Resources

   $ 3,713       $     143       $ 8,530       $ 340       $ 5,811       $ 18,537   

Emerging Markets Dividend

   $ 304               $ 192               $ 54       $ 550   

Energy & Resources

   $ 5,220               $ 24,903       $ 246       $ 6,686       $ 37,055   
                 
Transfer Agent Fees Waived    Institutional      Service      Investor A      Investor B      Investor C      Total  

All-Cap Energy & Resources

   $ 514       $ 9       $ 7,972       $ 952       $ 2,043       $ 11,490   

Emerging Markets Dividend

   $ 55               $ 51               $ 45       $ 151   

Energy & Resources

   $ 164               $ 11,320       $ 833       $ 2,349       $ 14,666   
                 
Transfer Agent Fees Reimbursed    Institutional      Service      Investor A      Investor B      Investor C      Total  

All-Cap Energy & Resources

   $     18,001       $     121       $     19,023       $     5,491       $     8,830       $     51,466   

Emerging Markets Dividend

   $ 240               $ 1,504               $ 551       $ 2,295   

Energy & Resources

   $ 923               $ 20,440       $ 4,078       $ 8,313       $ 33,754   

If during a Fund’s fiscal year the operating expenses of a share class, that at any time during the prior two fiscal years received a waiver or reimbursement from the Manager, are less than the expense limit for that share class, the Manager is entitled to be reimbursed by such share class up to the lesser of (a) the amount of fees waived or expenses reimbursed during those prior two fiscal years under the agreement and (b) the amount by which the expense limit for that share class exceeds the operating expenses of the share class for the current fiscal year, provided that: (1) the Fund, of which the share class is a part, has more than $50 million in assets for the fiscal year and (2) the Manager or an affiliate continues to serve as the Fund’s investment advisor or administrator. In the event the expense limit for a share class is changed subsequent to a fiscal year in which the Manager becomes entitled to reimbursement for fees waived or reimbursed, the amount available to reimburse the Manager shall be calculated by reference to the expense limit for that share class in effect at the time the Manager became entitled to receive such reimbursement, rather than the subsequently changed expense limit for that share class.

For the six months ended March 31, 2015, the Manager recouped waivers and/or reimbursements previously recorded of $2,465 for Energy & Resources Institutional Shares.

 

     BLACKROCK FUNDS    MARCH 31, 2015    43


Notes to Financial Statements (continued)     

 

On March 31, 2015, the Fund level and class specific waivers and/or reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:

 

      Expires September 30,  
      2015      2016      2017  

All-Cap Energy & Resources

        

Fund Level

   $ 406       $ 9,430       $ 15   

Institutional

   $ 25,585       $ 14,085       $ 22,228   

Service

           $ 65       $ 273   

Investor A

   $ 540       $ 11,605       $ 35,525   

Investor B

   $ 22,079       $ 15,786       $ 6,783   

Investor C

   $ 7,867       $ 11,239       $ 16,684   

Emerging Markets Dividend

        

Fund Level

   $ 221,737       $ 248,998       $ 95,139   

Institutional

   $ 1,750       $ 1,503       $ 599   

Investor A

   $ 1,610       $ 3,247       $ 1,747   

Investor C

   $ 461       $ 1,046       $ 650   

Energy & Resources

        

Institutional

           $ 6,343       $ 6,307   

Investor A

                   $ 56,663   

Investor B

   $ 11,644       $ 8,537       $ 5,157   

Investor C

           $ 1,415       $ 17,348   

For the six months ended March 31, 2015, affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of each Fund’s Investor A Shares as follows:

 

All-Cap Energy & Resources

   $ 9,743   

Emerging Markets Dividend

   $ 439   

Energy & Resources

   $ 14,515   

For the six months ended March 31, 2015, affiliates received CDSCs as follows:

 

      Investor A      Investor B      Investor C  

All-Cap Energy & Resources

   $     9,184       $     134       $     1,984   

Emerging Markets Dividend

                   $ 37   

Energy & Resources

   $ 1       $ 300       $ 3,866   

The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Funds, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Funds are responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Funds.

Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. Each Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent. BIM may lend securities only when the difference between the borrower rebate rate and the risk free rate exceeds a certain level (such securities, the “specials only securities”).

Pursuant to such agreement, each Fund retains 80% of securities lending income. In addition, commencing the business day following the date that the aggregate securities lending income earned across certain funds in the Equity-Liquidity Complex in a calendar year exceeds a specific threshold, each Fund, pursuant to the securities lending agreement, will retain for the remainder of the calendar year securities lending income in an amount equal to 85% of securities lending income. The share of securities lending income earned by each Fund is shown as securities lending — affiliated —net in the Statements of Operations. For the six months ended March 31, 2015, All-Cap Energy & Resources and Emerging Markets Dividend paid BIM $10 and $23, respectively, for securities lending agent services.

Emerging Markets Dividend recorded payments from an affiliate to compensate for foregone securities lending revenue, which is shown as other income — affiliated in the Statements of Operations.

 

44    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

Certain officers and/or trustees of the Trust are officers and/or directors of BlackRock or its affiliates. The Funds reimburse the Manager for a portion of the compensation paid to the Trust’s Chief Compliance Officer, which is included in officer and trustees in the Statements of Operations.

6. Purchases and Sales:

Purchases and sales of investments, excluding short-term securities, for the six months ended March 31, 2015, were as follows:

 

      Purchases      Sales  

All-Cap Energy & Resources

   $ 37,760,081       $ 44,522,544   

Emerging Markets Dividend

   $ 1,409,432       $ 1,746,606   

Energy & Resources

   $     169,751,900       $     124,179,500   

7. Income Tax Information:

It is the Funds’ policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of their taxable income to their shareholders. Therefore, no federal income tax provision is required.

The Funds file U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on All-Cap Energy & Resources’ and Energy & Resources’ U.S. federal tax returns remains open for each of the four years ended September 30, 2014. The statute of limitations on Emerging Markets Dividend’s U.S. federal tax returns remains open for the period ended September 30, 2011 and the three years ended September 30, 2014. The statutes of limitations on each Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.

Management has analyzed tax laws and regulations and their application to the Funds as of March 31, 2015, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Funds’ financial statements.

As of September 30, 2014, the Funds had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:

 

Expires September 30,    All-Cap
Energy &
Resources
     Emerging
Markets
Dividend
     Energy &
Resources
 

2018

   $ 51,018,124                   

2019

           $ 18,788           

No expiration date1

             622,302       $ 87,909,363   

Total

   $     51,018,124       $     641,090       $     87,909,363   
  

 

 

 

 

  1   

Must be utilized prior to losses subject to expiration.

As of March 31, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:

 

     

All-Cap

Energy &
Resources

    Emerging
Markets
Dividend
    Energy &
Resources
 

Tax cost

   $     155,963,411      $     4,293,263      $     448,634,437   
  

 

 

 

Gross unrealized appreciation

   $ 12,496,798      $ 382,884      $ 42,689,168   

Gross unrealized depreciation

     (17,733,829     (285,930     (81,953,010
  

 

 

 

Net unrealized appreciation (depreciation)

   $ (5,237,031   $ 96,954      $ (39,263,842
  

 

 

 

8. Bank Borrowings:

The Trust, on behalf of the Funds, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), was a party to a 364-day, $1.1 billion credit agreement with a group of lenders, under which the Funds may borrow to fund shareholder redemptions. Excluding commitments designated for a certain individual fund, the Participating Funds, including the Funds, could borrow up to an aggregate commitment amount of $650 million, subject to asset coverage and other limitations as specified in the agreement. Effective November 25, 2014, the credit agreement was amended to an aggregate commitment amount of $2.1 billion, of which the Participating Funds, including the Funds, can borrow up to $1.6 billion at any time outstanding, subject to asset coverage and other limitations as specified in the agreement. The agreement terminates on April 23, 2015, unless otherwise extended to November 24, 2015 or renewed for a period of 364 days from April 23, 2015. The amended agreement has the following

 

     BLACKROCK FUNDS    MARCH 31, 2015    45


Notes to Financial Statements (continued)     

 

terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statements of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended March 31, 2015, the Funds did not borrow under the credit agreement.

9. Principal Risks:

In the normal course of business, the Funds invest in securities and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Funds may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Funds; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Funds may be exposed to counterparty credit risk, or the risk that an entity with which the Funds have unsettled or open transactions may fail to or be unable to perform on its commitments. The Funds manage counterparty credit risk by entering into transactions only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Funds to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Funds’ exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statements of Assets and Liabilities, less any collateral held by the Funds.

As of March 31, 2015, All-Cap Energy & Resources and Energy & Resources invested a significant portion of their assets in securities in the energy sector. Changes in economic conditions affecting such sector would have a greater impact on All-Cap Energy & Resources and Energy & Resources and could affect the value, income and/or liquidity of positions in such securities.

As of March 31, 2015, Emerging Markets Dividend had the following industry classifications:

 

Industry   

Percent of

Long-Term Investments

 

Banks

     19

Transportation Infrastructure

     11   

Semiconductors & Semiconductor Equipment

     10   

Wireless Telecommunication Services

     9   

Insurance

     7   

Oil, Gas & Consumable Fuels

     6   

Other1

     38   

 

  1   

All other industries held were each less than 5% of long-term investments.

10. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

 

     Six Months Ended
March 31, 2015
         Year Ended
September 30, 2014
 
All-Cap Energy & Resources    Shares     Amount           Shares     Amount  

Institutional

                                     

Shares sold

     898,879      $ 12,400,701           646,900      $ 10,752,489   

Shares issued in reinvestment of distributions

     39,582        525,654           15,019        206,142   

Shares redeemed

     (821,405     (11,162,721        (732,240     (11,884,287
  

 

 

      

 

 

 

Net increase (decrease)

     117,056      $ 1,763,634           (70,321   $ (925,656
  

 

 

      

 

 

 
           

Service

                                     

Shares sold

     5,833      $ 77,369           23,463      $ 375,705   

Shares issued in reinvestment of distributions

     1,395        18,098           521        7,757   

Shares redeemed

     (28,269     (387,328        (49,100     (757,516
  

 

 

      

 

 

 

Net decrease

     (21,041   $ (291,861        (25,116   $ (374,054
  

 

 

      

 

 

 

 

46    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

     Six Months Ended
March 31, 2015
         Year Ended
September 30, 2014
 
All-Cap Energy & Resources (concluded)    Shares     Amount           Shares     Amount  

Investor A

                                     

Shares sold and automatic conversion of shares

     784,151      $ 10,478,685           958,490      $ 15,089,057   

Shares issued in reinvestment of distributions

     66,408        859,979           28,029        439,558   

Shares redeemed

     (1,156,396     (15,581,719        (2,140,226     (33,842,288
  

 

 

      

 

 

 

Net decrease

     (305,837   $ (4,243,055        (1,153,707   $ (18,313,673
  

 

 

      

 

 

 
           

Investor B

                                     

Shares sold

     2,575      $ 33,706           4,098      $ 60,909   

Shares redeemed and automatic conversion of shares

     (63,565     (809,317        (436,554     (6,458,408
  

 

 

      

 

 

 

Net decrease

     (60,990   $ (775,611        (432,456   $ (6,397,499
  

 

 

      

 

 

 
           

Investor C

                                     

Shares sold

     608,535      $ 7,559,112           271,508      $ 4,146,097   

Shares issued in reinvestment of distributions

     13,701        169,204                    

Shares redeemed

     (1,004,653     (12,792,014        (1,015,038     (15,064,990
  

 

 

      

 

 

 

Net decrease

     (382,417   $ (5,063,698        (743,530   $ (10,918,893
  

 

 

      

 

 

 

Total Net Decrease

     (653,229   $ (8,610,591        (2,425,130   $ (36,929,775
  

 

 

      

 

 

 
           
Emerging Markets Dividend                                   

Institutional

                                     

Shares sold

     23,810      $ 201,559           14,124      $ 128,245   

Shares issued in reinvestment of distributions

     409        3,382           391        3,458   

Shares redeemed

     (15,025     (124,865        (3,794     (34,150
  

 

 

      

 

 

 

Net increase

     9,194      $ 80,076           10,721      $ 97,553   
  

 

 

      

 

 

 
           

Investor A

                                     

Shares sold

     40,644      $ 342,661           106,687      $ 958,337   

Shares issued in reinvestment of distributions

     3,014        24,954           4,316        38,037   

Shares redeemed

     (103,785     (867,233        (41,532     (366,879
  

 

 

      

 

 

 

Net increase (decrease)

     (60,127   $ (499,618        69,471      $ 629,495   
  

 

 

      

 

 

 
           

Investor C

                                     

Shares sold

     6,199      $ 52,319           34,522      $ 301,649   

Shares issued in reinvestment of distributions

     693        5,717           840        7,376   

Shares redeemed

     (17,001     (139,000        (1,751     (15,426
  

 

 

      

 

 

 

Net increase (decrease)

     (10,109   $ (80,964        33,611      $ 293,599   
  

 

 

      

 

 

 

Total Net Increase (Decrease)

     (61,042   $ (500,506        113,803      $ 1,020,647   
  

 

 

      

 

 

 
           
Energy & Resources                                   

Institutional

                                     

Shares sold

     2,796,180      $ 90,068,297           725,115      $ 29,170,844   

Shares redeemed

     (829,077     (24,367,807        (1,089,938     (42,500,141
  

 

 

      

 

 

 

Net increase (decrease)

     1,967,103      $ 65,700,490           (364,823   $ (13,329,297
  

 

 

      

 

 

 

 

     BLACKROCK FUNDS    MARCH 31, 2015    47


Notes to Financial Statements (concluded)     

 

     Six Months Ended
March 31, 2015
         Year Ended
September 30, 2014
 
Energy & Resources (concluded)    Shares     Amount           Shares     Amount  

Investor A

                                     

Shares sold and automatic conversion of shares

     1,467,250      $ 36,217,985           1,705,523      $ 59,839,840   

Shares redeemed

     (2,387,301     (60,407,512        (4,044,870     (138,244,319
  

 

 

      

 

 

 

Net decrease

     (920,051   $ (24,189,527        (2,339,347   $ (78,404,479
  

 

 

      

 

 

 
           

Investor B

                                     

Shares sold

     1,960      $ 34,104           2,941      $ 75,125   

Shares redeemed and automatic conversion of shares

     (25,275     (476,157        (66,483     (1,647,628
  

 

 

      

 

 

 

Net decrease

     (23,315   $ (442,053        (63,542   $ (1,572,503
  

 

 

      

 

 

 
           

Investor C

                                     

Shares sold

     544,893      $ 9,581,215           279,728      $ 7,033,404   

Shares redeemed

     (728,280     (13,552,207        (1,122,560     (27,505,260
  

 

 

      

 

 

 

Net decrease

     (183,387   $ (3,970,992        (842,832   $ (20,471,856
  

 

 

      

 

 

 

Total Net Increase (Decrease)

     840,350      $ 37,097,918           (3,610,544   $ (113,778,135
  

 

 

      

 

 

 

At March 31, 2015, shares owned by affiliates of Emerging Markets Dividend were as follows:

 

Institutional    Investor A    Investor C

296,000

   2,000    2,000

11. Subsequent Events:

Management’s evaluation of the impact of all subsequent events on the Funds’ financial statements was completed through the date the financial statements were issued and the following item was noted:

Effective April 23, 2015, the 364-day, $2.1 billion credit agreement to which the Funds are a party, was further amended to expire on April 21, 2016, unless otherwise extended or renewed.

 

48    BLACKROCK FUNDS    MARCH 31, 2015     


Officers and Trustees     

 

Rodney D. Johnson, Chair of the Board and Trustee

David O. Beim, Trustee

Collette Chilton, Trustee

Frank J. Fabozzi, Trustee

Dr. Matina S. Horner, Trustee

Herbert I. London, Trustee

Ian A. MacKinnon, Trustee

Cynthia A. Montgomery, Trustee

Barbara G. Novick, Trustee

Joseph P. Platt, Trustee

Robert C. Robb, Jr., Trustee

Toby Rosenblatt, Trustee

Mark Stalnecker, Trustee

Kenneth L. Urish, Trustee

Frederick W. Winter, Trustee

John M. Perlowski, President and Chief Executive Officer

Jennifer McGovern, Vice President

Neal Andrews, Chief Financial Officer

Jay Fife, Treasurer

Charles Park, Chief Compliance Officer

Fernanda Piedra, Anti-Money Laundering Compliance Officer

Benjamin Archibald, Secretary

 

Effective December 31, 2014, Paul L. Audet and Henry Gabbay resigned as Trustees of the Trust and Ronald W. Forbes resigned as a Trustee of the Trust and Co-Chair of the Board. Effective January 1, 2015, Collette Chilton, Barbara G. Novick and Mark Stalnecker were appointed to serve as Trustees of the Trust.

Effective March 1, 2015, Charles Park resigned as Anti-Money Laundering Compliance Officer of the Trust and Fernanda Piedra became Anti- Money Laundering Compliance Officer of the Trust.

 

       

Investment Advisor and

Administrator

BlackRock Advisors, LLC

Wilmington, DE 19809

 

Accounting Agent and

Transfer Agent

BNY Mellon Investment

Servicing (US) Inc.

Wilmington, DE 19809

 

Independent Registered

Public Accounting Firm

Deloitte & Touche LLP

Philadelphia, PA 19103

 

Address of the Trust

100 Bellevue Parkway

Wilmington, DE 19809

     

Sub-Advisor

BlackRock International Limited

Edinburgh, EH3 8BL

United Kingdom

 

Custodian

The Bank of New York Mellon

New York, NY 10286

 

Distributor

BlackRock Investments, LLC

New York, NY 10022

 

Legal Counsel

Sidley Austin LLP

New York, NY 10019

 

     BLACKROCK FUNDS    MARCH 31, 2015    49


Additional Information     

 

General Information

Householding

The Funds will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please call the Funds at (800) 441-7762.

Availability of Quarterly Schedule of Investments

The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Funds’ Forms N-Q may also be obtained upon request and without charge by calling (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available upon request and without charge (1) by calling (800) 441-7762; (2) at http://www.blackrock.com; and (3) on the SEC’s website at http://www.sec.gov.

Availability of Proxy Voting Record

Information about how the Funds voted proxies relating to securities held in the Funds’ portfolios during the most recent 12-month period ended June 30 is available upon request and without charge (1) at http://www.blackrock.com or by calling (800) 441-7762 and (2) on the SEC’s website at http://www.sec.gov.

BlackRock’s Mutual Fund Family

BlackRock offers a diverse lineup of open-end mutual funds crossing all investment styles and managed by experts in equity, fixed income and taxexempt investing. Visit http://www.blackrock.com for more information.

 

Shareholder Privileges

Account Information

Call us at (800) 441-7762 from 8:00 AM to 6:00 PM EST on any business day to get information about your account balances, recent transactions and share prices. You can also reach us on the Web at http://www.blackrock.com/funds.

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 funds.

Systematic Withdrawal Plans

Investor Class shareholders can establish a systematic withdrawal plan and receive periodic payments of $50 or more from their BlackRock funds, as long as their account balance is at least $10,000.

Retirement Plans

Shareholders may make investments in conjunction with Traditional, Rollover, Roth, Coverdell, Simple IRAs, SEP IRAs and 403(b) Plans.

 

50    BLACKROCK FUNDS    MARCH 31, 2015     


Additional Information (concluded)     

 

BlackRock Privacy Principles

BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, “Clients”) and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why in certain cases we share such information with select parties.

If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different privacy-related rights beyond what is set forth below, then BlackRock will comply with those specific laws, rules or regulations.

BlackRock obtains or verifies personal non-public information from and about you from different sources, including the following: (i) information we receive from you or, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions with us, our affiliates, or others; (iii) information we receive from a consumer reporting agency; and (iv) from visits to our websites.

BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose.

We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information.

 

     BLACKROCK FUNDS    MARCH 31, 2015    51


 

This report is intended for current holders. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Funds unless preceded or accompanied by the Funds’ current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.

     LOGO

 

 

 

 

 

 

 

 

Eq-Allcap-3/15-SAR

   LOGO

 


MARCH 31, 2015        

 

 

SEMI-ANNUAL REPORT (UNAUDITED)

 

      BLACKROCK®

 

BlackRock FundsSM

  BlackRock Flexible Equity Fund

  BlackRock Mid-Cap Growth Equity Portfolio

  BlackRock Small Cap Growth Equity Portfolio

 

 

 

 

 

Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee  

 


Table of Contents     

 

       Page   

The Markets in Review

     3   

Semi-Annual Report:

  

Fund Summaries

     4   

About Fund Performance

     10   

Disclosure of Expenses

     11   

Derivative Financial Instruments

     11   

Financial Statements:

  

Schedules of Investments

     16   

Statements of Assets and Liabilities

     26   

Statements of Operations

     28   

Statements of Changes in Net Assets

     29   

Financial Highlights

     30   

Notes to Financial Statements

     42   

Officers and Trustees

     58   

Additional Information

     59   

 

 

 

  LOGO

 
  Shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual shareholder reports and prospectuses by enrolling in the electronic delivery program. Electronic copies of shareholder reports and prospectuses are also available on Blackrock’s website.
 

 

TO ENROLL IN ELECTRONIC DELIVERY:

 

 

Shareholders who hold Accounts with Investment Advisors, Banks or Brokerages:

 

Please contact your financial advisor. Please note that not all investment advisors, banks or brokerages may offer this service.

 

 

Shareholders Who Hold Accounts Directly with Blackrock:

 

 

1.  Access the Blackrock website at blackrock.com

 

2.  Select “Access Your Account”

 

3.  Next, select “eDelivery” in the “Related Resources” box and follow the sign-up instructions

 

 

2    BLACKROCK FUNDS    MARCH 31, 2015     


The Markets in Review

Dear Shareholder,

Market volatility has remained low from a long-term perspective, but increased over the course of 2014 amid higher valuations in risk assets (such as equities and high yield bonds), geopolitical risks, uneven global economic growth and uncertainty around policy moves from the world’s largest central banks. As the U.S. Federal Reserve (the “Fed”) gradually reduced its bond buying program (which ultimately ended in October 2014), U.S. interest rates surprisingly trended lower and stock prices forged ahead despite high valuations on the back of a multi-year bull market. Geopolitical tensions intensified in Ukraine and the Middle East and oil prices became highly volatile in the middle of the summer, stoking worries about economic growth outside the United States. As the U.S. economy continued to show steady improvement, the stronger data caused concern among investors that the Fed would raise short-term rates sooner than previously anticipated. The U.S. dollar appreciated and global credit markets tightened, ultimately putting a strain on investor flows, and financial markets broadly weakened in the third quarter.

U.S. economic growth picked up considerably in the fourth quarter while the broader global economy showed signs of slowing. U.S. markets significantly outperformed international markets even as the European Central Bank (“ECB”) and the Bank of Japan eased monetary policy, which drove further strengthening in the U.S. dollar. Oil prices plummeted in the fourth quarter due to a global supply-and-demand imbalance, sparking a selloff in energy-related assets and stress in emerging markets. Fixed income investors piled into U.S. Treasuries as their persistently low yields became relatively attractive as compared to international sovereign debt.

Equity markets reversed in the first quarter of 2015 and U.S. stocks underperformed international markets, notably Europe and Japan, but also emerging markets. Investors had held high expectations for the U.S. economy, but after a harsh winter, first-quarter data disappointed and high valuations took their toll on U.S. stocks. Meanwhile, economic reports in Europe and Asia easily beat investors’ very low expectations for those economies, and accommodative policies from global central banks helped international equities rebound. The ECB’s asset purchase program (announced in January and commenced in March) was the largest in scale and effect on the markets. Overall, market volatility decreased in the first quarter as global risks abated, with a ceasefire in Ukraine and an improving outlook for Greece’s continued membership in the Eurozone.

At BlackRock, we believe investors need to think globally, extend their scope across a broad array of asset classes and be prepared to move freely as market conditions change over time. We encourage you to talk with your financial advisor and visit blackrock.com for further insight about investing in today’s markets.

Sincerely,

 

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

 

 

 

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

Total Returns as of March 31, 2015  
    6-month     12-month  

U.S. large cap equities
(S&P 500® Index)

    5.93     12.73

U.S. small cap equities
(Russell 2000® Index)

    14.46        8.21   

International equities
(MSCI Europe, Australasia, Far East Index)

    1.13        (0.92

Emerging market equities
(MSCI Emerging Markets Index)

    (2.37     0.44   

3-month Treasury bill
(BofA Merrill Lynch
3-Month U.S. Treasury
Bill Index)

    0.01        0.03   

U.S. Treasury securities
(BofA Merrill Lynch
10- Year U.S. Treasury
Index)

    6.25        9.88   

U.S. investment grade
bonds (Barclays U.S.
Aggregate Bond Index)

    3.43        5.72   

Tax-exempt municipal
bonds (S&P Municipal Bond Index)

    2.29        6.60   

U.S. high yield bonds
(Barclays U.S. Corporate
High Yield 2% Issuer
Capped Index)

    1.50        2.00   
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.     
 

 

     THIS PAGE NOT PART OF YOUR FUND REPORT         3


Fund Summary as of March 31, 2015      BlackRock Flexible Equity Fund   

 

Investment Objective

BlackRock Flexible Equity Fund’s (the “Fund”) investment objective is to seek to achieve long-term total return.

 

Portfolio Management Commentary

 

How did the Fund perform?

 

 

For the six-month period ended March 31, 2015, the Fund underperformed its benchmark, the S&P 500® Index.

What factors influenced performance?

 

 

In a positive market environment, portfolio protection in the form of cash and short index futures were the largest detractors from performance. Due to concerns regarding stock market valuations, the Fund’s investment advisor sought to insulate the Fund from absolute losses and reduce beta by maintaining an elevated cash position and a series of short index futures positions. (Beta measures a portfolio’s volatility relative to the market as a whole.) The elevated cash position detracted from relative performance given that equity markets rallied during the fourth quarter of 2014. Short index positions on the Nikkei 225® Index, Russell 2000® Index, Nasdaq 100® Index and S&P 500® Index all detracted from performance at a time in which these indices gained ground.

 

 

The Fund’s positions in North American oil & gas producers detracted from performance as the rapid decline in global oil prices pressured both groups during the period. While the Fund strived to emphasize producers with the ability to remain profitable in a low-price environment, even these types of companies were punished amid the broader sell-off in the energy sector. Against this backdrop, holdings Suncor Energy, Inc., Painted Pony Petroleum, Ltd. and EQT Corp. detracted from overall results.

 

 

The Fund’s positioning in the information technology (“IT”) sector also hindered relative performance, with an overweight in poor-performing Micron Technology, Inc. and an underweight in Apple, Inc. having the largest negative impact.

 

 

Conversely, the Fund experienced positive stock selection across multiple sectors. Within consumer discretionary, Orbitz Worldwide, Inc. made the largest contribution to return after industry leader Expedia, Inc. announced it would acquire the company at a premium. Since Orbitz Worldwide, Inc. was a top ten position in the Fund, the resulting rally in the stock helped buoy overall portfolio results. The

   

Fund had initiated the investment on the belief that the company was well positioned to either engage in a share buyback or be acquired by a competitor or private equity firm.

 

 

When combined with the positive impact from currency management, the Fund’s position in Japan Airlines Co., Ltd. also made an important contribution to results. Falling oil prices provided a lift to the airline industry globally, boosting the share price of the Japanese carrier. Additionally, in a period of increased currency volatility and U.S. dollar strength, the decision to manage yen exposure in the stock proved to be a key driver of returns.

 

 

Lastly, the Fund benefited from its position in managed-care firm UnitedHealth Group Inc., which rallied due to continued operating success and widespread strength in the broader health care sector.

Describe recent portfolio activity.

 

 

Due to a combination of portfolio trading activity and market movement, the Fund’s weighting in the health care sector increased substantially during the period, specifically within the health care providers & services industry. In addition, the Fund increased its allocations to financials (mainly banks), IT (largely within the internet software & services and communications equipment industries) and consumer staples (primarily beverages).

 

 

The Fund’s weighting in the consumer discretionary sector decreased significantly, with the largest reduction occurring in the media industry. The Fund also reduced its position in the energy sector, especially within the oil, gas & consumable fuels segment, and in materials, namely in the metals & mining industry.

Describe portfolio positioning at period end.

 

 

Relative to the S&P 500® Index, the Fund ended the period with its largest sector overweight in health care, followed by financials and IT. Utilities, consumer staples and telecommunication services were the most significant underweights.

 

 

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

Portfolio Information

 

Ten Largest Holdings   

Percent of

Long-Term  Investments

UnitedHealth Group, Inc.

     5

CVS Health Corp.

     3   

JPMorgan Chase & Co.

     3   

Comcast Corp., Class A

     3   

Lowe’s Companies, Inc.

     3   

Google, Inc., Class A

     3   

3M Co.

     3   

U.S. Bancorp

     3   

Bank of America Corp.

     3   

American International Group, Inc.

     2   
Sector Allocation   

Percent of

Long-Term  Investments

Information Technology

     23

Health Care

     21   

Financials

     19   

Consumer Discretionary

     13   

Industrials

     8   

Consumer Staples

     7   

Energy

     7   

Materials

     2   

For Fund compliance purposes, the Fund’s sector classifications refer to any one or more of the sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.

 

 

4    BLACKROCK FUNDS    MARCH 31, 2015     


       BlackRock Flexible Equity Fund   

 

Total Return Based on a $10,000 Investment

 

 

LOGO

 

  1 

Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees and administration fees, if any. Institutional Shares do not have a sales charge.

 

  2 

Under normal circumstances, the Fund will invest at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities and equity-like securities and instruments with similar economic characteristics. The Fund seeks to invest in securities issued by North American companies. The Fund may invest in companies of any market capitalization size, style, or sector. The Fund’s total return prior to July 31, 2012 are the returns of the Fund when it followed a different investment strategy.

 

  3 

This unmanaged index covers 500 leading companies and captures approximately 80% coverage of available market capitalization.

 

Performance Summary for the Period Ended March 31, 2015                         
                Average Annual Total Returns4  
                1 Year        5 Years        10 Years  
        6-Month
Total Returns
       w/o sales
charge
       w/ sales
charge
       w/o sales
charge
       w/ sales
charge
       w/o sales
charge
       w/ sales
charge
 

Institutional

       4.42        4.06        N/A           8.44        N/A           6.43        N/A   

Service

       4.17           3.73           N/A           8.09           N/A           6.12           N/A   

Investor A

       4.27           3.75           (1.70 )%         8.10           6.94        6.11           5.54

Investor B

       3.82           2.93           (0.92        7.26           6.96           5.47           5.47   

Investor C

       3.79           2.89           2.04           7.25           7.25           5.30           5.30   

Class R

       4.05           3.41           N/A           7.72           N/A           6.02           N/A   

S&P 500® Index

       5.93           12.73           N/A           14.47           N/A           8.01           N/A   

 

  4   

Assuming maximum sales charges, if any. Average annual total returns with and without sales charges reflect reductions for distribution and service fees. See “About Fund Performance” on page 10 for a detailed description of share classes, including any related sales charges and fees.

 

       N/A—Not applicable as share class and index do not have a sales charge.

 

       Past performance is not indicative of future results.

 

Expense Example
   

Actual

 

Hypothetical6

   
     Beginning
Account Value
October 1, 2014
  Ending
Account Value
March 31, 2015
  Expenses Paid
During the  Period5
  Beginning
Account Value
October 1, 2014
  Ending
Account Value
March 31, 2015
  Expenses Paid
During the  Period5
  Annualized
Expense Ratio

Institutional

  $1,000.00   $1,044.20   $4.69   $1,000.00   $1,020.34   $4.63   0.92%

Service

  $1,000.00   $1,041.70   $6.26   $1,000.00   $1,018.80   $6.19   1.23%

Investor A

  $1,000.00   $1,042.70   $6.32   $1,000.00   $1,018.75   $6.24   1.24%

Investor B

  $1,000.00   $1,038.20   $10.21   $1,000.00   $1,014.91   $10.10   2.01%

Investor C

  $1,000.00   $1,037.90   $10.21   $1,000.00   $1,014.91   $10.10   2.01%

Class R

  $1,000.00   $1,040.50   $8.14   $1,000.00   $1,016.95   $8.05   1.60%

 

  5   

For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period shown).

 

  6   

Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.

 

      See “Disclosure of Expenses” on page 11 for further information on how expenses were calculated.

 

     BLACKROCK FUNDS    MARCH 31, 2015    5


Fund Summary as of March 31, 2015      BlackRock Mid-Cap Growth Equity Portfolio   

 

Investment Objective

BlackRock Mid-Cap Growth Equity Portfolio’s (the “Fund”) investment objective is long-term capital appreciation.

 

Portfolio Management Commentary

 

How did the Fund perform?

 

 

For the six-month period ended March 31, 2015, the Fund outperformed its benchmark, the Russell Midcap® Growth Index.

What factors influenced performance?

 

 

In sector terms, relative performance was supported by the Fund’s limited exposure to the energy sector, which posted significant declines in the reporting period. Additional contributions came from favorable stock selection within information technology (“IT”), particularly software & services, as well as from positioning in health care, namely biotechnology and pharmaceuticals.

 

 

On an individual stock basis, BioMarin Pharmaceuticals Inc., Vipshop Holdings Ltd. and United Therapeutics Corp. were the Fund’s top contributors. BioMarin gained on improved financial results and investor excitement around the company’s drug pipeline that focuses on rare diseases/disorders. The announced acquisition of Dutch biotech firm Prosensa Holding NV was also a driver in the period, as was market speculation that BioMarin itself could be the next big takeover target in the industry. Vipshop Holdings outperformed after adding a record number of customers in the fourth quarter of 2014 and beating top- and bottom-line expectations. Shares of United Therapeutics climbed after the company received a favorable ruling in its patent infringement lawsuit against competitor Sandoz. Greater appreciation for the potential of the company’s oral version of Remodulin may also have lent support to the stock price.

 

 

Positions in lululemon athletica inc., Madison Square Garden Co. and Acuity Brands Inc. also added to relative returns.

 

 

Conversely, at the sector level, industrials was the main source of weakness in the six-month period, with marine industry holding Kirby Corp. as the Fund’s leading individual detractor. The company experienced a rapid and sharp decline in its on-land

 

diesel engine services business as uncertainty for land-based oil drilling led to order cancellations for new engines. Positioning within airlines and commercial services & supplies further hindered performance in the industrials sector.

 

 

Elsewhere in the Fund, positions in Netflix Inc. and Liberty TripAdvisor Holdings Inc. detracted from relative returns. Netflix shares sank early in the reporting period after third-quarter subscriber growth missed the company’s prior guidance. Notably, the stock rebounded in the second half as its fourth-quarter earnings report showed subscriber growth back on trend. Liberty TripAdvisor Holdings lagged as subsidiary TripAdvisor Inc. underperformed due to disappointing earnings and a perceived lack of progress on its direct booking initiative. Additionally, investors worried about negative foreign exchange impact, as well as what a stronger dollar might mean for cross-border travel and the company’s future guidance.

Describe recent portfolio activity.

 

 

Due to a combination of portfolio trading activity and market movement during the six-month period, the Fund’s weighting in the consumer discretionary sector increased, most notably within textiles, apparel & luxury goods, multiline retail and specialty retail. The allocation to IT increased as well, mainly within the software industry. The Fund’s weighting in the industrials sector decreased substantially, with reductions in several industries, including road & rail, machinery, electrical equipment and commercial services & supplies.

Describe portfolio positioning at period end.

 

 

As of period end, the Fund’s largest sector overweight relative to the Russell Midcap® Growth Index was in consumer discretionary, wherein internet & catalog retail exposure was balanced by idiosyncratic opportunities across segments, including media, textiles, apparel & luxury goods, and specialty retail. Industrials was the most significant underweight.

 

 

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

Portfolio Information

 

Ten Largest Holdings   

Percent of

Long-Term  Investments

United Therapeutics Corp.

     4

Liberty Ventures, Series A

     4   

Netflix, Inc.

     3   

Liberty TripAdvisor Holdings, Inc., Class A

     3   

The Madison Square Garden Co., Class A

     3   

Dollar General Corp.

     3   

FleetCor Technologies, Inc.

     3   

Vipshop Holdings Ltd. - ADR

     3   

Vertex Pharmaceuticals, Inc.

     3   

Uber Technologies, Inc., Series D

     2   
Sector Allocation   

Percent of

Long-Term  Investments

Consumer Discretionary

     38

Information Technology

     20   

Health Care

     18   

Industrials

     8   

Financials

     6   

Consumer Staples

     5   

Telecommunication Services

     2   

Materials

     2   

Energy

     1   

For Fund compliance purposes, the Fund’s sector classifications refer to any one or more of the sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.

 

 

6    BLACKROCK FUNDS    MARCH 31, 2015     


       BlackRock Mid-Cap Growth Equity Portfolio   

 

Total Return Based on a $10,000 Investment

 

 

LOGO

 

  1 

Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees and administration fees, if any. Institutional Shares do not have a sales charge.

 

  2 

The Fund normally invests at least 80% of its net assets in equity securities issued by U.S. mid-capitalization companies, which Fund management believes have above-average earnings growth potential.

 

  3 

An unmanaged index that consists of the bottom 800 securities of the Russell 1000® Index with greater-than-average growth orientation as ranked by total market capitalization. They generally have higher price-to-book and price-to-earnings ratios, lower dividend yields and higher forecasted growth values.

 

Performance Summary for the Period Ended March 31, 2015                         
                Average Annual Total Returns4  
                1 Year        5 Years        10 Years  
        6-Month
Total Returns
       w/o sales
charge
       w/ sales
charge
       w/o sales
charge
       w/ sales
charge
       w/o sales
charge
       w/ sales
charge
 

Institutional

       14.16        16.53        N/A           15.28        N/A           9.69        N/A   

Service

       13.92           15.98           N/A           14.75           N/A           9.26           N/A   

Investor A

       13.96           16.17           10.07        14.90           13.66        9.26           8.67

Investor B

       13.58           15.32           10.85           14.03           13.79           8.60           8.60   

Investor C

       13.57           15.32           14.33           14.01           14.01           8.44           8.44   

Class R

       13.83           15.90           N/A           14.65           N/A           9.11           N/A   

Russell Midcap® Growth Index

       11.53           15.56           N/A           16.43           N/A           10.19           N/A   

 

  4   

Assuming maximum sales charges, if any. Average annual total returns with and without sales charges reflect reductions for distribution and service fees. See “About Fund Performance” on page 10 for a detailed description of share classes, including any related sales charges and fees.

 

       N/A—Not applicable as share class and index do not have a sales charge.

 

       Past performance is not indicative of future results.

 

Expense Example
   

Actual

 

Hypothetical6

   
    

Beginning

Account Value
October 1, 2014

 

Ending

Account Value
March 31, 2015

  Expenses Paid
During the  Period5
  Beginning
Account Value
October 1, 2014
 

Ending

Account Value
March 31, 2015

  Expenses Paid
During the  Period5
  Annualized
Expense Ratio

Institutional

  $1,000.00   $1,141.60   $5.77   $1,000.00   $1,019.55   $5.44   1.08%

Service

  $1,000.00   $1,139.20   $7.95   $1,000.00   $1,017.50   $7.49   1.49%

Investor A

  $1,000.00   $1,139.60   $7.41   $1,000.00   $1,018.00   $6.99   1.39%

Investor B

  $1,000.00   $1,135.80   $11.50   $1,000.00   $1,014.16   $10.85   2.16%

Investor C

  $1,000.00   $1,135.70   $11.50   $1,000.00   $1,014.16   $10.85   2.16%

Class R

  $1,000.00   $1,138.30   $8.80   $1,000.00   $1,016.70   $8.30   1.65%

 

  5   

For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period shown).

 

  6   

Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.

 

       See “Disclosure of Expenses” on page 11 for further information on how expenses were calculated.

 

     BLACKROCK FUNDS    MARCH 31, 2015    7


Fund Summary as of March 31, 2015      BlackRock Small Cap Growth Equity Portfolio   

 

Investment Objective

BlackRock Small Cap Growth Equity Portfolio’s (the “Fund”) investment objective is to seek long-term capital growth.

 

Portfolio Management Commentary

 

How did the Fund perform?

 

 

For the six-month period ended March 31, 2015, the Fund underperformed its benchmark, the Russell 2000® Growth Index.

What factors influenced performance?

 

 

The Fund’s underperformance was attributable primarily to stock selection within the energy and industrials sectors. Within energy, positions in domestic oil & gas producer Bonanza Creek Energy, Inc. and oil & gas equipment & services company Basic Energy Services, Inc. detracted most from performance. Shares of Bonanza Creek Energy fell sharply along with crude oil and natural gas prices, as investors expected increasing supply along with decreasing global demand for these commodities to hurt the company’s margins and revenues. Even with lower investor expectations, the company missed earnings and revenue estimates for the last two quarters of 2014. Basic Energy Services was also hurt by lower oil prices and industry weakness, along with misses on earnings and revenues. Within industrials, weaker expectations for domestic crude oil production negatively impacted railcar manufacturer The Greenbrier Cos, Inc., which has benefited extensively from demand for railcars driven by shale oil production. A position in metal and gas cylinder manufacturer Luxfer Holdings PLC lagged, as the company’s results were also hurt by the energy sector weakness.

 

 

Stock selection within the information technology (“IT”) sector made the most significant positive contribution to performance. The Fund’s position

   

in Ambarella, Inc., a producer of high-definition chips for video cameras, appreciated considerably after the company released earnings and revenues that were above expectations. The company’s processing chips are used for high-definition wearable cameras, wireless security cameras and dashboard and rear-view cameras for automobiles. Ambarella is the exclusive chip supplier to wearable sports camera leader GoPro, which accounts for about one-third of the company’s revenues. A position in supply chain technology provider Manhattan Associates, Inc. contributed to performance, as the company’s shares appreciated on better-than-expected earnings, revenues and forward guidance. A position in flash memory producer Spansion, Inc. rose significantly over the period on strong earnings, as well as the announcement of an accretive merger with integrated circuits company Cypress Semiconductor, which is expected to achieve considerable cost synergies.

Describe recent portfolio activity.

 

 

During the six-month period, the Fund’s weightings in the health care and consumer discretionary sectors increased while the weightings in energy and IT decreased.

Describe portfolio positioning at period end.

 

 

Relative to the Russell 2000 Growth® Index, the Fund’s most significant sector overweight position as of period end was consumer discretionary while the most significant underweight position was in IT.

 

 

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

Portfolio Information

 

Ten Largest Holdings   

Percent of

Long-Term  Investments

Manhattan Associates, Inc.

     2

STERIS Corp.

     2   

LogMeIn, Inc.

     2   

Burlington Stores, Inc.

     2   

Tenneco, Inc.

     2   

Jack in the Box, Inc.

     2   

JetBlue Airways Corp.

     2   

DuPont Fabros Technology, Inc.

     2   

Syntel, Inc.

     2   

Boise Cascade Co.

     2   
Sector Allocation   

Percent of

Long-Term  Investments

Health Care

     25

Information Technology

     25   

Consumer Discretionary

     18   

Industrials

     14   

Financials

     8   

Materials

     4   

Consumer Staples

     3   

Energy

     2   

Telecommunication Services

     1   

For Fund compliance purposes, the Fund’s sector classifications refer to any one or more of the sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.

 

 

8    BLACKROCK FUNDS    MARCH 31, 2015     


       BlackRock Small Cap Growth Equity Portfolio   

 

Total Return Based on a $10,000 Investment

 

 

LOGO

 

  1 

Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees and administration fees, if any. Institutional Shares do not have a sales charge.

 

  2 

Under normal circumstances, the Fund will invest at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of small cap companies and at least 80% of its net assets (plus any borrowings for investment purposes) in securities or instruments of issuers located in the United States.

 

  3 

An unmanaged index that measures performance of the small-cap growth segment of the US equity universe. It includes those Russell 2000® Index companies with higher price-to-value ratios and higher forecasted growth values.

 

Performance Summary for the Period Ended March 31, 2015                         
                Average Annual Total Returns4  
                1 Year        5 Years        10 Years  
        6-Month
Total Returns
       w/o sales
charge
       w/ sales
charge
       w/o sales
charge
       w/ sales
charge
       w/o sales
charge
       w/ sales
charge
 

Institutional

       11.82        7.99        N/A           14.07        N/A           10.13        N/A   

Service

       11.64           7.67           N/A           13.74           N/A           9.83           N/A   

Investor A

       11.65           7.67           2.01        13.69           12.47        9.75           9.16

Investor B

       11.12           6.75           3.54           12.72           12.57           8.99           8.99   

Investor C

       11.23           6.80           6.09           12.76           12.76           8.81           8.81   

Russell 2000® Growth Index

       17.36           12.06           N/A           16.58           N/A           10.02           N/A   

 

  4   

Assuming maximum sales charges, if any. Average annual total returns with and without sales charges reflect reductions for distribution and service fees. See “About Fund Performance” on page 10 for a detailed description of share classes, including any related sales charges and fees.

 

       N/A—Not applicable as share class and index do not have a sales charge.

 

       Past performance is not indicative of future results.

 

Expense Example
    

Actual

  

Hypothetical6

    
      Beginning
Account Value
October 1, 2014
   Ending
Account Value
March 31, 2015
   Expenses Paid
During the  Period5
   Beginning
Account Value
October 1, 2014
   Ending
Account Value
March 31, 2015
   Expenses Paid
During the  Period5
   Annualized
Expense Ratio

Institutional

   $1,000.00    $1,118.20    $4.38    $1,000.00    $1,020.79    $4.18    0.83%

Service

   $1,000.00    $1,116.40    $6.07    $1,000.00    $1,019.20    $5.79    1.15%

Investor A

   $1,000.00    $1,116.50    $6.07    $1,000.00    $1,019.20    $5.79    1.15%

Investor B

   $1,000.00    $1,111.20    $10.95    $1,000.00    $1,014.56    $10.45    2.08%

Investor C

   $1,000.00    $1,112.30    $10.22    $1,000.00    $1,015.26    $9.75    1.94%

 

  5   

For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period shown).

 

  6   

Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.

 

       See “Disclosure of Expenses” on page 11 for further information on how expenses were calculated.

 

     BLACKROCK FUNDS    MARCH 31, 2015    9


About Fund Performance     

 

 

Institutional Shares are not subject to any sales charge. These shares bear no ongoing distribution or service fees and are available only to certain eligible investors.

 

 

Service Shares are not subject to any sales charge. These shares are subject to a service fee of 0.25% per year (but no distribution fee) and are only available to certain eligible investors.

 

 

Investor A Shares are subject to a maximum initial sales charge (front-end load) of 5.25% and a service fee of 0.25% per year (but no distribution fee). Certain redemptions of these shares may be subject to a contingent deferred sales charge (“CDSC”) where no initial sales charge was paid at the time of purchase. These shares are generally available through financial intermediaries.

 

 

Investor B Shares are subject to a maximum CDSC of 4.50% declining to 0% after six years. In addition, these shares are subject to a distribution fee of 0.75% per year and a service fee of 0.25% per year. These shares automatically convert to Investor A Shares after approximately eight years. (There is no initial sales charge for automatic share conversions.) All returns for periods greater than eight years reflect this conversion. These shares are only available through exchanges and distribution reinvestments by current holders and for purchase by certain employer-sponsored retirement plans.

 

 

Investor C Shares are subject to a 1.00% CDSC if redeemed within one year of purchase. In addition, these shares are subject to a distribution fee of 0.75% per year and a service fee of 0.25% per year. These shares are generally available through financial intermediaries.

 

 

Class R Shares are not subject to any sales charge. These shares are subject to a distribution fee of 0.25% per year and a service fee of

0.25% per year. These shares are available only to certain employer-sponsored retirement plans. Prior to October 2, 2006, Class R performance results of BlackRock Mid-Cap Growth Equity Portfolio are those of Institutional Shares (which have no distribution or service fees) restated to reflect Class R Share fees. Prior to July 30, 2010, Class R performance results of BlackRock Flexible Equity Fund are those of Institutional Shares (which have no distribution or service fees) restated to reflect Class R Share fees.

Performance information reflects past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Refer to www.blackrock.com/funds to obtain performance data current to the most recent month end. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in each of the performance tables on the previous pages assume reinvestment of all distributions, if any, at net asset value (“NAV”) on the ex-dividend date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Distributions paid to each class of shares will vary because of the different levels of service, distribution and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders.

BlackRock Advisors, LLC (the “Manager”), the Funds’ investment advisor, waived and/or reimbursed a portion of each Fund’s expenses. Without such waiver and/or reimbursement, each Fund’s performance would have been lower. The Manager is under no obligation to waive and/or reimburse or to continue waiving and/or reimbursing its fees after the applicable termination date. See Note 5 of the Notes to Financial Statements for additional information on waivers and reimbursements.

 

 

10    BLACKROCK FUNDS    MARCH 31, 2015     


Disclosure of Expenses     

 

Shareholders of the Funds may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, administration fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses and other Fund expenses. The expense examples on the previous pages (which are based on a hypothetical investment of $1,000 invested on October 1, 2014 and held through March 31, 2015) are intended to assist shareholders both in calculating expenses based on an investment in each Fund and in comparing these expenses with similar costs of investing in other mutual funds.

The expense examples provide information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their Fund and share class under the headings entitled “Expenses Paid During the Period.”

 

The expense examples also provide information about hypothetical account values and hypothetical expenses based on a Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in these Funds and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in shareholder reports of other funds.

The expenses shown in the expense examples are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.

 

 

Derivative Financial Instruments

 

The Funds may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the derivative

financial instrument. The Funds’ ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation a Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Funds’ investments in these instruments are discussed in detail in the Notes to Financial Statements.

 

 

     BLACKROCK FUNDS    MARCH 31, 2015    11


Consolidated Schedule of Investments March 31, 2015 (Unaudited)      BlackRock Flexible Equity Fund   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Aerospace & Defense — 1.2%

     

Honeywell International, Inc.

     8,100       $ 844,911   

Raytheon Co.

     53,176         5,809,478   
     

 

 

 
                6,654,389   

Air Freight & Logistics — 1.1%

     

FedEx Corp.

     38,037         6,293,222   

Airlines — 1.8%

     

Southwest Airlines Co.

     87,650         3,882,895   

United Continental Holdings, Inc. (a)

     87,475         5,882,694   
     

 

 

 
                9,765,589   

Auto Components — 0.6%

     

Lear Corp.

     27,700         3,069,714   

Banks — 11.8%

     

Bank of America Corp.

     882,604         13,583,276   

Citigroup, Inc.

     238,971         12,311,786   

JPMorgan Chase & Co.

     262,554         15,905,521   

SunTrust Banks, Inc.

     180,039         7,397,803   

U.S. Bancorp

     316,757         13,832,778   

Wells Fargo & Co.

     49,409         2,687,850   
     

 

 

 
                65,719,014   

Beverages — 2.7%

     

Dr Pepper Snapple Group, Inc.

     115,590         9,071,503   

Molson Coors Brewing Co., Class B

     80,911         6,023,824   
     

 

 

 
                15,095,327   

Biotechnology — 1.9%

     

Amgen, Inc.

     65,942         10,540,829   

Capital Markets — 1.2%

     

Atlas Mara Co-Nvest Ltd. (a)

     93,690         655,830   

Freedom Pay, Inc. (a)

     43,051           

The Goldman Sachs Group, Inc.

     32,111         6,035,905   
     

 

 

 
                6,691,735   

Chemicals — 0.3%

     

The Dow Chemical Co.

     39,097         1,875,874   

Communications Equipment — 3.2%

     

Brocade Communications Systems, Inc.

     397,945         4,721,617   

Cisco Systems, Inc.

     331,545         9,125,776   

QUALCOMM, Inc.

     56,040         3,885,814   
     

 

 

 
                17,733,207   

Consumer Finance — 2.5%

     

Discover Financial Services

     161,822         9,118,670   

SLM Corp. (a)

     493,733         4,581,842   
     

 

 

 
                13,700,512   

Containers & Packaging — 0.7%

     

Packaging Corp. of America

     51,403         4,019,201   

Electronic Equipment, Instruments & Components — 0.5%

  

  

Zebra Technologies Corp., Class A (a)

     31,261         2,835,842   

Energy Equipment & Services — 2.4%

     

Atwood Oceanics, Inc.

     58,395         1,641,483   

Halliburton Co.

     24,076         1,056,455   

Schlumberger Ltd.

     104,580         8,726,155   
Common Stocks    Shares      Value  

Energy Equipment & Services (concluded)

     

Weatherford International PLC (a)

     139,743       $ 1,718,839   
     

 

 

 
                13,142,932   

Food & Staples Retailing — 4.1%

     

CVS Health Corp.

     175,080         18,070,007   

The Kroger Co.

     8,200         628,612   

Wal-Mart Stores, Inc.

     51,465         4,232,996   
     

 

 

 
                22,931,615   

Food Products — 0.4%

     

Pilgrim’s Pride Corp. (b)

     37,405         844,979   

Tyson Foods, Inc., Class A

     40,009         1,532,345   
     

 

 

 
                2,377,324   

Health Care Equipment & Supplies — 0.1%

     

Medtronic PLC

     7,560         589,604   

Health Care Providers & Services — 14.2%

     

Aetna, Inc.

     117,700         12,538,581   

Centene Corp. (a)

     98,564         6,967,489   

Cigna Corp.

     66,840         8,651,770   

Express Scripts Holding Co. (a)

     22,834         1,981,306   

Humana, Inc.

     4,200         747,684   

Laboratory Corp. of America Holdings (a)

     52,646         6,638,134   

McKesson Corp.

     33,537         7,586,069   

UnitedHealth Group, Inc.

     227,683         26,932,622   

Universal Health Services, Inc., Class B

     58,239         6,855,313   
     

 

 

 
                78,898,968   

Hotels, Restaurants & Leisure — 1.7%

     

Carnival Corp.

     135,649         6,489,448   

Las Vegas Sands Corp.

     50,222         2,764,219   
     

 

 

 
                9,253,667   

Industrial Conglomerates — 2.5%

     

3M Co.

     84,054         13,864,707   

Insurance — 3.5%

     

American International Group, Inc.

     231,635         12,691,282   

The Travelers Cos., Inc.

     65,113         7,040,669   
     

 

 

 
                19,731,951   

Internet & Catalog Retail — 0.5%

     

The Priceline Group, Inc. (a)

     2,221         2,585,577   

Internet Software & Services — 3.9%

     

Facebook, Inc., Class A (a)

     94,639         7,780,745   

Google, Inc., Class A (a)

     25,550         14,172,585   
     

 

 

 
                21,953,330   

IT Services — 3.0%

     

Alliance Data Systems Corp. (a)

     3,725         1,103,531   

Amdocs Ltd.

     72,853         3,963,203   

Cognizant Technology Solutions Corp., Class A (a)

     43,501         2,714,027   

DST Systems, Inc.

     10,830         1,198,989   

MasterCard, Inc., Class A

     32,326         2,792,643   

ServiceSource International, Inc. (a)

     557,644         1,728,696   

Total System Services, Inc.

     82,088         3,131,657   
     

 

 

 
                16,632,746   
 
Portfolio Abbreviations
ADR    American Depositary Receipts      EUR    Euro    USD    U.S. Dollar
CAD    Canadian Dollar      JPY    Japanese Yen      
CVR    Contingent Value Rights      KRW    Korean Won      

 

See Notes to Financial Statements.

 

12    BLACKROCK FUNDS    MARCH 31, 2015     


Consolidated Schedule of Investments (continued)      BlackRock Flexible Equity Fund   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Machinery — 0.7%

     

Parker Hannifin Corp.

     34,655       $ 4,116,321   

Media — 3.1%

     

Comcast Corp., Class A

     267,716         15,117,923   

Omnicom Group, Inc.

     30,701         2,394,064   
     

 

 

 
                17,511,987   

Multiline Retail — 0.7%

     

Macy’s, Inc.

     60,810         3,947,177   

Multi-Utilities — 0.4%

     

Public Service Enterprise Group, Inc.

     48,129         2,017,568   

Oil, Gas & Consumable Fuels — 4.4%

     

BP PLC — ADR

     159,683         6,245,202   

Exxon Mobil Corp.

     21,359         1,815,515   

Hess Corp.

     54,612         3,706,516   

Marathon Petroleum Corp.

     26,003         2,662,447   

PBF Energy, Inc., Class A

     42,158         1,429,999   

Suncor Energy, Inc.

     242,587         7,095,670   

Tesoro Corp.

     16,922         1,544,809   
     

 

 

 
                24,500,158   

Paper & Forest Products — 0.7%

     

Domtar Corp.

     78,475         3,627,115   

Pharmaceuticals — 4.5%

     

AstraZeneca PLC — ADR

     81,969         5,609,139   

Johnson & Johnson

     19,164         1,927,898   

Pfizer, Inc.

     17,382         604,720   

Shire PLC — ADR

     22,449         5,371,821   

Teva Pharmaceutical Industries Ltd. — ADR

     180,486         11,244,278   
     

 

 

 
                24,757,856   

Road & Rail — 0.9%

     

Norfolk Southern Corp.

     34,624         3,563,502   

Union Pacific Corp.

     14,282         1,546,883   
     

 

 

 
                5,110,385   

Semiconductors & Semiconductor Equipment — 4.1%

     

Intel Corp.

     345,522         10,804,473   

Micron Technology, Inc. (a)

     362,995         9,848,054   

NVIDIA Corp.

     112,900         2,362,434   
     

 

 

 
                23,014,961   

Software — 2.1%

     

Microsoft Corp.

     177,697         7,224,272   

Oracle Corp.

     108,274         4,672,023   
     

 

 

 
                11,896,295   
Common Stocks    Shares      Value  

Specialty Retail — 5.1%

     

The Home Depot, Inc.

     78,160       $ 8,879,758   

Lowe’s Companies, Inc.

     198,647         14,777,350   

Ross Stores, Inc.

     44,046         4,640,687   
     

 

 

 
                28,297,795   

Technology Hardware, Storage & Peripherals — 5.5%

  

  

Apple Inc.

     63,988         7,962,027   

EMC Corp.

     286,176         7,314,659   

Hewlett-Packard Co.

     177,663         5,535,979   

Western Digital Corp.

     106,112         9,657,253   
     

 

 

 
                30,469,918   

Textiles, Apparel & Luxury Goods — 0.6%

     

Deckers Outdoor Corp. (a)

     18,552         1,351,884   

Fossil Group, Inc. (a)

     24,771         2,042,369   
     

 

 

 
                3,394,253   

Total Common Stocks — 98.6%

              548,618,665   
     
Investment Companies — 0.1%                

Utilities Select Sector SPDR Fund

     19,180         852,167   

Total Long-Term Investments

(Cost — $534,656,902) — 98.7%

  

  

     549,470,832   
     
Short-Term Securities                

BlackRock Liquidity Funds, TempFund, Institutional Class, 0.06% (c)(d)

     1,637,791         1,637,791   
      Beneficial
Interest
(000)
         

BlackRock Liquidity Series, LLC, Money Market Series, 0.22% (c)(d)(e)

   $ 576         576,157   

Total Short-Term Securities

(Cost — $2,213,948) — 0.4%

              2,213,948   

Total Investments (Cost — $536,870,850) — 99.1%

  

     551,684,780   

Other Assets in Excess of Liabilities — 0.9%

        4,881,233   
     

 

 

 

Net Assets — 100.0%

      $ 556,566,013   
     

 

 

 
 
Notes to Consolidated Schedule of Investments

 

(a) Non-income producing security.

 

(b) Security, or a portion of security, is on loan.

 

(c) During the six months ended March 31, 2015, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate    Shares/Beneficial
Interest Held at
September 30,
2014
     Shares
Purchased
    Shares
Sold
   

Shares/Beneficial
Interest Held at
March 31,

2015

     Value at
March 31,
2015
     Income     

Realized
Gain

(Loss)

 

BlackRock Liquidity Funds, TempFund, Institutional Class

     49,141,411                47,503,620 1      1,637,791       $ 1,637,791       $ 7,375       $ 3,191   

BlackRock Liquidity Series, LLC, Money Market Series

             576,157 2           $ 576,157       $ 576,157       $ 76,249           

iShares Gold Trust

     946,100         1,314,000        2,260,100                              $ (602,119

 

  1   

Represents net shares sold.

 

  2   

Represents net shares purchased.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    13


Consolidated Schedule of Investments (continued)      BlackRock Flexible Equity Fund   

 

 

(d) Represents the current yield as of report date.

 

(e) Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.

 

 

For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 

 

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows:

 

Currency

Purchased

       Currency
Sold
    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
CAD        5,341,000           USD           4,297,671      Citibank N.A.     4/22/15         $ (81,839
CAD        4,213,000           USD           3,368,420      Goldman Sachs Bank USA     4/22/15           (42,957
CAD        1,521,683           USD           1,217,605      State Street Bank and Trust Co.     4/22/15           (16,489
EUR        1,028,728           USD           1,181,138      Citibank N.A.     4/22/15           (74,663
EUR        1,069,857           USD           1,208,328      Deutsche Bank AG     4/22/15           (57,616
EUR        920,457           USD           1,042,708      TD Securities, Inc.     4/22/15           (52,687
JPY        1,090,227,000           USD           9,077,010      BNP Paribas S.A.     4/22/15           16,336   
JPY        721,004,000           USD           6,027,000      Citibank N.A.     4/22/15           (13,263
JPY        2,239,247,000           USD           18,647,898      Citibank N.A.     4/22/15           29,174   
JPY        637,901,000           USD           5,333,710      Standard Chartered Bank     4/22/15           (13,116
JPY        319,425,085           USD           2,687,999      The Bank of New York Mellon     4/22/15           (23,744
KRW        9,000,000,000           USD           8,186,283      Standard Chartered Bank     4/22/15           (80,317
KRW        2,419,143,024           USD           2,194,632      Standard Chartered Bank     4/22/15           (15,800
KRW        5,843,460,082           USD           5,369,759      UBS AG     4/22/15           (106,771
USD        9,223,664           CAD           11,075,683      TD Securities, Inc.     4/22/15           481,252   
USD        144,610           EUR           131,425      Citibank N.A.     4/22/15           3,252   
USD        3,334,688           EUR           2,887,616      HSBC Bank PLC     4/22/15           228,836   
USD        42,167,238           JPY           4,949,033,730      HSBC Bank PLC     4/22/15           888,426   
USD        484,642           JPY           58,770,355      The Bank of New York Mellon     4/22/15           (5,549
USD        15,955,084           KRW           17,262,603,106      Standard Chartered Bank     4/22/15           407,298   
Total                         $ 1,469,763   
                       

 

 

 

 

 

Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows:

 

   

Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

   

Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

   

Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.

 

See Notes to Financial Statements.

 

14    BLACKROCK FUNDS    MARCH 31, 2015     


Consolidated Schedule of Investments (concluded)      BlackRock Flexible Equity Fund   

 

As of March 31, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:

 

      Level 1      Level 2     Level 3    Total  

Assets:

          

Investments:

          

Long-Term Investments:

          

Common Stocks1

   $ 548,618,665                 $ 548,618,665   

Investment Companies

     852,167                   852,167   

Short-Term Securities

     1,637,791       $ 576,157           2,213,948   
  

 

 

 

Total

   $ 551,108,623       $ 576,157         $ 551,684,780   
  

 

 

 

1     See above Schedule of Investments for values in each industry.

          
          
      Level 1      Level 2     Level 3    Total  

Derivative Financial Instruments2

          

Assets:

          

Foreign currency exchange contracts

           $ 2,054,574         $ 2,054,574   

Liabilities:

          

Foreign currency exchange contracts

             (584,811        (584,811
  

 

 

 

Total

           $ 1,469,763         $ 1,469,763   
  

 

 

 

2     Derivative financial instruments are forward foreign currency exchange contracts. Forward foreign currency exchange contracts are valued at the unrealized appreciation/ depreciation on the instrument.

  

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of March 31, 2015, collateral on securities loaned at value of $576,157 are categorized as Level 2 within the disclosure hierarchy.

During the six months ended March 31, 2015, there were no transfers between levels.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    15


Schedule of Investments March 31, 2015 (Unaudited)      BlackRock Mid-Cap Growth Equity Portfolio   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Air Freight & Logistics — 1.5%

     

XPO Logistics, Inc. (a)

     145,174       $ 6,601,062   

Airlines — 2.2%

     

Spirit Airlines, Inc. (a)

     121,874         9,428,173   

Banks — 2.5%

     

First Republic Bank

     113,411         6,474,634   

SVB Financial Group (a)

     35,304         4,485,020   
     

 

 

 
                10,959,654   

Beverages — 1.8%

     

Constellation Brands, Inc., Class A (a)

     67,675         7,864,512   

Biotechnology — 9.3%

     

BioMarin Pharmaceutical, Inc. (a)

     56,825         7,081,532   

Cellectis SA — ADR (a)

     1,300         44,967   

Intercept Pharmaceuticals, Inc. (a)

     15,032         4,239,325   

United Therapeutics Corp. (a)

     103,808         17,900,132   

Vertex Pharmaceuticals, Inc. (a)

     94,887         11,193,819   
     

 

 

 
                40,459,775   

Capital Markets — 1.5%

     

Affiliated Managers Group, Inc. (a)

     31,076         6,674,503   

Chemicals — 1.7%

     

Platform Specialty Products Corp. (a)

     291,302         7,474,809   

Commercial Services & Supplies — 1.6%

     

KAR Auction Services, Inc.

     189,419         7,184,663   

Diversified Consumer Services — 1.8%

     

H&R Block, Inc.

     248,977         7,984,692   

Diversified Financial Services — 2.2%

     

Moody’s Corp.

     92,437         9,594,961   

Electrical Equipment — 1.5%

     

Acuity Brands, Inc.

     37,672         6,334,924   

Food & Staples Retailing — 2.2%

     

Sprouts Farmers Market, Inc. (a)

     278,387         9,807,574   

Food Products — 0.6%

     

Mead Johnson Nutrition Co.

     24,464         2,459,366   

Health Care Equipment & Supplies — 1.2%

     

The Cooper Cos., Inc.

     27,112         5,081,331   

Health Care Technology — 1.7%

     

athenahealth, Inc. (a)(b)

     31,534         3,764,844   

IMS Health Holdings, Inc. (a)

     127,374         3,448,014   
     

 

 

 
                7,212,858   

Hotels, Restaurants & Leisure — 2.8%

     

Domino’s Pizza, Inc.

     51,699         5,198,334   

Restaurant Brands International, Inc.

     184,961         7,104,352   
     

 

 

 
                12,302,686   

Household Durables — 1.9%

     

Jarden Corp. (a)

     158,130         8,365,077   

Internet & Catalog Retail — 13.9%

     

HSN, Inc.

     84,291         5,751,175   

Liberty TripAdvisor Holdings, Inc., Class A (a)

     415,835         13,219,395   

Liberty Ventures, Series A (a)

     378,636         15,906,498   

Netflix, Inc. (a)

     34,786         14,494,978   

Vipshop Holdings Ltd. — ADR (a)

     382,997         11,275,432   
     

 

 

 
                60,647,478   

Internet Software & Services — 5.0%

     

58.com, Inc. — ADR (a)

     47,332         2,502,916   

CoStar Group, Inc. (a)

     36,967         7,313,182   

Hortonworks, Inc. (a)(b)

     104,720         2,496,525   

LinkedIn Corp., Class A (a)

     37,359         9,334,520   
     

 

 

 
                21,647,143   
Common Stocks    Shares      Value  

IT Services — 6.5%

     

Alliance Data Systems Corp. (a)

     33,716       $ 9,988,365   

FleetCor Technologies, Inc. (a)

     76,303         11,515,649   

Vantiv, Inc., Class A (a)

     185,907         7,008,694   
     

 

 

 
                28,512,708   

Media — 5.2%

     

Charter Communications, Inc., Class A (a)

     37,516         7,244,715   

The Madison Square Garden Co., Class A (a)

     150,962         12,778,933   

Schibsted ASA

     46,887         2,711,242   
     

 

 

 
                22,734,890   

Multiline Retail — 2.7%

     

Dollar General Corp.

     154,383         11,637,391   

Oil, Gas & Consumable Fuels — 1.3%

     

Concho Resources, Inc. (a)

     49,901         5,784,524   

Pharmaceuticals — 5.5%

     

Catalent, Inc. (a)

     262,842         8,187,528   

Mallinckrodt PLC (a)

     59,760         7,568,604   

Perrigo Co. PLC

     50,310         8,328,821   
     

 

 

 
                24,084,953   

Professional Services — 0.5%

     

TriNet Group, Inc. (a)

     58,009         2,043,657   

Software — 3.8%

     

Check Point Software Technologies Ltd. (a)

     85,014         6,968,598   

PTC, Inc. (a)

     209,835         7,589,732   

Splunk, Inc. (a)

     36,246         2,145,763   
     

 

 

 
                16,704,093   

Specialty Retail — 3.9%

     

The Men’s Wearhouse, Inc.

     142,133         7,419,343   

Restoration Hardware Holdings, Inc. (a)

     98,839         9,803,840   
     

 

 

 
                17,223,183   

Technology Hardware, Storage & Peripherals — 1.1%

     

SanDisk Corp.

     78,959         5,023,372   

Textiles, Apparel & Luxury Goods — 5.2%

     

Kate Spade & Co. (a)

     261,036         8,715,992   

lululemon athletica, inc. (a)

     120,467         7,712,297   

Under Armour, Inc., Class A (a)

     76,467         6,174,710   
     

 

 

 
                22,602,999   

Trading Companies & Distributors — 0.8%

     

HD Supply Holdings, Inc. (a)

     113,170         3,525,811   

Wireless Telecommunication Services — 2.4%

     

SBA Communications Corp., Class A (a)

     91,070         10,664,297   

Total Common Stocks — 95.8%

              418,627,119   
     
Preferred Stocks                

Internet Software & Services — 2.5%

     

Uber Technologies, Inc., Series D (Acquired 6/06/14, cost $5,000,911) (a)(c)

     322,368         10,950,905   

Software — 0.9%

     

Palantir Technologies, Inc., Series I (Acquired 2/07/14, cost $2,811,905) (a)(c)

     458,712         4,077,950   

Total Preferred Stocks — 3.4%

              15,028,855   
 

 

See Notes to Financial Statements.

 

16    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (continued)      BlackRock Mid-Cap Growth Equity Portfolio   
     (Percentages shown are based on Net Assets)   

 

Warrants (d)   

    

    

Shares

     Value  

Pharmaceuticals — 0.0%

     

Alexza Pharmaceuticals, Inc.
(Issued/Exercisable 5/06/11, 1 Share for 1
Warrant, Expires 5/06/16, Strike Price USD 17.70)

     81,252           

Total Long-Term Investments

(Cost — $321,175,040) — 99.2%

            $ 433,655,974   
     
Short-Term Securities                

BlackRock Liquidity Funds, TempFund, Institutional Class, 0.06% (e)(f)

     2,200,167         2,200,167   
Short-Term Securities    Beneficial
Interest
(000)
     Value  

BlackRock Liquidity Series, LLC, Money Market Series, 0.22% (e)(f)(g)

   $ 2,144       $ 2,144,391   

Total Short-Term Securities

(Cost — $4,344,558) — 1.0%

              4,344,558   

Total Investments (Cost — $325,519,598) — 100.2%

  

     438,000,532   

Liabilities in Excess of Other Assets — (0.2)%

        (939,243
     

 

 

 

Net Assets — 100.0%

      $ 437,061,289   
     

 

 

 
 
Notes to Schedule of Investments

 

(a) Non-income producing security.

 

(b) Security, or a portion of security, is on loan.

 

(c) Restricted security as to resale. As of report date, the Fund held restricted securities with a current value of $15,028,855 and an original cost of $7,812,816 which was 3.4% of its net assets.

 

(d) Warrants entitle the Fund to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date of the warrants, if any.

 

(e) During the six months ended March 31, 2015, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate   

Shares/

Beneficial
Interest Held at
September 30,

2014

    

Net

Activity

   

Shares/
Beneficial
Interest Held at
March 31,

2015

     Income  

BlackRock Liquidity Funds, TempFund, Institutional Class

     1,739,599         460,568        2,200,167       $ 841   

BlackRock Liquidity Series, LLC, Money Market Series

   $ 15,352,860       $ (13,208,469   $ 2,144,391       $ 33,275   

 

(f) Represents the current yield as of report date.

 

(g) Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.

 

 

For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 

 

Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows:

 

   

Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

   

Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

   

Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Financial Statements.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    17


Schedule of Investments (continued)      BlackRock Mid-Cap Growth Equity Portfolio   

 

As of March 31, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:

 

      Level 1      Level 2     Level 3      Total  

Assets:

          

Investments:

          

Long-Term Investments:

          

Common Stocks:

          

Air Freight & Logistics

   $ 6,601,062                      $ 6,601,062   

Airlines

     9,428,173                        9,428,173   

Banks

     10,959,654                        10,959,654   

Beverages

     7,864,512                        7,864,512   

Biotechnology

     40,459,775                        40,459,775   

Capital Markets

     6,674,503                        6,674,503   

Chemicals

     7,474,809                        7,474,809   

Commercial Services & Supplies

     7,184,663                        7,184,663   

Diversified Consumer Services

     7,984,692                        7,984,692   

Diversified Financial Services

     9,594,961                        9,594,961   

Electrical Equipment

     6,334,924                        6,334,924   

Food & Staples Retailing

     9,807,574                        9,807,574   

Food Products

     2,459,366                        2,459,366   

Health Care Equipment & Supplies

     5,081,331                        5,081,331   

Health Care Technology

     7,212,858                        7,212,858   

Hotels, Restaurants & Leisure

     12,302,686                        12,302,686   

Household Durables

     8,365,077                        8,365,077   

Internet & Catalog Retail

     60,647,478                        60,647,478   

Internet Software & Services

     21,647,143                        21,647,143   

IT Services

     28,512,708                        28,512,708   

Media

     20,023,648       $ 2,711,242                22,734,890   

Multiline Retail

     11,637,391                        11,637,391   

Oil, Gas & Consumable Fuels

     5,784,524                        5,784,524   

Pharmaceuticals

     24,084,953                        24,084,953   

Professional Services

     2,043,657                        2,043,657   

Software

     16,704,093                        16,704,093   

Specialty Retail

     17,223,183                        17,223,183   

Technology Hardware, Storage & Peripherals

     5,023,372                        5,023,372   

Textiles, Apparel & Luxury Goods

     22,602,999                        22,602,999   

Trading Companies & Distributors

     3,525,811                        3,525,811   

Wireless Telecommunication Services

     10,664,297                        10,664,297   

Preferred Stocks:

          

Internet Software & Services

                  $ 10,950,905         10,950,905   

Software

                    4,077,950         4,077,950   

Warrants

                              

Short-Term Securities

     2,200,167         2,144,391                4,344,558   
  

 

 

 

Total

   $ 418,116,044       $ 4,855,633      $ 15,028,855       $ 438,000,532   
  

 

 

 

 

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of March 31, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:

   

          
      Level 1      Level 2     Level 3      Total  

Assets:

          

Foreign currency at value

   $ 1,355                      $ 1,355   

Liabilities:

          

Collateral on securities loaned at value

           $ (2,144,391             (2,144,391
  

 

 

 

Total

   $ 1,355       $ (2,144,391           $ (2,143,036
  

 

 

 

During the six months ended March 31, 2015, there were no transfers between Level 1 and Level 2.

 

See Notes to Financial Statements.

 

18    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (concluded)      BlackRock Mid-Cap Growth Equity Portfolio   

 

A reconciliation of Level 3 investments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the period in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value:

 

      Preferred
Securities
 

Assets:

  

Opening balance, as of September 30, 2014

   $ 7,812,816   

Transfers into Level 3

       

Transfers out of Level 3

       

Accrued discounts/premiums

       

Net realized gain (loss)

       

Net change in unrealized appreciation/depreciation1,2

     7,216,039   

Purchases

       

Sales

       

Closing balance, as of March 31, 2015

   $ 15,028,855   
  

 

 

 

Net change in unrealized appreciation/depreciation on investments still held at March 31, 20152

   $ 7,216,039   
  

 

 

 

 

  1   

Included in the related net change in unrealized appreciation/depreciation in the Statements of Operations.

 

  2   

Any difference between Net change in unrealized appreciation/depreciation and Net change in unrealized appreciation/depreciation on investments still held at March 31, 2015 is generally due to investments no longer held or categorized as level 3 at period end.

The following table summarizes the valuation techniques used and unobservable inputs utilized by the BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) to determine the value of certain of the Fund’s Level 3 investments as of March 31, 2015.

 

      Value      Valuation Techniques    Unobservable
Inputs
   Range of
Unobservable Inputs
Utilized
 

Assets:

           

Preferred Stocks3

   $ 15,028,855       Probability-Weighted Expected Return Model    Years to IPO4      0.75-2.9   
         IPO Exit Probability5      90.00% - 95.00%   
         Discount Rate4      21.30% - 22.31%   
         Margin5      20.00%   
                   Revenue Multiple5      10.0x-16.0x   

 

  3   

For the period ended March 31, 2015, the valuation technique for certain investments classified as preferred stocks changed to a Probability-Weighted Expected Return Model. The investments were previously valued utilizing a market comparable company and option pricing model approach. A Probability-Weighted Expected Return Model was considered to be a more relevant measure of fair value for these investments which leverages the most recent equity raise pre-money valuation.

 

  4   

Decrease in unobservable input may result in a significant increase to value, while an increase in the unobservable input may result in a significant decrease to value.

 

  5   

Increase in unobservable input may result in a significant increase to value, while a decrease in the unobservable input may result in a significant decrease to value.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    19


Schedule of Investments March 31, 2015 (Unaudited)      BlackRock Small Cap Growth Equity Portfolio   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Aerospace & Defense — 0.7%

     

Ducommun, Inc. (a)

     100,832       $ 2,611,549   

Moog, Inc., Class A (a)

     6,073         455,779   

Vectrus, Inc. (a)

     99,653         2,540,155   
     

 

 

 
                5,607,483   

Airlines — 1.9%

     

American Airlines Group, Inc.

     12,816         676,428   

JetBlue Airways Corp. (a)

     702,238         13,518,081   

Virgin America, Inc. (a)

     72,033         2,189,803   
     

 

 

 
                16,384,312   

Auto Components — 3.1%

     

Lear Corp.

     2,217         245,688   

Tenneco, Inc. (a)

     241,345         13,858,030   

Tower International, Inc. (a)

     463,986         12,342,028   
     

 

 

 
                26,445,746   

Banks — 1.0%

     

CommunityOne Bancorp (a)

     29,762         292,858   

First Midwest Bancorp, Inc.

     29,540         513,110   

Glacier Bancorp, Inc.

     29,657         745,874   

Texas Capital Bancshares, Inc. (a)

     110,708         5,385,944   

Umpqua Holdings Corp.

     75,351         1,294,530   
     

 

 

 
                8,232,316   

Biotechnology — 10.4%

     

ACADIA Pharmaceuticals, Inc. (a)

     26,049         848,937   

Acorda Therapeutics, Inc. (a)

     86,189         2,868,370   

Adamas Pharmaceuticals, Inc. (a)

     33,856         592,141   

Alder Biopharmaceuticals, Inc. (a)

     65,719         1,896,650   

Amicus Therapeutics, Inc. (a)

     120,335         1,309,245   

Anacor Pharmaceuticals, Inc. (a)

     4,972         287,630   

Ardelyx, Inc. (a)

     40,556         530,878   

Ariad Pharmaceuticals, Inc. (a)

     104,827         863,774   

Auspex Pharmaceuticals, Inc. (a)

     9,376         940,132   

BIND Therapeutics, Inc. (a)(b)

     82,364         452,178   

BioSpecifics Technologies Corp. (a)

     46,664         1,826,896   

Bluebird Bio, Inc. (a)

     11,141         1,345,499   

Celladon Corp. (a)

     37,598         712,106   

Celldex Therapeutics, Inc. (a)

     33,552         935,094   

Cepheid, Inc. (a)

     40,654         2,313,213   

China Biologic Products, Inc. (a)

     18,188         1,737,136   

Clovis Oncology, Inc. (a)

     5,183         384,734   

Coherus Biosciences, Inc. (a)

     26,191         800,921   

Concert Pharmaceuticals, Inc. (a)

     104,828         1,587,620   

Cytokinetics, Inc. (a)

     173,037         1,173,191   

Dyax Corp. (a)

     222,551         3,728,842   

Eleven Biotherapeutics, Inc. (a)

     3,424         30,542   

Emergent Biosolutions, Inc. (a)

     60,436         1,738,139   

Enanta Pharmaceuticals, Inc. (a)

     62,276         1,906,891   

Enzon Pharmaceuticals, Inc.

     631,173         669,043   

EPIRUS Biopharmaceuticals, Inc. (a)

     63,827         571,252   

Epizyme, Inc. (a)

     33,386         626,989   

Exact Sciences Corp. (a)

     25,367         558,581   

FibroGen, Inc. (a)

     11,824         371,037   

Five Prime Therapeutics, Inc. (a)

     84,073         1,921,068   

Halozyme Therapeutics, Inc. (a)

     21,628         308,848   

Harvard Apparatus Regenerative Technology, Inc. (a)

     84,747         275,428   

Hyperion Therapeutics, Inc. (a)

     9,767         448,305   

Immune Design Corp. (a)

     49,806         1,051,405   

Infinity Pharmaceuticals, Inc. (a)

     147,161         2,057,311   

Intrexon Corp. (a)

     6,507         295,223   

Ironwood Pharmaceuticals, Inc. (a)

     28,876         462,016   
Common Stocks    Shares      Value  

Biotechnology (concluded)

     

Isis Pharmaceuticals, Inc. (a)

     132,353       $ 8,426,915   

Kindred Biosciences, Inc. (a)

     61,634         440,067   

Ligand Pharmaceuticals, Inc., Class B (a)

     39,739         3,064,274   

Lion Biotechnologies, Inc. (a)

     65,049         787,743   

Loxo Oncology, Inc. (a)

     17,257         214,850   

Merrimack Pharmaceuticals, Inc. (a)

     217,995         2,589,781   

MiMedx Group, Inc. (a)

     47,200         490,880   

Momenta Pharmaceuticals, Inc. (a)

     32,937         500,642   

Neurocrine Biosciences, Inc. (a)

     46,878         1,861,525   

Novavax, Inc. (a)

     64,410         532,671   

OncoGenex Pharmaceuticals, Inc. (a)

     154,513         332,203   

Oncothyreon, Inc. (a)

     136,379         222,298   

Ophthotech Corp. (a)

     4,645         216,132   

OPKO Health, Inc. (a)

     91,298         1,293,693   

Orexigen Therapeutics, Inc. (a)

     64,920         508,324   

Osiris Therapeutics, Inc. (a)

     6,594         115,922   

PDL BioPharma, Inc.

     376,335         2,647,517   

Peregrine Pharmaceuticals, Inc. (a)(b)

     282,657         381,587   

Portola Pharmaceuticals, Inc. (a)

     9,885         375,235   

Prothena Corp. PLC (a)

     49,524         1,888,845   

PTC Therapeutics, Inc. (a)

     2,890         175,857   

Puma Biotechnology, Inc. (a)

     15,692         3,705,038   

Raptor Pharmaceutical Corp. (a)

     28,820         313,273   

Receptos, Inc. (a)

     20,056         3,307,034   

Retrophin, Inc. (a)

     4,354         104,322   

Rigel Pharmaceuticals, Inc. (a)

     380,863         1,359,681   

Sangamo Biosciences, Inc. (a)

     113,676         1,782,440   

Sorrento Therapeutics, Inc. (a)

     40,323         466,134   

Spark Therapeutics, Inc. (a)

     3,369         261,097   

Spectrum Pharmaceuticals, Inc. (a)

     231,100         1,402,777   

Synageva BioPharma Corp. (a)

     8,402         819,447   

Threshold Pharmaceuticals, Inc. (a)

     47,898         194,466   

Trevena, Inc. (a)

     252,950         1,649,234   

United Therapeutics Corp. (a)

     3,360         579,382   

Verastem, Inc. (a)

     143,686         1,461,287   

Versartis, Inc. (a)

     22,975         422,051   

Vitae Pharmaceuticals, Inc. (a)

     73,909         865,474   

Xencor, Inc. (a)

     119,740         1,834,417   
     

 

 

 
                88,021,780   

Building Products — 0.3%

     

Continental Building Products, Inc. (a)

     114,140         2,578,423   

Capital Markets — 0.2%

     

Westwood Holdings Group, Inc.

     25,521         1,538,916   

Chemicals — 0.6%

     

OM Group, Inc.

     18,146         544,924   

PolyOne Corp.

     69,193         2,584,359   

Trinseo SA (a)

     88,389         1,750,102   
     

 

 

 
                4,879,385   

Commercial Services & Supplies — 0.7%

     

ARC Document Solutions, Inc. (a)

     146,509         1,352,278   

Atento SA (a)

     160,334         1,906,371   

Deluxe Corp.

     6,795         470,758   

Quad Graphics, Inc.

     14,177         325,787   

SP Plus Corp. (a)

     89,830         1,962,785   
     

 

 

 
                6,017,979   

Communications Equipment — 1.5%

     

Aruba Networks, Inc. (a)

     96,608         2,365,930   

Aviat Networks, Inc. (a)

     201,039         239,236   

Calix, Inc. (a)

     295,492         2,479,178   
 

 

See Notes to Financial Statements.

 

20    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (continued)      BlackRock Small Cap Growth Equity Portfolio   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Communications Equipment (concluded)

     

Plantronics, Inc.

     19,708       $ 1,043,539   

Polycom, Inc. (a)

     61,424         823,082   

ShoreTel, Inc. (a)

     457,298         3,118,772   

Sonus Networks, Inc. (a)

     286,620         2,258,566   
     

 

 

 
                12,328,303   

Consumer Finance — 0.0%

     

Consumer Portfolio Services, Inc. (a)

     40,668         284,269   

Containers & Packaging — 1.8%

     

Berry Plastics Group, Inc. (a)

     146,393         5,297,963   

Graphic Packaging Holding Co.

     701,773         10,203,779   
     

 

 

 
                15,501,742   

Distributors — 1.3%

     

Core-Mark Holding Co., Inc.

     171,474         11,029,208   

Diversified Consumer Services — 1.3%

     

Collectors Universe, Inc.

     72,917         1,645,007   

K12, Inc. (a)

     22,302         350,587   

LifeLock, Inc. (a)

     424,013         5,982,823   

ServiceMaster Global Holdings, Inc. (a)

     82,116         2,771,415   

Steiner Leisure Ltd. (a)

     10,791         511,493   
     

 

 

 
                11,261,325   

Diversified Financial Services — 0.2%

     

JG Wentworth Co. (a)

     159,147         1,653,537   

Diversified Telecommunication Services — 1.3%

  

IDT Corp, Class B

     33,266         590,471   

Inteliquent, Inc.

     449,455         7,074,422   

Intelsat SA (a)

     46,960         563,520   

Leap Wireless International, Inc. (a)

     11,529         29,053   

Premiere Global Services, Inc. (a)

     207,480         1,983,509   

Vonage Holdings Corp. (a)

     145,171         712,790   
     

 

 

 
                10,953,765   

Electrical Equipment — 1.2%

     

EnerSys, Inc.

     121,686         7,817,109   

Polypore International, Inc. (a)

     40,788         2,402,413   
     

 

 

 
                10,219,522   

Electronic Equipment, Instruments & Components — 2.4%

  

DTS, Inc. (a)

     15,591         531,185   

Electro Rent Corp.

     28,044         318,019   

Kimball Electronics, Inc. (a)

     22,408         316,849   

Methode Electronics, Inc.

     34,603         1,627,725   

Newport Corp. (a)

     411,538         7,843,914   

OSI Systems, Inc. (a)

     61,075         4,535,429   

RealD, Inc. (a)

     375,674         4,804,870   
     

 

 

 
                19,977,991   

Energy Equipment & Services — 0.5%

  

  

C&J Energy Services Ltd. (a)

     92,677         1,031,495   

CHC Group Ltd. (a)

     287,539         382,427   

Matrix Service Co. (a)

     66,059         1,159,996   

Pacific Drilling SA (a)

     311,100         1,210,179   
     

 

 

 
                3,784,097   

Food & Staples Retailing — 0.6%

     

SUPERVALU, Inc. (a)

     440,658         5,124,853   

Food Products — 1.5%

     

Cal-Maine Foods, Inc.

     12,894         503,640   

Landec Corp. (a)

     13,484         188,102   

Omega Protein Corp. (a)

     111,816         1,530,761   

Pilgrim’s Pride Corp. (b)

     110,530         2,496,873   

Sanderson Farms, Inc. (b)

     98,906         7,877,863   
Common Stocks    Shares      Value  

Food Products (concluded)

     

Seaboard Corp. (a)

     104       $ 429,728   
     

 

 

 
                13,026,967   

Health Care Equipment & Supplies — 6.0%

     

Align Technology, Inc. (a)

     84,427         4,540,906   

Anika Therapeutics, Inc. (a)

     127,363         5,243,535   

Cyberonics, Inc. (a)

     24,362         1,581,581   

Dexcom, Inc. (a)

     106,276         6,625,246   

Greatbatch, Inc. (a)

     6,723         388,926   

ICU Medical, Inc. (a)

     46,840         4,362,678   

Natus Medical, Inc. (a)

     21,248         838,659   

Nevro Corp. (a)

     25,255         1,210,472   

Orthofix International NV (a)

     17,581         630,982   

RTI Surgical, Inc. (a)

     38,703         191,193   

STERIS Corp.

     243,791         17,131,194   

SurModics, Inc. (a)

     67,577         1,759,029   

Symmetry Surgical, Inc. (a)

     176,135         1,291,070   

Thoratec Corp. (a)

     28,960         1,213,134   

Zeltiq Aesthetics, Inc. (a)

     115,661         3,565,829   
     

 

 

 
                50,574,434   

Health Care Providers & Services — 4.9%

     

Alliance HealthCare Services, Inc. (a)

     26,038         577,523   

AMN Healthcare Services, Inc. (a)

     85,570         1,974,100   

Centene Corp. (a)

     81,490         5,760,528   

Corvel Corp. (a)

     71,464         2,459,076   

Five Star Quality Care, Inc. (a)

     153,062         679,595   

Health Net, Inc. (a)

     181,311         10,967,502   

HealthSouth Corp.

     166,384         7,380,794   

Team Health Holdings, Inc. (a)

     200,254         11,716,862   
     

 

 

 
                41,515,980   

Health Care Technology — 0.8%

     

Omnicell, Inc. (a)

     181,289         6,363,244   

Hotels, Restaurants & Leisure — 2.6%

     

Brinker International, Inc.

     114,488         7,047,881   

Isle of Capri Casinos, Inc. (a)

     87,164         1,224,654   

Jack in the Box, Inc.

     142,534         13,671,861   
     

 

 

 
                21,944,396   

Household Durables — 0.2%

     

Zagg, Inc. (a)

     194,396         1,685,413   

Insurance — 0.1%

     

Maiden Holdings Ltd.

     31,214         462,904   

Internet & Catalog Retail — 0.3%

     

1-800-Flowers.com, Inc., Class A (a)

     161,720         1,913,148   

U.S. Auto Parts Network, Inc. (a)

     78,258         169,820   
     

 

 

 
                2,082,968   

Internet Software & Services — 4.4%

     

Blucora, Inc. (a)

     98,802         1,349,635   

Carbonite, Inc. (a)

     16,210         231,803   

Constant Contact, Inc. (a)

     185,427         7,085,166   

LendingClub Corp. (Acquired 4/15/14,
cost $1,161,150) (a)(c)

     114,160         2,131,082   

Limelight Networks, Inc. (a)

     226,206         821,128   

LivePerson, Inc. (a)

     100,815         1,031,842   

LogMeIn, Inc. (a)

     289,826         16,227,358   

Monster Worldwide, Inc. (a)

     50,878         322,566   

New Relic, Inc. (a)

     1,305         45,283   

NIC, Inc.

     350,262         6,189,130   

Spark Networks, Inc. (a)(b)

     94,798         382,984   

support.com, Inc. (a)

     313,902         489,687   

Travelzoo, Inc. (a)

     103,506         997,798   
 

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    21


Schedule of Investments (continued)      BlackRock Small Cap Growth Equity Portfolio   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Internet Software & Services (concluded)

     

Zix Corp. (a)

     56,611       $ 222,481   
     

 

 

 
                37,527,943   

IT Services — 2.4%

     

CSG Systems International, Inc.

     64,416         1,957,602   

The Dolan Co. (a)

     14,888         298   

Forrester Research, Inc.

     8,536         313,954   

Global Cash Access Holdings, Inc. (a)

     410,065         3,124,695   

Lionbridge Technologies, Inc. (a)

     178,551         1,021,312   

Science Applications International Corp.

     18,988         975,034   

Syntel, Inc. (a)

     247,604         12,808,555   
     

 

 

 
                20,201,450   

Leisure Products — 1.3%

     

Brunswick Corp.

     173,529         8,928,067   

Nautilus, Inc. (a)

     120,976         1,847,303   
     

 

 

 
                10,775,370   

Life Sciences Tools & Services — 0.4%

     

Harvard Bioscience, Inc. (a)

     218,693         1,272,793   

PRA Health Sciences, Inc. (a)

     85,505         2,465,964   
     

 

 

 
                3,738,757   

Machinery — 3.7%

     

Blount International, Inc. (a)

     476,707         6,139,986   

Briggs & Stratton Corp.

     27,207         558,832   

Global Brass & Copper Holdings, Inc.

     185,730         2,869,529   

The Greenbrier Cos., Inc. (b)

     102,848         5,965,184   

Hyster-Yale Materials Handling, Inc.

     44,296         3,246,454   

John Bean Technologies Corp.

     10,943         390,884   

Luxfer Holdings PLC — ADR

     518,214         6,928,521   

Wabash National Corp. (a)

     364,814         5,143,877   
     

 

 

 
                31,243,267   

Media — 0.5%

     

Ascent Capital Group, Inc., Class A (a)

     26,443         1,052,696   

Crown Media Holdings, Inc., Class A (a)

     185,694         742,776   

Tribune Publishing Co.

     144,833         2,809,760   
     

 

 

 
                4,605,232   

Metals & Mining — 0.0%

     

Ryerson Holding Corp. (a)

     3,705         23,601   

Multiline Retail — 1.9%

     

Burlington Stores, Inc. (a)

     271,723         16,145,781   

Oil, Gas & Consumable Fuels — 1.0%

     

Bill Barrett Corp. (a)

     85,648         710,878   

Delek US Holdings, Inc.

     4,256         169,176   

Energy XXI Ltd. (b)

     44,523         162,064   

Evolution Petroleum Corp.

     41,618         247,627   

Jones Energy, Inc., Class A (a)

     73,683         661,673   

Northern Oil and Gas, Inc. (a)

     68,976         531,805   

Par Petroleum Corp. (a)

     17,556         407,475   

REX American Resources Corp. (a)

     1,597         97,114   

Rosetta Resources, Inc. (a)

     225,028         3,829,977   

Swift Energy Co. (a)(b)

     87,545         189,097   

W&T Offshore, Inc.

     42,047         214,860   

Whiting Petroleum Corp. (a)

     43,306         1,338,155   
     

 

 

 
                8,559,901   

Paper & Forest Products — 1.5%

     

Boise Cascade Co. (a)

     337,252         12,633,460   

Pharmaceuticals — 2.4%

     

Actavis PLC (a)

     7,330         1,173   

Catalent, Inc. (a)

     29,230         910,515   

Furiex Pharmaceuticals, Inc. — CVR (a)

     6,467         64,670   
Common Stocks    Shares      Value  

Pharmaceuticals (concluded)

     

Lannett Co., Inc. (a)

     127,383       $ 8,625,103   

Phibro Animal Health Corp., Class A

     24,563         869,776   

Pozen, Inc. (a)

     25,176         194,359   

Prestige Brands Holdings, Inc. (a)

     31,133         1,335,294   

Sagent Pharmaceuticals, Inc. (a)

     55,315         1,286,074   

Sciclone Pharmaceuticals, Inc. (a)

     175,294         1,553,105   

Sucampo Pharmaceuticals, Inc., Class A (a)

     365,546         5,687,896   
     

 

 

 
                20,527,965   

Professional Services — 3.2%

     

Insperity, Inc.

     25,368         1,326,493   

Kforce, Inc.

     392,020         8,745,966   

Korn/Ferry International

     48,861         1,606,061   

On Assignment, Inc. (a)

     68,348         2,622,513   

RPX Corp. (a)

     657,800         9,465,742   

TrueBlue, Inc. (a)

     121,404         2,956,187   
     

 

 

 
                26,722,962   

Real Estate Investment Trusts (REITs) — 4.5%

     

Chatham Lodging Trust

     37,726         1,109,522   

Consolidated-Tomoka Land Co.

     2,913         173,790   

CoreSite Realty Corp.

     7,609         370,406   

DuPont Fabros Technology, Inc.

     395,739         12,932,750   

The Geo Group, Inc.

     11,279         493,343   

LaSalle Hotel Properties

     135,256         5,256,048   

Lexington Realty Trust

     182,384         1,792,835   

Pebblebrook Hotel Trust

     23,401         1,089,785   

PS Business Parks, Inc.

     39,660         3,293,366   

Re/Max Holdings, Inc., Class A

     13,659         453,615   

RLJ Lodging Trust

     324,034         10,145,505   

Strategic Hotels & Resorts, Inc. (a)

     39,009         484,882   
     

 

 

 
                37,595,847   

Real Estate Management & Development — 0.9%

     

Forestar Group, Inc. (a)

     186,993         2,948,880   

Marcus & Millichap, Inc. (a)

     130,831         4,903,546   
     

 

 

 
                7,852,426   

Road & Rail — 1.2%

     

Quality Distribution, Inc. (a)

     19,046         196,745   

Swift Transportation Co. (a)

     390,935         10,172,129   
     

 

 

 
                10,368,874   

Semiconductors & Semiconductor Equipment — 6.2%

  

Alpha & Omega Semiconductor Ltd. (a)

     24,742         220,451   

Ambarella, Inc. (a)(b)

     107,595         8,146,017   

Amkor Technology, Inc. (a)

     214,533         1,895,399   

Cabot Microelectronics Corp. (a)

     84,963         4,245,601   

Cirrus Logic, Inc. (a)

     101,943         3,390,624   

Integrated Device Technology, Inc. (a)

     416,215         8,332,624   

Intermolecular, Inc. (a)

     280,962         460,778   

Lattice Semiconductor Corp. (a)

     47,513         301,232   

MaxLinear, Inc., Class A (a)

     86,235         701,091   

Monolithic Power Systems, Inc.

     84,806         4,465,036   

Pericom Semiconductor Corp.

     44,136         682,784   

Qorvo, Inc. (a)

     122,382         9,753,845   

Semtech Corp. (a)

     12,917         344,173   

Tessera Technologies, Inc.

     236,222         9,515,022   
     

 

 

 
                52,454,677   

Software — 6.6%

     

Advent Software, Inc.

     46,638         2,057,202   

Aspen Technology, Inc. (a)

     248,438         9,562,379   

AVG Technologies NV (a)

     500,389         10,833,422   
 

 

See Notes to Financial Statements.

 

22    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (continued)      BlackRock Small Cap Growth Equity Portfolio   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Software (concluded)

     

ePlus, Inc. (a)

     33,862       $ 2,943,624   

Infoblox, Inc. (a)

     28,735         685,904   

Manhattan Associates, Inc. (a)

     338,991         17,156,334   

Monotype Imaging Holdings, Inc.

     11,861         387,143   

Net1 UEPS Technologies, Inc. (a)

     156,605         2,142,356   

Progress Software Corp. (a)

     25,507         693,025   

QAD, Inc., Class A

     21,862         529,060   

Qlik Technologies, Inc. (a)

     6,852         213,303   

Qualys, Inc. (a)

     10,596         492,502   

SolarWinds, Inc. (a)

     4,322         221,459   

Vasco Data Security International, Inc. (a)(b)

     129,450         2,788,353   

Verint Systems, Inc. (a)

     77,131         4,776,723   

Viggle, Inc. (a)

     16,470         11,776   
     

 

 

 
                55,494,565   

Specialty Retail — 2.0%

     

Aaron’s, Inc.

     160,057         4,531,214   

ANN, Inc. (a)

     82,985         3,404,875   

Build-A-Bear-Workshop, Inc. (a)

     20,044         393,865   

Haverty Furniture Cos., Inc.

     53,247         1,324,785   

Kirkland’s, Inc. (a)

     93,888         2,229,840   

Outerwall, Inc. (b)

     66,852         4,420,254   

Stage Stores, Inc.

     40,796         935,044   
     

 

 

 
                17,239,877   

Technology Hardware, Storage & Peripherals — 0.7%

  

Avid Technology, Inc. (a)

     187,810         2,798,369   

Quantum Corp. (a)

     1,946,591         3,114,546   
     

 

 

 
                5,912,915   

Textiles, Apparel & Luxury Goods — 2.9%

     

Deckers Outdoor Corp. (a)

     93,120         6,785,654   

Iconix Brand Group, Inc. (a)

     179,379         6,039,691   

Skechers U.S.A., Inc., Class A (a)

     164,243         11,810,714   
     

 

 

 
                24,636,059   

Thrifts & Mortgage Finance — 1.2%

     

Anchor BanCorp Wisconsin, Inc. (a)

     14,643         508,551   

EverBank Financial Corp.

     134,524         2,425,468   

HomeStreet, Inc. (a)

     189,528         3,472,153   

Meta Financial Group, Inc.

     66,804         2,654,123   

MGIC Investment Corp. (a)

     37,979         365,738   

Walker & Dunlop, Inc. (a)

     14,698         260,596   
     

 

 

 
                9,686,629   

Tobacco — 0.8%

     

Vector Group Ltd.

     294,954         6,480,139   

Trading Companies & Distributors — 0.8%

     

H&E Equipment Services, Inc.

     38,964         973,710   

Neff Corp., Class A (a)

     21,888         230,700   

Watsco, Inc.

     44,345         5,574,167   

Willis Lease Finance Corp. (a)

     9,853         183,069   
     

 

 

 
                6,961,646   

Water Utilities — 0.1%

     

American States Water Co.

     9,680         386,135   

Total Common Stocks — 98.0%

              827,256,736   
     
                  
Preferred Stocks    Shares      Value  

Household Durables — 0.1%

     

AliphCom (Acquired 6/03/14, cost $749,991) (a)(c)

     66,562       $ 736,648   

Software — 0.7%

     

Apigee Corp., Series H (Acquired 4/15/14, cost $303,400) (a)(c)

     104,261         328,422   

Illumio Inc., Series C (Acquired 3/10/15, cost $750,000) (a)(c)

     46,673         750,000   

MongoDB Series C (Acquired 12/19/13, cost $1,517,990) (a)(c)

     60,511         1,372,995   

MongoDB Series D (Acquired 12/19/13, cost $472,222) (a)(c)

     18,824         420,716   

MongoDB Series E (Acquired 12/19/13, cost $16,682) (a)(c)

     665         14,477   

Palantir Technologies, Inc., Series I (Acquired 2/06/14, cost $1,999,998) (a)(c)

     326,264         2,900,487   
     

 

 

 
                5,787,097   

Total Preferred Stocks — 0.8%

              6,523,745   
     
Warrants (d)                

Pharmaceuticals — 0.0%

     

Alexza Pharmaceuticals, Inc.
(Issued/Exercisable 5/06/11, 1 Share for 1 Warrant, Expires 5/06/16, Strike Price USD 17.70)

     1,000,249           

Total Long-Term Investments

(Cost — $723,089,641) — 98.8%

              833,780,481   
     
Short-Term Securities                

BlackRock Liquidity Funds, TempFund, Institutional Class, 0.06% (e)(f)

     9,428,446         9,428,446   
      Beneficial
Interest
(000)
         

BlackRock Liquidity Series, LLC, Money Market Series, 0.22% (e)(f)(g)

   $ 20,955         20,954,953   

Total Short-Term Securities

(Cost — $30,383,399) — 3.6%

              30,383,399   

Total Investments (Cost — $753,473,040) — 102.4%

  

     864,163,880   

Liabilities in Excess of Other Assets — (2.4)%

  

     (19,960,050
     

 

 

 

Net Assets — 100.0%

      $ 844,203,830   
     

 

 

 
 
Notes to Schedule of Investments

 

(a) Non-income producing security.

 

(b) Security, or a portion of security, is on loan.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    23


Schedule of Investments (continued)      BlackRock Small Cap Growth Equity Portfolio   

 

 

(c) Restricted security as to resale. As of report date, the Fund held restricted securities with a current value of $8,654,827 and an original cost of $6,971,433 which was 1.0% of its net assets.

 

(d) Warrants entitle the Fund to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date of the warrants, if any.

 

(e) During the six months ended March 31, 2015, investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate   

Shares/Beneficial

Interest Held at

September 30,
2014

    

Net

Activity

   

Shares/Beneficial

Interest Held at

March 31,

2015

     Income  

BlackRock Liquidity Funds, TempFund, Institutional Class

     13,997,672         (4,569,226     9,428,446       $ 2,508   

BlackRock Liquidity Series, LLC, Money Market Series

   $ 10,214,730       $ 10,740,223      $ 20,954,953       $ 1,192,992   

 

(f) Represents the current yield as of report date.

 

(g) Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.

 

 

For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 

 

As of March 31, 2015, financial futures contracts outstanding were as follows:

 

Contracts
Purchased
    Issue   Exchange   Expiration         

Notional

Value

    Unrealized
Appreciation
 
  98      E-Mini Russell 2000 Futures   Intercontinental Exchange   June 2015     USD        12,239,220      $ 149,175   

 

 

Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows:

 

   

Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

   

Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

   

Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.

As of March 31, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:

 

      Level 1      Level 2      Level 3      Total  

Assets:

           

Investments:

           

Long-Term Investments:

           

Common Stocks:

           

Aerospace & Defense

   $ 5,607,483                       $ 5,607,483   

Airlines

     16,384,312                         16,384,312   

Auto Components

     26,445,746                         26,445,746   

Banks

     8,232,316                         8,232,316   

Biotechnology

     88,021,780                         88,021,780   

Building Products

     2,578,423                         2,578,423   

Capital Markets

     1,538,916                         1,538,916   

Chemicals

     4,879,385                         4,879,385   

Commercial Services & Supplies

     6,017,979                         6,017,979   

Communications Equipment

     12,328,303                         12,328,303   

Consumer Finance

     284,269                         284,269   

Containers & Packaging

     15,501,742                         15,501,742   

Distributors

     11,029,208                         11,029,208   

Diversified Consumer Services

     11,261,325                         11,261,325   

Diversified Financial Services

     1,653,537                         1,653,537   

Diversified Telecommunication Services

     10,924,712               $ 29,053         10,953,765   

Electrical Equipment

     10,219,522                         10,219,522   

 

See Notes to Financial Statements.

 

24    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (concluded)      BlackRock Small Cap Growth Equity Portfolio   

 

 

      Level 1    Level 2   Level 3    Total

Electronic Equipment, Instruments & Components

     $ 19,977,991                          $ 19,977,991  

Energy Equipment & Services

       3,784,097                            3,784,097  

Food & Staples Retailing

       5,124,853                            5,124,853  

Food Products

       13,026,967                            13,026,967  

Health Care Equipment & Supplies

       50,574,434                            50,574,434  

Health Care Providers & Services

       41,515,980                            41,515,980  

Health Care Technology

       6,363,244                            6,363,244  

Hotels, Restaurants & Leisure

       21,944,396                            21,944,396  

Household Durables

       1,685,413                            1,685,413  

Insurance

       462,904                            462,904  

Internet & Catalog Retail

       2,082,968                            2,082,968  

Internet Software & Services

       35,396,861          $2,131,082                   37,527,943  

IT Services

       20,201,152                 $ 298          20,201,450  

Leisure Products

       10,775,370                            10,775,370  

Life Sciences Tools & Services

       3,738,757                            3,738,757  

Machinery

       31,243,267                            31,243,267  

Media

       4,605,232                            4,605,232  

Metals & Mining

       23,601                            23,601  

Multiline Retail

       16,145,781                            16,145,781  

Oil, Gas & Consumable Fuels

       8,559,901                            8,559,901  

Paper & Forest Products

       12,633,460                            12,633,460  

Pharmaceuticals

       20,462,122                   65,843          20,527,965  

Professional Services

       26,722,962                            26,722,962  

Real Estate Investment Trusts (REITs)

       37,595,847                            37,595,847  

Real Estate Management & Development

       7,852,426                            7,852,426  

Road & Rail

       10,368,874                            10,368,874  

Semiconductors & Semiconductor Equipment

       52,454,677                            52,454,677  

Software

       55,482,789                   11,776          55,494,565  

Specialty Retail

       17,239,877                            17,239,877  

Technology Hardware, Storage & Peripherals

       5,912,915                            5,912,915  

Textiles, Apparel & Luxury Goods

       24,636,059                            24,636,059  

Thrifts & Mortgage Finance

       9,686,629                            9,686,629  

Tobacco

       6,480,139                            6,480,139  

Trading Companies & Distributors

       6,961,646                            6,961,646  

Water Utilities

       386,135                            386,135  

Preferred Stocks:

                  

Household Durables

                         736,648          736,648  

Software

                         5,787,097          5,787,097  

Warrants

                                  

Short-Term Securities

       9,428,446        $ 20,954,953                  30,383,399  
    

 

 

 

Total

     $ 834,447,130        $ 23,086,035       $ 6,630,715        $ 864,163,880  
    

 

 

 
                  
      Level 1    Level 2   Level 3    Total

Derivative Financial Instruments1

                  

Assets:

                  

Equity contracts

     $ 149,175                         $ 149,175  

 

1    Derivative financial instruments are financial futures contracts which are valued at the unrealized appreciation/depreciation on the instrument.

       

 

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of March 31, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:

   

                  
      Level 1    Level 2   Level 3    Total

Assets:

                  

Cash pledged for financial futures contracts

     $ 537,000                         $ 537,000  

Liabilities:

                  

Collateral on securities loaned at value

              $ (20,954,953 )                (20,954,953 )
    

 

 

 

Total

     $ 537,000        $ (20,954,953 )              $ (20,417,953 )
    

 

 

 

During the six months ended March 31, 2015, there were no transfers between levels.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    25


Statements of Assets and Liabilities     

 

March 31, 2015 (Unaudited)   

BlackRock
Flexible

Equity

Fund1

   

BlackRock

Mid-Cap
Growth Equity
Portfolio

    BlackRock
Small Cap
Growth Equity
Portfolio
 
      
Assets                         

Investments at value — unaffiliated2,3

   $     549,470,832      $     433,655,974      $     833,780,481   

Investments at value — affiliated4

     2,213,948        4,344,558        30,383,399   

Cash pledged for financial futures contracts

                   537,000   

Foreign currency at value5

            1,355          

Investments sold receivable

     5,065,336               12,209,545   

Unrealized appreciation on forward foreign currency exchange contracts

     2,054,574                 

Capital shares sold receivable

     156,989        2,272,783        707,633   

Dividends receivable — unaffiliated

     911,148        125,179        565,775   

Dividends receivable — affiliated

     1,016        204        499   

Receivable from Manager

     120,511        3,303          

Securities lending income receivable — affiliated

     1,240        3,155        262,151   

Prepaid expenses

     53,495        54,359        47,944   
  

 

 

 

Total assets

     560,049,089        440,460,870        878,494,427   
  

 

 

 
    
Liabilities                         

Collateral on securities loaned at value

     576,157        2,144,391        20,954,953   

Variation margin payable on financial futures contracts

                   24,690   

Investments purchased payable

                   10,412,252   

Unrealized depreciation on forward foreign currency exchange contracts

     584,811                 

Capital shares redeemed payable

     1,217,826        451,222        1,726,588   

Investment advisory fees payable

     378,412        300,000        393,561   

Transfer agent fees payable

     429,556        273,351        429,823   

Service and distribution fees payable

     169,194        110,246        97,377   

Officer’s and Trustees’ fees payable

     5,424        3,339        6,310   

Other affiliates payable

     22,742        44,523        93,636   

Other accrued expenses payable

     98,954        72,509        151,407   
  

 

 

 

Total liabilities

     3,483,076        3,399,581        34,290,597   
  

 

 

 

Net Assets

   $ 556,566,013      $ 437,061,289      $ 844,203,830   
  

 

 

 
      
Net Assets Consist of                         

Paid-in capital

   $ 533,624,716      $ 319,610,341      $ 714,510,720   

Undistributed (accumulated) net investment income (loss)

     (5,373,907     (1,529,943     707,583   

Accumulated net realized gain

     12,054,694        6,500,131        18,145,512   

Net unrealized appreciation/depreciation

     16,260,510        112,480,760        110,840,015   
  

 

 

 

Net Assets

   $ 556,566,013      $ 437,061,289      $ 844,203,830   
  

 

 

 

1       Consolidated Statement of Assets and Liabilities.

      

2       Investments at cost — unaffiliated

   $ 534,656,902      $ 321,175,040      $ 723,089,641   

3       Securities loaned at value

   $ 544,577      $ 2,090,828      $ 20,485,531   

4       Investments at cost — affiliated

   $ 2,213,948      $ 4,344,558      $ 30,383,399   

5       Foreign currency at cost

   $      $ 1,529          

 

See Notes to Financial Statements.

 

26    BLACKROCK FUNDS    MARCH 31, 2015     


Statements of Assets and Liabilities (concluded)     

 

March 31, 2015 (Unaudited)   

BlackRock
Flexible

Equity

Fund1

    

BlackRock

Mid-Cap
Growth Equity
Portfolio

     BlackRock
Small Cap
Growth Equity
Portfolio
 
        
Net Asset Value                           

Institutional

        

Net assets

   $ 49,474,897       $ 32,844,437       $ 487,378,006   
  

 

 

 

Shares outstanding2

     3,842,164         1,828,485         25,027,989   
  

 

 

 

Net asset value

   $ 12.88       $ 17.96       $ 19.47   
  

 

 

 

Service

        

Net assets

   $ 175,797       $ 2,002,404       $ 21,356,229   
  

 

 

 

Shares outstanding2

     13,871         121,816         1,254,521   
  

 

 

 

Net asset value

   $ 12.67       $ 16.44       $ 17.02   
  

 

 

 

Investor A

        

Net assets

   $     415,058,185       $     355,612,923       $     302,109,498   
  

 

 

 

Shares outstanding2

     33,457,210         22,488,818         19,191,233   
  

 

 

 

Net asset value

   $ 12.41       $ 15.81       $ 15.74   
  

 

 

 

Investor B

        

Net assets

   $ 5,546,755       $ 2,982,528       $ 729,955   
  

 

 

 

Shares outstanding2

     502,905         230,397         69,451   
  

 

 

 

Net asset value

   $ 11.03       $ 12.95       $ 10.51   
  

 

 

 

Investor C

        

Net assets

   $ 84,986,365       $ 35,447,037       $ 32,630,142   
  

 

 

 

Shares outstanding2

     7,796,051         2,758,394         3,167,370   
  

 

 

 

Net asset value

   $ 10.90       $ 12.85       $ 10.30   
  

 

 

 

Class R

        

Net assets

   $ 1,324,014       $ 8,171,960           
  

 

 

 

Shares outstanding2

     103,541         522,048           
  

 

 

 

Net asset value

   $ 12.79       $ 15.65           
  

 

 

 

 

 

  1   

Consolidated Statement of Assets and Liabilities.

 

  2   

Unlimited number of shares authorized, $0.001 par value.

 

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    27


Statements of Operations

 

Six Months Ended March 31, 2015 (Unaudited)   

BlackRock
Flexible

Equity

Fund1

    BlackRock
Mid-Cap
Growth Equity
Portfolio
    BlackRock
Small Cap
Growth Equity
Portfolio
 
      
Investment Income                         

Dividends — unaffiliated

   $ 3,322,297      $ 1,295,810      $ 3,516,253   

Dividends — affiliated

     7,375        841        2,508   

Securities lending — affiliated — net

     76,249        33,275        1,192,992   

Foreign taxes withheld

     (75,923     (2,497     (211
  

 

 

 

Total income

     3,329,998        1,327,429        4,711,542   
  

 

 

 
      
Expenses                         

Investment advisory

     2,299,435        1,586,884        2,209,187   

Service and distribution — class specific

     1,010,390        599,707        548,079   

Transfer agent — class specific

     642,675        479,585        697,890   

Administration

     167,503        116,019        226,069   

Administration — class specific

     64,919        44,571        90,305   

Professional

     43,205        31,972        40,767   

Registration

     39,361        38,527        36,961   

Custodian

     33,112        15,112        59,585   

Accounting services

     31,900        23,484        41,942   

Printing

     19,927        14,072        22,954   

Officer and Trustees

     10,642        7,547        13,436   

Miscellaneous

     15,728        11,933        19,536   

Recoupment of past waived and/or reimbursed fees — class specific

     15        7,362          
  

 

 

 

Total expenses

     4,378,812        2,976,775        4,006,711   

Less fees waived by the Manager

     (18,262     (831     (2,661

Less administration fees waived — class specific

     (64,911     (37,107     (91

Less transfer agent fees waived — class specific

     (52,742     (51,253       

Less transfer agent fees reimbursed — class specific

     (395,484     (30,212       
  

 

 

 

Total expenses after fees waived and reimbursed

     3,847,413        2,857,372        4,003,959   
  

 

 

 

Net investment income (loss)

     (517,415     (1,529,943     707,583   
  

 

 

 
      
Realized and Unrealized Gain (Loss)                         

Net realized gain (loss) from:

      

Investments — unaffiliated

     66,640,198        12,961,847        24,026,937   

Investments — affiliated

     (602,119              

Capital gain distributions received from affiliated investment companies

     3,191                 

Options written

     (1,895,215              

Financial futures contracts

     (8,345,746            397,857   

Swaps

     (1,811,587              

Foreign currency transactions

     9,192,082        (54,943       
  

 

 

 
     63,180,804        12,906,904        24,424,794   
  

 

 

 

Net change in unrealized appreciation/depreciation on:

      

Investments — unaffiliated

     (34,156,299     40,647,464        64,476,033   

Investments — affiliated

     452,280                 

Options written

     (138,156              

Financial futures contracts

     (1,856,152            498,850   

Swaps

     505,315                 

Foreign currency translations

     (3,910,738     (97       
  

 

 

 
     (39,103,750     40,647,367        64,974,883   
  

 

 

 

Net realized and unrealized gain

     24,077,054        53,554,271        89,399,677   
  

 

 

 

Net Increase in Net Assets Resulting from Operations

   $      23,559,639      $     52,024,328      $     90,107,260   
  

 

 

 

 

  1   

Consolidated Statement of Operations.

 

See Notes to Financial Statements.

 

28    BLACKROCK FUNDS    MARCH 31, 2015     


Statements of Changes in Net Assets     

 

     BlackRock
Flexible
Equity
Fund1
    BlackRock
Mid-Cap
Growth Equity
Portfolio
    BlackRock
Small Cap
Growth Equity
Portfolio
 
Increase (Decrease) in Net Assets:   

Six Months
Ended
March 31,

2015
(Unaudited)

    Year Ended
September 30,
2014
   

Six Months

Ended

March 31,

2015
(Unaudited)

   

Year Ended

September 30,
2014

   

Six Months

Ended
March 31,

2015
(Unaudited)

   

Year Ended

September 30,
2014

 
            
Operations                                                 

Net investment income (loss)

   $ (517,415   $ 9,751,658      $ (1,529,943   $ (4,058,090   $ 707,583      $ (3,740,286

Net realized gain

     63,180,804        84,047,958        12,906,904        48,420,488        24,424,794        234,248,636   

Net change in unrealized appreciation/depreciation

     (39,103,750     (54,848,721     40,647,367        3,873,240        64,974,883        (120,565,561
  

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations

     23,559,639        38,950,895        52,024,328        48,235,638        90,107,260        109,942,789   
  

 

 

   

 

 

   

 

 

 
            
Distributions to Shareholders From2                                                 

Net investment income:

            

Institutional

     (1,469,061     (973,756                            

Service

     (4,373     (2,950                            

Investor A

     (11,203,633     (5,945,499                            

Investor B

     (130,864     (39,265                            

Investor C

     (2,049,761     (580,645                            

Class R

     (36,334     (7,904                            

Net realized gain:

            

Institutional

     (6,558,090     (477,055     (3,190,419     (3,566,206     (99,594,343     (224,335,020

Service

     (22,326     (2,055     (475,796     (359,600     (4,990,887     (8,970,316

Investor A

     (55,240,666     (4,533,517     (36,956,433     (48,709,954     (71,147,923     (114,556,801

Investor B

     (915,431     (84,318     (424,056     (773,466     (252,945     (545,137

Investor C

     (12,781,606     (1,036,560     (4,319,606     (4,928,001     (10,799,606     (14,869,102

Class R

     (190,598     (11,753     (935,237     (1,635,424              
  

 

 

   

 

 

   

 

 

 

Decrease in net assets resulting from distributions to shareholders

     (90,602,743     (13,695,277     (46,301,547     (59,972,651     (186,785,704     (363,276,376
  

 

 

   

 

 

   

 

 

 
            
Capital Share Transactions                                                 

Net increase (decrease) in net assets derived from capital share transactions

     27,021,449        (121,269,351     36,016,376        63,142,862        146,257,756        (206,530,437
  

 

 

   

 

 

   

 

 

 
            
Net Assets                                                 

Total increase (decrease) in net assets

     (40,021,655     (96,013,733     41,739,157        51,405,849        49,579,312        (459,864,024

Beginning of period

     596,587,668        692,601,401        395,322,132        343,916,283        794,624,518        1,254,488,542   
  

 

 

   

 

 

   

 

 

 

End of period

   $     556,566,013      $     596,587,668      $     437,061,289      $     395,322,132      $     844,203,830      $     794,624,518   
  

 

 

   

 

 

   

 

 

 

Undistributed (accumulated) net investment income (loss)

   $ (5,373,907   $ 10,037,534      $ (1,529,943          $ 707,583          
  

 

 

   

 

 

   

 

 

 

 

  1   

Consolidated Statements of Changes in Net Assets.

 

  2   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    29


Financial Highlights      BlackRock Flexible Equity Fund  

 

     Institutional  
    

Six Months
Ended
March 31,

2015
(Unaudited)1

    Year Ended September 30,  
     20141     20131     20121     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 14.51      $ 14.04      $ 12.53      $ 9.81      $ 10.53      $ 9.34   
  

 

 

 

Net investment income2

     0.02        0.29        0.19        0.10        0.12        0.10   

Net realized and unrealized gain (loss)

     0.60        0.53        1.46        2.72        (0.74     1.16   
  

 

 

 

Net increase (decrease) from investment operations

     0.62        0.82        1.65        2.82        (0.62     1.26   
  

 

 

 

Distributions from:3

            

Net investment income

     (0.41     (0.21     (0.14     (0.10     (0.10     (0.07

Net realized gain

     (1.84     (0.14                            
  

 

 

 

Total distributions

     (2.25     (0.35     (0.14     (0.10     (0.10     (0.07
  

 

 

 

Net asset value, end of period

   $ 12.88      $ 14.51      $ 14.04      $ 12.53      $ 9.81      $ 10.53   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     4.42 %5      5.76     13.36     28.90     (6.03 )%6      13.56
  

 

 

 
            
Ratios to Average Net Assets         

Total expenses

     1.11 %7,8      1.09 %7      1.15 %7      1.13     1.08     1.13
  

 

 

 

Total expenses excluding recoupment of past waived fees

     1.11 %7,8      1.09 %7      1.15 %7      1.13     1.08     1.13
  

 

 

 

Total expenses after fees waived, reimbursed and paid indirectly

     0.92 %7,8      0.96 %7      0.97 %7      0.97     0.97     0.97
  

 

 

 

Net investment income

     0.24 %7,8      1.99 %7      1.48 %7      0.89     0.98     0.99
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 49,475      $ 53,274      $ 64,078      $ 142,963      $ 195,753      $ 204,286   
  

 

 

 

Portfolio turnover

     131     102     119     156     137     123
  

 

 

 

 

  1  

Consolidated Financial Highlights.

 

  2   

Based on average shares outstanding.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  7   

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

  

 

 

 
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
     2014     2013     2012      2011      2010  

Investments in underlying funds

     0.01     0.01     0.03                       

 

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

30    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock Flexible Equity Fund  

 

     Service  
    

Six Months
Ended

March 31,
2015

(Unaudited)1

    Year Ended September 30,  
       20141     20131     20121     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 14.29      $ 13.81      $ 12.30      $ 9.63      $ 10.33      $ 9.17   
  

 

 

 

Net investment income (loss)2

     (0.01     0.23        0.14        0.06        0.08        0.04   

Net realized and unrealized gain (loss)

     0.59        0.54        1.44        2.68        (0.73     1.17   
  

 

 

 

Net increase (decrease) from investment operations

     0.58        0.77        1.58        2.74        (0.65     1.21   
  

 

 

 

Distributions from:3

  

Net investment income

     (0.36     (0.15     (0.07     (0.07     (0.05     (0.05

Net realized gain

     (1.84     (0.14                            
  

 

 

 

Total distributions

     (2.20     (0.29     (0.07     (0.07     (0.05     (0.05
  

 

 

 

Net asset value, end of period

   $ 12.67      $ 14.29      $ 13.81      $ 12.30      $ 9.63      $ 10.33   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     4.17 %5      5.45     13.00     28.58     (6.38 )%6      13.20
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.39 %7,8,9      1.30 %7      1.75 %7      1.95     1.49     1.31
  

 

 

 

Total expenses excluding recoupment of past waived fees

     1.38 %7,9      1.30 %7      1.73 %7      1.95     1.49     1.31
  

 

 

 

Total expenses after fees waived, reimbursed and paid indirectly

     1.23 %7,9      1.27 %7      1.29 %7      1.29     1.29     1.27
  

 

 

 

Net investment income (loss)

     (0.08 )%7,9      1.60 %7      1.15 %7      0.56     0.65     0.37
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 176      $ 211      $ 421      $ 674      $ 1,025      $ 737   
  

 

 

 

Portfolio turnover

     131     102     119     156     137     123
  

 

 

 

 

  1  

Consolidated Financial Highlights.

 

  2   

Based on average shares outstanding.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  7   

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

  

 

 

 
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012      2011      2010  

Investments in underlying funds

     0.01     0.01     0.03                       

 

  8   

Includes recoupment of past waived and/or reimbursed fees. There was no financial impact to the expense ratio.

 

  9   

Annualized.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    31


Financial Highlights (continued)      BlackRock Flexible Equity Fund   

 

     Investor A  
    

Six Months
Ended
March 31,
2015

(Unaudited)1

    Year Ended September 30,  
       20141     20131     20121     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 14.04      $ 13.59      $ 12.14      $ 9.50      $ 10.21      $ 9.06   
  

 

 

 

Net investment income (loss)2

     (0.01     0.22        0.14        0.07        0.08        0.06   

Net realized and unrealized gain (loss)

     0.59        0.54        1.41        2.63        (0.72     1.13   
  

 

 

 

Net increase (decrease) from investment operations

     0.58        0.76        1.55        2.70        (0.64     1.19   
  

 

 

 

Distributions from:3

            

Net investment income

     (0.37     (0.17     (0.10     (0.06     (0.07     (0.04

Net realized gain

     (1.84     (0.14                            
  

 

 

 

Total distributions

     (2.21     (0.31     (0.10     (0.06     (0.07     (0.04
  

 

 

 

Net asset value, end of period

   $ 12.41      $ 14.04      $ 13.59      $ 12.14      $ 9.50      $ 10.21   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     4.27 %5      5.46     12.92     28.54     (6.33 )%6      13.21
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.43 %7,8      1.40 %7      1.43 %7      1.40     1.37     1.40
  

 

 

 

Total expenses excluding recoupment of past waived fees

     1.43 %7,8      1.40 %7      1.43 %7      1.40     1.37     1.40
  

 

 

 

Total expenses after fees waived, reimbursed and paid indirectly

     1.24 %7,8      1.27 %7      1.29 %7      1.29     1.29     1.29
  

 

 

 

Net investment income (loss)

     (0.08 )%7,8      1.55 %7      1.11 %7      0.60     0.66     0.61
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 415,058      $ 443,630      $ 512,059      $ 615,464      $ 587,989      $ 726,666   
  

 

 

 

Portfolio turnover

     131     102     119     156     137     123
  

 

 

 

 

  1   

Consolidated Financial Highlights.

 

  2  

Based on average shares outstanding.

 

  3  

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  7   

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

  

 

 

 
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012      2011      2010  

Investments in underlying funds

     0.01     0.01     0.03                       

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

32    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock Flexible Equity Fund   

 

     Investor B  
    

Six Months
Ended
March 31,
2015

(Unaudited)1

    Year Ended September 30,  
       20141     20131     20121     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 12.66      $ 12.26      $ 10.95      $ 8.58      $ 9.25      $ 8.23   
  

 

 

 

Net investment income (loss)2

     (0.05     0.11        0.04        (0.02     (0.01     (0.02

Net realized and unrealized gain (loss)

     0.52        0.48        1.28        2.39        (0.65     1.04   
  

 

 

 

Net increase (decrease) from investment operations

     0.47        0.59        1.32        2.37        (0.66     1.02   
  

 

 

 

Distributions from:3

            

Net investment income

     (0.26     (0.05     (0.01            (0.01       

Net realized gain

     (1.84     (0.14                            
  

 

 

 

Total distributions

     (2.10     (0.19     (0.01            (0.01       
  

 

 

 

Net asset value, end of period

   $ 11.03      $ 12.66      $ 12.26      $ 10.95      $ 8.58      $ 9.25   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     3.82 %5      4.68     12.04     27.62     (7.17 )%6      12.39
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     2.56 %7,8      2.41 %7      2.42 %7      2.31     2.13     2.22
  

 

 

 

Total expenses excluding recoupment of past waived fees

     2.56 %7,8      2.41 %7      2.41 %7      2.30     2.12     2.20
  

 

 

 

Total expenses after fees waived, reimbursed and paid indirectly

     2.01 %7,8      2.05 %7      2.06 %7      2.06     2.06     2.04
  

 

 

 

Net investment income (loss)

     (0.87 )%7,8      0.82 %7      0.36 %7      (0.19 )%      (0.10 )%      (0.24 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 5,547      $ 7,122      $ 11,918      $ 17,465      $ 26,233      $ 42,239   
  

 

 

 

Portfolio turnover

     131     102     119     156     137     123
  

 

 

 

 

  1   

Consolidated Financial Highlights.

 

  2   

Based on average shares outstanding.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  7   

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

  

 

 

 
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012      2011      2010  

Investments in underlying funds

     0.01     0.01     0.03                       

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    33


Financial Highlights (continued)      BlackRock Flexible Equity Fund   

 

     Investor C  
    

Six Months
Ended
March 31,
2015

(Unaudited)1

    Year Ended September 30,  
       20141     20131     20121     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 12.57      $ 12.20      $ 10.91      $ 8.55      $ 9.22      $ 8.20   
  

 

 

 

Net investment income (loss)2

     (0.05     0.10        0.04        (0.02     (0.01     (0.01

Net realized and unrealized gain (loss)

     0.52        0.48        1.27        2.38        (0.64     1.03   
  

 

 

 

Net increase (decrease) from investment operations

     0.47        0.58        1.31        2.36        (0.65     1.02   
  

 

 

 

Distributions from:3

            

Net investment income

     (0.30     (0.07     (0.02            (0.02       

Net realized gain

     (1.84     (0.14                            
  

 

 

 

Total distributions

     (2.14     (0.21     (0.02            (0.02       
  

 

 

 

Net asset value, end of period

   $ 10.90      $ 12.57      $ 12.20      $ 10.91      $ 8.55      $ 9.22   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     3.79 %5      4.67     12.01     27.60     (7.11 )%6      12.44
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     2.16 %7,8      2.14 %7      2.20 %7      2.18     2.16     2.22
  

 

 

 

Total expenses excluding recoupment of past waived fees

     2.16 %7,8      2.14 %7      2.20 %7      2.18     2.16     2.22
  

 

 

 

Total expenses after fees waived, reimbursed and paid indirectly

     2.01 %7,8      2.04 %7      2.06 %7      2.06     2.06     2.06
  

 

 

 

Net investment income (loss)

     (0.85 )%7,8      0.78 %7      0.34 %7      (0.18 )%      (0.11 )%      (0.17 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 84,986      $ 90,904      $ 103,097      $ 115,242      $ 112,520      $ 148,923   
  

 

 

 

Portfolio turnover

     131     102     119     156     137     123
  

 

 

 

 

  1   

Consolidated Financial Highlights.

 

  2   

Based on average shares outstanding.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  7   

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

  

 

 

 
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012      2011      2010  

Investments in underlying funds

     0.01     0.01     0.03                       

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

34    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (concluded)      BlackRock Flexible Equity Fund   

 

     Class R  
    

Six Months
Ended
March 31,
2015

(Unaudited)1

    Year Ended September 30,    

Period

July 30,

20102 to
September 30,

2010

 
       20141     20131     20121     2011    
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 14.41      $ 13.94      $ 12.46      $ 9.75      $ 10.51      $ 10.24   
  

 

 

 

Net investment income (loss)3

     (0.03     0.19        0.10        0.03        0.04        0.00 4 

Net realized and unrealized gain (loss)

     0.60        0.53        1.45        2.71        (0.73     0.27   
  

 

 

 

Net increase (decrease) from investment operations

     0.57        0.72        1.55        2.74        (0.69     0.27   
  

 

 

 

Distributions from:5

            

Net investment income

     (0.35     (0.11     (0.07     (0.03     (0.07       

Net realized gain

     (1.84     (0.14                            
  

 

 

 

Total distributions

     (2.19     (0.25     (0.07     (0.03     (0.07       
  

 

 

 

Net asset value, end of period

   $ 12.79      $ 14.41      $ 13.94      $ 12.46      $ 9.75      $ 10.51   
  

 

 

 
            
Total Return6                                                 

Based on net asset value

     4.05 %7      5.05     12.51     28.13     (6.66 )%8      13.17 %7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.66 %9,10      1.68 %9      1.78 %9      1.78     1.72     2.21 %10 
  

 

 

 

Total expenses excluding recoupment of past waived fees

     1.66 %9,10      1.67 %9      1.78 %9      1.78     1.70     2.21 %10 
  

 

 

 

Total expenses after fees waived, reimbursed and paid indirectly

     1.60 %9,10      1.63 %9      1.65 %9      1.65     1.65     1.65 %10 
  

 

 

 

Net investment income (loss)

     (0.44 )%9,10      1.30 %9      0.78 %9      0.25     0.31     0.08 %10 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 1,324      $ 1,446      $ 1,028      $ 1,312      $ 920      $ 838   
  

 

 

 

Portfolio turnover

     131     102     119     156     137     123
  

 

 

 

 

  1   

Consolidated Financial Highlights.

 

  2   

Commencement of operations.

 

  3   

Based on average shares outstanding.

 

  4   

Amount is less than $0.005 per share.

 

  5   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  6   

Where applicable, assumes the reinvestment of distributions.

 

  7   

Aggregate total return.

 

  8   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  9   

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

  

 

 

 
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012      2011      2010  

Investments in underlying funds

     0.01     0.01     0.03                       

 

  10   

Annualized.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    35


Financial Highlights      BlackRock Mid-Cap Growth Equity Portfolio   

 

     Institutional     Service  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                                                                 

Net asset value, beginning of period

   $ 17.67      $ 18.22      $ 13.58      $ 11.10      $ 11.18      $ 10.27      $ 16.34      $ 17.05      $ 12.77      $ 10.49      $ 10.60      $ 9.78   
  

 

 

   

 

 

 

Net investment income (loss)1

     (0.04     (0.12     0.05        0.04        (0.05     (0.01     (0.07     (0.19     (0.02     (0.01     (0.10     (0.05

Net realized and unrealized gain (loss)

     2.24        2.49        4.59        2.44        (0.03     0.92        2.06        2.31        4.30        2.29        (0.01     0.87   
  

 

 

   

 

 

 

Net increase (decrease) from investment operations

     2.20        2.37        4.64        2.48        (0.08     0.91        1.99        2.12        4.28        2.28        (0.11     0.82   
  

 

 

   

 

 

 

Distributions from net realized gain2

     (1.91     (2.92                                 (1.89     (2.83                            
  

 

 

   

 

 

 

Net asset value, end of period

   $ 17.96      $ 17.67      $ 18.22      $ 13.58      $ 11.10      $ 11.18      $ 16.44      $ 16.34      $ 17.05      $ 12.77      $ 10.49      $ 10.60   
  

 

 

   

 

 

 
                        
Total Return3                                                                                                 

Based on net asset value

     14.16 %4      14.70     34.17     22.34     (0.72 )%5      8.86 %5      13.92 %4      14.11     33.52     21.74     (1.04 )%5      8.38 %5 
  

 

 

   

 

 

 
                        
Ratios to Average Net Assets                                                                                                 

Total expenses

     1.08 %6,7      1.11     1.13     1.11     1.17     1.15     1.49 %6,7      1.58     1.67     2.29     1.87     1.63
  

 

 

   

 

 

 

Total expenses excluding recoupment of past waived fees

     1.06 %7      1.08     1.11     1.11     1.17     1.14     1.37 %7      1.33     1.51     2.29     1.87     1.62
  

 

 

   

 

 

 

Total expenses after fees waived, reimbursed and paid indirectly

     1.08 %7      1.10     1.11     1.07     1.17     1.15     1.49 %7      1.58     1.58     1.58     1.58     1.58
  

 

 

   

 

 

 

Net investment income (loss)

     (0.45 )%7      (0.68 )%      0.30     0.27     (0.38 )%      (0.09 )%      (0.92 )%7      (1.17 )%      (0.15 )%      (0.06 )%      (0.83 )%      (0.52 )% 
  

 

 

   

 

 

 
                        
Supplemental Data                                                                                                 

Net assets, end of period (000)

   $ 32,844      $ 33,448      $ 21,485      $ 18,526      $ 19,348      $ 24,421      $ 2,002      $ 3,838      $ 2,065      $ 1,865      $ 714      $ 330   
  

 

 

   

 

 

 

Portfolio turnover

     50     123     160     88     131     76     50     123     160     88     131     76
  

 

 

   

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  3   

Where applicable, assumes the reinvestment of distributions.

 

  4   

Aggregate total return.

 

  5   

Includes a payment received from a settlement of litigation, which impacted the Fund’s total return. Excluding the payment from a settlement of litigation, the Fund’s total return is as follows:

 

  

 

 

 
    

Six Months
Ended
March 31,
2015

(Unaudited)

     Year Ended September 30,  
        2014      2013      2012      2011     2010      
  

 

 

 

Institutional

                                     (0.90 )%      8.47%   
  

 

 

 

Service

                                     (1.23 )%      7.98%   

 

  6   

Includes recoupment of past waived and/or reimbursed fees. There was no financial impact to the expense ratio.

 

  7   

Annualized.

 

See Notes to Financial Statements.

 

36    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock Mid-Cap Growth Equity Portfolio   

 

     Investor A     Investor B  
    

 

 

 

 

Six Months

Ended

March 31,

2015

(Unaudited)

  

  

  

  

  

    Year Ended September 30,       

 

 

 

 

Six Months

Ended

March 31,

2015

(Unaudited)

  

  

  

  

  

    Year Ended September 30,   
       2014     2013     2012     2011     2010       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                                                                 

Net asset value, beginning of period

   $ 15.78      $ 16.56      $ 12.38      $ 10.15      $ 10.27      $ 9.47      $ 13.22      $ 14.27      $ 10.75      $ 8.88      $ 9.05      $ 8.42   
  

 

 

   

 

 

 

Net investment income (loss)1

     (0.05     (0.16     0.00 2      (0.01     (0.09     (0.05     (0.09     (0.24     (0.08     (0.09     (0.16     (0.12

Net realized and unrealized gain (loss)

     1.96        2.24        4.18        2.24        (0.03     0.85        1.61        1.90        3.60        1.96        (0.01     0.75   
  

 

 

   

 

 

 

Net increase (decrease) from investment operations

     1.91        2.08        4.18        2.23        (0.12     0.80        1.52        1.66        3.52        1.87        (0.17     0.63   
  

 

 

   

 

 

 

Distributions from net realized gain3

     (1.88     (2.86                                 (1.79     (2.71                            
  

 

 

   

 

 

 

Net asset value, end of period

   $ 15.81      $ 15.78      $ 16.56      $ 12.38      $ 10.15      $ 10.27      $ 12.95      $ 13.22      $ 14.27      $ 10.75      $ 8.88      $ 9.05   
  

 

 

   

 

 

 
                        
Total Return4                                                                                                 

Based on net asset value

     13.96 %5      14.38     33.76     21.97     (1.17 )%6      8.45 %6      13.58 %5      13.47     32.74     21.06     (1.88 )%6      7.48 %6 
  

 

 

   

 

 

 
                        
Ratios to Average Net Assets                                                                                                 

Total expenses

     1.46 %7      1.48     1.55     1.55     1.59     1.58     2.79 %7      2.66     2.70     2.59     2.43     2.48
  

 

 

   

 

 

 

Total expenses excluding recoupment of past waived fees

     1.46 %7      1.48     1.55     1.55     1.56     1.55     2.79 %7      2.66     2.70     2.59     2.42     2.47
  

 

 

   

 

 

 

Total expenses after fees waived, reimbursed and paid indirectly

     1.39 %7      1.39     1.39     1.39     1.58     1.58     2.16 %7      2.16     2.16     2.16     2.39     2.38
  

 

 

   

 

 

 

Net investment income (loss)

     (0.72 )%7      (1.01 )%      0.03     (0.06 )%      (0.79 )%      (0.51 )%      (1.50 )%7      (1.79 )%      (0.66 )%      (0.88 )%      (1.58 )%      (1.36 )% 
  

 

 

   

 

 

 
                        
Supplemental Data                                                                                                 

Net assets, end of period (000)

   $ 355,613      $ 315,762      $ 282,726      $ 237,748      $ 232,924      $ 180,501      $ 2,983      $ 3,313      $ 4,330      $ 5,123      $ 7,596      $ 8,209   
  

 

 

   

 

 

 

Portfolio turnover

     50     123     160     88     131     76     50     123     160     88     131     76
  

 

 

   

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Amount is less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4  

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Includes a payment received from a settlement of litigation, which impacted the Fund’s total return. Excluding the payment from a settlement of litigation, the Fund’s total return is as follows:

 

  

 

 

 
    

Six Months
Ended
March 31,
2015

(Unaudited)

     Year Ended September 30,  
        2014      2013      2012      2011     2010      
  

 

 

 

Investor A

                                     (1.36 )%      8.03%   
  

 

 

 

Investor B

                                     (2.10 )%      7.01%   

 

  7   

Annualized.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    37


Financial Highlights (concluded)      BlackRock Mid-Cap Growth Equity Portfolio   

 

     Investor C     Class R  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                                                                 

Net asset value, beginning of period

   $ 13.16      $ 14.28      $ 10.75      $ 8.89      $ 9.05      $ 8.41      $ 15.63      $ 16.44      $ 12.32      $ 10.13      $ 10.25      $ 9.46   
  

 

 

   

 

 

 

Net investment loss1

     (0.09     (0.23     (0.09     (0.08     (0.16     (0.11     (0.07     (0.20     (0.04     (0.03     (0.10     (0.04

Net realized and unrealized gain (loss)

     1.60        1.88        3.62        1.94        (0.00 )2      0.75        1.95        2.22        4.16        2.22        (0.02     0.83   
  

 

 

   

 

 

 

Net increase (decrease) from investment operations

     1.51        1.65        3.53        1.86        (0.16     0.64        1.88        2.02        4.12        2.19        (0.12     0.79   
  

 

 

   

 

 

 

Distributions from net realized gain3

     (1.82     (2.77                                 (1.86     (2.83                            
  

 

 

   

 

 

 

Net asset value, end of period

   $ 12.85      $ 13.16      $ 14.28      $ 10.75      $ 8.89      $ 9.05      $ 15.65      $ 15.63      $ 16.44      $ 12.32      $ 10.13      $ 10.25   
  

 

 

   

 

 

 
                        
Total Return4                                                                                                 

Based on net asset value

     13.57 %5      13.42     32.84     20.92     (1.77 )%6      7.61 %6      13.83 %5      14.03     33.44     21.62     (1.17 )%6      8.35 %6 
  

 

 

   

 

 

 
                        
Ratios to Average Net Assets                                                                                                 

Total expenses

     2.16 %7,8      2.17     2.23     2.31     2.34     2.33     1.74 %8      1.74     1.74     1.84     1.91     1.97
  

 

 

   

 

 

 

Total expenses excluding recoupment of past waived fees

     2.14 %8      2.16     2.23     2.31     2.31     2.30     1.74 %8      1.74     1.74     1.84     1.91     1.97
  

 

 

   

 

 

 

Total expenses after fees waived, reimbursed and paid indirectly

     2.16 %8      2.16     2.16     2.16     2.33     2.33     1.65 %8      1.65     1.65     1.65     1.65     1.65
  

 

 

   

 

 

 

Net investment income (loss)

     (1.49 )%8      (1.77 )%      (0.75 )%      (0.81 )%      (1.54 )%      (1.26 )%      (0.98 )%8      (1.26 )%      (0.26 )%      (0.28 )%      (0.84 )%      (0.44 )% 
  

 

 

   

 

 

 
                        
Supplemental Data                                                                                                 

Net assets, end of period (000)

   $ 35,447      $ 31,257      $ 23,959      $ 18,774      $ 16,615      $ 12,578      $ 8,172      $ 7,704      $ 9,352      $ 6,663      $ 5,227      $ 4,138   
  

 

 

   

 

 

 

Portfolio turnover

     50     123     160     88     131     76     50     123     160     88     131     76
  

 

 

   

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Amount is greater than $(0.005) per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Includes a payment received from a settlement of litigation, which impacted the Fund’s total return. Excluding the payment from a settlement of litigation, the Fund’s total return is as follows:

 

  

 

 

 
    

Six Months
Ended
March 31,
2015

(Unaudited)

     Year Ended September 30,  
        2014      2013      2012      2011     2010      
  

 

 

 

Investor C

                                     (1.99 )%      7.13%   
  

 

 

 

Class R

                                     (1.37 )%      7.93%   

 

  7   

Includes recoupment of past waived and/or reimbursed fees. There was no financial impact to the expense ratio.

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

38    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights      BlackRock Small Cap Growth Equity Portfolio   

 

    Institutional     Service  
   
 
 
 

 

Six Months
Ended
March 31,
2015

(Unaudited)

  
  
  
  

  

    Year Ended September 30,       
 
 
 

 

Six Months
Ended
March 31,
2015

(Unaudited)

  
  
  
  

  

    Year Ended September 30,   
      2014     2013     2012     2011     2010       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                                                                

Net asset value, beginning of period

  $ 22.28      $ 29.86      $ 26.67      $ 20.09      $ 20.42      $ 18.66      $ 20.05      $ 27.81      $ 25.01      $ 18.93      $ 19.29      $ 17.67   
 

 

 

   

 

 

 

Net investment income (loss)1

    0.03        (0.06     0.01        0.04        (0.13     (0.12     0.00 2      (0.12     (0.06     (0.04     (0.18     (0.16

Net realized and unrealized gain (loss)

    2.13        2.58        5.90        7.14        (0.20 )3      1.88 3      1.87        2.40        5.49        6.72        (0.18 )3      1.78 3 
 

 

 

   

 

 

 

Net increase (decrease) from investment operations

    2.16        2.52        5.91        7.18        (0.33     1.76        1.87        2.28        5.43        6.68        (0.36     1.62   
 

 

 

   

 

 

 

Distributions from:4

                       

Net investment income

                  (0.07                                                               

Net realized gain

    (4.97     (10.10     (2.65     (0.60                   (4.90     (10.04     (2.63     (0.60              
 

 

 

   

 

 

 

Total distributions

    (4.97     (10.10     (2.72     (0.60                   (4.90     (10.04     (2.63     (0.60              
 

 

 

   

 

 

 

Net asset value, end of period

  $ 19.47      $ 22.28      $ 29.86      $ 26.67      $ 20.09      $ 20.42      $ 17.02      $ 20.05      $ 27.81      $ 25.01      $ 18.93      $ 19.29   
 

 

 

   

 

 

 
                       
Total Return5                                                                                                

Based on net asset value

    11.82 %6      8.90     25.36     36.16     (1.62 )%7,8      9.43 %8      11.64 %6      8.62     24.96     35.72     (1.87 )%7,8      9.17 %8 
 

 

 

   

 

 

 
                       
Ratios to Average Net Assets                                                                                                

Total expenses

    0.83 %9      0.87     0.82     0.82     0.80     0.83     1.15 %9      1.12     1.12     1.20     1.07     1.10
 

 

 

   

 

 

 

Total expenses excluding recoupment of past waived fees

    0.83 %9      0.87     0.82     0.82     0.80     0.83     1.15 %9      1.12     1.12     1.20     1.07     1.10
 

 

 

   

 

 

 

Total expenses after fees waived, reimbursed and paid indirectly

    0.83 %9      0.87     0.82     0.82     0.80     0.83     1.15 %9      1.12     1.12     1.17     1.07     1.10
 

 

 

   

 

 

 

Net investment income (loss)

    0.34 %9      (0.24 )%      0.06     0.15     (0.55 )%      (0.59 )%      0.02 %9      (0.53 )%      (0.25 )%      (0.15 )%      (0.81 )%      (0.86 )% 
 

 

 

   

 

 

 
                       
Supplemental Data                                                                                                

Net assets, end of period (000)

  $ 487,378      $ 454,928      $ 862,261      $ 979,582      $ 931,857      $ 806,461      $ 21,356      $ 23,621      $ 24,792      $ 29,281      $ 23,683      $ 47,917   
 

 

 

   

 

 

 

Portfolio turnover

    66     132     175     147     141     128     66     132     175     147     141     128
 

 

 

   

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Amount is less than $0.005 per share.

 

  3   

Includes redemption fees, which are less than $0.005 per share.

 

  4   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  5   

Where applicable, assumes the reinvestment of distributions.

 

  6   

Aggregate total return.

 

  7   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  8   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  9   

Annualized.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    39


Financial Highlights (continued)      BlackRock Small Cap Growth Equity Portfolio   

 

     Investor A     Investor B  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                                                                 

Net asset value, beginning of period

   $ 18.91      $ 26.75      $ 24.17      $ 18.31      $ 18.69      $ 17.14      $ 14.15      $ 22.34      $ 20.50      $ 15.75      $ 16.20      $ 15.00   
  

 

 

   

 

 

 

Net investment income (loss)1

     0.00 2      (0.12     (0.06     (0.04     (0.21     (0.18     (0.05     (0.22     (0.21     (0.21     (0.32     (0.30

Net realized and unrealized gain (loss)

     1.74        2.31        5.27        6.50        (0.17 )3      1.73 3      1.19        1.90        4.41        5.56        (0.13 )3      1.50 3 
  

 

 

   

 

 

 

Net increase (decrease) from investment operations

     1.74        2.19        5.21        6.46        (0.38     1.55        1.14        1.68        4.20        5.35        (0.45     1.20   
  

 

 

   

 

 

 

Distributions from net realized gain4

     (4.91     (10.03     (2.63     (0.60                   (4.78     (9.87     (2.36     (0.60              
  

 

 

   

 

 

 

Net asset value, end of period

   $ 15.74      $ 18.91      $ 26.75      $ 24.17      $ 18.31      $ 18.69      $ 10.51      $ 14.15      $ 22.34      $ 20.50      $ 15.75      $ 16.20   
  

 

 

   

 

 

 
                        
Total Return5                                                                                                 

Based on net asset value

     11.65 %6      8.60     24.91     35.73     (2.03 )%7,8      9.04 %8      11.12 %6      7.73     23.92     34.46     (2.78 )%7,8      8.00 %8 
  

 

 

   

 

 

 
                        
Ratios to Average Net Assets                                                                                                 

Total expenses

     1.15 %9      1.15     1.14     1.17     1.18     1.22     2.08 %9      1.99     1.98     2.07     1.96     2.19
  

 

 

   

 

 

 

Total expenses excluding recoupment of past waived fees

     1.15 %9      1.15     1.14     1.17     1.18     1.22     2.08 %9      1.99     1.98     2.07     1.96     2.07
  

 

 

   

 

 

 

Total expenses after fees waived, reimbursed and paid indirectly

     1.15 %9      1.15     1.14     1.17     1.18     1.22     2.08 %9      1.99     1.98     2.07     1.96     2.19
  

 

 

   

 

 

 

Net investment income (loss)

     0.03 %9      (0.56 )%      (0.25 )%      (0.18 )%      (0.94 )%      (0.98 )%      (0.92 )%9      (1.39 )%      (1.08 )%      (1.12 )%      (1.72 )%      (1.94 )% 
  

 

 

   

 

 

 
                        
Supplemental Data                                                                                                 

Net assets, end of period (000)

   $ 302,109      $ 282,684      $ 332,978      $ 352,073      $ 235,400      $ 269,080      $ 730      $ 794      $ 1,265      $ 1,506      $ 1,687      $ 2,369   
  

 

 

   

 

 

 

Portfolio turnover

     66     132     175     147     141     128     66     132     175     147     141     128
  

 

 

   

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Amount is less than $0.005 per share.

 

  3   

Includes redemption fees, which are less than $0.005 per share.

 

  4   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  5   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  6   

Aggregate total return.

 

  7   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  8   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  9   

Annualized.

 

See Notes to Financial Statements.

 

40    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (concluded)      BlackRock Small Cap Growth Equity Portfolio   

 

     Investor C  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 13.99      $ 22.23      $ 20.50      $ 15.73      $ 16.19      $ 14.99   
  

 

 

 

Net investment loss1

     (0.04     (0.21     (0.21     (0.19     (0.35     (0.30

Net realized and unrealized gain (loss)

     1.17        1.89        4.38        5.56        (0.11 )2      1.50 2 
  

 

 

 

Net increase (decrease) from investment operations

     1.13        1.68        4.17        5.37        (0.46     1.20   
  

 

 

 

Distributions from net realized gain3

     (4.82     (9.92     (2.44     (0.60              
  

 

 

 

Net asset value, end of period

   $ 10.30      $ 13.99      $ 22.23      $ 20.50      $ 15.73      $ 16.19   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     11.23 %5      7.73     23.91     34.63     (2.84 )%6,7      8.01 %7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.94 %8      1.93     1.95     1.99     2.08     2.19
  

 

 

 

Total expenses excluding recoupment of past waived fees

     1.94 %8      1.93     1.95     1.99     2.05     2.13
  

 

 

 

Total expenses after fees waived, reimbursed and paid indirectly

     1.94 %8      1.93     1.95     1.99     2.07     2.16
  

 

 

 

Net investment loss

     (0.77 )%8      (1.33 )%      (1.06 )%      (0.99 )%      (1.83 )%      (1.92 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 32,630      $ 32,598      $ 33,193      $ 28,787      $ 23,947      $ 33,219   
  

 

 

 

Portfolio turnover

     66     132     175     147     141     128
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  7   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    41


Notes to Financial Statements (Unaudited)     

 

1. Organization:

BlackRock FundsSM (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust is organized as a Massachusetts business trust. The following are referred to herein collectively as the “Funds” or individually, a “Fund”:

 

Fund Name    Herein Referred To As    Diversification Classification

BlackRock Flexible Equity Fund

   Flexible Equity    Diversified

BlackRock Mid-Cap Growth Equity Portfolio

   Mid-Cap Growth Equity    Diversified

BlackRock Small Cap Growth Equity Portfolio

   Small Cap Growth Equity    Diversified

Each Fund offers multiple classes of shares. All classes of shares have identical voting, dividend, liquidation and other rights and are subject to the same terms and conditions, except that certain classes bear expenses related to the shareholder servicing and distribution of such shares. Institutional Shares are sold only to certain eligible investors. Investor B Shares are only available through exchanges and distribution reinvestments by current holders and for purchase by certain employer-sponsored retirement plans. Class R Shares are available only to certain employer-sponsored retirement plans. Investor A and Investor C Shares are generally available through financial intermediaries. Each class has exclusive voting rights with respect to matters relating to its shareholder servicing and distribution expenditures (except that Investor B shareholders may vote on material changes to the Investor A distribution and service plan).

 

Share Class    Initial Sales Charge    CDSC   Conversion Privilege

Institutional, Service and Class R Shares

   No    No   None

Investor A Shares

   Yes      No1   None

Investor B Shares

   No    Yes   To Investor A Shares after approximately 8 years

Investor C Shares

   No    Yes   None

 

  1   

Investor A Shares may be subject to a CDSC for certain redemptions where no initial sales charge was paid at the time of purchase.

The Funds, together with certain other registered investment companies advised by the Manager or its affiliates, are included in a complex of open-end funds referred to as the Equity-Liquidity Complex.

Basis of Consolidation: The accompanying consolidated financial statements of Flexible Equity include the account of BlackRock Flexible Equity Fund Subsidiary, Ltd. (the “Subsidiary”), which is a wholly owned subsidiary of Flexible Equity and primarily invests in commodity-related instruments. The Subsidiary enables Flexible Equity to hold these commodity-related instruments and satisfy regulated investment company tax requirements. Flexible Equity may invest up to 25% of its total assets in the Subsidiary. As of March 31, 2015, there were no net assets in the Subsidiary. Intercompany accounts and transactions, if any, have been eliminated. The Subsidiary is subject to the same investment policies and restrictions that apply to Flexible Equity, except that the Subsidiary may invest without limitation in commodity-related instruments.

2. Significant Accounting Policies:

The Funds’ financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Each Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Funds:

Valuation: The Funds’ investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Funds would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Funds determine the fair values of their financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Trustees of the Trust (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Funds for all financial instruments.

Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Participation notes are valued on the basis of last available bid prices or current market quotations provided by dealers or pricing services. Financial futures contracts traded on exchanges are valued at their last sale price. Swap agreements are valued utilizing quotes received daily by the Fund’s pricing service or through brokers, which are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments. Investments in open-end registered investment companies are valued at NAV each business day.

 

42    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE. Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.

Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options trade. An exchange-traded option for which there is no mean price is valued at the last bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price will be used, unless it is determined that the prior day’s price no longer reflects the fair value of the option. Over-the-counter (“OTC”) options are valued by an independent pricing service using a mathematical model, which incorporates a number of market data factors, such as the trades and prices of the underlying instruments.

The Funds value their investments in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon their pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. Each Fund may withdraw up to 25% of its investment daily, although the Manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.

In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that each Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement, which include the market approach, income approach and/or in the case of recent investments, the cost approach, as appropriate. The market approach generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to present value and is adjusted for liquidity as appropriate. These factors include but are not limited to: (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates. Due to the inherent uncertainty of valuations of such investments, the fair values may differ from the values that would have been used had an active market existed. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Funds’ pricing vendors, regular reviews of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.

Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of each Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Assets and be valued at their fair value, as determined in good faith by the Global Valuation Committee, or its delegate, using a pricing service and/or policies approved by the Board. Each business day, the Funds use a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and OTC options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of business on the NYSE, which follows the close of the local markets.

Foreign Currency: Each Funds’ books and records are maintained in U.S. dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, each Funds’ investments denominated in that currency will lose value because that currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value.

Each Fund does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated in the Statements of Operations from the effects of changes in market prices of those investments but are included as a component of net realized and unrealized gain (loss) from investments. Each Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for federal income tax purposes.

 

     BLACKROCK FUNDS    MARCH 31, 2015    43


Notes to Financial Statements (continued)     

 

Segregation and Collateralization: In cases where a Fund enters into certain investments (e.g., financial futures contracts, forward foreign currency exchange contracts, options written, and swaps), that would be “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the amount of a Fund’s future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Funds are informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Distributions: Distributions paid by the Funds are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.

Net income and realized gains from investments held by the Subsidiary are treated as ordinary income for tax purposes. Accordingly, the net investment income (loss) and realized gains (losses) reported in the Flexible Equity Fund’s financial statements presented under U.S. GAAP for such investments held by the Subsidiary may differ significantly from distributions. As such, any net gain will pass through to the Flexible Equity Fund as ordinary income for federal income tax purposes. If a net loss is realized by the Subsidiary in any taxable year, the loss will generally not be available to offset the Flexible Equity Fund’s ordinary income and/or capital gains for that year.

Recent Accounting Standard: In June 2014, the Financial Accounting Standards Board issued guidance to improve the financial reporting of reverse repurchase agreements and other similar transactions. The guidance will require expanded disclosure for entities that enter into reverse repurchase agreements and similar transactions accounted for as secured borrowings. It is effective for financial statements with fiscal years beginning on or after December 15, 2014 and for interim periods beginning after March 15, 2015. Management is evaluating the impact, if any, of this guidance on the Fund’s financial statement disclosures.

Other: Expenses directly related to a Fund or its classes are charged to that Fund or the applicable class. Other operating expenses shared by several funds are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Funds and other shared expenses prorated to the Funds are allocated daily to each class based on its relative net assets or other appropriate methods.

The Funds have an arrangement with their custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statements of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.

3. Securities and Other Investments:

Participation Notes: Flexible Equity may invest in participation notes (“P-Notes”). P-Notes are promissory notes issued by banks or broker-dealers that are designed to offer Flexible Equity a return measured by the change in the value of the underlying security or basket of securities (the “underlying security”) while not holding the actual shares of the underlying security. P-Notes are typically used to allow Flexible Equity to gain exposure to securities traded in foreign markets that may be restricted due to country-specific regulations. When the P-Note matures, the issuer will pay to, or receive from, Flexible Equity the difference between the value of the underlying security at the time of the purchase and the underlying security’s value at maturity of the P-Notes. Income received on P-Notes is recorded by Flexible Equity as dividend income in the Statements of Operations. An investment in a P-Note involves additional risks beyond the risks normally associated with a direct investment in the underlying security. While the holder of a P-Note is entitled to receive from the bank or broker-dealer any dividends paid by the underlying security, the holder is not entitled to the same rights (e.g., voting rights) as a direct owner of the underlying security. P-Notes are considered general unsecured contractual obligations of the bank or broker-dealer. Flexible Equity must rely on the creditworthiness of the issuer for its investment returns on the P-Notes and has no rights against the issuer of the underlying security. A P-Note may be more volatile and less liquid than other investments held by Flexible Equity since the P-Note generally is dependent on the liquidity in the local trading market for the underlying security.

Preferred Stock: The Funds may invest in preferred stock. Preferred stock has a preference over common stock in liquidation (and generally in receiving dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with

 

44    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.

Securities Lending: Each Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Funds collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by each Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund on the next business day. During the term of the loan, each Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.

The market value of securities on loan and the value of the related collateral are shown separately in the Statements of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of March 31, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedules of Investments.

Securities lending transactions are entered into by the Funds under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, each Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Funds can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.

As of March 31, 2015, the following table is a summary of the Funds’ securities lending agreements by counterparty, which are subject to offset under an MSLA:

 

Flexible Equity  
Counterparty    Securities
Loaned
at Value
     Cash
Collateral
Received1
    Net
Amount
 

Goldman Sachs & Co.

   $ 544,577       $ (544,577       

 

  1   

Collateral with a value of $576,157 has been received in connection with securities lending agreements. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes.

 

Mid-Cap Growth Equity  
Counterparty    Securities
Loaned
at Value
     Cash
Collateral
Received1
    Net
Amount
 

Goldman Sachs & Co.

   $ 741,889       $ (741,889       

JP Morgan Securities LLC

     1,348,939         (1,348,939       

Total

   $ 2,090,828       $ (2,090,828       
  

 

 

 

 

  1   

Collateral with a value of $2,144,391 has been received in connection with securities lending agreements. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes.

 

     BLACKROCK FUNDS    MARCH 31, 2015    45


Notes to Financial Statements (continued)     

 

 

Small Cap Growth Equity  
Counterparty    Securities
Loaned
at Value
     Cash
Collateral
Received1
    Net
Amount
 

Barclays Capital Inc.

   $ 989,984       $ (989,984       

BNP Paribas S.A.

     522,000         (522,000       

Citigroup Global Markets, Inc.

     160,160         (160,160       

Credit Suisse Securities (USA) LLC

     3,779,973         (3,779,973       

Deutsche Bank Securities, Inc.

     2,188,179         (2,188,179       

Goldman Sachs & Co.

     1,918,046         (1,918,046       

JP Morgan Securities LLC

     1,620,893         (1,620,893       

Merrill Lynch, Pierce, Fenner & Smith, Inc.

     2,909,644         (2,909,644       

Morgan Stanley

     5,215,440         (5,215,440       

UBS Securities LLC

     1,181,212         (1,181,212       

Total

   $ 20,485,531       $ (20,485,531       
  

 

 

 

 

  1   

Collateral with a value of $20,954,953 has been received in connection with securities lending agreements. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes.

The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Funds benefit from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on securities loaned in the event of borrower default. The Funds could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.

4. Derivative Financial Instruments:

The Funds engage in various portfolio investment strategies using derivative contracts both to increase the returns of the Funds and/or to economically manage their exposure to certain risks such as equity risk or foreign currency exchange rate risk. These contracts may be transacted on an exchange or OTC.

Financial Futures Contracts: Flexible Equity and Small Cap Growth Equity purchase and/or sell financial futures contracts and options on financial future contracts to gain exposure to, or economically hedge against, changes in the value of equity securities (equity risk). Financial futures contracts are agreements between the Funds and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, financial futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date.

Upon entering into a financial futures contract, Flexible Equity and Small Cap Growth Equity are required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Securities deposited as initial margin are designated on the Schedules of Investments and cash deposited, if any, is recorded on the Statements of Assets and Liabilities as cash pledged for financial futures contracts. Pursuant to the contract, Flexible Equity and Small Cap Growth Equity agree to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin. Variation margin is recorded by Flexible Equity and Small Cap Growth Equity as unrealized appreciation or depreciation and, if applicable, as a receivable or payable for variation margin in the Statements of Assets and Liabilities.

When the contract is closed, Flexible Equity and Small Cap Growth Equity record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest or foreign currency exchange rates and the underlying assets.

Forward Foreign Currency Exchange Contracts: Flexible Equity enters into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by Flexible Equity, help to manage the overall exposure to the currencies in which some of the investments held by Flexible Equity are denominated. The contract is marked-to-market daily and the change in market value is recorded by Flexible Equity as an unrealized gain or loss. When the contract is closed, Flexible Equity records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.

Options: Flexible Equity purchases and writes call and put options to increase or decrease its exposure to underlying instruments (including equity risk) and/or, in the case of options written, to generate gains from options premiums. A call option gives the purchaser (holder) of the option the right (but

 

46    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

not the obligation) to buy, and obligates the seller (writer) to sell (when the option is exercised) the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. When the Fund purchases (writes) an option, an amount equal to the premium paid (received) by the Fund is reflected as an asset (liability). The amount of the asset (liability) is subsequently marked-to-market to reflect the current market value of the option purchased (written). When an instrument is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the instrument acquired or deducted from (or added to) the proceeds of the instrument sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premiums received or paid). When the Fund writes a call option, such option is “covered,” meaning that the Fund holds the underlying instrument subject to being called by the option counterparty. When the Fund writes a put option, such option is covered by cash in an amount sufficient to cover the obligation.

In purchasing and writing options, Flexible Equity bears the risk of an unfavorable change in the value of the underlying instrument or the risk that Flexible Equity may not be able to enter into a closing transaction due to an illiquid market. Exercise of a written option could result in Flexible Equity purchasing or selling a security when it otherwise would not, or at a price different from the current market value.

For the six months ended March 31, 2015, transactions in options written for Flexible Equity were as follows:

 

      Calls                Puts  
      Contracts     Premiums
Received
             Contracts     Premiums
Received
 

Outstanding options, beginning of period

     1,382      $ 215,100             1,500      $ 58,441   

Options written

     25,378        3,366,634                      

Options exercised

     (6,187     (743,090                   

Options expired

     (2,364     (267,904                   

Options closed

     (18,209     (2,570,740          (1,500     (58,441
  

 

 

        

 

 

 

Outstanding options, end of period

                                 
  

 

 

        

 

 

 

Swaps: Flexible Equity enters into swap agreements in which the Fund and a counterparty agree either to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are privately negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation).

For OTC swaps, any upfront premiums paid are recorded as assets and any upfront fees received are recorded as liabilities and are shown as swap premiums paid and swap premiums received, respectively, in the Statements of Assets and Liabilities and amortized over the term of the OTC swap. Payments received or made by the Fund for OTC swaps are recorded in the Statements of Operations as realized gains or losses, respectively. When an OTC swap is terminated, the Fund will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract, if any. Generally, the basis of the contract is the premium received or paid.

Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Statements of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.

 

 

Total return swaps — Flexible Equity enters into total return swaps to obtain exposure to a security or market without owning such security or investing directly in that market or to transfer the risk/return of one market (e.g., fixed income) to another market (e.g., equity) (equity risk). Total return swaps are agreements in which there is an exchange of cash flows whereby one party commits to make payments based on the total return (dividends or interest plus capital gains/losses) of an underlying instrument in exchange for fixed or floating rate interest payments. To the extent the total return of the instrument or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Funds will receive a payment from or make a payment to the counterparty.

 

     BLACKROCK FUNDS    MARCH 31, 2015    47


Notes to Financial Statements (continued)     

 

 

The following is a summary of the Funds’ derivative financial instruments categorized by risk exposure:

 

Fair Values of Derivative Financial Instruments as of March 31, 2015  
         Value  
        

Flexible

Equity

     Small Cap
Growth Equity
 
 

 

 
   

Statements of Assets and Liabilities

Location

   Derivative
Assets
     Derivative
Liabilities
     Derivative
Assets
     Derivative
Liabilities
 
 

 

 

Foreign currency exchange contracts

  Unrealized appreciation/depreciation on forward foreign currency exchange contracts    $ 2,054,574       $ 584,811                   

Equity contracts

  Net unrealized appreciation/depreciation1                    $ 149,175           
 

 

 

Total

     $ 2,054,574       $ 584,811       $ 149,175           
 

 

 

 

  1   

Includes cumulative appreciation/depreciation on financial futures contracts and centrally cleared swaps, if any, as reported in the Schedules of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities.

 

The Effect of Derivative Financial Instruments in the Statements of Operations

Six Months Ended March 31, 2015

 
     Flexible
Equity
    Small Cap
Growth Equity
         Flexible
Equity
    Small Cap
Growth Equity
 
  

 

 

      

 

 

 
     Net Realized Gain (Loss) From         

Net Change in

Unrealized Appreciation/Depreciation on

 
  

 

 

      

 

 

 

Foreign currency exchange contracts:

           

Foreign currency transactions/translations

   $ 9,078,454                $ (3,892,285       

Equity contracts:

           

Financial futures contracts

     (8,345,746   $ 397,857           (1,856,152   $ 498,850   

Swaps

     (1,811,587               505,315          

Options2

     (5,466,451               431,968          
  

 

 

      

 

 

 

Total

   $ (6,545,330   $ 397,857         $ (4,811,154   $ 498,850   
  

 

 

 

 

  2   

Options purchased are included in the net realized gain (loss) from investments — unaffiliated and net change in unrealized appreciation/depreciation on investments — unaffiliated.

For the six months ended March 31, 2015, the average quarterly balances of outstanding derivative financial instruments were as follows:

 

      Flexible
Equity
     Small Cap
Growth Equity
 

Financial futures contracts:

     

Average notional value of contracts - long

           $ 10,262,025   

Average notional value of contracts - short

   $ 28,141,334           

Forward foreign currency exchange contracts:

     

Average amounts purchased - in USD

   $ 81,310,574           

Average amounts sold - in USD

   $ 42,439,084           

Options:

     

Average value of option contracts purchased

   $ 99,611           

Average value of option contracts written

   $ 745,142           

Total return swaps:

     

Average notional value

   $ 9,656,553           

Counterparty Credit Risk: A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.

A Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by such Fund.

For OTC options purchased, each Fund bears the risk of loss of the amount of the premiums paid plus the positive change in market values net of any collateral held by such Fund should the counterparty fail to perform under the contracts. Options written by the Funds do not typically give rise to counterparty credit risk, as options written generally obligate the Funds, and not the counterparty, to perform.

With exchange-traded purchased options and futures, there is less counterparty credit risk to the Funds since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, the credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, a Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange-traded futures with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker

 

48    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Funds.

In order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between each Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, each Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrict or prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements, which would cause the Fund to accelerate payment of any net liability owed to the counterparty.

Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.

Cash collateral that has been pledged to cover obligations of the Funds and cash collateral received from the counterparty, if any, is reported separately on the Statements of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Funds, if any, is noted in the Schedule of Investments. Generally, the amount of collateral due from or to a party has to exceed a minimum transfer amount threshold (typically either $250,000 or $500,000) before a transfer is required, which is determined at the close of business of the Funds. Any additional required collateral is delivered to/pledged by the Funds on the next business day. Typically, the Funds and counterparties are not permitted to sell, re-pledge or use the collateral they receive. To the extent amounts due to the Funds from its counterparties are not fully collateralized, the Funds bear the risk of loss from counterparty non-performance. Likewise, to the extent the Funds have delivered collateral to a counterparty and stand ready to perform under the terms of its agreement with such counterparty, the Funds bear the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral.

For financial reporting purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Statements of Assets and Liabilities.

As of March 31, 2015, the Funds’ derivative assets and liabilities (by type) were as follows:

 

     

Flexible

Equity

          Small Cap Growth
Equity
 
      Assets      Liabilities          Assets     Liabilities  

Derivative Financial Instruments:

            

Financial futures contracts

                     $ 149,175          

Forward foreign currency exchange contracts

   $ 2,054,574       $ 584,811                    
  

 

 

 

Total derivative assets and liabilities in the Statements of Assets and Liabilities

   $ 2,054,574       $ 584,811         $ 149,175          
  

 

 

 

Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”)

                       (149,175       
  

 

 

 

Total derivative assets and liabilities subject to an MNA

   $ 2,054,574       $ 584,811                    
  

 

 

 

As of March 31, 2015, the following table presents the Funds’ derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateral received and pledged by the Fund:

 

Flexible Equity  
Counterparty    Derivative Assets
Subject to an MNA
by Counterparty
     Derivatives
Available
for  Offset1
    Non-cash
Collateral
Received
     Cash
Collateral
Received
     Net Amount of
Derivative
Assets2
 

BNP Paribas S.A.

   $ 16,336                              $ 16,336   

Citibank N.A.

     32,426       $ (32,426                       

HSBC Bank PLC

     1,117,262                                1,117,262   

Standard Chartered Bank

     407,298         (109,233                     298,065   

TD Securities, Inc.

     481,252         (52,687                     428,565   
  

 

 

 

Total

   $ 2,054,574       $ (194,346                   $ 1,860,228   
  

 

 

 

 

     BLACKROCK FUNDS    MARCH 31, 2015    49


Notes to Financial Statements (continued)     

 

 

Counterparty    Derivative Liabilities
Subject to an MNA
by  Counterparty
     Derivatives
Available
for Offset1
    Non-cash
Collateral
Pledged
     Cash
Collateral
Pledged
     Net Amount of
Derivative
Liabilities3
 

The Bank of New York Mellon

   $ 29,293                              $ 29,293   

Citibank N.A.

     169,765       $ (32,426                     137,339   

Deutsche Bank AG

     57,616                                57,616   

Goldman Sachs Bank USA

     42,957                                42,957   

Standard Chartered Bank

     109,233         (109,233                       

State Street Bank and Trust Co.

     16,489                                16,489   

TD Securities, Inc.

     52,687         (52,687                       

UBS AG

     106,771                                106,771   
  

 

 

 

Total

   $ 584,811       $ (194,346                   $ 390,465   
  

 

 

 

 

  1   

The amount of derivatives available for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA.

 

  2   

Net amount represents the net amount receivable from the counterparty in the event of default.

 

  3   

Net amount represents the net amount payable due to the counterparty in the event of default. Net amount may be offset further by the options written receivable/payable on the Statement of Assets and Liabilities.

5. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.

The Trust, on behalf of the Funds, entered into an Investment Advisory Agreement with the Manager, the Funds’ investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory services. The Manager is responsible for the management of each Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of each Fund. For such services, each Fund pays the Manager a monthly fee based on a percentage of each Fund’s average daily net assets at the following annual rates:

 

     

Flexible Equity

and
Mid-Cap Growth Equity

    Small Cap
Growth Equity
 
Average Daily Net Assets    Investment Advisory Fee  

First $1 Billion

     0.800     0.550

$1 Billion - $2 Billion

     0.700     0.500

$2 Billion - $3 Billion

     0.650     0.475

Greater than $3 Billion

     0.625     0.450

The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees each Fund pays to the Manager indirectly through its investment in affiliated money market funds. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with each Fund’s investment in other affiliated investment companies, if any. These amounts are included in fees waived by the Manager in the Statements of Operations. For the six months ended March 31, 2015, the amounts waived were as follows:

 

Flexible Equity

   $ 12,504   

Mid-Cap Growth Equity

   $ 831   

Small Cap Growth Equity

   $ 2,661   

The Manager provides investment management and other services to the Subsidiary. The Manager does not receive separate compensation from the Subsidiary for providing investment management or administrative services. However, Flexible Equity pays the Manager based on Flexible Equity’s net assets, which include the assets of the Subsidiary.

The Trust, on behalf of the Funds, entered into a Distribution Agreement and a Distribution and Service Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution and Service Plan and in accordance with Rule 12b-1 under the 1940 Act, each Fund pays BRIL ongoing service and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the relevant share class of each Fund as follows:

 

      Service
Fee
    Distribution
Fee
 

Service

     0.25       

Investor A

     0.25       

Investor B

     0.25     0.75

Investor C

     0.25     0.75

Class R

     0.25     0.25

Pursuant to sub-agreements with BRIL, broker-dealers and BRIL provide shareholder servicing and distribution services to each Fund. The ongoing service and/or distribution fee compensates BRIL and each broker-dealer for providing shareholder servicing and/or distribution related services to Service, Investor A, Investor B, Investor C and Class R shareholders.

 

50    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

For the six months ended March 31, 2015, the following table shows the class specific service and distribution fees borne directly by each class of each Fund:

 

      Service      Investor A      Investor B      Investor C      Class R      Total  

Flexible Equity

   $ 236       $ 534,810       $ 31,745       $ 439,855       $ 3,744       $ 1,010,390   

Mid-Cap Growth Equity

   $ 3,498       $ 401,174       $ 15,448       $ 160,235       $ 19,352       $ 599,707   

Small Cap Growth Equity

   $ 26,423       $ 358,000       $ 3,756       $ 159,900               $ 548,079   

Pursuant to written agreements, certain financial intermediaries, some of which may be affiliates, provide the Funds with sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to sub-accounts they service. For these services, these entities receive an asset-based fee or an annual fee per shareholder account, which will vary depending on share class and/or net assets. For the six months ended March 31, 2015, the Funds paid the following amounts to the affiliates of BlackRock in return for these services, which are included in transfer agent — class specific in the Statements of Operations:

 

Flexible Equity

   $ 491   

Mid-Cap Growth Equity

   $ 1,515   

Small Cap Growth Equity

   $ 117,234   

The Manager maintains a call center, which is responsible for providing certain shareholder services to the Funds, such as responding to shareholder inquiries and processing transactions based upon instructions from shareholders with respect to the subscription and redemption of Fund shares. For the six months ended March 31, 2015, each Fund reimbursed the Manager the following amounts for costs incurred in running the call center, which are included in transfer agent — class specific in the Statements of Operations:

 

      Institutional      Service      Investor A      Investor B      Investor C      Class R      Total  

Flexible Equity

   $ 1,187       $ 8       $ 46,235       $ 3,163       $ 2,146       $ 3       $ 52,742   

Mid-Cap Growth Equity

   $ 990       $ 18       $ 69,572       $ 2,460       $ 1,599       $ 39       $ 74,678   

Small Cap Growth Equity

   $ 1,002       $ 154       $ 4,690       $ 69       $ 1,028               $ 6,943   

For the six months ended March 31, 2015, the following table shows the class specific transfer agent fees borne directly by each class of each Fund:

 

      Institutional      Service      Investor A      Investor B      Investor C      Class R      Total  

Flexible Equity

   $ 41,524       $ 167       $ 485,421       $ 19,552       $ 94,390       $ 1,621       $ 642,675   

Mid-Cap Growth Equity

   $ 16,426       $ 2,246       $ 406,676       $ 12,863       $ 30,358       $ 11,016       $ 479,585   

Small Cap Growth Equity

   $ 334,292       $ 22,858       $ 299,813       $ 1,481       $ 39,446               $ 697,890   

Effective January 1, 2015, The Trust, on behalf of the Funds, entered into an Administration Agreement with the Manager, an indirect, wholly owned subsidiary of BlackRock, to provide administrative services. For these services, the Manager receives an administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of the Funds. The administration fee, which is shown as administration in the Statement of Operations, is paid at the annual rates below:

 

Average Daily Net Assets    Administration Fee  

First $500 Million

     0.0425

$500 Million - $1 Billion

     0.0400

$1 Billion - $2 Billion

     0.0375

$2 Billion - $4 Billion

     0.0350

$4 Billion - $13 Billion

     0.0325

Greater than $13 Billion

     0.0300

In addition, the Manager charges each of the share classes an administration fee, which is shown as administration — class specific in the Statement of Operations, at an annual rate of 0.02% of the average daily net assets of each respective class.

Prior to January 1, 2015, BNY Mellon Investment Servicing (US) Inc. (“BNYMIS”) and the Manager acted as co-administrators for the Funds. For these services, the co-administrators received an administration fee computed daily and payable monthly to each administrator pursuant to separate fee arrangements, based on a percentage of the average daily net assets of each Fund. The combined administration fee, which is shown as administration in the Statements of Operations, was paid at the following annual rates. In addition, each of the share classes is charged an administration fee, which is shown as administration — class specific in the Statements of Operations, based on the following percentages of average daily net assets of each respective class:

 

Average Daily Net Assets    Administration Fee     Administration Fee —
Class Specific
 

First $500 Million

     0.075     0.025

$500 Million - $1 Billion

     0.065     0.015

Greater than $1 Billion

     0.055     0.005

 

     BLACKROCK FUNDS    MARCH 31, 2015    51


Notes to Financial Statements (continued)     

 

For the six months ended March 31, 2015, the Funds paid the following to the Manager in return for these services, which are included in administration and administration — class specific in the Statements of Operations:

 

Flexible Equity

   $ 199,136   

Mid-Cap Growth Equity

   $ 137,669   

Small Cap Growth Equity

   $ 274,852   

For the six months ended March 31, 2015, the following table shows the class specific administration fees borne directly by each class of each Fund:

 

      Institutional      Service      Investor A      Investor B      Investor C      Class R      Total  

Flexible Equity

   $ 5,817       $ 21       $ 48,271       $ 720       $ 9,922       $ 168       $ 64,919   

Mid-Cap Growth Equity

   $ 3,416       $ 326       $ 36,014       $ 349       $ 3,596       $ 870       $ 44,571   

Small Cap Growth Equity

   $ 52,067       $ 2,383       $ 32,168       $ 85       $ 3,602               $ 90,305   

BNYMIS and the Manager may have, at their discretion, voluntarily waived all or any portion of their administration fees for a Fund or a share class, which are included in administration fees waived — class specific in the Statements of Operations.

The Manager contractually and/or voluntarily agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Funds’ business. The expense limitations as a percentage of average daily net assets are as follows:

 

     

Flexible

Equity

               Mid-Cap
Growth Equity
          Small Cap
Growth Equity
 
     Contractual1     Voluntary2              Contractual3          Contractual3  
  

 

 

   

 

 

        

 

 

      

 

 

 

Institutional

     0.97     0.92          1.11        1.02

Service

     1.29     1.24          1.58        1.18 %4 

Investor A

     1.29     1.24          1.39        1.50

Investor B

     2.06     2.01          2.16        2.28

Investor C

     2.06     2.01          2.16        2.28

Class R

     1.65 %5      1.60              1.65          1.72 %6 

 

  1   

The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to February 1, 2016, except for Class R Shares which is prior to February 1, 2025, unless approved by the Board, including a majority of the independent Trustees.

 

  2   

The voluntary waiver or reimbursement, which became effective June 1, 2014, may be reduced or discontinued at any time.

 

  3   

The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to February 1, 2016 unless approved by the Board, including a majority of the independent Trustees.

 

  4   

Prior to February 1, 2015, the contractual cap was 1.29%.

 

  5   

On February 1 of each year, the waiver agreement will renew automatically for an additional one year so that the agreement will have a perpetual ten year term.

 

  6   

There were no shares outstanding as of March 31, 2015.

These amounts waived or reimbursed are included in fees waived by the Manager, and shown as administration fees waived — class specific, transfer agent fees waived — class specific and transfer agent fees reimbursed — class specific, respectively, in the Statements of Operations. For the six months ended March 31, 2015, the Manager waived $5,758 of investment advisory fees for Flexible Equity, which is included in fees waived by the Manager. Class specific expense waivers or reimbursements are as follows:

 

Administration Fees Waived    Institutional      Service      Investor A      Investor B      Investor C      Class R      Total  

Flexible Equity

   $ 5,817       $ 13       $ 48,271       $ 720       $ 9,922       $ 168       $ 64,911   

Mid-Cap Growth Equity

           $ 3       $ 35,610       $ 349       $ 275       $ 870       $ 37,107   

Small Cap Growth Equity

           $ 91                                       $ 91   
                    

Transfer Agent Fees Waived

     Institutional         Service         Investor A         Investor B         Investor C         Class R         Total   

Flexible Equity

   $ 1,187       $ 8       $ 46,235       $ 3,163       $ 2,146       $ 3       $ 52,742   

Mid-Cap Growth Equity

                   $ 48,754       $ 2,460               $ 39       $ 51,253   
                    

Transfer Agent Fees Reimbursed

     Institutional         Service         Investor A         Investor B         Investor C         Class R         Total   

Flexible Equity

   $ 40,150       $ 121       $ 288,410       $ 13,506       $ 53,033       $ 264       $ 395,484   

Mid-Cap Growth Equity

           $ 5       $ 20,895       $ 6,856               $ 2,456       $ 30,212   

If during a Fund’s fiscal year the operating expenses of a share class, that at any time during the prior two fiscal years received a waiver or reimbursement from the Manager, are less than the expense limit for that share class, the Manager is entitled to be reimbursed by such share class up to the lesser of (a) the amount of fees waived or expenses reimbursed during those prior two fiscal years under the agreement and (b) the amount by which the expense limit for that share class exceeds the operating expenses of the share class for the current fiscal year, provided that: (1) the Fund, of which the share class is a part, has more than $50 million in assets for the fiscal year and (2) the Manager or an affiliate continues to serve as the Fund’s investment advisor or administrator. In the event the expense limit for a share class is changed subsequent to a fiscal year in which the Manager

 

52    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

becomes entitled to reimbursement for fees waived or reimbursed, the amount available to reimburse the Manager shall be calculated by reference to the expense limit for that share class in effect at the time the Manager became entitled to receive such reimbursement, rather than the subsequently changed expense limit for that share class.

For the six months ended March 31, 2015, the Manager recouped the following Fund level and class specific waivers and/or reimbursements previously recorded by the Funds:

 

      Institutional      Service      Investor C      Total  

Flexible Equity

           $ 15               $ 15   

Mid-Cap Growth Equity

   $ 2,523       $ 1,701       $ 3,138       $ 7,362   

On March 31, 2015, the Fund level and class specific waivers and/or reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:

 

      Expiring September 30,  
      2015      2016      2017  

Flexible Equity

        

Fund Level

   $ 4,185                   

Institutional

   $ 161,208       $ 68,244       $ 34,796   

Service

   $ 2,162       $ 51       $ 110   

Investor A

   $ 726,434       $ 534,736       $ 280,289   

Investor B

   $ 50,744       $ 33,683       $ 15,862   

Investor C

   $ 141,245       $ 74,719       $ 44,014   

R Shares

   $ 1,533       $ 563       $ 275   

Mid-Cap Growth Equity

        

Service

                   $ 8   

Investor A

   $ 387,828       $ 282,293       $ 105,259   

Investor B

   $ 24,471       $ 19,359       $ 9,664   

Investor C

   $ 10,988       $ 4,164       $ 276   

R Shares

   $ 6,418       $ 7,596       $ 3,365   

For the six months ended March 31, 2015, affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of each Fund’s Investor A Shares as follows:

 

Flexible Equity

   $ 3,751   

Mid-Cap Growth Equity

   $ 7,673   

Small Cap Growth Equity

   $ 5,826   

For the six months ended March 31, 2015, affiliates received CDSCs as follows:

 

      Investor A      Investor B      Investor C  

Flexible Equity

   $ 12       $ 148       $ 1,463   

Mid-Cap Growth Equity

   $ 195       $ 79       $ 1,499   

Small Cap Growth Equity

   $ 484               $ 1,628   

The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Funds, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Funds are responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Funds.

Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. Each Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent. Pursuant to a securities lending agreement, BIM may lend securities only when the difference between the borrower rebate rate and the risk free rate exceeds a certain level (such securities, the “specials only securities”).

Pursuant to such agreement, each Fund retains 80% of securities lending income. In addition, commencing the business day following the date that the aggregate securities lending income earned across certain funds in the Equity-Liquidity Complex in a calendar year exceeds a specified threshold, each Fund, pursuant to the securities lending agreement, will retain for the remainder of the calendar year securities lending income in an amount equal to 85% of securities lending income.

 

     BLACKROCK FUNDS    MARCH 31, 2015    53


Notes to Financial Statements (continued)     

 

The share of securities lending income earned by each Fund, if any, is shown as securities lending — affiliated — net in the Statements of Operations. For the six months ended March 31, 2015, each Fund paid BIM the following amounts for securities lending agent services:

 

Flexible Equity

   $ 14,153   

Mid-Cap Growth Equity

   $ 6,286   

Small Cap Growth Equity

   $ 264,570   

Certain officers and/or trustees of the Trust are officers and/or directors of BlackRock or its affiliates. The Funds reimburse the Manager for a portion of the compensation paid to the Trust’s Chief Compliance Officer, which is included in officer and trustees in the Statements of Operations.

The Funds may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment advisor, common officers, or common trustees. For the six months ended March 31, 2015, Flexible Equity’s purchase and sale transactions with an affiliated fund in compliance with Rule 17a-7 under the 1940 Act were $17,172,283 and $5,877,528, respectively.

6. Purchases and Sales:

Purchases and sales of investments, excluding short-term securities, for the six months ended March 31, 2015, were as follows:

 

     

Flexible

Equity

     Mid-Cap
Growth Equity
     Small Cap
Growth Equity
 

Purchases

   $ 730,085,154       $ 201,149,810       $ 531,990,041   

Sales

   $ 702,498,813       $ 216,217,237       $ 557,813,030   

7. Income Tax Information:

It is the Funds’ policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of their taxable income to their shareholders. Therefore, no federal income tax provision is required.

The Funds file U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Funds’ U.S. federal tax returns remains open for each of the four years ended September 30, 2014. The statutes of limitations on each Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.

Management has analyzed tax laws and regulations and their application to the Funds as of March 31, 2015, inclusive of the open tax return years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Funds’ financial statements.

As of September 30, 2014, the Flexible Equity Fund had a capital loss carryforward available to offset future realized capital gains of $47,020,050, all of which is due to expire September 30, 2017.

As of March 31, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:

 

     

Flexible

Equity

    Mid-Cap
Growth Equity
    Small Cap
Growth Equity
 

Tax cost

   $ 538,543,784      $ 326,034,390      $ 760,102,039   
  

 

 

 

Gross unrealized appreciation

   $ 26,571,964      $ 114,886,919      $ 140,844,001   

Gross unrealized depreciation

     (13,430,968     (2,920,777     (36,782,160
  

 

 

 

Net unrealized appreciation

   $ 13,140,996      $ 111,966,142      $ 104,061,841   
  

 

 

 

8. Bank Borrowings:

The Trust, on behalf of the Funds, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), was a party to a 364-day, $1.1 billion credit agreement with a group of lenders, under which the Funds may borrow to fund shareholder redemptions. Excluding commitments designated for a certain individual fund, the Participating Funds, including the Fund, could borrow up to an aggregate commitment amount of $650 million, subject to asset coverage and other limitations as specified in the agreement. Effective November 25, 2014, the credit agreement was amended to an aggregate commitment amount of $2.1 billion, of which the Participating Funds, including the Fund, can borrow up to $1.6 billion at any time outstanding, subject to asset coverage and other limitations as specified in the agreement. The agreement terminates on April 23, 2015, unless otherwise extended to November 24, 2015 or renewed for a period of 364 days from April 23, 2015. The amended agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon

 

54    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended March 31, 2015, the Funds did not borrow under the credit agreement.

9. Principal Risks:

In the normal course of business, the Funds invest in securities and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Funds may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Funds; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Funds may be exposed to counterparty credit risk, or the risk that an entity with which the Funds have unsettled or open transactions may fail to or be unable to perform on its commitments. The Funds manage counterparty credit risk by entering into transactions only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Funds to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Funds’ exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statements of Assets and Liabilities, less any collateral held by the Funds.

As of March 31, 2015, Flexible Equity and Small Cap Growth Equity invested a significant portion of their assets in securities in the information technology and health care sectors. Mid-Cap Growth Equity invested a significant portion of its assets in securities in the consumer discretionary and information technology sectors. Changes in economic conditions affecting such sectors would have a greater impact on the respective Funds and could affect the value, income and/or liquidity of positions in such securities.

10. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

 

     Six Months Ended
March 31, 2015
         Year Ended
September 30, 2014
 
Flexible Equity    Shares     Amount           Shares     Amount  

Institutional

                                     

Shares sold

     195,452      $ 2,645,063           1,242,439      $ 18,462,322   

Shares issued in reinvestment of distributions

     571,422        7,302,784           88,986        1,337,911   

Shares redeemed

     (595,914     (7,942,014        (2,225,666     (32,833,176
  

 

 

      

 

 

 

Net increase (decrease)

     170,960      $ 2,005,833           (894,241   $ (13,032,943
  

 

 

      

 

 

 
           

Service

                                     

Shares sold

                      1,364      $ 19,360   

Shares issued in reinvestment of distributions

     2,121      $ 26,699           336        5,005   

Shares redeemed

     (3,004     (43,352        (17,425     (252,400
  

 

 

      

 

 

 

Net decrease

     (883   $ (16,653        (15,725   $ (228,035
  

 

 

      

 

 

 
           

Investor A

                                     

Shares sold and automatic conversion of shares

     777,828      $ 10,197,631           1,663,646      $ 23,801,164   

Shares issued in reinvestment of distributions

     5,268,169        64,956,765           698,720        10,236,797   

Shares redeemed

     (4,183,626     (55,001,580        (8,445,720     (121,467,554
  

 

 

      

 

 

 

Net increase (decrease)

     1,862,371      $ 20,152,816           (6,083,354   $ (87,429,593
  

 

 

      

 

 

 
           

Investor B

                                     

Shares sold

     887      $ 10,536           3,381      $ 43,442   

Shares issued in reinvestment of distributions

     94,405        1,036,570           9,091        121,879   

Shares redeemed and automatic conversion of shares

     (154,965     (1,805,988        (421,887     (5,456,644
  

 

 

      

 

 

 

Net decrease

     (59,673   $ (758,882        (409,415   $ (5,291,323
  

 

 

      

 

 

 

 

     BLACKROCK FUNDS    MARCH 31, 2015    55


Notes to Financial Statements (continued)     

 

 

     Six Months Ended
March 31, 2015
         Year Ended
September 30, 2014
 
Flexible Equity (concluded)    Shares     Amount           Shares     Amount  

Investor C

                                     

Shares sold

     145,741      $ 1,724,831           265,044      $ 3,408,878   

Shares issued in reinvestment of distributions

     1,323,125        14,355,983           117,219        1,558,290   

Shares redeemed

     (906,062     (10,486,190        (1,600,571     (20,645,886
  

 

 

      

 

 

 

Net increase (decrease)

     562,804      $ 5,594,624           (1,218,308   $ (15,678,718
  

 

 

      

 

 

 
           

Class R

                                     

Shares sold

     10,954      $ 148,085           53,477      $ 784,618   

Shares issued in reinvestment of distributions

     17,840        226,931           1,295        19,657   

Shares redeemed

     (25,613     (331,305        (28,177     (413,014
  

 

 

      

 

 

 

Net increase

     3,181      $ 43,711           26,595      $ 391,261   
  

 

 

      

 

 

 

Total Net Increase (Decrease)

     2,538,760      $ 27,021,449           (8,594,448   $ (121,269,351
  

 

 

      

 

 

 
Mid-Cap Growth Equity                                   

Institutional

                                     

Shares sold

     478,585      $ 8,371,788           1,196,508      $ 21,091,745   

Shares issued in reinvestment of distributions

     185,953        2,891,571           194,583        3,105,529   

Shares redeemed

     (729,013     (12,334,031        (677,079     (11,709,016
  

 

 

      

 

 

 

Net increase (decrease)

     (64,475   $ (1,070,672        714,012      $ 12,488,258   
  

 

 

      

 

 

 
           

Service

                                     

Shares sold

     36,763      $ 588,978           158,478      $ 2,550,496   

Shares issued in reinvestment of distributions

     33,345        475,497           24,218        359,153   

Shares redeemed

     (183,110     (2,613,334        (68,930     (1,110,985
  

 

 

      

 

 

 

Net increase (decrease)

     (113,002   $ (1,548,859        113,766      $ 1,798,664   
  

 

 

      

 

 

 
           

Investor A

                                     

Shares sold and automatic conversion of shares

     1,629,216      $ 24,897,260           2,620,664      $ 41,081,622   

Shares issued in reinvestment of distributions

     2,641,817        36,192,894           3,329,313        47,575,801   

Shares redeemed

     (1,797,456     (26,948,741        (3,002,634     (46,763,780
  

 

 

      

 

 

 

Net increase

     2,473,577      $ 34,141,413           2,947,343      $ 41,893,643   
  

 

 

      

 

 

 
           

Investor B

                                     

Shares sold

     1,598      $ 20,297           14,015      $ 189,102   

Shares issued in reinvestment of distributions

     37,360        419,930           63,066        759,319   

Shares redeemed and automatic conversion of shares

     (59,282     (719,407        (129,834     (1,701,598
  

 

 

      

 

 

 

Net decrease

     (20,324   $ (279,180        (52,753   $ (753,177
  

 

 

      

 

 

 
           

Investor C

                                     

Shares sold

     316,586      $ 3,963,175           737,262      $ 9,789,456   

Shares issued in reinvestment of distributions

     377,524        4,213,180           396,072        4,748,893   

Shares redeemed

     (310,731     (3,815,107        (436,380     (5,629,287
  

 

 

      

 

 

 

Net increase

     383,379      $ 4,361,248           696,954      $ 8,909,062   
  

 

 

      

 

 

 

 

56    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (concluded)     

 

 

     Six Months Ended
March 31, 2015
         Year Ended
September 30, 2014
 
Mid-Cap Growth Equity (concluded)    Shares     Amount           Shares     Amount  

Class R

                                     

Shares sold

     105,588      $ 1,577,263           213,560      $ 3,338,369   

Shares issued in reinvestment of distributions

     68,920        935,238           115,333        1,635,424   

Shares redeemed

     (145,406     (2,100,075        (404,806     (6,167,381
  

 

 

      

 

 

 

Net increase (decrease)

     29,102      $ 412,426           (75,913   $ (1,193,588
  

 

 

      

 

 

 

Total Net Increase

     2,688,257      $ 36,016,376           4,343,409      $ 63,142,862   
  

 

 

      

 

 

 
Small Cap Growth Equity                                   

Institutional

                                     

Shares sold

     1,822,865      $ 35,926,624           8,656,098      $ 211,371,164   

Shares issued in reinvestment of distributions

     5,535,087        98,413,836           9,997,391        219,842,574   

Shares redeemed

     (2,750,662     (54,556,283        (27,109,533     (690,162,339
  

 

 

      

 

 

 

Net increase (decrease)

     4,607,290      $ 79,784,177           (8,456,044   $ (258,948,601
  

 

 

      

 

 

 
           

Service

                                     

Shares sold

     128,462      $ 2,281,081           326,946      $ 7,360,406   

Shares issued in reinvestment of distributions

     320,597        4,988,487           452,078        8,964,705   

Shares redeemed

     (372,662     (6,880,388        (492,363     (10,724,740
  

 

 

      

 

 

 

Net increase

     76,397      $ 389,180           286,661      $ 5,600,371   
  

 

 

      

 

 

 
           

Investor A

                                     

Shares sold and automatic conversion of shares

     2,017,404      $ 31,831,481           4,602,327      $ 93,881,945   

Shares issued in reinvestment of distributions

     4,903,069        70,555,130           6,048,552        113,168,255   

Shares redeemed

     (2,678,458     (43,856,254        (8,147,736     (171,817,273
  

 

 

      

 

 

 

Net increase

     4,242,015      $ 58,530,357           2,503,143      $ 35,232,927   
  

 

 

      

 

 

 
           

Investor B

                                     

Shares sold

     935      $ 11,161           2,277      $ 38,240   

Shares issued in reinvestment of distributions

     25,616        246,684           34,769        489,888   

Shares redeemed and automatic conversion of shares

     (13,241     (144,097        (37,519     (555,636
  

 

 

      

 

 

 

Net increase (decrease)

     13,310      $ 113,748           (473   $ (27,508
  

 

 

      

 

 

 
           

Investor C

                                     

Shares sold

     224,841      $ 2,456,563           411,912      $ 6,591,150   

Shares issued in reinvestment of distributions

     1,120,241        10,575,042           1,031,671        14,371,093   

Shares redeemed

     (507,505     (5,591,311        (606,945     (9,349,869
  

 

 

      

 

 

 

Net increase

     837,577      $ 7,440,294           836,638      $ 11,612,374   
  

 

 

      

 

 

 

Total Net Increase (Decrease)

     9,776,589      $ 146,257,756           (4,830,075   $ (206,530,437
  

 

 

      

 

 

 

11. Subsequent Events:

Management’s evaluation of the impact of all subsequent events on the Funds’ financial statements was completed through the date the financial statements were issued and the following item was noted:

Effective April 23, 2015, the 364-day, $2.1 billion credit agreement to which the Funds are a party, was further amended to expire on April 21, 2016, unless otherwise extended or renewed.

 

     BLACKROCK FUNDS    MARCH 31, 2015    57


Officers and Trustees     

 

Rodney D. Johnson, Chair of the Board and Trustee

David O. Beim, Trustee

Collette Chilton, Trustee

Frank J. Fabozzi, Trustee

Dr. Matina S. Horner, Trustee

Herbert I. London, Trustee

Ian A. MacKinnon, Trustee

Cynthia A. Montgomery, Trustee

Barbara G. Novick, Trustee

Joseph P. Platt, Trustee

Robert C. Robb, Jr., Trustee

Toby Rosenblatt, Trustee

Mark Stalnecker, Trustee

Kenneth L. Urish, Trustee

Frederick W. Winter, Trustee

John M. Perlowski, President and Chief Executive Officer

Jennifer McGovern, Vice President

Neal Andrews, Chief Financial Officer

Jay Fife, Treasurer

Charles Park, Chief Compliance Officer

Fernanda Piedra, Anti-Money Laundering Compliance Officer

Benjamin Archibald, Secretary

 

Effective December 31, 2014, Paul L. Audet and Henry Gabbay resigned as Trustees of the Trust and Ronald W. Forbes resigned as a Trustee of the Trust and Co-Chair of the Board. Effective January 1, 2015, Collette Chilton, Barbara G. Novick and Mark Stalnecker were appointed to serve as Trustees of the Trust.

Effective March 1, 2015, Charles Park resigned as Anti-Money Laundering Compliance Officer of the Trust and Fernanda Piedra became Anti-Money Laundering Compliance Officer of the Trust.

 

       

Investment Advisor and

Administrator

BlackRock Advisors, LLC

Wilmington, DE 19809

 

Accounting Agent and

Transfer Agent

BNY Mellon Investment

Servicing (US) Inc.

Wilmington, DE 19809

 

Independent Registered

Public Accounting Firm

Deloitte & Touche LLP

Philadelphia, PA 19103

 

Address of the Trust

100 Bellevue Parkway

Wilmington, DE 19809

     

Custodian

The Bank of New York Mellon

New York, NY 10286

 

Distributor

BlackRock Investments, LLC

New York, NY 10022

 

Legal Counsel

Sidley Austin LLP

New York, NY 10019

 

 

58    BLACKROCK FUNDS    MARCH 31, 2015     


Additional Information     

 

General Information

Householding

The Funds will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please call the Funds at (800) 441-7762.

Availability of Quarterly Schedule of Investments

The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Funds’ Forms N-Q may also be obtained upon request and without charge by calling (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available upon request and without charge (1) by calling (800) 441-7762; (2) at http://www.blackrock.com; and (3) on the SEC’s website at http://www.sec.gov.

Availability of Proxy Voting Record

Information about how the Funds voted proxies relating to securities held in the Funds’ portfolios during the most recent 12-month period ended June 30 is available upon request and without charge (1) at http://www.blackrock.com or by calling (800) 441-7762 and (2) on the SEC’s website at http://www.sec.gov.

BlackRock’s Mutual Fund Family

BlackRock offers a diverse lineup of open-end mutual funds crossing all investment styles and managed by experts in equity, fixed income and tax-exempt investing. Visit http://www.blackrock.com for more information.

 

Shareholder Privileges

Account Information

Call us at (800) 441-7762 from 8:00 AM to 6:00 PM EST on any business day to get information about your account balances, recent transactions and share prices. You can also reach us on the Web at http://www.blackrock.com/funds.

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 funds.

Systematic Withdrawal Plans

Investor Class shareholders can establish a systematic withdrawal plan and receive periodic payments of $50 or more from their BlackRock funds, as long as their account balance is at least $10,000.

Retirement Plans

Shareholders may make investments in conjunction with Traditional, Rollover, Roth, Coverdell, Simple IRAs, SEP IRAs and 403(b) Plans.

 

     BLACKROCK FUNDS    MARCH 31, 2015    59


Additional Information (concluded)     

 

BlackRock Privacy Principles

BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, “Clients”) and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why in certain cases we share such information with select parties.

If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different privacy-related rights beyond what is set forth below, then BlackRock will comply with those specific laws, rules or regulations.

BlackRock obtains or verifies personal non-public information from and about you from different sources, including the following: (i) information we receive from you or, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions with us, our affiliates, or others; (iii) information we receive from a consumer reporting agency; and (iv) from visits to our websites.

BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose.

We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information.

 

60    BLACKROCK FUNDS    MARCH 31, 2015     


 

 

 

 

 

This report is intended for current holders. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Funds unless preceded or accompanied by the Funds’ current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.

 

LOGO

Eq-Midcap-3/15-SAR

  

LOGO

 


MARCH 31, 2015        

 

 

SEMI-ANNUAL REPORT (UNAUDITED)

 

      BLACKROCK®

BlackRock FundsSM

  BlackRock Global Opportunities Portfolio

  BlackRock Health Sciences Opportunities Portfolio

  BlackRock International Opportunities Portfolio

  BlackRock Science & Technology Opportunities Portfolio

  BlackRock U.S. Opportunities Portfolio

 

 

 

 

 

 

Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee  

 


 

Table of Contents

    

 

       Page   

The Markets in Review

     3   

Semi-Annual Report:

  

Fund Summaries

     4   

About Fund Performance

     14   

Disclosure of Expenses

     15   

Derivative Financial Instruments

     15   

Financial Statements:

  

Schedules of Investments

     16   

Statements of Assets and Liabilities

     45   

Statements of Operations

     47   

Statements of Changes in Net Assets

     48   

Financial Highlights

     50   

Notes to Financial Statements

     77   

Officers and Trustees

     98   

Additional Information

     99   

 

 

 

LOGO

 

2    BLACKROCK FUNDS    MARCH 31, 2015     


 

The Markets in Review

Dear Shareholder,

Market volatility has remained low from a long-term perspective, but increased over the course of 2014 amid higher valuations in risk assets (such as equities and high yield bonds), geopolitical risks, uneven global economic growth and uncertainty around policy moves from the world’s largest central banks. As the U.S. Federal Reserve (the “Fed”) gradually reduced its bond buying program (which ultimately ended in October 2014), U.S. interest rates surprisingly trended lower and stock prices forged ahead despite high valuations on the back of a multi-year bull market. Geopolitical tensions intensified in Ukraine and the Middle East and oil prices became highly volatile in the middle of the summer, stoking worries about economic growth outside the United States. As the U.S. economy continued to show steady improvement, the stronger data caused concern among investors that the Fed would raise short-term rates sooner than previously anticipated. The U.S. dollar appreciated and global credit markets tightened, ultimately putting a strain on investor flows, and financial markets broadly weakened in the third quarter.

U.S. economic growth picked up considerably in the fourth quarter while the broader global economy showed signs of slowing. U.S. markets significantly outperformed international markets even as the European Central Bank (“ECB”) and the Bank of Japan eased monetary policy, which drove further strengthening in the U.S. dollar. Oil prices plummeted in the fourth quarter due to a global supply-and-demand imbalance, sparking a selloff in energy-related assets and stress in emerging markets. Fixed income investors piled into U.S. Treasuries as their persistently low yields became relatively attractive as compared to international sovereign debt.

Equity markets reversed in the first quarter of 2015 and U.S. stocks underperformed international markets, notably Europe and Japan, but also emerging markets. Investors had held high expectations for the U.S. economy, but after a harsh winter, first-quarter data disappointed and high valuations took their toll on U.S. stocks. Meanwhile, economic reports in Europe and Asia easily beat investors’ very low expectations for those economies, and accommodative policies from global central banks helped international equities rebound. The ECB’s asset purchase program (announced in January and commenced in March) was the largest in scale and effect on the markets. Overall, market volatility decreased in the first quarter as global risks abated, with a ceasefire in Ukraine and an improving outlook for Greece’s continued membership in the Eurozone.

At BlackRock, we believe investors need to think globally, extend their scope across a broad array of asset classes and be prepared to move freely as market conditions change over time. We encourage you to talk with your financial advisor and visit blackrock.com for further insight about investing in today’s markets.

Sincerely,

 

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

Total Returns as of March 31, 2015
      6-month      12-month 

U.S. large cap equities
(S&P 500® Index)

  5.93%   12.73%

U.S. small cap equities
(Russell 2000® Index)

  14.46       8.21  

International equities
(MSCI Europe, Australasia,
Far East Index)

  1.13     (0.92)   

Emerging market equities
(MSCI Emerging Markets
Index)

  (2.37)      0.44  

3-month Treasury bill
(BofA Merrill Lynch
3-Month U.S. Treasury
Bill Index)

  0.01     0.03  

U.S. Treasury securities
(BofA Merrill Lynch
10-Year U.S. Treasury
Index)

  6.25     9.88  

U.S. investment grade
bonds (Barclays U.S.
Aggregate Bond Index)

  3.43     5.72  

Tax-exempt municipal
bonds (S&P Municipal
Bond Index)

  2.29     6.60  

U.S. high yield bonds
(Barclays U.S. Corporate
High Yield 2% Issuer
Capped Index)

  1.50     2.00  
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

 

 

 

     THIS PAGE NOT PART OF YOUR FUND REPORT         3


 

Fund Summary as of March 31, 2015

  

 

 

 

BlackRock Global Opportunities Portfolio

 

  

 

 

         Investment Objective

BlackRock Global Opportunities Portfolio’s (the “Fund”) investment objective is to provide long-term capital appreciation.

 

         Portfolio Management Commentary

 

  How did the Fund perform?

 

Ÿ  

For the six-month period ended March 31, 2015, the Fund outperformed the benchmark, the MSCI All Country World Index (“ACWI”).

  What factors influenced performance?

 

Ÿ  

Stock selection in the financials and industrials sectors were the primary positive contributors to relative performance. Within the financials sector, selection in the asset management & custody banks sub-industry was a notable contributor as shares of WisdomTree Investments, Inc. traded higher following a report that the firm’s assets under management had surpassed the $50 billion mark. Within industrials, shares of American Airlines Group, Inc. rallied after the stock was added to the S&P 500 Index. The company has also benefited along with other airlines from lower input costs caused by declining energy prices.

 

Ÿ  

Stock selection decisions in the energy sector pared back some of the relative gains. Within the oil & gas exploration & production sub-industry, shares of Lekoil Ltd. fell as the price of oil continued its downward trend. Also detracting from relative performance was selection in the information technology (“IT”) sector, as shares of LendingClub Corp. gradually fell over the period after posting strong short-term gains following its initial public offering.

  Describe recent portfolio activity.

 

Ÿ  

During the six-month period, the Fund increased its exposure to the IT, telecommunication services and consumer staples sectors, while reducing exposure to the energy, financials and industrials sectors. In regional terms, these shifts resulted in increased overweight exposures to emerging Asia and developed Europe, while reducing exposure to emerging Americas and Japan.

  Describe portfolio positioning at period end.

 

Ÿ  

Relative to the MSCI ACWI, the Fund ended the period overweight developed Europe and underweight both developed Americas and Asia. From a sector perspective, the Fund was most notably overweight in the IT and health care sectors, while its biggest underweights were to the materials and the consumer staples sectors.

 

 

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

         Portfolio Information

 

 

Ten Largest Holdings    Percent of
Long-Term Investments
 

Apple Inc.

     2%                

Citigroup, Inc.

     2                   

Royal Dutch Shell PLC, A Shares - ADR

     2                   

The Hartford Financial Services Group, Inc.

     1                   

AIA Group Ltd.

     1                   

Roper Industries, Inc.

     1                   

The Hain Celestial Group, Inc.

     1                   

Actavis PLC

     1                   

Kennedy-Wilson Holdings, Inc.

     1                   

BankUnited, Inc.

     1                   
Geographic Allocation    Percent of
Long-Term Investments
 

United States

     53%              

United Kingdom

     10                 

Japan

     5                 

France

     4                 

Germany

     3                 

Switzerland

     3                 

China

     3                 

India

     2                 

Netherlands

     2                 

Ireland

     2                 

South Korea

     2                 

Other1

     11                 

 

  1  

Includes holdings within countries that are 1% or less of long-term investments.

       Please refer to the Schedule of Investments for such countries.
 

 

4    BLACKROCK FUNDS    MARCH 31, 2015     


    

 

 

 

BlackRock Global Opportunities Portfolio

 

  

 

 

        Total Return Based on a $10,000 Investment

 

LOGO

 

  1 

Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees and administration fees, if any. Institutional Shares do not have a sales charge.

 

  2 

Under normal market conditions, the Fund will invest at least 75% of its total assets in global equity securities of any market capitalization, selected for their above-average return potential. The Fund may invest up to 25% of its total assets in stocks of issuers in emerging market countries. The Fund may also invest up to 25% of its total assets in global fixed-income securities, including corporate bonds, U.S. government debt securities, non-U.S. government and supranational debt securities, asset-backed securities, mortgage-backed securities, emerging market debt securities and non-investment grade debt securities (high yield or junk bonds).

 

  3 

A free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 46 country indexes comprising 23 developed and 23 emerging market country indexes.

 

  4 

Commencement of operations.

 

        Performance Summary for the Period Ended March 31, 2015
         

 

Average Annual Total Returns5

          1 Year   5 Years    Since Inception6
      6-Month
Total Returns
   w/o sales
charge
   w/sales
charge
  w/o sales
charge
   w/sales
charge
   w/o sales
charge
   w/sales
charge

Institutional

   4.77%       1.76%    N/A      7.59%    N/A       5.53%    N/A

Investor A

   4.63        1.53       (3.81)%   7.29       6.14%    5.24       4.62%

Investor B

   4.12        0.64    (3.86)   6.37    6.06    4.55    4.55

Investor C

   4.19        0.77    (0.24)   6.39    6.39    4.44    4.44

Class R

   4.47        1.21    N/A   6.91    N/A    4.85    N/A

MSCI ACWI

   2.73        5.42    N/A   8.99    N/A    5.18    N/A

 

  5   

Assuming maximum sales charges, if any. Average annual total returns with and without sales charges reflect reductions for distribution and service fees. See “About Fund Performance” on page 14 for a detailed description of share classes, including any related sales charges and fees.

 

  6   

The Fund commenced operations on January 31, 2006.

 

       N/A - Not applicable as share class and index do not have a sales charge.

 

       Past performance is not indicative of future results.

 

        Expense Example
   

Actual

 

Hypothetical8

   
    

Beginning

Account Value
October 1, 2014

 

Ending

Account Value
March 31, 2015

  Expenses Paid
During the Period7
 

Beginning

Account Value
October 1, 2014

 

Ending

Account Value
March 31, 2015

  Expenses Paid
During the Period7
 

Annualized

Expense

Ratio

Institutional

  $1,000.00   $1,047.70   $  5.41   $1,000.00   $1,019.65   $  5.34   1.06%

Investor A

  $1,000.00   $1,046.30   $  6.79   $1,000.00   $1,018.30   $  6.69   1.33%

Investor B

  $1,000.00   $1,041.20   $11.09   $1,000.00   $1,014.06   $10.95   2.18%

Investor C

  $1,000.00   $1,041.90   $10.89   $1,000.00   $1,014.26   $10.75   2.14%

Class R

  $1,000.00   $1,044.70   $  8.77   $1,000.00   $1,016.36   $  8.65   1.72%

 

  7   

For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/ 365 (to reflect the one-half year period shown).

 

  8   

Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.

 

       See “Disclosure of Expenses” on page 15 for further information on how expenses were calculated.

 

     BLACKROCK FUNDS    MARCH 31, 2015    5


 

Fund Summary as of March 31, 2015

  

 

 

 

BlackRock Health Sciences Opportunities Portfolio

 

  

 

 

        Investment Objective

BlackRock Health Sciences Opportunities Portfolio’s (the “Fund”) investment objective is to provide long-term growth of capital.

 

         Portfolio Management Commentary

 

  How did the Fund perform?

 

Ÿ  

For the six-month period ended March 31, 2015, the Fund outperformed its benchmark, the Russell 3000® Health Care Index, as well as the broad-market S&P 500® Index. The following discussion of relative performance pertains to the Russell 3000® Health Care Index.

  What factors influenced performance?

 

Ÿ  

Stock selection in the biotechnology and pharmaceutical industries made the strongest contribution to performance during the semi-annual period. Positioning in the medical equipment and supplies industry also marginally aided relative performance.

 

Ÿ  

In biotechnology, the Fund’s underweight position in Gilead Sciences, Inc., combined with overweight allocations in several holdings that appreciated following positive clinical developments added significant value. Notable holdings that benefited performance included Receptos, Inc., BioMarin Pharmaceutical, Inc., Alkermes PLC, Neurocrine Biosciences, Inc., Incyte Corp., Kite Pharma, Inc. and Spark Therapeutics, Inc.

 

Ÿ  

Within the pharmaceutical sub-sector, Eisai Co. Ltd. and Intra-Cellular Therapies, Inc. also rallied due to positive clinical developments. In addition, the Fund was underweight in several large benchmark components that lagged, such as Johnson & Johnson and Merck & Co., Inc. The Fund’s positions in several specialty pharmaceutical companies also aided relative performance.

Ÿ  

Given the Fund’s strong outperformance, there were only a handful of detractors during the period. An underweight allocation in the managed health care and health care services industries detracted from relative performance. Out-of-benchmark positions in several lagging non-U.S. pharmaceutical stocks such as Shire PLC, Roche Holding AG, AstraZeneca PLC, Bayer AG and Novartis AG were notable detractors.

  Describe recent portfolio activity.

 

Ÿ  

During the fourth quarter of 2014, the Fund increased its weighting in biotechnology and made a corresponding reduction in the pharmaceutical industry. Other industry weightings remained unchanged in aggregate. The weighting in biotechnology and pharmaceuticals remained consistent during the first quarter of 2015, and the Fund slightly increased its position in health care providers and services.

  Describe portfolio positioning at period end.

 

Ÿ  

The Fund continues to focus on innovative companies. The Fund’s largest industry allocations remain in biotechnology and pharmaceuticals, both of which are benefiting from the acceleration in new drug discovery and development, and in medical devices and supplies, where many companies are developing innovative products. Amid these broad trends, the Fund remained focused on the individual merits of each company’s respective pipeline or product opportunity, in keeping with its bottom-up, fundamental investment process.

 

 

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

         Portfolio Information

 

Ten Largest Holdings    Percent of    
Long-Term Investments    

Biogen Idec, Inc.

      4%    

Celgene Corp.

   3    

Actavis PLC

   3    

UnitedHealth Group, Inc.

   3    

Medtronic PLC

   3    

Amgen, Inc.

   3    

Bristol-Myers Squibb Co.

   3    

McKesson Corp.

   3    

Eli Lilly & Co.

   3    

Alexion Pharmaceuticals, Inc.

   2    
Industry Allocation   

Percent of    

Long-Term Investments    

Biotechnology

      30%    

Pharmaceuticals

   30    

Health Care Equipment & Supplies

   18    

Health Care Providers & Services

   17    

Life Sciences Tools & Services

     4    

Health Care Technology

     1    

For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 

 

6    BLACKROCK FUNDS    MARCH 31, 2015     


    

 

 

 

BlackRock Health Sciences Opportunities Portfolio

 

 

 

 

        Total Return Based on a $10,000 Investment

 

LOGO

 

  1 

Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees and administration fees, if any. Institutional Shares do not have a sales charge.

 

  2 

Under normal market conditions, the Fund invests at least 80% of its total assets in equity securities, primarily common stock, of companies in health sciences and related industries.

 

  3 

An unmanaged index that covers 500 leading companies and captures approximately 80% coverage of available market capitalization.

 

  4 

An unmanaged index that features companies involved in medical services or health care in the Russell 3000® Index, which includes the largest 3,000 U.S. companies as determined by total market capitalization.

 

        Performance Summary for the Period Ended March 31, 2015
              Average Annual Total Returns5
              1 Year      5 Years      10 Years
        6-Month
Total Returns
     w/o sales
charge
     w/sales
charge
     w/o sales
charge
     w/sales
charge
     w/o sales
charge
    

w/sales

charge

Institutional

     20.58%      34.88%      N/A        21.37%      N/A        16.74%      N/A  

Service

     20.42          34.51          N/A        21.01          N/A        16.40         N/A  

Investor A

     20.44          34.53          27.47%        21.02          19.72%        16.39         15.76%  

Investor B

     19.93          33.47          28.97           20.07          19.88           15.65         15.65     

Investor C

     20.00          33.58          32.58           20.15          20.15           15.54         15.54     

Class R

     20.25          34.13          N/A        20.56          N/A        15.89         N/A  

S&P 500® Index

     5.93        12.73          N/A        14.47          N/A        8.01       N/A  

Russell 3000® Health Care Index

     17.05          27.77          N/A        20.91          N/A        11.97         N/A  

 

  5   

Assuming maximum sales charges, if any. Average annual total returns with and without sales charges reflect reductions for distribution and service fees. See “About Fund Performance” on page 14 for a detailed description of share classes, including any related sales charges and fees.

 

       N/A - Not applicable as share class and index do not have a sales charge.

 

       Past performance is not indicative of future results.

 

        Expense Example
   

Actual

 

Hypothetical7

   
    

Beginning

Account Value
October 1, 2014

 

Ending

Account Value
March 31, 2015

  Expenses Paid
During the  Period6
 

Beginning

Account Value
October 1, 2014

 

Ending

Account Value
March 31 2015

  Expenses Paid
During the  Period6
 

Annualized

Expense Ratio

Institutional

  $1,000.00   $1,205.80   $  4.73   $1,000.00   $1,020.64   $4.33   0.86%

Service

  $1,000.00   $1,204.20   $  6.32   $1,000.00   $1,019.20   $5.79   1.15%

Investor A

  $1,000.00   $1,204.40   $  6.27   $1,000.00   $1,019.25   $5.74   1.14%

Investor B

  $1,000.00   $1,199.30   $10.86   $1,000.00   $1,015.06   $9.95   1.98%

Investor C

  $1,000.00   $1,200.00   $10.20   $1,000.00   $1,015.66   $9.35   1.86%

Class R

  $1,000.00   $1,202.50   $  7.85   $1,000.00   $1,017.80   $7.19   1.43%

 

  6   

For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/ 365 (to reflect the one-half year period shown).

 

  7   

Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.

 

      See “Disclosure of Expenses” on page 15 for further information on how expenses were calculated.

 

     BLACKROCK FUNDS    MARCH 31, 2015    7


Fund Summary as of March 31, 2015    BlackRock International Opportunities Portfolio

 

 

         Investment Objective

BlackRock International Opportunities Portfolio’s (the “Fund”) investment objective is to seek long-term capital appreciation.

 

         Portfolio Management Commentary

 

  How did the Fund perform?

 

Ÿ  

For the six-month period ended March 31, 2015, the Fund outperformed its benchmark, the MSCI All Country World Index (“ACWI”) Ex-U.S.

  What factors influenced performance?

 

Ÿ  

A positive contributor to relative performance was stock selection within the industrial machinery industry of the industrials sector, led by a position in FANUC Corp. Shares of the company traded higher after its announcement that it was initiating an investor relations department, a milestone for a Japanese company. Also, contributing to performance was selection within the airlines industry in industrials, after shares of Ryanair Holdings PLC rallied following a positive earnings reversion, an analyst upgrade and a decline in fuel prices.

 

Ÿ  

Detracting from performance was stock selection within the oil & gas exploration & production industry in the energy sector, led by shares of Lekoil Ltd., which fell as the price of oil continued its downward trend.

 

  Describe recent portfolio activity.

 

Ÿ  

During the six-month period, the Fund increased its exposure to the information technology, consumer discretionary and financials sectors, while reducing exposure to the energy, industrials and materials sectors. Regionally, these trades resulted in increased exposures to developed Europe and emerging Asia, while reducing exposure to Japan.

 

Ÿ  

During the time period, derivatives were used in the form of forward currency transactions to hedge currency exposure of holdings back to the exposure of the benchmark, with minimal impact on performance.

  Describe portfolio positioning at period end.

 

Ÿ  

Relative to the MSCI ACWI Ex-U.S., the Fund ended the period with overweight positions in developed Europe and the emerging Americas and an underweight position in Asia. On a sector basis, the Fund was most notably overweight in health care and consumer discretionary, while the most significant underweights were in materials and financials.

 

 

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

         Portfolio Information     

 

Ten Largest Holdings   

Percent of    

Long-Term Investments    

Novartis AG, Registered Shares

   3%             

Roche Holding AG

   3                

AstraZeneca PLC

   3                

Teva Pharmaceutical Industries Ltd. - ADR

   2                

Liberty Global PLC, Series A

   2                

Royal Dutch Shell PLC, A Shares

   2                

Shire PLC - ADR

   2                

Imperial Tobacco Group PLC

   2                

AXA SA

   2                

Element Financial Corp.

   2                
Geographic Allocation   

Percent of    

Long-Term Investments    

United Kingdom

   21%            

Switzerland

   9              

Japan

   9              

France

   6              

China

   6              

Ireland

   6              

Germany

   6              

Netherlands

   5              

India

   4              

Canada

   4              

South Korea

   3              

Italy

   3              

Israel

   2              

United States

   2              

Hong Kong

   2              

Belgium

   2              

Spain

   2              

Other1

   8              

 

  1  

Includes holdings within countries that are 1% or less of long-term investments.

      Please refer to the Schedule of Investments for such countries.
 

 

8    BLACKROCK FUNDS    MARCH 31, 2015     


    

 

 

 

BlackRock International Opportunities Portfolio

 

  

 

 

        Total Return Based on a $10,000 Investment

 

LOGO

 

  1 

Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees and administration fees, if any. Institutional Shares do not have a sales charge.

 

  2 

Under normal market conditions, the Fund invests at least 80% of its net assets in equity securities issued by foreign companies of any market capitalization. The Fund may invest up to 40% of its net assets in stocks of issuers in emerging market countries.

 

  3 

A free float-adjusted market capitalization weighted index designed to measure the combined equity market performance of developed and emerging market countries, excluding the United States.

 

        Performance Summary for the Period Ended March 31, 2015
          Average Annual Total Returns4
          1 Year    5 Years    10 Years
      6-Month
Total Returns
   w/o sales
charge
   w/sales
charge
   w/o sales
charge
   w/sales
charge
   w/o sales
charge
   w/sales
charge

Institutional

   1.50%    (5.34)%    N/A     5.22%    N/A      7.40%    N/A  

Service

   1.38       (5.59)       N/A     4.81      N/A      7.02      N/A  

Investor A

   1.35       (5.64)       (10.59)%     4.92      3.79%    7.08      6.50%

Investor B

   0.91       (6.38)       (10.04)         4.06      3.72       6.40      6.40   

Investor C

   0.99       (6.33)       (7.13)       4.13      4.13       6.27      6.27   

MSCI ACWI Ex-U.S.

   (0.51)      (1.01)       N/A      4.82      N/A      5.46      N/A  

 

  4   

Assuming maximum sales charges, if any. Average annual total returns with and without sales charges reflect reductions for distribution and service fees. See “About Fund Performance” on page 14 for a detailed description of share classes, including any related sales charges and fees.

 

      N/A - Not applicable as share class and index do not have a sales charge.

 

      Past performance is not indicative of future results.

 

        Expense Example
   

Actual

 

Hypothetical6

   
    

Beginning

Account Value
October 1, 2014

 

Ending

Account Value
March 31, 2015

  Expenses Paid
During the Period5
 

Beginning

Account Value
October 1, 2014

 

Ending

Account Value
March 31, 2015

  Expenses Paid
During the Period5
 

Annualized

Expense

Ratio

Institutional

  $1,000.00   $1,015.00   $  5.98   $1,000.00   $1,019.00   $  5.99   1.19%

Service

  $1,000.00   $1,013.80   $  7.33   $1,000.00   $1,017.65   $  7.34   1.46%

Investor A

  $1,000.00   $1,013.50   $  7.58   $1,000.00   $1,017.40   $  7.59   1.51%

Investor B

  $1,000.00   $1,009.10   $11.82   $1,000.00   $1,013.16   $11.85   2.36%

Investor C

  $1,000.00   $1,009.90   $11.22   $1,000.00   $1,013.76   $11.25   2.24%

 

  5   

For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/ 365 (to reflect the one-half year period shown).

  6   

Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.

 

      See “Disclosure of Expenses” on page 15 for further information on how expenses were calculated.

 

     BLACKROCK FUNDS    MARCH 31, 2015    9


 

Fund Summary as of March 31, 2015

  

 

 

 

BlackRock Science & Technology Opportunities Portfolio

 

  

 

 

         Investment Objective

BlackRock Science & Technology Opportunities Portfolio’s (the “Fund”) investment objective is to provide long-term capital appreciation.

 

         Portfolio Management Commentary

 

  How did the Fund perform?

 

Ÿ  

For the six-month period ended March 31, 2015, the Fund outperformed its benchmark, the MSCI World Information Technology Index.

  What factors influenced performance?

 

Ÿ  

Stock selection in the systems software industry was the most significant positive contributor to relative return. In particular, the Fund’s underweight position in large benchmark constituent Microsoft Corp. led contributors for the period after the company reported weaker-than-expected PC sales. In addition, selection in the IT consulting & other services industry contributed to gains, led by a position in Luxoft Holding, Inc., which saw its shares appreciate over the period based on financial results that outperformed which shares appreciated after reporting strong financial results.

 

Ÿ  

The most significant detractor from the Fund’s performance relative to the benchmark was selection in the internet software & services industry, led by a position in LendingClub Corp., as investors became concerned that the company’s growth rate was already priced into its valuation

   

following the initial public offering. Selection in the consumer finance industry also detracted from performance, after shares of TrustBuddy International AB traded lower following slower-than-expected revenue growth for the quarter.

  Describe recent portfolio activity.

 

Ÿ  

During the six-month period, the Fund reduced its overweight exposure to software & services stocks. These proceeds were used in large part to help fund purchases within the semiconductors & semiconductor equipment and technology hardware & equipment groups.

  Describe portfolio positioning at period end.

 

Ÿ  

Relative to the MSCI World Information Technology Index, the Fund ended the period with its largest overweight in the internet software & services industry. This positioning reflects a focus on areas of secular growth and emerging technology including the shift to mobile payments, e-commerce acceleration, mobile monetization, social media and cloud computing.

 

 

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

         Portfolio Information

 

Ten Largest Holdings   

Percent of    

Long-Term Investments    

Apple Inc.

   11%          

Facebook, Inc., Class A

   3            

Tencent Holdings Ltd.

   3            

Visa, Inc., Class A

   2            

Google, Inc., Class A

   2            

Google, Inc., Class C

   2            

MasterCard, Inc., Class A

   2            

Uber Technologies, Inc., Series D

   2            

Samsung Electronics Co. Ltd.

   2            

Vipshop Holdings Ltd. - ADR

   2            
Industry Allocation   

Percent of    

Long-Term Investments    

Internet Software & Services

   27%          

Software

   15              

Technology Hardware, Storage & Peripherals

   14              

IT Services

   12              

Semiconductors & Semiconductor Equipment

   12              

Internet & Catalog Retail

   6            

Electronic Equipment, Instruments & Components

   3            

Media

   2            

Communications Equipment

   2            

Real Estate Investment Trusts (REITs)

   2            

Household Durables

   2            

Other1

   3            

 

  1  

Includes holdings within industries that are 1% or less of long-term investments. Please refer to the Schedule of Investments for such industries.

 

     For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.
 

 

10    BLACKROCK FUNDS    MARCH 31, 2015     


    

 

BlackRock Science & Technology Opportunities Portfolio

 

 

        Total Return Based on a $10,000 Investment

 

LOGO

 

  1 

Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees and administration fees, if any. Institutional Shares do not have a sales charge.

 

  2 

Under normal market conditions, the Fund invests at least 80% of its net assets in equity securities issued by U.S. and non-U.S. science and technology companies in all market capitalization ranges, selected for their rapid and sustainable growth potential from the development, advancement and use of science and/or use of technology. The Fund may invest up to 25% of its net assets in emerging market countries.

 

  3

An index that measures the performance of the technology sector in developed equity markets.

 

        Performance Summary for the Period Ended March 31, 2015
          Average Annual Total Returns4
          1 Year    5 Years    10 Years
      6-Month
Total Returns
   w/o sales
charge
   w/sales
charge
   w/o sales
charge
   w/sales
charge
   w/o sales
charge
   w/sales
charge

Institutional

   12.25%    12.88%    N/A       13.01%    N/A       11.06%    N/A 

Service

   12.10        12.67        N/A       12.78       N/A       10.74        N/A 

Investor A

   12.10        12.52        6.61%    12.61       11.40%      10.63        10.04%

Investor B

   11.61        11.61        7.11       11.67       11.41         9.89      9.89  

Investor C

   11.55        11.56        10.56         11.64       11.64         9.67      9.67  

Class R

   11.88        12.20        N/A       12.30       N/A       10.29        N/A 

MSCI World Information Technology Index

   6.26      16.13        N/A       12.36       N/A       8.45      N/A 

 

  4   

Assuming maximum sales charges, if any. Average annual total returns with and without sales charges reflect reductions for distribution and service fees. See “About Fund Performance” on page 14 for a detailed description of share classes, including any related sales charges and fees.

 

      N/A - Not applicable as share class and index do not have a sales charge.

 

      Past performance is not indicative of future results.

 

        Expense Example
   

Actual

 

Hypothetical6

   
    

Beginning

Account Value
October 1, 2014

 

Ending

Account Value

March 31, 2015

  Expenses Paid
During the Period5
 

Beginning

Account Value
October 1, 2014

 

Ending

Account Value

March 31, 2015

 

Expenses Paid

During the Period5

 

Annualized

Expense

Ratio

Institutional

  $1,000.00   $1,122.50   $  6.83   $1,000.00   $1,018.50   $  6.49   1.29%

Service

  $1,000.00   $1,121.00   $  8.14   $1,000.00   $1,017.25   $  7.75   1.54%

Investor A

  $1,000.00   $1,121.00   $  8.51   $1,000.00   $1,016.90   $  8.10   1.61%

Investor B

  $1,000.00   $1,116.10   $12.77   $1,000.00   $1,012.86   $12.14   2.42%

Investor C

  $1,000.00   $1,115.60   $12.92   $1,000.00   $1,012.72   $12.29   2.45%

Class R

  $1,000.00   $1,118.80   $  9.98   $1,000.00   $1,015.51   $  9.50   1.89%

 

  5   

For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/ 365 (to reflect the one-half year period shown).

  6   

Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.

 

      See “Disclosure of Expenses” on page 15 for further information on how expenses were calculated.

 

     BLACKROCK FUNDS    MARCH 31, 2015    11


 

Fund Summary as of March 31, 2015

  

 

 

 

BlackRock U.S. Opportunities Portfolio

 

  

 

        Investment Objective

BlackRock U.S. Opportunities Portfolio’s (the “Fund”) investment objective is to provide long-term capital appreciation.

 

         Portfolio Management Commentary

 

  How did the Fund perform?

 

Ÿ  

For the six-month period ended March 31, 2015, the Fund outperformed the benchmark, the Russell Midcap® Index.

  What factors influenced performance?

 

Ÿ  

Stock selection within the industrials and health care sectors were the largest contributors to relative performance for the period. In industrials, performance was led by positioning in the airlines industry. In particular, shares of JetBlue Airways Corp. benefited as the company announced new cost cutting plans. Within health care, stock selection in the biotechnology segment had a positive impact on performance, led by a position in BioMarin Pharmaceutical, Inc., whose shares were bolstered by the continued positive expectations for favorable clinical data related to its drug pipeline.

 

Ÿ  

Conversely, stock selection within the oil & gas equipment & services industry of the energy sector detracted from relative performance. In particular, a position in U.S. Silica Holdings, Inc. was negatively impacted

 

by OPEC’s decision to maintain its current production levels, sending oil prices substantially lower over the period. Within the consumer discretionary sector, holdings in the apparel, accessories & luxury goods industry also detracted, after shares of Sequential Brands Group, Inc. traded lower as investors took profits following the stock’s significant outperformance in 2014.

  Describe recent portfolio activity.

 

Ÿ  

During the six-month period, the Fund increased its exposures to the information technology (“IT”), financials, and materials sectors, while reducing exposures to energy, consumer discretionary, and consumer staples.

  Describe portfolio positioning at period end.

 

Ÿ  

Relative to the Russell Midcap® Index, the Fund ended the period with overweight positions in the IT, health care and materials sectors, while maintaining underweight allocations to the utilities, industrials and consumer staples sectors.

 

 

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

         Portfolio Information

 

Ten Largest Holdings    Percent of    
Long-Term Investments    

Jarden Corp.

   2%           

Sequential Brands Group, Inc.

   2              

BankUnited, Inc.

   1              

The Hartford Financial Services Group, Inc.

   1              

Crown Holdings, Inc.

   1              

Snap-on, Inc.

   1              

Regions Financial Corp.

   1              

Mallinckrodt PLC

   1              

Roper Industries, Inc.

   1              

Kennedy-Wilson Holdings, Inc.

   1              
Sector Allocation    Percent of    
Long-Term Investments    

Financials

   20%          

Information Technology

   18              

Consumer Discretionary

   17              

Health Care

   15              

Industrials

   11              

Materials

   7            

Consumer Staples

   5            

Energy

   4            

Utilities

   2            

Telecommunication Services

   1            

For Fund compliance purposes, the Fund’s sector classifications refer to any one or more of the sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such sector sub-classifications for reporting ease.

 

 

12    BLACKROCK FUNDS    MARCH 31, 2015     


    

 

 

 

BlackRock U.S. Opportunities Portfolio

 

  

 

 

        Total Return Based on a $10,000 Investment

 

 

LOGO

 

  1 

Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees and administration fees, if any. Institutional Shares do not have a sales charge.

 

  2 

Under normal market conditions, the Fund invests at least 80% of its net assets in equity securities issued by U.S. emerging capitalization companies with relatively attractive earnings growth potential and valuation.

 

  3 

A market index measures the performance of the mid-cap segment of the U.S. equities universe. It is a subset of the Russell 1000® Index including approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap® Index represents approximately 31% of the total market capitalization of the Russell 1000® companies.

 

        Performance Summary for the Period Ended March 31, 2015
              Average Annual Total Returns4
              1 Year      5 Years      10 Years
        6-Month
Total Returns
     w/o sales
charge
     w/sales
charge
     w/o sales
charge
     w/sales
charge
     w/o sales
charge
     w/sales
charge

Institutional

     12.16%      15.58%      N/A        14.40%      N/A        12.11%      N/A  

Service

     11.93         15.11         N/A        13.90         N/A        11.63         N/A  

Investor A

     11.93         15.10         9.06%      13.88         12.66%      11.59         10.99%

Investor B

     11.50         14.22         9.91        12.99         12.74          10.92         10.92    

Investor C

     11.51         14.27         13.31          13.04         13.04          10.77         10.77    

Russell Midcap® Index

     10.13         13.68         N/A        16.16         N/A        10.02         N/A  

 

  4   

Assuming maximum sales charges, if any. Average annual total returns with and without sales charges reflect reductions for distribution and service fees. See “About Fund Performance” on page 14 for a detailed description of share classes, including any related sales charges and fees.

 

       N/A - Not applicable as share class and index do not have a sales charge.

 

       Past performance is not indicative of future results.

 

        Expense Example
   

Actual

 

Hypothetical6

   
     Beginning
Account Value
October 1, 2014
  Ending
Account Value
March 31, 2015
  Expenses Paid
During the  Period5
  Beginning
Account Value
October 1, 2014
  Ending
Account Value
March 31, 2015
  Expenses Paid
During the  Period5
  Annualized Expense
Ratio

Institutional

  $1,000.00   $1,121.60   $  4.81   $1,000.00   $1,020.39   $  4.58   0.91%

Service

  $1,000.00   $1,119.30   $  6.92   $1,000.00   $1,018.40   $  6.59   1.31%

Investor A

  $1,000.00   $1,119.30   $  6.92   $1,000.00   $1,018.40   $  6.59   1.31%

Investor B

  $1,000.00   $1,115.00   $11.07   $1,000.00   $1,014.46   $10.55   2.10%

Investor C

  $1,000.00   $1,115.10   $10.92   $1,000.00   $1,014.61   $10.40   2.07%

 

  5   

For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/ 365 (to reflect the one-half year period shown).

  6   

Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.

 

       See “Disclosure of Expenses” on page 15 for further information on how expenses were calculated.

 

     BLACKROCK FUNDS    MARCH 31, 2015    13


 

About Fund Performance

    

 

Ÿ  

Institutional Shares are not subject to any sales charge. These shares bear no ongoing distribution or service fees and are available only to certain eligible investors.

 

Ÿ  

Service Shares are not subject to any sales charge. These shares are subject to a service fee of 0.25% per year (but no distribution fee) and are only available to certain eligible investors.

 

Ÿ  

Investor A Shares are subject to a maximum initial sales charge (front-end load) of 5.25% and a service fee of 0.25% per year (but no distribution fee). Certain redemptions of these shares may be subject to a contingent deferred sales charge (“CDSC”) where no initial sales charge was paid at the time of purchase. These shares are generally available through financial intermediaries.

 

Ÿ  

Investor B Shares are subject to a maximum CDSC of 4.50%, declining to 0% after six years. In addition, these shares are subject to a distribution fee of 0.75% per year and a service fee of 0.25% per year. These shares automatically convert to Investor A Shares after approximately eight years. (There is no initial sales charge for automatic share conversions.) On February 11, 2015, the Board of Trustees of the Trust (the “Board”) approved the conversion of all of the issued and outstanding Investor B Shares of BlackRock Global Opportunities Portfolio and BlackRock Science & Technology Opportunities Portfolio into Investor A Shares of each respective Fund, which will be effective on or about the close of business on June 23, 2015. All returns for periods greater than eight years reflect this conversion. These shares are only available through exchanges and distribution reinvestments by current holders and for purchase by certain employer-sponsored retirement plans.

 

Ÿ  

Investor C Shares are subject to a 1.00% CDSC if redeemed within one year of purchase. In addition, these shares are subject to a distribution fee of 0.75% per year and a service fee of 0.25% per year. These shares are generally available through financial intermediaries

 

Ÿ  

Class R Shares are not subject to any sales charge. These shares are subject to a distribution fee of 0.25% per year and a service fee of

0.25% per year. These shares are available only to certain employer-sponsored retirement plans. Prior to September 8, 2008, the performance results of Class R Shares of BlackRock Science & Technology Opportunities Portfolio are those of Institutional Shares (which have no distribution or service fees) restated to reflect Class R Share fees. Prior to September 12, 2011, the performance results of Class R Shares of BlackRock Global Opportunities Portfolio and Health Sciences Opportunities are those of the applicable Fund’s Institutional Shares (which have no distribution or service fees) restated to reflect Class R Share fees.

Performance information reflects past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Refer to www.blackrock.com/funds to obtain performance data current to the most recent month-end. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in the performance tables on the previous pages assume reinvestment of all distributions, if any, at net asset value (“NAV”) on the ex-dividend date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Distributions paid to each class of shares will vary because of the different levels of service, distribution and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders.

BlackRock Advisors, LLC (the “Manager”), the Funds’ investment advisor, has contractually agreed to waive and/or reimburse a portion of certain Funds’ expenses. Without such waiver and/or reimbursement, such Funds’ performance would have been lower. The Manager is under no obligation to continue waiving and/or reimbursing its fees after the applicable termination date of such agreement. See Note 5 of the Notes to Financial Statements for additional information on waivers and/or reimbursements.

 

 

14    BLACKROCK FUNDS    MARCH 31, 2015     


 

Disclosure of Expenses

    

 

Shareholders of the Funds may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, administration fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses and other Fund expenses. The expense examples on the previous pages (which are based on a hypothetical investment of $1,000 invested on October 1, 2014 and held through March 31, 2015) are intended to assist shareholders both in calculating expenses based on an investment in each Fund and in comparing these expenses with similar costs of investing in other mutual funds.

The expense examples provide information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their Fund and share class under the headings entitled “Expenses Paid During the Period.”

The expense examples also provide information about hypothetical account values and hypothetical expenses based on a Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in these Funds and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in shareholder reports of other funds.

The expenses shown in the expense examples are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.

 

 

 

Derivative Financial Instruments

 

The Funds may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the derivative financial

instrument. The Funds’ ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation a Fund can realize on an investment, and/or may result in lower distributions paid to shareholders. The Funds’ investments in these instruments are discussed in detail in the Notes to Financial Statements.

 

 

     BLACKROCK FUNDS    MARCH 31, 2015    15


 

Schedule of Investments March 31, 2015 (Unaudited)

  

 

 

 

BlackRock Global Opportunities Portfolio

 

  

     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Belgium — 1.0%

     

Anheuser-Busch InBev NV

     26,518       $ 3,239,569   

Canada — 0.9%

     

Enbridge, Inc.

     34,900         1,682,243   

MEG Energy Corp. (a)

     75,500         1,219,636   
     

 

 

 
                2,901,879   

China — 2.6%

     

Alibaba Group Holding Ltd. - ADR (a)

     27,500         2,289,100   

Baidu, Inc. - ADR (a)

     12,600         2,625,840   

Beijing Enterprises Water Group Ltd.

     2,696,000         1,833,293   

China Construction Bank Corp., H Shares

     1,830,000         1,518,876   
     

 

 

 
                8,267,109   

France — 4.2%

     

AXA SA

     83,700         2,106,652   

Schneider Electric SE

     36,612         2,849,090   

Société Générale SA

     43,200         2,085,775   

Unibail-Rodamco SE

     12,200         3,294,428   

Vivendi SA

     112,520         2,793,612   
     

 

 

 
                13,129,557   

Germany — 3.2%

     

Daimler AG, Registered Shares

     35,400         3,399,616   

Henkel AG & Co. KGaA

     22,228         2,610,920   

Infineon Technologies AG

     181,133         2,154,918   

Telefonica Deutschland Holding AG

     335,500         1,929,261   
     

 

 

 
                10,094,715   

Hong Kong — 1.4%

     

AIA Group Ltd.

     669,900         4,205,957   

India — 1.9%

     

Bharti Infratel Ltd.

     170,247         1,047,360   

HDFC Bank Ltd.

     146,997         2,826,747   

ITC Ltd.

     388,400         2,019,127   
     

 

 

 
                5,893,234   

Indonesia — 1.0%

     

Global Mediacom Tbk PT

     9,238,700         1,234,710   

Matahari Department Store Tbk PT

     1,233,560         1,855,046   
     

 

 

 
                3,089,756   

Ireland — 1.7%

     

Green REIT PLC

     1,460,039         2,568,357   

Shire PLC - ADR

     11,800         2,823,622   
     

 

 

 
                5,391,979   

Italy — 1.1%

     

Banca Generali SpA

     74,372         2,331,965   

Moncler SpA

     58,600         982,389   
     

 

 

 
                3,314,354   
Common Stocks    Shares      Value  

Japan — 5.0%

     

FANUC Corp.

     10,800       $ 2,357,789   

Mitsubishi Estate Co. Ltd.

     117,000         2,713,460   

Nabtesco Corp.

     92,000         2,657,809   

Nintendo Co. Ltd.

     7,400         1,085,764   

Shinsei Bank Ltd.

     1,367,000         2,718,059   

SMC Corp.

     6,000         1,786,583   

SoftBank Corp.

     41,500         2,416,937   
     

 

 

 
                15,736,401   

Mexico — 0.4%

     

Cemex SAB de CV - ADR (a)

     117,360         1,111,399   

Netherlands — 2.0%

     

Koninklijke Philips NV

     49,700         1,409,982   

Royal Dutch Shell PLC, A Shares - ADR

     83,200         4,962,880   
     

 

 

 
                6,372,862   

New Zealand — 0.6%

     

Xero Ltd. (Acquired 10/15/13, cost $1,616,409) (a)(b)

     106,300         1,915,229   

Nigeria — 0.3%

     

Lekoil Ltd. (a)

     2,787,800         971,820   

Norway — 0.5%

     

Statoil ASA

     94,600         1,672,661   

Peru — 0.5%

     

Credicorp Ltd.

     10,700         1,504,741   

South Africa — 0.8%

     

Naspers Ltd., N Shares

     16,600         2,546,291   

South Korea — 1.7%

     

Samsung Electronics Co. Ltd.

     2,400         3,112,208   

SK Hynix, Inc.

     54,600         2,230,226   
     

 

 

 
                5,342,434   

Spain — 1.3%

     

NH Hotel Group SA (a)

     439,887         2,401,962   

Sacyr SA (a)

     414,100         1,737,657   
     

 

 

 
                4,139,619   

Sweden — 0.8%

     

Nordea Bank AB

     207,719         2,530,117   

Switzerland — 2.7%

     

Novartis AG, Registered Shares

     36,600         3,612,438   

Roche Holding AG

     9,140         2,511,600   

UBS Group AG (a)

     121,272         2,273,985   
     

 

 

 
                8,398,023   

Taiwan — 1.0%

     

Hermes Microvision, Inc.

     22,117         1,272,436   
 
        Portfolio Abbreviations     
    ADR    American Depositary Receipts      HKD    Hong Kong Dollar    REIT    Real Estate Investment Trust   
    AUD    Australian Dollar      JPY    Japanese Yen    SEK    Swedish Krona   
    CAD    Canadian Dollar      MLP    Master Limited Partnership    SGD    Singapore Dollar   
    CHF    Swiss Franc      MXN    Mexican Peso    TRY    Turkish Lira   
    DKK    Danish Krone      NOK    Norwegian Krone    USD    U.S. Dollar   
    EUR    Euro      NZD    New Zealand Dollar    ZAR    South African Rand   
    GBP    British Pound                 

 

See Notes to Financial Statements.

 

16    BLACKROCK FUNDS    MARCH 31, 2015     


 

Schedule of Investments (continued)

  

 

 

 

BlackRock Global Opportunities Portfolio

 

  

     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Taiwan (concluded)

     

Largan Precision Co. Ltd.

     20,000       $ 1,719,360   
     

 

 

 
                2,991,796   

United Kingdom — 9.4%

     

AstraZeneca PLC

     54,500         3,739,689   

BAE Systems PLC

     205,500         1,592,528   

BP PLC

     334,800         2,170,218   

Crest Nicholson Holdings PLC

     347,510         2,188,356   

Delphi Automotive PLC

     37,700         3,006,198   

Diageo PLC

     87,600         2,420,756   

Kennedy Wilson Europe Real Estate PLC

     85,758         1,398,069   

Lloyds Banking Group PLC

     1,474,100         1,708,677   

Metro Bank PLC (Acquired 1/15/14, cost
$1,748,929) (a)(b)

     82,275         1,619,553   

Nomad Holdings Ltd. (a)

     167,843         1,888,234   

Prudential PLC

     96,800         2,402,124   

SABMiller PLC

     46,300         2,425,265   

Vodafone Group PLC - ADR

     86,935         2,841,036   
     

 

 

 
                29,400,703   

United States — 50.2%

     

Abbott Laboratories

     71,900         3,331,127   

Actavis PLC (a)

     13,600         4,047,632   

Adobe Systems, Inc. (a)

     25,950         1,918,743   

Altria Group, Inc.

     63,400         3,171,268   

Amazon.com, Inc. (a)

     4,200         1,562,820   

American Airlines Group, Inc.

     55,200         2,913,456   

Apple Inc.

     58,895         7,328,305   

Applied Materials, Inc.

     72,200         1,628,832   

Aramark

     79,200         2,505,096   

Autodesk, Inc. (a)

     37,300         2,187,272   

BankUnited, Inc.

     115,488         3,781,077   

Becton Dickinson & Co.

     12,800         1,837,952   

Best Buy Co., Inc.

     49,917         1,886,363   

Boston Scientific Corp. (a)

     116,200         2,062,550   

Bristol-Myers Squibb Co.

     48,200         3,108,900   

Charles River Laboratories International, Inc. (a)

     39,300         3,116,097   

Citigroup, Inc.

     117,768         6,067,407   

Comcast Corp., Class A

     64,100         3,619,727   

Concho Resources, Inc. (a)

     18,600         2,156,112   

Crown Holdings, Inc. (a)

     52,300         2,825,246   

Discover Financial Services

     53,100         2,992,185   

Eastman Chemical Co.

     29,810         2,064,641   

Eli Lilly & Co.

     27,400         1,990,610   

EOG Resources, Inc.

     23,900         2,191,391   

Facebook, Inc., Class A (a)

     39,160         3,219,539   

Finisar Corp. (a)

     73,300         1,564,222   

Google, Inc., Class A (a)

     5,979         3,316,551   

Google, Inc., Class C (a)

     5,979         3,276,492   

The Hain Celestial Group, Inc. (a)

     63,612         4,074,349   

The Hartford Financial Services Group, Inc.

     106,300         4,445,466   

Hortonworks, Inc. (a)(c)

     23,654         563,911   

Hortonworks, Inc. (Acquired 3/21/14, cost
$3,133,876) (a)(b)

     128,573         2,911,921   

Inovalon Holdings, Inc., Class A (a)

     47,700         1,441,017   

JDS Uniphase Corp. (a)

     117,100         1,536,352   

Kennedy-Wilson Holdings, Inc.

     154,800         4,046,472   

Kinder Morgan, Inc.

     77,100         3,242,826   

Las Vegas Sands Corp.

     19,890         1,094,746   

LendingClub Corp. (a)

     34,500         677,925   

LendingClub Corp. (Acquired 12/12/14, cost
$1,044,221) (a)(b)

     102,664         1,916,480   

Lowe’s Companies, Inc.

     36,820         2,739,040   

Macquarie Infrastructure Co. LLC

     24,600         2,024,334   

MasterCard, Inc., Class A

     34,300         2,963,177   

Medtronic PLC

     24,429         1,905,218   

Merck & Co., Inc.

     48,200         2,770,536   
Common Stocks    Shares      Value  

United States (concluded)

     

Mondelez International, Inc., Class A

     96,600       $ 3,486,294   

New Relic, Inc. (a)

     13,600         471,920   

New Relic, Inc. (Acquired 12/15/14, cost $2,154,165) (a)(b)

     76,011         2,505,703   

Platform Specialty Products Corp. (a)

     122,100         3,133,086   

Public Service Enterprise Group, Inc.

     59,000         2,473,280   

Ralph Lauren Corp.

     9,900         1,301,850   

Roper Industries, Inc.

     24,340         4,186,480   

Samsonite International SA

     628,500         2,184,811   

Sensata Technologies Holding NV (a)

     22,700         1,304,115   

St. Jude Medical, Inc.

     23,200         1,517,280   

Strategic Growth Bancorp (Acquired 3/10/14,cost $1,691,208) (a)(b)

     135,840         1,437,187   

U.S. Silica Holdings, Inc. (c)

     39,400         1,403,034   

United Parcel Service, Inc., Class B

     29,200         2,830,648   

United Rentals, Inc. (a)

     12,347         1,125,552   

UnitedHealth Group, Inc.

     16,700         1,975,443   

Valeant Pharmaceuticals International, Inc. (a)

     15,200         3,019,024   

WisdomTree Investments, Inc.

     128,549         2,758,662   
     

 

 

 
                157,139,752   

Total Common Stocks — 96.2%

              301,301,957   
     
Preferred Stocks                

India — 0.4%

     

Snapdeal.com, Series F (Acquired 5/07/14, cost
$574,789) (a)(b)

     81         968,000   

Snapdeal.com, Series G (Acquired 10/29/14, cost $227,633) (a)(b)

     27         322,667   
     

 

 

 
                1,290,667   

United States — 1.3%

     

Palantir Technologies, Inc., Series I (Acquired 2/07/14, cost $942,242) (a)(b)

     153,710         1,366,482   

Uber Technologies, Inc., Series D (Acquired 6/06/14, cost $1,176,386) (a)(b)

     75,832         2,576,028   
     

 

 

 
                3,942,510   

Total Preferred Stocks — 1.7%

              5,233,177   
     
Warrants (d)                

United Kingdom — 0.0%

     

Nomad Holdings Ltd. (issued 4/10/14, expiring 4/10/17, strike price $11.50)

     167,843         67,976   

Total Warrants — 0.0%

              67,976   

Total Long-Term Investments

(Cost — $258,798,269) — 97.9%

              306,603,110   
 

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    17


 

Schedule of Investments (continued)

  

 

 

 

BlackRock Global Opportunities Portfolio

 

  

     (Percentages shown are based on Net Assets)   

 

Short-Term Securities    Shares      Value  

BlackRock Liquidity Funds, TempFund, Institutional Class, 0.06% (e)(f)

     2,305,045       $   2,305,045   
     

 

Beneficial
Interest
(000)

         

BlackRock Liquidity Series, LLC, Money Market Series, 0.22% (e)(f)(g)

     $  1,974         1,974,042   

Total Short-Term Securities (Cost — $4,279,087) — 1.4%

              4,279,087   
        Value  

Total Investments (Cost $263,077,356) — 99.3%

   $ 310,882,197   

Other Assets Less Liabilities — 0.7%

     2,170,407   
  

 

 

 

Net Assets — 100.0%

   $   313,052,604   
  

 

 

 
 

 

Notes to Schedule of Investments
(a) Non-income producing security.
(b) Restricted security as to resale. As of report date, the Fund held restricted securities with a current value of $17,539,250 and an original cost of $14,309,858, which was 5.6% of its net assets.
(c) Security, or a portion of security, is on loan.
(d) Warrants entitle the Fund to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date of the warrants, if any.
(e) Represents the current yield as of report date.
(f) During the six months ended March 31, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:
Affiliate      Shares/
Beneficial
Interest
Held at
September  30,
2014
       Net
Activity
       Shares/
Beneficial
Interest
Held at
March  31,
2015
       Income  

BlackRock Liquidity Funds, TempFund, Institutional Class

       1,732,302           572,743           2,305,045         $ 1,028   

BlackRock Liquidity Series, LLC, Money Market Series

       $1,198,277         $ 775,765         $ 1,974,042         $ 41,286   

 

(g) Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.

 

Ÿ  

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows:

 

Currency
Purchased
      

Currency

Sold

    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
AUD        3,696,000           USD           3,015,646      Morgan Stanley Capital Services LLC     4/22/15           $(204,371
CAD        92,000           USD           74,644      Bank of America N.A.     4/22/15           (2,026
CAD        270,000           USD           215,722      Goldman Sachs International     4/22/15           (2,602
CAD        470,000           USD           391,959      Morgan Stanley Capital Services LLC     4/22/15           (20,972
CHF        331,079           USD           358,599      BNP Paribas S.A.     4/22/15           (17,598
CHF        160,409           USD           188,750      Citibank N.A.     4/22/15           (23,533
CHF        1,386,370           USD           1,607,598      Royal Bank of Canada     4/22/15           (179,679
CHF        47,528           USD           47,297      The Bank of New York Mellon     4/22/15           1,655   
CHF        61,854           USD           63,075      UBS AG     4/22/15           632   
DKK        9,870,061           USD           1,542,865      Goldman Sachs International     4/22/15           (121,306
EUR        29,297           USD           33,978      BNP Paribas S.A.     4/22/15           (2,466
EUR        80,327           USD           85,202      BNP Paribas S.A.     4/22/15           1,196   
EUR        158,789           USD           179,809      BNP Paribas S.A.     4/22/15           (9,019
EUR        467,054           USD           494,090      BNP Paribas S.A.     4/22/15           8,262   
EUR        1,342,995           USD           1,520,774      BNP Paribas S.A.     4/22/15           (76,280
EUR        110,130           USD           120,800      Citibank N.A.     4/22/15           (2,347
EUR        124,650           USD           132,883      Citibank N.A.     4/22/15           1,188   
EUR        411,130           USD           469,479      Citibank N.A.     4/22/15           (27,277
EUR        494,365           USD           570,464      Citibank N.A.     4/22/15           (38,736

 

See Notes to Financial Statements.

 

18    BLACKROCK FUNDS    MARCH 31, 2015     


 

Schedule of Investments (continued)

     BlackRock Global Opportunities Portfolio   

 

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows: (concluded)

 

Currency

Purchased

       Currency
Sold
    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
EUR        49,776           USD           54,153      Deutsche Bank AG     4/22/15           $     (615)   
EUR        1,432,247           USD           1,558,180      Deutsche Bank AG     4/22/15           (17,689)   
EUR        68,120           USD           73,725      State Street Bank and Trust Co.     4/22/15           (456)   
EUR        237,503           USD           258,872      State Street Bank and Trust Co.     4/22/15           (3,419)   
EUR        785,267           USD           884,294      TD Securities, Inc.     4/22/15           (39,679)   
EUR        19,150           USD           20,870      The Bank of New York Mellon     4/22/15           (272)   
EUR        32,604           USD           37,259      The Bank of New York Mellon     4/22/15           (2,191)   
EUR        86,320           USD           92,602      The Bank of New York Mellon     4/22/15           363   
EUR        457,585           USD           482,721      UBS AG     4/22/15           9,446   
GBP        964,000           USD           1,444,602      Goldman Sachs International     4/22/15           (14,829)   
GBP        728,000           USD           1,093,487      JPMorgan Chase Bank N.A.     4/22/15           (13,741)   
GBP        135,000           USD           204,451      The Bank of New York Mellon     4/22/15           (4,224)   
HKD        1,284,000           USD           165,651      Citibank N.A.     4/22/15           (41)   
HKD        7,669,000           USD           989,042      HSBC Bank PLC     4/22/15           104   
SEK        599,000           USD           73,346      The Bank of New York Mellon     4/22/15           (3,770)   
SEK        11,988,044           USD           1,433,961      UBS AG     4/22/15           (41,499)   
SGD        2,518,000           USD           1,893,031      TD Securities, Inc.     4/22/15           (59,212)   
USD        512,042           CHF           472,694      TD Securities, Inc.     4/22/15           25,181   
USD        1,659,756           EUR           1,457,000      Goldman Sachs International     4/22/15           92,641   
USD        7,289,707           EUR           6,270,554      Goldman Sachs International     4/22/15           545,247   
USD        1,484,377           EUR           1,300,360      Royal Bank of Canada     4/22/15           85,740   
USD        1,561,282           EUR           1,384,605      State Street Bank and Trust Co.     4/22/15           72,033   
USD        6,308,551           GBP           4,155,975      Morgan Stanley Capital Services LLC     4/22/15           144,544   
USD        352,847           GBP           239,000      State Street Bank and Trust Co.     4/22/15           (1,630)   
USD        485,974           GBP           328,000      State Street Bank and Trust Co.     4/22/15           (505)   
USD        2,787,061           GBP           1,885,000      The Bank of New York Mellon     4/22/15           (8,710)   
USD        4,818,851           GBP           3,233,000      UBS AG     4/22/15           23,771   
USD        1,045,119           HKD           8,103,000      State Street Bank and Trust Co.     4/22/15           (4)   
USD        761,504           NOK           5,856,000      Goldman Sachs International     4/22/15           35,052   
USD        579,832           NOK           4,409,000      Morgan Stanley Capital Services LLC     4/22/15           32,885   
USD        1,357,088           NZD           1,753,000      Morgan Stanley Capital Services LLC     4/22/15           49,522   
USD        892,065           SEK           7,262,000      HSBC Bank PLC     4/22/15           48,553   
Total                           $237,317   

 

 

Ÿ  

Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows:

 

  Ÿ  

Level 1 – unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

  Ÿ  

Level 2 – other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

  Ÿ  

Level 3 – unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    19


 

Schedule of Investments (continued)

     BlackRock Global Opportunities Portfolio   

 

valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.

As of March 31, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:

 

                   Level 1                               Level 2                              Level 3                               Total              

Assets:

          

Investments:

          

Long-Term Investments:

          

Common Stocks:

          

Belgium

           $ 3,239,569              $ 3,239,569   

Canada

   $ 2,901,879                        2,901,879   

China

     4,914,940         3,352,169                8,267,109   

France

             13,129,557                13,129,557   

Germany

             10,094,715                10,094,715   

Hong Kong

             4,205,957                4,205,957   

India

     1,047,360         4,845,874                5,893,234   

Indonesia

             3,089,756                3,089,756   

Ireland

     5,391,979                        5,391,979   

Italy

             3,314,354                3,314,354   

Japan

             15,736,401                15,736,401   

Mexico

     1,111,399                        1,111,399   

Netherlands

     4,962,880         1,409,982                6,372,862   

New Zealand

     1,915,229                        1,915,229   

Nigeria

     971,820                        971,820   

Norway

             1,672,661                1,672,661   

Peru

     1,504,741                        1,504,741   

South Africa

             2,546,291                2,546,291   

South Korea

             5,342,434                5,342,434   

Spain

             4,139,619                4,139,619   

Sweden

             2,530,117                2,530,117   

Switzerland

             8,398,023                8,398,023   

Taiwan

             2,991,796                2,991,796   

United Kingdom

     7,245,303         20,535,847      $ 1,619,553         29,400,703   

United States

     146,183,650         9,518,915        1,437,187         157,139,752   

Preferred Stocks:

          

India

                    1,290,667         1,290,667   

United States

                    3,942,510         3,942,510   

Warrants

             67,976                67,976   

Short-Term Securities

     2,305,045         1,974,042                4,279,087   
  

 

 

 

Total

   $ 180,456,225       $ 122,136,055      $ 8,289,917       $ 310,882,197   
  

 

 

 
          

 

 
                 Level 1                               Level 2                              Level 3                               Total               

 

 

Derivative Financial Instruments1

          

Assets:

          
Forward foreign currency exchange contracts            $ 1,178,015              $ 1,178,015   

Liabilities:

          
Forward foreign currency exchange contracts              (940,698             (940,698
  

 

 

 

Total

           $ 237,317              $ 237,317   
  

 

 

 

1 Derivative financial instruments are forward foreign currency exchange contracts, which are valued at the unrealized appreciation/depreciation on the instrument.

 

See Notes to Financial Statements.

 

20    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (continued)      BlackRock Global Opportunities Portfolio   

 

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of March 31, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:

 

      Level 1    Level 2   Level 3   Total

Assets:

                 

Foreign currency at value

     $ 2,795,824                        $ 2,795,824  

Liabilities:

                 

Collateral on securities loaned at value

              $ (1,974,042 )               (1,974,042 )
    

 

 

 

Total

     $     2,795,824        $ (1,974,042 )             $ 821,782  
    

 

 

 
Transfers between Level 1 and Level 2 were as follows:                  
                 
      Transfers into
Level 1
   Transfers out
of Level 11
  Transfers into
Level 21
  Transfers out
of Level 2

Assets:

                 

Long-Term Investments:

                 

United Kingdom

              $ (1,999,010 )     $ 1,999,010          

United States

                (2,286,265 )       2,286,265          
    

 

 

 

Total

              $ (4,285,275 )     $ 4,285,275          
    

 

 

 

1    External pricing service used to reflect any significant market movements between the time the Fund valued such foreign securities and the earlier closing of foreign markets.

       

A reconciliation of Level 3 investments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the period in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value:    
                 
            Common Stocks   Preferred Stocks   Total

Assets:

                 

Opening Balance, as of September 30, 2014

          $      3,494,697       $ 8,839,486       $     12,334,183  

Transfers into Level 3

                             

Transfers out of Level 31

            (6,359,757 )               (6,359,757 )

Other2

            6,166,560         (6,166,560 )        

Accrued discounts/premiums

                             

Net realized gain (loss)

                             

Net change in unrealized appreciation/depreciation3,4

            (244,760 )       2,332,619         2,087,859  

Purchases

                    227,632         227,632  

Sales

                                   

Closing Balance, as of March 31, 2015

          $ 3,056,740       $ 5,233,177       $ 8,289,917  
         

 

 

 

Net change in unrealized appreciation/depreciation on investments still held at March 31, 20154

          $ (244,760 )     $ 2,332,619       $ 2,087,859  
         

 

 

 
  1   

As of September 30, 2014, the Fund used significant unobservable inputs in determining the value of certain investments. As of March 31, 2015, the Fund used observable inputs in determining the value of the same investments. As a result, investments with a beginning period value of $6,359,757 transferred from Level 3 to Level 2 in the disclosure hierarchy.

 

  2   

Certain Level 3 investments were re-classified between Common Stocks and Preferred Stocks.

 

  3  

Included in the related net change in unrealized appreciation/depreciation in the Statements of Operations.

 

  4   

Any difference between Net change in unrealized appreciation/depreciation and Net change in unrealized appreciation/depreciation on investments still held at March 31, 2015, is generally due to investments no longer held or categorized as Level 3 at period end.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    21


Schedule of Investments (concluded)      BlackRock Global Opportunities Portfolio   

 

 

The following table summarizes the valuation techniques used and unobservable inputs utilized by the BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) to determine the value of certain of the Fund’s Level 3 investments as of March 31, 2015. The table does not include Level 3 investments with values based upon unadjusted third party pricing information in the amount of $1,437,187.

 

      Value      Valuation Techniques   

Unobservable

Inputs

Utilized

   Range of
Unobservable Inputs
Utilized
 

Assets:

           

Common Stocks

   $     1,619,553       Market Comparable Companies    Price to Tangible Book Value Multiple1      1.8x   

Preferred Stocks2

     1,290,667       Probability-Weighted Expected Return Model    Years to IPO3      1.2-3.2   
         IPO Exit Probability1      75.00%   
         Discount Rate3      25.00%   
         Revenue Multiple1      0.84x-1.87x   
     3,942,510       Probability-Weighted Expected Return Model    Years to IPO3      0.75-2.9   
         IPO Exit Probability1      90.00% - 95.00%   
         Discount Rate3      21.30% - 22.31%   
         Margin1      20.00%   
         Revenue Multiple1      10.0x-16.0x   

Total

   $     6,852,730                      

 

  1  

Increase in unobservable input may result in a significant increase to value, while a decrease in the unobservable input may result in a significant decrease to value.

 

  2   

For the period ended March 31, 2015, the valuation technique for certain investments classified as preferred stocks changed to a Probability-Weighted Expected Return Model. The investments were previously valued utilizing a market comparable company and option pricing model approach. A Probability-Weighted Expected Return Model was considered to be a more relevant measure of fair value for these investments which leverages the most recent equity raise pre-money valuation and/or secondary market transactions.

 

  3   

Decrease in unobservable input may result in a significant increase to value, while an increase in the unobservable input may result in a significant decrease to value.

 

See Notes to Financial Statements.

 

22    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments March 31, 2015 (Unaudited)      BlackRock Health Sciences Opportunities Portfolio   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Biotechnology — 29.4%

     

Acceleron Pharma, Inc. (a)

     393,200       $ 14,965,192   

Actelion Ltd., Registered Shares

     195,700         22,570,777   

Agios Pharmaceuticals, Inc. (a)

     332,546         31,359,088   

Alder Biopharmaceuticals, Inc. (a)

     495,700         14,305,902   

Alexion Pharmaceuticals, Inc. (a)

     751,517         130,237,896   

Alkermes PLC (a)

     872,700         53,208,519   

Alnylam Pharmaceuticals, Inc. (a)

     127,852         13,350,306   

Amgen, Inc.

     997,510         159,451,973   

Anacor Pharmaceuticals, Inc. (a)

     157,400         9,105,590   

Aquinox Pharmaceuticals, Inc. (a)

     92,500         793,650   

Ascendis Pharma A/S — ADR (a)

     123,600         2,144,460   

BioCryst Pharmaceuticals, Inc. (a)

     227,900         2,057,937   

Biogen Idec, Inc. (a)

     479,612         202,511,371   

BioMarin Pharmaceutical, Inc. (a)

     642,300         80,043,426   

Bluebird Bio, Inc. (a)

     42,600         5,144,802   

Celgene Corp. (a)

     1,569,538         180,936,341   

Celldex Therapeutics, Inc. (a)

     296,500         8,263,455   

Cellectis SA — ADR (a)

     148,900         5,150,451   

Clovis Oncology, Inc. (a)

     182,100         13,517,283   

Conatus Pharmaceuticals, Inc. (a)

     110,200         784,624   

Dyax Corp. (a)

     679,737         11,388,993   

Genomic Health, Inc. (a)

     406,800         12,427,740   

Gilead Sciences, Inc. (a)

     815,456         80,020,697   

Incyte Corp. (a)

     570,700         52,310,362   

Infinity Pharmaceuticals, Inc. (a)

     339,500         4,746,210   

Intercept Pharmaceuticals, Inc. (a)

     98,400         27,750,768   

Isis Pharmaceuticals, Inc. (a)

     974,067         62,018,846   

Karyopharm Therapeutics, Inc. (a)

     254,039         7,776,134   

Medivation, Inc. (a)

     414,600         53,512,422   

Neurocrine Biosciences, Inc. (a)

     611,738         24,292,116   

Protalix BioTherapeutics, Inc. (a)(b)

     1,155,326         2,056,480   

PTC Therapeutics, Inc. (a)

     334,100         20,329,985   

Puma Biotechnology, Inc. (a)

     126,300         29,820,693   

Receptos, Inc. (a)

     409,600         67,538,944   

Regeneron Pharmaceuticals, Inc. (a)

     166,722         75,271,649   

SAGE Therapeutics, Inc. (a)

     269,387         13,531,309   

Sarepta Therapeutics, Inc. (a)(b)

     545,100         7,238,928   

Seattle Genetics, Inc. (a)(b)

     202,818         7,169,616   

Spark Therapeutics, Inc. (a)

     144,000         11,160,000   

Spark Therapeutics, Inc. (Acquired 2/04/15, cost $404,066, unrestricted issue on 2/04/15 was valued at $43.21 pershare) (a)(c)

     250,972         18,477,813   

Synageva BioPharma Corp. (a)

     149,300         14,561,229   

Ultragenyx Pharmaceutical, Inc. (a)

     397,005         24,650,040   

Vertex Pharmaceuticals, Inc. (a)

     588,670         69,445,400   

Zafgen, Inc. (a)

     180,700         7,157,527   
     

 

 

 
                1,654,556,944   

Health Care Equipment & Supplies — 17.7%

     

Abbott Laboratories

     2,785,300         129,042,949   

Align Technology, Inc. (a)

     164,800         8,863,768   

AtriCure, Inc. (a)

     335,881         6,882,202   

Baxter International, Inc.

     278,200         19,056,700   

Becton Dickinson & Co.

     588,792         84,544,643   

Boston Scientific Corp. (a)

     6,662,900         118,266,475   

The Cooper Cos., Inc.

     256,900         48,148,198   

CR Bard, Inc.

     153,600         25,704,960   

DexCom, Inc. (a)

     363,600         22,666,824   

Edwards Lifesciences Corp. (a)

     618,182         88,066,208   

Endologix, Inc. (a)

     317,738         5,423,788   
Common Stocks    Shares      Value  

Health Care Equipment & Supplies (concluded)

     

Insulet Corp. (a)

     223,500       $ 7,453,725   

Intuitive Surgical, Inc. (a)

     97,800         49,391,934   

Masimo Corp. (a)

     560,400         18,481,992   

Medtronic PLC

     2,184,723         170,386,547   

PW Medtech Group Ltd. (a)

     2,621,900         989,854   

St. Jude Medical, Inc.

     1,044,600         68,316,840   

Stryker Corp.

     1,051,000         96,954,750   

Thoratec Corp. (a)

     194,100         8,130,849   

Zimmer Holdings, Inc.

     142,600         16,758,352   
     

 

 

 
                993,531,558   

Health Care Providers & Services — 16.5%

     

Aetna, Inc.

     386,723         41,197,601   

AmerisourceBergen Corp.

     322,200         36,624,474   

Anthem, Inc.

     681,400         105,214,974   

Cardinal Health, Inc.

     1,165,880         105,243,988   

Cigna Corp.

     824,900         106,775,056   

Express Scripts Holding Co. (a)

     441,547         38,313,033   

HCA Holdings, Inc. (a)

     800,448         60,217,703   

HealthEquity, Inc. (a)

     83,300         2,081,667   

Humana, Inc.

     230,000         40,944,600   

McKesson Corp.

     645,200         145,944,240   

Premier, Inc., Class A (a)

     141,700         5,325,086   

UnitedHealth Group, Inc.

     1,501,194         177,576,238   

Universal Health Services, Inc., Class B

     509,200         59,937,932   
     

 

 

 
                925,396,592   

Health Care Technology — 0.4%

     

Cerner Corp. (a)

     277,900         20,358,954   

Life Sciences Tools & Services — 3.8%

     

Agilent Technologies, Inc.

     882,100         36,651,255   

Charles River Laboratories International, Inc. (a)

     817,900         64,851,291   

Illumina, Inc. (a)

     207,900         38,594,556   

Thermo Fisher Scientific, Inc.

     567,000         76,170,780   
     

 

 

 
                216,267,882   

Machinery — 0.2%

     

Pall Corp.

     108,500         10,892,315   

Pharmaceuticals — 29.3%

     

AbbVie, Inc.

     1,453,200         85,070,328   

Achaogen, Inc. (a)

     183,711         1,793,019   

Actavis PLC (a)

     602,052         179,182,716   

AstraZeneca PLC

     1,069,500         73,387,103   

Bayer AG, Registered Shares

     297,600         44,525,512   

Bristol-Myers Squibb Co.

     2,377,800         153,368,100   

Chugai Pharmaceutical Co. Ltd.

     905,700         28,584,731   

Dermira, Inc. (a)

     146,100         2,242,635   

Eli Lilly & Co.

     1,918,300         139,364,495   

Intra-Cellular Therapies, Inc. (a)

     983,154         23,477,717   

Jazz Pharmaceuticals PLC (a)

     109,600         18,937,784   

Johnson & Johnson

     764,800         76,938,880   

Mallinckrodt PLC (a)

     616,100         78,029,065   

Merck & Co., Inc.

     1,883,800         108,280,824   

Mylan NV (a)

     1,020,000         60,537,000   

Novartis AG, Registered Shares

     862,300         85,109,431   

Perrigo Co. PLC

     440,700         72,957,885   

Pfizer, Inc.

     1,623,740         56,489,915   

Phibro Animal Health Corp., Class A

     325,700         11,533,037   

Roche Holding AG

     217,000         59,629,886   

Shire PLC — ADR

     261,300         62,526,477   
 

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    23


Schedule of Investments (continued)     

 

BlackRock Health Sciences Opportunities Portfolio

(Percentages shown are based on Net Assets)

  

  

 

Common Stocks   

Shares

     Value  

Pharmaceuticals (concluded)

     

Tetraphase Pharmaceuticals, Inc. (a)

     230,600       $ 8,449,184   

Teva Pharmaceutical Industries Ltd. — ADR

     1,416,100         88,223,030   

Valeant Pharmaceuticals International, Inc. (a)

     537,100         106,678,802   

Zoetis, Inc.

     484,200         22,413,618   
     

 

 

 
                1,647,731,174   

Total Common Stocks — 97.3%

              5,468,735,419   
     
Preferred Stocks                

Biotechnology — 0.2%

     

ProNAi Therapeutics, Inc., Series D (Acquired 4/15/14, cost $3,632,975) (a)(c)

     5,189,964         3,632,975   

Seres Health, Inc. (Acquired 11/24/14, cost $3,672,922) (a)(c)

     301,970         5,435,460   

Total Preferred Stocks — 0.2%

              9,068,435   

Total Long-Term Investments

(Cost — $3,692,087,079) — 97.5%

  

  

     5,477,803,854   
     
                  
Short-Term Securities   

Shares

     Value  

BlackRock Liquidity Funds, TempFund, Institutional Class, 0.06% (d)(e)

     122,708,089       $ 122,708,089   
      Beneficial
Interest
(000)
         

BlackRock Liquidity Series, LLC, Money Market Series, 0.22% (d)(e)(f)

   $ 7,494         7,494,299   

Total Short-Term Securities
(Cost — $130,202,388) — 2.3%

   

     130,202,388   

Total Investments Before Options Written

(Cost — $3,822,289,467) — 99.8%

  

  

     5,608,006,242   
     
Options Written                

(Premiums Received — $339,405) — (0.0)%

              (144,838

Total Investments Net of Options Written
(Cost — $3,821,950,062) — 99.8%

   

     5,607,861,404   

Other Assets Less Liabilities — 0.2%

  

     10,065,405   
     

 

 

 

Net Assets — 100.0%

      $ 5,617,926,809   
     

 

 

 
 

 

Notes to Schedule of Investments
(a) Non-income producing security.

 

(b) Security, or a portion of security, is on loan.

 

(c) Restricted security as to resale. As of report date, the Fund held restricted securities with a current value of $27,546,248 and an original cost of $7,709,963, which was 0.5% of its net assets.

 

(d) Represents the current yield as of report date.

 

(e) During the six months ended March 31, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate   

Shares/
Beneficial
Interest

Held at
September 30,
2014

    

Net

Activity

    

Shares/
Beneficial
Interest

Held at
March 31,

2015

     Income      Realized
Gain
 

BlackRock Liquidity Funds, TempFund, Institutional Class

     115,300,758         7,407,331         122,708,089       $ 29,999       $ 7,875   

BlackRock Liquidity Series, LLC, Money Market Series

   $ 4,824,791       $ 2,669,508       $ 7,494,299       $ 51,703           

 

(f) Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.

 

Ÿ  

For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 

See Notes to Financial Statements.

 

24    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (continued)      BlackRock Health Sciences Opportunities Portfolio   

 

 

Ÿ  

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows:

 

Currency
Purchased
       Currency
Sold
    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
CHF        51,430,772           USD           60,216,335      Deutsche Bank AG     4/22/15         $ (7,244,201
CHF        4,197,481           USD           4,390,900      JPMorgan Chase Bank N.A.     4/22/15           (67,622
EUR        12,537,126           USD           14,254,599      UBS AG     4/22/15           (769,962
USD        8,328,090           CHF           8,139,267      Deutsche Bank AG     4/22/15           (55,108
USD        4,468,423           CHF           4,222,557      Goldman Sachs Bank USA     4/22/15           119,318   
USD        111,123,024           CHF           95,066,647      Morgan Stanley Capital Services LLC     4/22/15           13,207,263   
USD        1,264,854           CHF           1,167,732      Royal Bank of Canada     4/22/15           62,125   
USD        2,094,096           CHF           1,942,410      UBS AG     4/22/15           93,473   
USD        918,095           EUR           812,300      Bank of America N.A.     4/22/15           44,405   
USD        28,374,381           EUR           25,226,000      Deutsche Bank AG     4/22/15           1,241,890   
USD        1,049,970           EUR           919,806      Royal Bank of Canada     4/22/15           60,648   
USD        1,118,542           EUR           987,457      Royal Bank of Canada     4/22/15           56,456   
USD        21,855,583           EUR           18,882,708      Royal Bank of Canada     4/22/15           1,545,787   
USD        1,036,727           EUR           960,643      Royal Bank of Scotland PLC     4/22/15           3,481   
USD        682,795           EUR           596,450      UBS AG     4/22/15           41,267   
USD        1,372,856           GBP           892,000      Bank of America N.A.     4/22/15           49,870   
USD        1,985,218           GBP           1,289,000      Morgan Stanley Capital Services LLC     4/22/15           73,415   
USD        66,691,048           GBP           44,032,000      Morgan Stanley Capital Services LLC     4/22/15           1,384,216   
Total                         $ 9,846,721   
                       

 

 

 

 

Ÿ  

As of March 31, 2015, exchange-traded options written were as follows:

 

Description    Put/
Call
    

Strike

Price

     Expiration
Date
     Contracts    Value  

Alnylam Pharmaceuticals, Inc.

     Put         USD         90.00         4/17/15       293    $ (17,580

Alnylam Pharmaceuticals, Inc.

     Put         USD         95.00         4/17/15       293      (37,358

Synageva Biopharma Corp.

     Put         USD         85.00         4/17/15       310      (31,000

Synageva Biopharma Corp.

     Put         USD         90.00         4/17/15       310      (58,900

Total

                  $ (144,838
                 

 

 

 

 

Ÿ  

Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows:

 

  Ÿ  

Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

  Ÿ  

Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

  Ÿ  

Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    25


Schedule of Investments (concluded)      BlackRock Health Sciences Opportunities Portfolio   

 

As of March 31, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:

 

      Level 1   Level 2   Level 3    Total

Assets:

                 

Investments:

                 

Long-Term Investments:

                 

Common Stocks:

                 

Biotechnology

     $ 1,613,508,354       $ 41,048,590                $ 1,654,556,944  

Health Care Equipment & Supplies

       992,541,704         989,854                  993,531,558  

Health Care Providers & Services

       925,396,592                          925,396,592  

Health Care Technology

       20,358,954                          20,358,954  

Life Sciences Tools & Services

       216,267,882                          216,267,882  

Machinery

       10,892,315                          10,892,315  

Pharmaceuticals

       1,356,494,511         291,236,663                  1,647,731,174  

Preferred Stocks:

                 

Biotechnology

                     $ 9,068,435          9,068,435  

Short-Term Securities

       122,708,089         7,494,299                  130,202,388  
    

 

 

 

Total

     $ 5,258,168,401       $ 340,769,406       $ 9,068,435        $ 5,608,006,242  
    

 

 

 
                 
      Level 1   Level 2   Level 3    Total

Derivative Financial Instruments1

                 

Assets:

                 

Forward foreign currency exchange contracts

             $ 17,983,614                $ 17,983,614  

Liabilities:

                 

Equity contracts

     $ (144,838 )                        (144,838 )

Forward foreign currency exchange contracts

               (8,136,893 )                (8,136,893 )
    

 

 

 

Total

     $ (144,838 )     $ 9,846,721                $ 9,701,883  
    

 

 

 

1    Derivative financial instruments are forward foreign currency exchange contracts and options written. Forward foreign currency exchange contracts are valued at the unrealized appreciation/depreciation on the instrument and options written are shown at value.

        

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of March 31, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:

 

   

      Level 1   Level 2   Level 3    Total

Assets:

                 

Cash pledged as collateral for options written

     $ 11,387,775                        $ 11,387,775  

Foreign currency at value

       67,343,198                          67,343,198  

Liabilities:

                 

Collateral on securities loaned at value

             $ (7,494,299 )                (7,494,299 )
    

 

 

 

Total

     $ 78,730,973       $ (7,494,299 )              $ 71,236,674  
    

 

 

 

During the six months ended March 31, 2015, there were no transfers between levels.

 

See Notes to Financial Statements.

 

26    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments March 31, 2015 (Unaudited)      BlackRock International Opportunities Portfolio   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Belgium — 1.7%

     

Anheuser-Busch InBev NV

     153,379       $ 18,737,531   

Canada — 3.9%

     

Element Financial Corp. (a)

     1,424,100         19,249,609   

Enbridge, Inc.

     199,600         9,621,081   

Gildan Activewear, Inc.

     321,900         9,490,147   

MEG Energy Corp. (a)

     327,200         5,285,628   
     

 

 

 
                43,646,465   

China — 5.7%

     

Alibaba Group Holding Ltd. — ADR (a)

     97,558         8,120,728   

Baidu, Inc. — ADR (a)

     64,650         13,473,060   

Beijing Enterprises Water Group Ltd.

     12,430,000         8,452,459   

China Construction Bank Corp., H Shares

     9,157,000         7,600,192   

CSR Corp. Ltd., H Shares

     7,350,000         9,708,164   

Qunar Cayman Islands Ltd. — ADR (a)

     157,900         6,513,375   

Tencent Holdings Ltd.

     589,400         11,192,657   
     

 

 

 
                65,060,635   

France — 6.1%

     

AXA SA

     821,700         20,681,435   

BNP Paribas SA

     223,923         13,624,771   

Dassault Aviation SA

     1,338         1,619,434   

Orange SA

     821,800         13,197,696   

Schneider Electric SE

     117,234         9,122,971   

Unibail-Rodamco SE

     42,000         11,341,473   
     

 

 

 
                69,587,780   

Germany — 5.6%

     

Bayer AG, Registered Shares

     89,300         13,360,646   

Continental AG

     40,700         9,584,669   

Henkel AG & Co. KGaA, Preference

     98,686         11,591,744   

Infineon Technologies AG

     806,244         9,591,792   

SAP SE

     169,400         12,243,739   

Wacker Chemie AG

     63,700         7,352,784   
     

 

 

 
                63,725,374   

Hong Kong — 2.2%

     

AIA Group Ltd.

     2,733,700         17,163,496   

Melco Crown Entertainment Ltd. — ADR

     341,100         7,320,006   
     

 

 

 
                24,483,502   

India — 3.0%

     

Bharti Infratel Ltd.

     618,886         3,807,388   

HDFC Bank Ltd.

     684,855         13,169,739   

ITC Ltd.

     1,288,500         6,698,365   

Tata Motors Ltd. — ADR

     224,300         10,106,958   
     

 

 

 
                33,782,450   

Indonesia — 1.1%

     

Global Mediacom Tbk PT

     34,090,288         4,556,009   

Matahari Department Store Tbk PT

     5,623,171         8,456,209   
     

 

 

 
                13,012,218   

Ireland — 5.7%

     

Dalata Hotel Group PLC (a)

     2,063,626         8,099,003   

Green REIT PLC

     5,393,585         9,487,866   

Kingspan Group PLC

     568,679         10,835,228   

Ryanair Holdings PLC — ADR

     206,784         13,806,968   

Shire PLC — ADR

     92,200         22,062,538   
     

 

 

 
                64,291,603   

Israel — 2.4%

     

Teva Pharmaceutical Industries Ltd. — ADR

     437,700         27,268,710   
Common Stocks    Shares      Value  

Italy — 2.4%

     

Banca Generali SpA

     482,800       $ 15,138,393   

UniCredit SpA

     1,814,846         12,306,952   
     

 

 

 
                27,445,345   

Japan — 8.5%

     

Chugai Pharmaceutical Co. Ltd.

     238,600         7,530,437   

FANUC Corp.

     42,800         9,343,831   

Mitsubishi Estate Co. Ltd.

     688,000         15,956,073   

Nabtesco Corp.

     462,100         13,349,713   

ORIX Corp.

     654,000         9,189,438   

Shinsei Bank Ltd.

     5,974,000         11,878,337   

SMC Corp.

     36,600         10,898,155   

Toyota Motor Corp.

     266,800         18,623,635   
     

 

 

 
                96,769,619   

Mexico — 0.6%

     

Cemex SAB de CV — ADR (a)

     744,756         7,052,839   

Netherlands — 4.5%

     

Aalberts Industries NV

     339,505         10,685,010   

ASML Holding NV

     109,900         11,141,562   

Koninklijke Philips NV

     191,600         5,435,665   

Royal Dutch Shell PLC, A Shares

     782,500         23,348,670   
     

 

 

 
                50,610,907   

New Zealand — 1.3%

     

Xero Ltd. (a)

     272,500         4,889,527   

Xero Ltd. (Acquired 10/15/13, cost $8,211,297) (a)(b)

     540,000         9,729,292   
     

 

 

 
                14,618,819   

Nigeria — 0.4%

     

Lekoil Ltd. (a)

     13,810,100         4,814,164   

Norway — 1.3%

     

Statoil ASA

     828,700         14,652,584   

Peru — 0.6%

     

Credicorp Ltd.

     46,800         6,581,484   

South Africa — 0.9%

     

Naspers Ltd., N Shares

     67,300         10,323,215   

South Korea — 2.8%

     

Coway Co. Ltd.

     86,300         7,102,913   

Samsung Electronics Co. Ltd.

     12,737         16,516,748   

SK Hynix, Inc.

     184,100         7,519,865   
     

 

 

 
                31,139,526   

Spain — 1.6%

     

NH Hotel Group SA (a)

     1,737,747         9,488,805   

Sacyr SA (a)(c)

     2,099,937         8,811,810   
     

 

 

 
                18,300,615   

Sweden — 1.3%

     

Nordea Bank AB

     1,195,600         14,562,979   

Switzerland — 8.6%

     

Actelion Ltd., Registered Shares

     61,855         7,133,957   

Adecco SA, Registered Shares

     77,700         6,458,696   

Novartis AG, Registered Shares

     387,400         38,236,569   

Roche Holding AG

     108,814         29,901,228   

UBS Group AG (a)

     831,000         15,582,174   
     

 

 

 
                97,312,624   

Taiwan — 1.4%

     

Hermes Microvision, Inc.

     167,510         9,637,189   
 

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    27


Schedule of Investments (continued)     

 

BlackRock International Opportunities Portfolio

(Percentages shown are based on Net Assets)

  

  

 

Common Stocks   

Shares

     Value  

Taiwan (concluded)

     

Largan Precision Co. Ltd.

     70,000       $ 6,017,759   
     

 

 

 
                15,654,948   

United Kingdom — 20.4%

     

ARM Holdings PLC

     612,900         9,954,232   

AstraZeneca PLC

     415,800         28,531,424   

BAE Systems PLC

     1,510,300         11,704,110   

BP PLC

     1,699,000         11,013,145   

Crest Nicholson Holdings PLC

     1,570,922         9,892,481   

Diageo PLC

     319,500         8,829,129   

Hargreaves Lansdown PLC

     305,245         5,206,609   

Imperial Tobacco Group PLC

     500,100         21,937,419   

Kennedy Wilson Europe Real Estate PLC

     763,998         12,455,069   

Liberty Global PLC, Series A (a)

     454,300         23,382,821   

Lloyds Banking Group PLC

     11,858,300         13,745,337   

Metro Bank PLC, (Acquired 1/15/14, cost $9,137,436) (a)(b)

     429,853         8,461,495   

Nomad Holdings Ltd. (a)

     894,145         10,059,131   

Prudential PLC

     442,000         10,968,375   

SABMiller PLC

     346,500         18,150,202   

Vodafone Group PLC

     3,504,500         11,467,811   

Whitbread PLC

     189,800         14,737,888   
     

 

 

 
                230,496,678   

United States — 2.3%

     

Las Vegas Sands Corp.

     102,500         5,641,600   

Samsonite International SA

     4,483,500         15,585,680   

Sensata Technologies Holding NV (a)

     80,800         4,641,960   
     

 

 

 
                25,869,240   

Total Common Stocks — 96.3%

              1,089,801,854   
     
                  
Preferred Stocks   

Shares

     Value  

India — 1.1%

     

Snapdeal.com, Series F (Acquired 5/07/14,
cost $5,268,843) (a)(b)

     749       $ 8,951,012   

Snapdeal.com, Series G (Acquired 10/29/14,
cost $2,090,847) (a)(b)

     248         2,963,753   

Total Preferred Stocks — 1.1%

              11,914,765   
     
                  

Warrants (d)

                 

United Kingdom — 0.0%

     

Nomad Holdings Ltd. (issued 4/10/14, expiring 4/10/17, strike price $11.50)

     894,145         362,129   

Total Warrants — 0.0%

              362,129   

Total Long-Term Investments

(Cost — $962,132,301) — 97.4%

  

  

     1,102,078,748   
     
                  

Short-Term Securities

                 

BlackRock Liquidity Funds, TempFund, Institutional Class, 0.06% (e)(f)

     5,797,795         5,797,795   
Short-Term Securities    Beneficial
Interest
(000)
         

BlackRock Liquidity Series, LLC, Money Market Series, 0.22% (e)(f)(g)

   $ 1,431         1,430,717   

Total Short-Term Securities
(Cost — $7,228,512) — 0.6%

              7,228,512   

Total Investments (Cost — $969,360,813) — 98.0%

  

     1,109,307,260   

Other Assets Less Liabilities — 2.0%

  

     22,650,670   
     

 

 

 

Net Assets — 100.0%

      $ 1,131,957,930   
     

 

 

 
 

 

Notes to Schedule of Investments
(a) Non-income producing security.

 

(b) Restricted security as to resale. As of report date, the Fund held restricted securities with a current value of $30,105,552 and an original cost of $24,708,423, which was 2.7% of its net assets.

 

(c) Security, or a portion of security, is on loan.

 

(d) Warrants entitle the Fund to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date of the warrants, if any.

 

(e) During the six months ended March 31, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate   

Shares/
Beneficial
Interest

Held at
September 30,
2014

    

Net

Activity

    Shares/
Beneficial
Interest
Held at
March 31,
2015
     Income  

BlackRock Liquidity Funds, TempFund, Institutional Class

     14,744,969         (8,947,174     5,797,795       $ 2,254   

BlackRock Liquidity Series, LLC, Money Market Series

   $ 18,399,705       $ (16,968,988   $ 1,430,717       $ 97,820   

 

(f) Represents the current yield as of report date.

 

(g) Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.

 

See Notes to Financial Statements.

 

28    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (continued)      BlackRock International Opportunities Portfolio   

 

Ÿ  

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows:

 

Currency

Purchased

              

Currency

Sold

            Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
AUD        40,880,000         USD        33,354,871      Morgan Stanley Capital Services LLC     4/22/15         $ (2,260,464
CAD        11,401,000         USD        9,250,229      Bank of America N.A.     4/22/15           (251,034
CAD        1,999,000         USD        1,574,420      Goldman Sachs International     4/22/15           3,458   
CAD        10,533,000         USD        8,464,407      Goldman Sachs International     4/22/15           (150,353
CHF        23,673,753         USD        27,717,777      Deutsche Bank AG     4/22/15           (3,334,530
DKK        82,084,250         USD        12,831,218      Goldman Sachs International     4/22/15           (1,008,838
EUR        406,623         USD        431,299      BNP Paribas S.A.     4/22/15           6,055   
EUR        2,140,434         USD        2,264,337      BNP Paribas S.A.     4/22/15           37,864   
EUR        417,459         USD        481,719      Citibank N.A.     4/22/15           (32,710
EUR        825,105         USD        879,602      Citibank N.A.     4/22/15           7,862   
EUR        1,879,365         USD        2,146,092      Citibank N.A.     4/22/15           (124,691
EUR        11,036,132         USD        12,006,506      Deutsche Bank AG     4/22/15           (136,302
EUR        1,379,605         USD        1,555,547      Goldman Sachs International     4/22/15           (71,675
EUR        6,126,056         USD        6,966,464      Goldman Sachs International     4/22/15           (377,423
EUR        1,523,622         USD        1,614,384      Royal Bank of Scotland PLC     4/22/15           24,388   
EUR        7,303,530         USD        7,909,679      Royal Bank of Scotland PLC     4/22/15           (54,174
EUR        1,459,206         USD        1,550,319      State Street Bank and Trust Co.     4/22/15           19,169   
EUR        1,572,119         USD        1,713,569      State Street Bank and Trust Co.     4/22/15           (22,634
EUR        3,933,608         USD        4,435,539      State Street Bank and Trust Co.     4/22/15           (204,643
EUR        5,514,866         USD        5,968,606      State Street Bank and Trust Co.     4/22/15           (36,946
EUR        64,992         USD        74,394      TD Securities, Inc.     4/22/15           (4,490
EUR        457,205         USD        498,257      The Bank of New York Mellon     4/22/15           (6,498
EUR        302,217         USD        318,819      UBS AG     4/22/15           6,239   
EUR        1,761,878         USD        1,858,663      UBS AG     4/22/15           36,371   
GBP        7,799,000         USD        11,742,011      Goldman Sachs International     4/22/15           (174,788
GBP        380,000         USD        573,934      Royal Bank of Scotland PLC     4/22/15           (10,330
GBP        2,416,000         USD        3,579,611      State Street Bank and Trust Co.     4/22/15           3,722   
GBP        6,107,000         USD        9,194,101      State Street Bank and Trust Co.     4/22/15           (136,397
GBP        8,597,000         USD        13,229,506      State Street Bank and Trust Co.     4/22/15           (478,715
GBP        1,938,000         USD        2,948,936      TD Securities, Inc.     4/22/15           (74,558
GBP        3,568,000         USD        5,434,642      TD Securities, Inc.     4/22/15           (142,700
HKD        85,315,000         USD        10,999,942      The Bank of New York Mellon     4/22/15           3,964   
JPY        1,229,424,000         USD        10,418,091      Goldman Sachs International     4/22/15           (163,733
JPY        5,001,944,880         USD        42,954,322      Goldman Sachs International     4/22/15           (1,234,190
JPY        305,858,000         USD        2,546,745      TD Securities, Inc.     4/22/15           4,350   
JPY        315,081,000         USD        2,681,607      TD Securities, Inc.     4/22/15           (53,585
JPY        921,499,000         USD        7,738,669      The Bank of New York Mellon     4/22/15           (52,646
MXN        97,156,000         USD        6,594,681      BNP Paribas S.A.     4/22/15           (234,797
NOK        27,050,000         USD        3,367,621      Goldman Sachs International     4/22/15           (11,998
NOK        1,587,000         USD        206,820      The Bank of New York Mellon     4/22/15           (9,948
SEK        105,186,000         USD        12,921,065      HSBC Bank PLC     4/22/15           (703,266
SGD        21,429,000         USD        16,110,310      TD Securities, Inc.     4/22/15           (503,912
TRY        21,267,000         USD        9,015,826      Citibank N.A.     4/22/15           (885,256
USD        6,212,053         AUD        7,605,000      Bank of America N.A.     4/22/15           427,489   
USD        319,453         CAD        383,058      Morgan Stanley Capital Services LLC     4/22/15           17,093   
USD        2,233,113         CAD        2,800,000      TD Securities, Inc.     4/22/15           22,978   
USD        6,274,390         CAD        7,774,000      UBS AG     4/22/15           138,108   
USD        27,018,664         CHF        23,673,753      Goldman Sachs International     4/22/15           2,635,417   
USD        3,656,579         EUR        3,223,468      Bank of America N.A.     4/22/15           189,493   

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    29


Schedule of Investments (continued)      BlackRock International Opportunities Portfolio   

 

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows: (concluded)

 

Currency

Purchased

              

Currency

Sold

            Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
USD        10,922,013         EUR        9,458,000      Bank of America N.A.     4/22/15         $ 749,211   
USD        394,653         EUR        345,399      BNP Paribas S.A.     4/22/15           23,151   
USD        1,982,346         EUR        1,741,645      Citibank N.A.     4/22/15           109,073   
USD        43,346,959         EUR        37,286,744      Goldman Sachs International     4/22/15           3,242,215   
USD        6,420,701         EUR        5,643,000      JPMorgan Chase Bank N.A.     4/22/15           351,223   
USD        16,300,908         EUR        14,280,102      Royal Bank of Canada     4/22/15           941,566   
USD        7,661,344         EUR        7,057,000      State Street Bank and Trust Co.     4/22/15           71,001   
USD        749,417         EUR        658,689      TD Securities, Inc.     4/22/15           40,946   
USD        2,875,009         EUR        2,515,811      The Bank of New York Mellon     4/22/15           169,061   
USD        1,361,273         EUR        1,197,260      UBS AG     4/22/15           73,529   
USD        6,595,067         GBP        4,461,000      BNP Paribas S.A.     4/22/15           (21,344
USD        425,240         GBP        290,000      Citibank N.A.     4/22/15           (4,879
USD        6,428,401         GBP        4,281,000      Deutsche Bank AG     4/22/15           78,961   
USD        3,691,199         GBP        2,505,000      Morgan Stanley Capital Services LLC     4/22/15           (24,136
USD        56,580,463         GBP        37,274,324      Morgan Stanley Capital Services LLC     4/22/15           1,296,397   
USD        6,687,292         GBP        4,459,000      State Street Bank and Trust Co.     4/22/15           73,848   
USD        8,586,435         GBP        5,816,000      State Street Bank and Trust Co.     4/22/15           (39,668
USD        9,888,557         GBP        6,643,000      State Street Bank and Trust Co.     4/22/15           35,876   
USD        3,243,979         GBP        2,157,000      TD Securities, Inc.     4/22/15           44,787   
USD        7,640,406         GBP        5,126,000      UBS AG     4/22/15           37,689   
USD        6,437,740         HKD        49,913,000      State Street Bank and Trust Co.     4/22/15           (25
USD        6,498,917         JPY        764,632,000      Barclays Bank PLC     4/22/15           121,288   
USD        6,092,278         JPY        723,920,000      Deutsche Bank AG     4/22/15           54,219   
USD        1,237,722         JPY        147,831,000      Goldman Sachs International     4/22/15           4,696   
USD        3,714,250         NOK        29,036,000      Goldman Sachs International     4/22/15           112,259   
USD        7,010,757         NOK        53,913,000      Goldman Sachs International     4/22/15           322,709   
USD        2,723,726         NOK        20,711,000      Morgan Stanley Capital Services LLC     4/22/15           154,473   
USD        12,008,646         NZD        15,512,000      Morgan Stanley Capital Services LLC     4/22/15           438,212   
ZAR        23,596,000         USD        2,013,018      State Street Bank and Trust Co.     4/22/15           (75,050
ZAR        59,267,000         USD        5,056,177      State Street Bank and Trust Co.     4/22/15           (188,507
Total                         $ (1,171,423
                       

 

 

 

 

Ÿ  

Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows:

 

  Ÿ  

Level 1 – unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

  Ÿ  

Level 2 – other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves,volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

  Ÿ  

Level 3 – unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.

 

See Notes to Financial Statements.

 

30    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (continued)      BlackRock International Opportunities Portfolio   

 

As of March 31, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:

 

      Level 1    Level 2   Level 3    Total

Assets:

                  

Investments:

                  

Long-Term Investments:

                  

Common Stocks:

                  

Belgium

              $ 18,737,531                $ 18,737,531  

Canada

     $ 43,646,465                           43,646,465  

China

       28,107,163          36,953,472                  65,060,635  

France

                69,587,780                  69,587,780  

Germany

                63,725,374                  63,725,374  

Hong Kong

       7,320,006          17,163,496                  24,483,502  

India

       13,914,346          19,868,104                  33,782,450  

Indonesia

                13,012,218                  13,012,218  

Ireland

       53,456,375          10,835,228                  64,291,603  

Israel

       27,268,710                           27,268,710  

Italy

                27,445,345                  27,445,345  

Japan

                96,769,619                  96,769,619  

Mexico

       7,052,839                           7,052,839  

Netherlands

                50,610,907                  50,610,907  

New Zealand

       9,729,292          4,889,527                  14,618,819  

Nigeria

       4,814,164                           4,814,164  

Norway

                14,652,584                  14,652,584  

Peru

       6,581,484                           6,581,484  

South Africa

                10,323,215                  10,323,215  

South Korea

                31,139,526                  31,139,526  

Spain

                18,300,615                  18,300,615  

Sweden

                14,562,979                  14,562,979  

Switzerland

                97,312,624                  97,312,624  

Taiwan

                15,654,948                  15,654,948  

United Kingdom

       35,837,890          186,197,293       $ 8,461,495          230,496,678  

United States

       10,283,560          15,585,680                  25,869,240  

Preferred Stocks:

                  

India

                        11,914,765          11,914,765  

Warrants

                362,129                  362,129  

Short-Term Securities

       5,797,795          1,430,717                  7,228,512  
    

 

 

 

Total

     $ 253,810,089        $ 835,120,911       $ 20,376,260        $ 1,109,307,260  
    

 

 

 
                  
      Level 1    Level 2   Level 3    Total

Derivative Financial Instruments1

                  

Assets:

                  

Forward foreign currency exchange contracts

              $ 12,130,410                $ 12,130,410  

Liabilities:

                  

Forward foreign currency exchange contracts

                (13,301,833 )                (13,301,833 )
    

 

 

 

Total

              $ (1,171,423 )              $ (1,171,423 )
    

 

 

 

1    Derivative financial instruments are forward foreign currency exchange contracts, which are valued at the unrealized appreciation/depreciation on the instrument.

       

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    31


Schedule of Investments (concluded)      BlackRock International Opportunities Portfolio   

 

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of March 31, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:

 

      Level 1    Level 2   Level 3    Total

Assets:

                  

Foreign currency at value

     $ 111,499                         $ 111,499  

Liabilities:

                  

Collateral on securities loaned at value

              $ (1,430,717 )                (1,430,717 )
    

 

 

 

Total

     $ 111,499        $ (1,430,717 )              $ (1,319,218 )
    

 

 

 

Transfers between Level 1 and Level 2 were as follows:

 

                  
     

Transfers into

Level 1

   Transfers out
of Level 11
  Transfers into
Level 21
   Transfers out
of Level 2

Assets:

                  

Long-Term Investments:

                  

Ireland

              $ (9,107,713 )     $ 9,107,713           

United Kingdom

                (10,649,267 )       10,649,267           

United States

                (16,389,885 )       16,389,885           
    

 

 

 

Total

              $ (36,146,865 )     $ 36,146,865           
    

 

 

 

1    External pricing service used to reflect any significant market movements between the time the Fund valued such foreign securities and the earlier closing of foreign markets.

       

A reconciliation of Level 3 investments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the period in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value:    
      Common Stocks   Preferred Stocks    Total

Assets:

             

Opening Balance, as of September 30, 2014

     $ 9,066,043       $ 5,125,544        $ 14,191,587  

Transfers into Level 3

                         

Transfers out of Level 3

                         

Accrued discounts/premiums

                         

Net realized gain (loss)

                         

Net change in unrealized appreciation/depreciation2,3

       (604,548 )       4,698,375          4,093,827  

Purchases

               2,090,846          2,090,846  

Sales

                         

Closing Balance, as of March 31, 2015

     $     8,461,495       $     11,914,765        $     20,376,260  
    

 

 

 

Net change in unrealized appreciation/depreciation on investments still held at March 31, 20153

     $ (604,548 )     $ 4,698,375        $ 4,093,827  
    

 

 

 

2    Included in the related net change in unrealized appreciation/depreciation in the Statements of Operations.

       

3    Any difference between Net change in unrealized appreciation/depreciation and Net change in unrealized appreciation/depreciation on investments still held at March 31, 2015, is generally due to investments no longer held or categorized as Level 3 at period end.

        

The following table summarizes the valuation techniques used and unobservable inputs utilized by the BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) to determine the value of certain of the Fund’s Level 3 investments as of March 31, 2015.

 

      Value      Valuation Techniques   

Unobservable

Inputs

   Range of
Unobservable Inputs
Utilized
 

Assets:

           

Common Stocks.

   $ 8,461,495       Market Comparable Companies    Price to Tangible Book Value Multiple4      1.8x   

Preferred Stocks5

     11,914,765       Probability-Weighted Expected Return Model    Years to IPO6      1.2-3.2   
         IPO Exit Probability4      75.00%   
         Discount Rate6      25.00%   
         Revenue Multiple4      0.84x-1.87x   
  

 

 

 

Total

   $ 20,376,260            
  

 

 

 

 

  4  

Increase in unobservable input may result in a significant increase to value, while a decrease in the unobservable input may result in a significant decrease to value.

 

  5   

For the period ended March 31, 2015, the valuation technique for certain investments classified as preferred stocks changed to a Probability-Weighted Expected Return Model. The investments were previously valued utilizing a market comparable company and option pricing model approach. A Probability-Weighted Expected Return Model was considered to be a more relevant measure of fair value for these investments which leverages secondary market transactions.

 

  6   

Decrease in unobservable input may result in a significant increase to value, while an increase in the unobservable input may result in a significant decrease to value.

 

See Notes to Financial Statements.

 

32    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments March 31, 2015 (Unaudited)      BlackRock Science & Technology Opportunities Portfolio   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Commercial Services & Supplies — 0.4%

     

Atento SA (a)

     83,800       $ 996,382   

Communications Equipment — 2.2%

     

Finisar Corp. (a)

     122,300         2,609,882   

JDS Uniphase Corp. (a)

     198,400         2,603,008   
     

 

 

 
                5,212,890   

Consumer Finance — 0.2%

     

Trustbuddy AB (a)

     6,696,207         474,293   

Diversified Telecommunication Services — 0.6%

     

Link Net Tbk PT (a)

     3,230,500         1,476,271   

Electronic Equipment, Instruments & Components — 2.5%

  

  

Alps Electric Co. Ltd.

     53,700         1,293,060   

CDW Corp.

     38,300         1,426,292   

Largan Precision Co. Ltd.

     22,000         1,891,296   

PAX Global Technology Ltd. (a)

     1,373,000         1,435,972   
     

 

 

 
                6,046,620   

Health Care Technology — 0.7%

     

Inovalon Holdings, Inc., Class A (a)(b)

     52,600         1,589,046   

Household Durables — 1.6%

     

Sony Corp. (a)

     140,600         3,760,153   

Internet & Catalog Retail — 5.2%

     

Amazon.com, Inc. (a)

     8,700         3,237,270   

Makemytrip Ltd. (a)

     54,000         1,185,840   

Netflix, Inc. (a)

     3,800         1,583,422   

Qunar Cayman Islands Ltd. — ADR (a)(b)

     54,000         2,227,500   

Vipshop Holdings Ltd. — ADR (a)(b)

     139,900         4,118,656   
     

 

 

 
                12,352,688   

Internet Software & Services — 23.9%

     

58.com, Inc. — ADR (a)

     57,000         3,014,160   

Alibaba Group Holding Ltd. — ADR (a)(b)

     30,600         2,547,144   

Baidu, Inc. — ADR (a)

     11,400         2,375,760   

comScore, Inc. (a)(b)

     37,100         1,899,520   

Cvent, Inc. (a)

     34,900         978,596   

Facebook, Inc., Class A (a)

     99,700         8,196,835   

Google, Inc., Class A (a)

     9,783         5,426,630   

Google, Inc., Class C (a)(b)

     9,783         5,361,084   

Hortonworks, Inc. (a)

     48,686         1,160,674   

Hortonworks, Inc. (Acquired 3/21/14,
cost $3,100,447) (a)(c)

     127,202         2,880,871   

LendingClub Corp. (a)(b)

     61,600         1,210,440   

LendingClub Corp. (Acquired 12/12/14,
cost $1,804,420) (a)(c)

     177,404         3,311,689   

LinkedIn Corp., Class A (a)

     9,300         2,323,698   

New Relic, Inc. (a)

     20,000         694,000   

New Relic, Inc. (Acquired 12/15/14,
cost $2,114,612) (a)(c)

     74,616         2,459,716   

Pandora Media, Inc. (a)

     64,200         1,040,682   

Tencent Holdings Ltd.

     337,300         6,405,299   

Twitter, Inc. (a)

     39,300         1,968,144   

Yelp, Inc. (a)

     25,600         1,212,160   

YY, Inc. — ADR (a)

     21,500         1,172,933   

Zillow Group, Inc., Class A (a)

     15,400         1,544,620   
     

 

 

 
                57,184,655   

IT Services — 12.0%

     

Alliance Data Systems Corp. (a)

     13,800         4,088,250   

Cognizant Technology Solutions Corp.,
Class A (a)

     37,800         2,358,342   

Euronet Worldwide, Inc. (a)

     66,175         3,887,781   

Fidelity National Information Services, Inc.

     40,838         2,779,434   
Common Stocks    Shares      Value  

IT Services (concluded)

     

Global Payments, Inc.

     15,900       $ 1,457,712   

Jack Henry & Associates, Inc.

     28,231         1,973,065   

Luxoft Holding, Inc. (a)

     31,800         1,645,332   

MasterCard, Inc., Class A

     60,100         5,192,039   

Visa, Inc., Class A

     83,500         5,461,735   
     

 

 

 
                28,843,690   

Media — 2.4%

     

Eros International PLC (a)

     89,600         1,565,312   

Naspers Ltd., N Shares

     17,300         2,653,665   

Rentrak Corp. (a)

     28,400         1,577,904   
     

 

 

 
                5,796,881   

Professional Services — 0.2%

     

TechnoPro Holdings, Inc. (a)

     24,400         579,814   

Real Estate Investment Trusts (REITs) — 2.1%

     

Crown Castle International Corp. (b)

     29,500         2,434,930   

Digital Realty Trust, Inc. (b)

     39,000         2,572,440   
     

 

 

 
                5,007,370   

Semiconductors & Semiconductor Equipment — 11.8%

     

ARM Holdings PLC

     80,300         1,304,168   

ASML Holding NV

     18,000         1,824,824   

Avago Technologies Ltd.

     19,199         2,437,889   

Broadcom Corp., Class A

     34,500         1,493,677   

Cavium, Inc. (a)(b)

     28,400         2,011,288   

Hermes Microvision, Inc.

     43,206         2,485,729   

Hua Hong Semiconductor Ltd. (a)(d)

     702,000         871,088   

Intersil Corp.

     85,400         1,222,928   

Lam Research Corp.

     23,100         1,622,429   

Maxim Integrated Products, Inc.

     55,400         1,928,474   

Microsemi Corp. (a)

     46,800         1,656,720   

Novatek Microelectronics Corp.

     217,000         1,119,922   

NXP Semiconductor NV (a)

     28,965         2,906,927   

Siliconware Precision Industries Co. Ltd.

     897,000         1,486,213   

SK Hynix, Inc.

     39,500         1,613,442   

SunEdison Semiconductor Ltd. (a)

     39,800         1,027,636   

Synaptics, Inc. (a)

     14,300         1,162,661   
     

 

 

 
                28,176,015   

Software — 12.8%

     

Activision Blizzard, Inc.

     65,700         1,493,033   

Adobe Systems, Inc. (a)(b)

     35,700         2,639,658   

Autodesk, Inc. (a)

     59,500         3,489,080   

Globant SA (a)

     81,076         1,707,460   

Imperva, Inc. (a)

     28,300         1,208,410   

Nintendo Co. Ltd.

     11,800         1,731,354   

Oracle Corp.

     89,300         3,853,295   

Proofpoint, Inc. (a)(b)

     56,610         3,352,444   

salesforce.com, Inc. (a)

     51,600         3,447,396   

ServiceNow, Inc. (a)

     40,880         3,220,526   

Tableau Software, Inc., Class A (a)

     17,650         1,632,978   

Xero Ltd. (Acquired 10/15/13,
cost $2,411,080) (a)(c)

     158,560         2,856,809   
     

 

 

 
                30,632,443   

Technology Hardware, Storage & Peripherals — 13.6%

     

Apple Inc. (b)

     212,359         26,423,830   

Pegatron Corp.

     659,000         1,778,012   

Samsung Electronics Co. Ltd.

     3,325         4,311,705   
     

 

 

 
                32,513,547   
 

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    33


Schedule of Investments (continued)      BlackRock Science & Technology Opportunities Portfolio   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Wireless Telecommunication Services — 1.2%

     

Bharti Infratel Ltd.

     250,145       $ 1,538,893   

RingCentral, Inc., Class A (a)(b)

     84,800         1,299,984   
     

 

 

 
                2,838,877   

Total Common Stocks — 93.4%

              223,481,635   
     
Preferred Stocks                

Internet & Catalog Retail — 0.9%

     

Snapdeal.com, Series F (Acquired 5/07/14,
cost $1,014,752) (a)(c)

     143         1,708,938   

Snapdeal.com, Series G (Acquired 10/29/14,
cost $396,249) (a)(c)

     47         561,679   
     

 

 

 
                2,270,617   

Internet Software & Services — 2.3%

     

Uber Technologies, Inc., Series D (Acquired 6/06/14,
cost $2,000,004) (a)(c)

     128,924         4,379,574   

Zuora, Inc. (Acquired 1/16/15, cost $1,006,814) (a)(c)

     265,000         1,029,578   
     

 

 

 
                5,409,152   

Software — 1.9%

     

Illumio, Inc., Series C (Acquired 3/11/15,
cost $499,995) (a)(c)

     31,115         499,995   

MongoDB, Series C (Acquired 12/19/13,
cost $1,512,773) (a)(c)

     60,303         1,368,275   

MongoDB, Series D (Acquired 12/19/13,
cost $470,592) (a)(c)

     18,759         419,264   

MongoDB, Series E (Acquired 12/19/13,
cost $16,632) (a)(c)

     663         14,433   

Palantir Technologies, Inc., Series I (Acquired 2/07/14, cost $1,500,011) (a)(c)

     244,700         2,175,383   
     

 

 

 
                4,477,350   

Total Preferred Stocks — 5.1%

              12,157,119   

Total Long-Term Investments

(Cost — $166,240,668) — 98.5%

              235,638,754   
Short-Term Securities    Shares      Value  

BlackRock Liquidity Funds, TempFund, Institutional Class, 0.06% (e)(f)

     3,855,025       $ 3,855,025   
     

Beneficial

Interest

(000)

         

BlackRock Liquidity Series, LLC, Money Market
Series, 0.22% (e)(f)(g)

   $ 26         26,200   

Total Short-Term Securities (Cost — $3,881,225) — 1.6%

  

     3,881,225   

Total Investments Before Options Written

(Cost — $170,121,893) — 100.1%

              239,519,979   
     
Options Written                

(Premiums Received — $256,144) — (0.1)%

              (183,462

Total Investments Net of Options Written
(Cost — $169,865,749)

        239,336,517   

Other Assets Less Liabilities — 0.0%

        28,827   
     

 

 

 

Net Assets — 100.0%

      $ 239,365,344   
     

 

 

 
 
Notes to Schedule of Investments

 

(a) Non-income producing security.

 

(b) All or a portion of security has been pledged and/or segregated as collateral in connection with outstanding options written.

 

(c) Restricted security as to resale. As of report date, the Fund held restricted securities with a current value of $23,666,204 and an original cost of $17,848,381, which was 9.9% of its net assets.

 

(d) Security, or a portion of security, is on loan.

 

(e) During the six months ended March 31, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate    Shares/
Beneficial
Interest
Held at
September  30,
2014
    

Net

Activity

    Shares/
Beneficial
Interest
Held at
March  31,
2015
     Income  

BlackRock Liquidity Funds, TempFund, Institutional Class

     6,567,506         (2,712,481     3,855,025       $ 993   

BlackRock Liquidity Series, LLC, Money Market Series

   $ 1,494,487       $ (1,468,287   $ 26,200       $ 15,577   

 

(f) Represents the current yield as of report date.

 

(g) Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.

 

See Notes to Financial Statements.

 

34    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (continued)      BlackRock Science & Technology Opportunities Portfolio   

 

Ÿ  

For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 

Ÿ  

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows:

 

Currency
Purchased
              

Currency

Sold

            Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
HKD        878,000         USD        113,213      Citibank N.A.     4/22/15         $ 32   
SEK        8,553,000         USD        1,050,652      HSBC Bank PLC     4/22/15           (57,185
USD        8,036,530         HKD        62,315,000      HSBC Bank PLC     4/22/15           (842
USD        2,314,714         NZD        2,990,000      Morgan Stanley Capital Services LLC     4/22/15           84,467   
USD        231,301         ZAR        2,815,000      Goldman Sachs Bank USA     4/22/15           101   
USD        1,548,043         ZAR        18,150,000      Goldman Sachs International     4/22/15           57,362   
USD        320,592         ZAR        3,753,000      TD Securities, Inc.     4/22/15           12,354   
Total                         $ 96,289   
                       

 

 

 

 

Ÿ  

As of March 31, 2015, exchange-traded options written were as follows:

 

Description    Put/
Call
    

Strike

Price

     Expiration
Date
     Contracts      Value  

Apple Inc.

     Call         USD         132.00         4/02/15         430       $ (1,290

Adobe Systems, Inc.

     Call         USD         75.00         4/17/15         71         (5,538

Alibaba Group Holding Ltd. — ADR

     Call         USD         90.00         4/17/15         156         (2,496

Cavium, Inc.

     Call         USD         75.00         4/17/15         56         (4,900

Crown Castle International Corp.

     Call         USD         87.50         4/17/15         56         (560

Inovalon Holdings, Inc., Class A

     Call         USD         30.00         4/17/15         173         (25,085

LendingClub Corp.

     Call         USD         23.00         4/17/15         305         (4,575

Qunar Cayman Islands Ltd. — ADR

     Call         USD         40.00         4/17/15         108         (25,650

Vipshop Holdings Ltd. — ADR

     Call         USD         30.00         4/17/15         284         (21,300

Apple Inc.

     Call         USD         130.00         4/24/15         270         (30,240

comScore, Inc.

     Call         USD         52.50         4/24/15         74         (6,290

Google, Inc., Class C

     Call         USD         580.00         4/24/15         19         (10,735

Digital Realty Trust, Inc.

     Call         USD         70.00         5/15/15         74         (3,885

Proofpoint, Inc.

     Call         USD         65.00         5/15/15         186         (36,270

RingCentral, Inc., Class A

     Call         USD         17.50         5/15/15         169         (4,648

Total

                  $ (183,462
                 

 

 

 

 

Ÿ  

Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows:

 

  Ÿ  

Level 1 – unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

  Ÿ  

Level 2 – other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

  Ÿ  

Level 3 – unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments)

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    35


Schedule of Investments (continued)      BlackRock Science & Technology Opportunities Portfolio   

 

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.

As of March 31, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:

 

      Level 1     Level 2     Level 3      Total  

Assets:

         

Investments:

         

Long-Term Investments:

         

Common Stocks:

         

Commercial Services & Supplies

   $ 996,382                     $ 996,382   

Communications Equipment

     5,212,890                       5,212,890   

Consumer Finance

     474,293                       474,293   

Diversified Telecommunication Services

     1,476,271                       1,476,271   

Electronic Equipment, Instruments & Components

     1,426,292      $ 4,620,328                6,046,620   

Health Care Technology

     1,589,046                       1,589,046   

Household Durables

            3,760,153                3,760,153   

Internet & Catalog Retail

     12,352,688                       12,352,688   

Internet Software & Services

     42,127,080        15,057,575                57,184,655   

IT Services

     28,843,690                       28,843,690   

Media

     3,143,216        2,653,665                5,796,881   

Professional Services

     579,814                       579,814   

Real Estate Investment Trusts (REITs)

     5,007,370                       5,007,370   

Semiconductors & Semiconductor Equipment

     18,341,717        9,834,298                28,176,015   

Software

     28,901,089        1,731,354                30,632,443   

Technology Hardware, Storage & Peripherals

     26,423,830        6,089,717                32,513,547   

Wireless Telecommunication Services

     2,838,877                       2,838,877   

Preferred Stocks:

         

Internet & Catalog Retail

                 $ 2,270,617         2,270,617   

Internet Software & Services

                   5,409,152         5,409,152   

Software

                   4,477,350         4,477,350   

Short-Term Securities

     3,855,025        26,200                3,881,225   
  

 

 

 

Total

   $ 183,589,570      $ 43,773,290      $ 12,157,119       $ 239,519,979   
  

 

 

 
         
      Level 1     Level 2     Level 3      Total  

Derivative Financial Instruments1

         

Assets:

         

Forward foreign currency exchange contracts

          $ 154,316              $ 154,316   

Liabilities:

         

Equity contracts

   $ (177,172     (6,290             (183,462

Forward foreign currency exchange contracts

            (58,027             (58,027
  

 

 

 

Total

   $ (177,172   $ 89,999              $ (87,173
  

 

 

 
  1   

Derivative financial instruments are forward foreign currency exchange contracts and options written. Forward foreign currency exchange contracts are valued at the unrealized appreciation/depreciation on the instrument and options written are shown at value.

 

See Notes to Financial Statements.

 

36    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (continued)      BlackRock Science & Technology Opportunities Portfolio   

 

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of March 31, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:

 

      Level 1      Level 2     Level 3      Total  

Assets:

          

Cash pledged as collateral for options written

   $ 718,200                      $ 718,200   

Foreign currency at value

     546,693                        546,693   

Liabilities:

          

Collateral on securities loaned at value

           $ (26,200             (26,200
  

 

 

 

Total

   $ 1,264,893       $ (26,200           $ 1,238,693   
  

 

 

 

Transfers between Level 1 and Level 2 were as follows:

 

      Transfers into
Level 11
     Transfers out
of Level 1
     Transfers into
Level 2
     Transfers out
of Level 21
 

Assets:

           

Long-Term Investments:

           

Software

   $ 2,539,969                       $ (2,539,969

 

  1   

Systematic Fair Value Prices were not utilized at period end for these investments.

A reconciliation of Level 3 investments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the period in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value:

 

      Common
Stocks
    Preferred
Stocks
    Total  

Assets:

      

Opening Balance, as of September 30, 2014

   $ 153,848      $ 13,297,420      $ 13,451,268   

Transfers into Level 3

                     

Transfers out of Level 31

     (7,066,453            (7,066,453

Other2

     6,912,605        (6,912,605       

Accrued discounts/premiums

                     

Net realized gain (loss)

                     

Net change in unrealized appreciation/depreciation3,4

            3,869,246        3,869,246   

Purchases

            1,903,058        1,903,058   

Sales

                     

Closing Balance, as of March 31, 2015

          $ 12,157,119      $ 12,157,119   
  

 

 

 

Net change in unrealized appreciation/depreciation on investments still held at March 31, 20154

          $ 3,869,246      $ 3,869,246   
  

 

 

 

 

  1   

As of September 30, 2014, the Fund used significant unobservable inputs in determining the value of certain investments. As of March 31, 2015, the Fund used observable inputs in determining the value of the same investments. As a result, investments with a beginning period value of $7,066,453 transferred from Level 3 to Level 2 in the disclosure hierarchy.

 

  2   

Certain Level 3 investments were re-classified between Common Stocks and Preferred Stocks.

 

  3   

Included in the related net change in unrealized appreciation/depreciation in the Statements of Operations.

 

  4   

Any difference between Net change in unrealized appreciation/depreciation and Net change in unrealized appreciation/depreciation on investments still held at March 31, 2015, is generally due to investments no longer held or categorized as Level 3 at period end.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    37


Schedule of Investments (concluded)      BlackRock Science & Technology Opportunities Portfolio   

 

The following table summarizes the valuation techniques used and unobservable inputs utilized by the BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) to determine the value of certain of the Fund’s Level 3 investments as of March 31, 2015. The table does not include Level 3 investments with values based upon unadjusted third party pricing information in the amount of $499,995.

 

      Value      Valuation Techniques   

Unobservable

Inputs

  Range of
Unobservable Inputs
Utilized
 

Assets:

          

Preferred Stocks1

   $ 2,270,617       Probability-Weighted Expected Return Model    Years to IPO2     1.2-3.2   
         IPO Exit Probability3     75.00%   
         Discount Rate2     25.00%   
         Revenue Multiple3     0.84x-1.87x   
     6,554,957       Probability-Weighted Expected Return Model    Years to IPO2     0.75-2.9   
         IPO Exit Probability3     90.00% - 95.00%   
         Discount Rate2     21.30% - 22.31%   
         Margin3     20.00%   
         Revenue Multiple3     10.0x-16.0x   
     1,029,578       Probability-Weighted Expected Return Model    Years to IPO2     1-2   
         IPO Exit Probability3     75.00%   
         Discount Rate2     20.00%   
         Revenue Multiple3     8.0x   
         Merger and/or Acquisition Probability3     25.00%   
     1,801,972       Market Comparable Companies    2016 Revenue Multiple3     11.0x   
      Options Pricing Model    Years to IPO2     1-2   
         Risk Free Rate2     0.31%   
                 Volatility3     30.00%   

Total

   $ 11,657,124                     

 

  1   

For the period ended March 31, 2015, the valuation technique for certain investments classified as preferred stocks changed to a Probability-Weighted Expected Return Model. The investments were previously valued utilizing a market comparable company and option pricing model approach. A Probability-Weighted Expected Return Model was considered to be a more relevant measure of fair value for these investments which leverages the most recent equity raise pre-money valuation and/or secondary market transactions.

 

  2   

Decrease in unobservable input may result in a significant increase to value, while an increase in the unobservable input may result in a significant decrease to value.

 

  3   

Increase in unobservable input may result in a significant increase to value, while a decrease in the unobservable input may result in a significant decrease to value.

 

See Notes to Financial Statements.

 

38    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments March 31, 2015 (Unaudited)      BlackRock U.S. Opportunities Portfolio   
     (Percentages shown are based on Net Assets)   

 

Common Stocks   

Shares

     Value  

Aerospace & Defense — 1.1%

     

B/E Aerospace, Inc.

     143,624       $ 9,137,359   

Triumph Group, Inc.

     154,024         9,198,313   
     

 

 

 
                18,335,672   

Airlines — 1.7%

     

American Airlines Group, Inc.

     280,668         14,813,657   

JetBlue Airways Corp. (a)

     640,500         12,329,625   
     

 

 

 
                27,143,282   

Auto Components — 3.1%

     

Delphi Automotive PLC

     242,300         19,321,002   

Lear Corp.

     146,960         16,286,107   

Visteon Corp. (a)

     150,300         14,488,920   
     

 

 

 
                50,096,029   

Automobiles — 0.3%

     

Tesla Motors, Inc. (a)

     25,960         4,900,469   

Banks — 4.5%

     

BankUnited, Inc.

     710,780         23,270,937   

Regions Financial Corp.

     2,288,343         21,624,841   

SunTrust Banks, Inc.

     343,530         14,115,648   

Western Alliance Bancorp (a)

     444,286         13,168,637   
     

 

 

 
                72,180,063   

Beverages — 0.5%

     

Molson Coors Brewing Co., Class B

     118,300         8,807,435   

Biotechnology — 2.1%

     

BioMarin Pharmaceutical, Inc. (a)

     44,615         5,559,921   

Incyte Corp. (a)

     132,000         12,099,120   

Isis Pharmaceuticals, Inc. (a)

     66,500         4,234,055   

Receptos, Inc. (a)

     35,800         5,903,062   

Vertex Pharmaceuticals, Inc. (a)

     46,600         5,497,402   
     

 

 

 
                33,293,560   

Capital Markets — 1.8%

     

Evercore Partners, Inc., Class A

     189,200         9,774,072   

WisdomTree Investments, Inc.

     903,127         19,381,105   
     

 

 

 
                29,155,177   

Chemicals — 5.0%

     

Ashland, Inc.

     110,500         14,067,755   

Axalta Coating Systems Ltd. (a)

     447,500         12,359,950   

Cytec Industries, Inc.

     212,780         11,498,631   

Eastman Chemical Co.

     174,900         12,113,574   

Platform Specialty Products Corp. (a)

     607,339         15,584,319   

The Valspar Corp.

     175,540         14,750,626   
     

 

 

 
                80,374,855   

Communications Equipment — 1.0%

     

Finisar Corp. (a)

     365,000         7,789,100   

JDS Uniphase Corp. (a)

     583,200         7,651,584   
     

 

 

 
                15,440,684   

Consumer Finance — 0.9%

     

Discover Financial Services

     262,900         14,814,415   

Containers & Packaging — 1.4%

     

Crown Holdings, Inc. (a)

     406,750         21,972,635   

Electric Utilities — 1.6%

     

PPL Corp.

     216,400         7,284,024   

Xcel Energy, Inc.

     559,400         19,472,714   
     

 

 

 
                26,756,738   

Electrical Equipment — 1.1%

     

Acuity Brands, Inc.

     58,430         9,825,589   

Sensata Technologies Holding NV (a)

     145,400         8,353,230   
     

 

 

 
                18,178,819   

Common Stocks

  

 

Shares

  

     Value   

Electronic Equipment, Instruments & Components — 1.4%

     

Amphenol Corp., Class A

     174,660       $ 10,292,714   

CDW Corp.

     325,900         12,136,516   
     

 

 

 
                22,429,230   

Energy Equipment & Services — 0.4%

     

U.S. Silica Holdings, Inc. (b)

     164,900         5,872,089   

Food Products — 2.9%

     

The Hain Celestial Group, Inc. (a)

     302,402         19,368,848   

Hormel Foods Corp.

     218,200         12,404,670   

Pinnacle Foods, Inc.

     374,200         15,271,102   
     

 

 

 
                47,044,620   

Health Care Equipment & Supplies — 2.8%

     

Boston Scientific Corp. (a)

     549,700         9,757,175   

The Cooper Cos., Inc.

     61,170         11,464,481   

Edwards Lifesciences Corp. (a)

     118,300         16,853,018   

Intuitive Surgical, Inc. (a)

     15,000         7,575,450   
     

 

 

 
                45,650,124   

Health Care Providers & Services — 3.7%

     

AmerisourceBergen Corp.

     74,200         8,434,314   

Cardinal Health, Inc.

     110,100         9,938,727   

Cigna Corp.

     89,647         11,603,908   

HCA Holdings, Inc. (a)

     127,560         9,596,339   

Humana, Inc.

     33,100         5,892,462   

Universal Health Services, Inc., Class B

     121,090         14,253,504   
     

 

 

 
                59,719,254   

Health Care Technology — 0.4%

     

Inovalon Holdings, Inc., Class A (a)

     237,100         7,162,791   

Hotels, Restaurants & Leisure — 1.8%

     

Aramark

     327,500         10,358,825   

Belmond Ltd., Class A (a)

     823,405         10,111,413   

ClubCorp Holdings, Inc.

     418,100         8,094,416   
     

 

 

 
                28,564,654   

Household Durables — 2.4%

     

Jarden Corp. (a)

     530,620         28,069,798   

Toll Brothers, Inc. (a)

     273,355         10,753,786   
     

 

 

 
                38,823,584   

Household Products — 0.9%

     

Energizer Holdings, Inc.

     100,800         13,915,440   

Independent Power and Renewable Electricity
Producers — 0.5%

     

Pattern Energy Group, Inc.

     310,899         8,804,660   

Industrial Conglomerates — 1.3%

     

Roper Industries, Inc.

     124,320         21,383,040   

Insurance — 3.0%

     

Assured Guaranty Ltd.

     491,900         12,981,241   

The Hartford Financial Services Group, Inc.

     541,000         22,624,620   

Reinsurance Group of America, Inc.

     147,320         13,728,751   
     

 

 

 
                49,334,612   

Internet & Catalog Retail — 0.7%

     

Liberty Interactive Corp., Class A (a)

     383,000         11,179,770   

Internet Software & Services — 4.4%

     

comScore, Inc. (a)

     208,305         10,665,216   

Hortonworks, Inc. (a)(b)

     121,416         2,894,557   

Hortonworks, Inc. (Acquired 3/21/14, cost $14,233,594) (a)(c)

     583,961         13,225,549   

LendingClub Corp. (a)

     177,500         3,487,875   

LendingClub Corp. (Acquired 12/12/14, cost $4,571,285) (a)(c)

     449,432         8,389,772   

LinkedIn Corp., Class A (a)

     28,700         7,170,982   

New Relic, Inc. (a)

     70,000         2,429,000   
 

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    39


Schedule of Investments (continued)      BlackRock U.S. Opportunities Portfolio   
     (Percentages shown are based on Net Assets)  

 

Common Stocks   

Shares

     Value  

Internet Software & Services (concluded)

     

New Relic, Inc. (Acquired 12/15/14, cost $9,551,576) (a)(c)

     337,036       $ 11,110,392   

Pandora Media, Inc. (a)

     440,800         7,145,368   

Zillow Group, Inc., Class A (a)

     51,400         5,155,420   
     

 

 

 
                71,674,131   

IT Services — 3.1%

     

Alliance Data Systems Corp. (a)

     55,660         16,489,275   

Euronet Worldwide, Inc. (a)

     252,873         14,856,289   

Fidelity National Information Services, Inc.

     274,120         18,656,607   
     

 

 

 
                50,002,171   

Leisure Products — 0.4%

     

Performance Sports Group Ltd. (a)

     325,200         6,341,400   

Life Sciences Tools & Services — 2.7%

     

Agilent Technologies, Inc.

     197,400         8,201,970   

Charles River Laboratories International, Inc. (a)

     209,400         16,603,326   

Illumina, Inc. (a)

     38,330         7,115,581   

Thermo Fisher Scientific, Inc.

     92,340         12,404,956   
     

 

 

 
                44,325,833   

Machinery — 2.9%

     

Crane Co.

     126,500         7,894,865   

Snap-on, Inc.

     148,470         21,833,998   

Stanley Black & Decker, Inc.

     176,500         16,831,040   
     

 

 

 
                46,559,903   

Media — 2.8%

     

The E.W. Scripps Co., Class A (a)

     250,400         7,121,376   

Markit Ltd. (a)

     326,500         8,782,850   

Media General, Inc. (a)

     112,663         1,857,813   

Nexstar Broadcasting Group, Inc., Class A

     146,900         8,405,618   

Sirius XM Holdings, Inc. (a)

     4,040,180         15,433,488   

Tribune Media Co., Class A

     74,000         4,499,940   
     

 

 

 
                46,101,085   

Metals & Mining — 0.6%

     

Constellium NV, Class A (a)

     447,472         9,092,631   

Oil, Gas & Consumable Fuels — 3.6%

     

Concho Resources, Inc. (a)

     141,080         16,353,994   

Diamondback Energy, Inc. (a)

     86,500         6,646,660   

GasLog Ltd.

     334,900         6,503,758   

GasLog Partners LP

     285,000         7,011,000   

MarkWest Energy Partners LP — MLP

     103,000         6,808,300   

Oasis Petroleum, Inc. (a)

     363,300         5,166,126   

Penn Virginia Corp. (a)

     535,600         3,470,688   

Targa Resources Partners LP — MLP

     169,800         7,022,928   
     

 

 

 
                58,983,454   

Pharmaceuticals — 3.1%

     

Mallinckrodt PLC (a)

     170,700         21,619,155   

Mylan NV (a)

     184,600         10,956,010   

Perrigo Co. PLC

     107,900         17,862,845   
     

 

 

 
                50,438,010   

Professional Services — 1.3%

     

Equifax, Inc.

     220,460         20,502,780   

Real Estate Investment Trusts (REITs) — 6.3%

     

Brixmor Property Group, Inc.

     276,300         7,335,765   

Hospitality Properties Trust

     442,940         14,612,590   

Host Hotels & Resorts, Inc.

     647,300         13,062,514   

InfraREIT, Inc.

     481,100         13,754,649   

Liberty Property Trust

     298,800         10,667,160   

RLJ Lodging Trust

     459,850         14,397,903   
Common Stocks   

Shares

     Value  

Real Estate Investment Trusts (REITs) (concluded)

     

STAG Industrial, Inc.

     576,000       $ 13,547,520   

Weyerhaeuser Co.

     433,313         14,364,326   
     

 

 

 
                101,742,427   

Real Estate Management & Development — 1.3%

     

Kennedy-Wilson Holdings, Inc.

     788,900         20,621,846   

Semiconductors & Semiconductor
Equipment — 4.4%

     

Applied Materials, Inc.

     489,500         11,043,120   

Avago Technologies Ltd.

     134,818         17,119,190   

Canadian Solar, Inc. (a)

     180,400         6,023,556   

Maxim Integrated Products, Inc.

     338,706         11,790,356   

NXP Semiconductor NV (a)

     163,090         16,367,712   

Synaptics, Inc. (a)

     111,800         9,089,899   
     

 

 

 
                71,433,833   

Software — 2.2%

     

Autodesk, Inc. (a)

     196,000         11,493,440   

ServiceNow, Inc. (a)

     152,300         11,998,194   

Tableau Software, Inc., Class A (a)

     138,900         12,851,028   
     

 

 

 
                36,342,662   

Specialty Retail — 2.6%

     

Best Buy Co., Inc.

     250,200         9,455,058   

Cabela’s, Inc. (a)

     213,000         11,923,740   

Genesco, Inc. (a)

     109,990         7,834,588   

L Brands, Inc.

     132,600         12,502,854   
     

 

 

 
                41,716,240   

Textiles, Apparel & Luxury Goods — 2.9%

     

Kate Spade & Co. (a)

     271,600         9,068,724   

PVH Corp.

     71,230         7,590,269   

Ralph Lauren Corp.

     43,400         5,707,100   

Sequential Brands Group, Inc. (a)(d)

     2,327,900         24,908,530   
     

 

 

 
                47,274,623   

Thrifts & Mortgage Finance — 1.0%

     

Essent Group Ltd. (a)

     393,100         9,399,021   

Strategic Growth Bancorp (Acquired 3/10/14,cost $7,599,729) (a)(c)

     610,420         6,458,244   
     

 

 

 
                15,857,265   

Trading Companies & Distributors — 0.6%

     

United Rentals, Inc. (a)

     114,075         10,399,077   

Transportation Infrastructure — 1.0%

     

Macquarie Infrastructure Co. LLC

     204,900         16,861,221   

Wireless Telecommunication Services — 1.3%

     

SBA Communications Corp., Class A (a)

     130,330         15,261,643   

T-Mobile U.S., Inc. (a)

     162,300         5,143,287   
     

 

 

 
                20,404,930   

Total Common Stocks — 96.8%

              1,568,009,223   
     
                  

Investment Companies

                 

Equity Funds — 0.7%

     

Vanguard REIT ETF

     135,500         11,391,485   
     
                  
 

 

See Notes to Financial Statements.

 

40    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (continued)      BlackRock U.S. Opportunities Portfolio   
     (Percentages shown are based on Net Assets)   

 

Preferred Stocks    Shares      Value  

Internet Software & Services — 0.9%

     

Uber Technologies, Inc., Series D (Acquired 6/06/14, cost
$5,217,970) (a)(c)

     336,360       $ 11,426,216   

Zuora, Inc. (Acquired 1/16/15, cost
$3,742,311) (a)(c)

     985,000         3,826,922   
     

 

 

 
                15,253,138   

Software — 1.0%

     

MongoDB, Series C (Acquired 12/19/13, cost
$7,974,602) (a)(c)

     317,888         7,212,879   

MongoDB, Series D (Acquired 12/19/13, cost
$2,480,799) (a)(c)

     98,891         2,210,214   

MongoDB, Series E (Acquired 12/19/13, cost
$87,676) (a)(c)

     3,495         76,086   

Palantir Technologies, Inc., Series I (Acquired
2/07/14, cost $4,300,011) (a)(c)

     701,470         6,236,068   
     

 

 

 
                15,735,247   

Total Preferred Stocks — 1.9%

              30,988,385   

Total Long-Term Investments

(Cost — $1,162,956,354) — 99.4%

  

  

     1,610,389,093   

 

Short-Term Securities

   Shares      Value  

BlackRock Liquidity Funds, TempFund,
Institutional Class, 0.06% (e)

     2,372,653       $ 2,372,653   
      Beneficial
Interest  
(000)    
         

BlackRock Liquidity Series, LLC, Money Market Series, 0.22% (e)(f)(g)

   $ 4,470         4,470,214   

Total Short-Term Securities

(Cost — $6,842,867) — 0.4%

  

  

     6,842,867   

Total Investments (Cost — $1,169,799,221) — 99.8%

  

     1,617,231,960   

Other Assets Less Liabilities — 0.2%

  

     3,991,771   
     

 

 

 

Net Assets — 100.0%

      $ 1,621,223,731   
     

 

 

 
 

 

Notes to Schedule of Investments

 

(a) Non-income producing security.

 

(b) Security, or a portion of security, is on loan.

 

(c) Restricted security as to resale. As of report date, the Fund held restricted securities with a current value of $70,172,342 and an original cost of $59,759,553, which was 4.3% of its net assets.

 

(d) During the six months ended March 31, 2015, investments in issuers (whereby the Fund held 5% or more of the companies’ outstanding securities) that were considered to be an affiliate for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate    Shares Held at
September 30,
2014
     Shares
Purchased
   Shares
Sold
    

Shares Held at
March 31

2015

     Value at
March 31,
2015
 

Sequential Brands Group, Inc.

     2,327,900                    2,327,900       $ 24,908,530   

 

(e) Represents the current yield as of report date.

 

(f) During the six months ended March 31, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate    Shares/
Beneficial
Interest
Held at
September  30,
2014
    

Net

Activity

    Shares/
Beneficial
Interest
Held at
March 31,
2015
     Income      Realized
Gain
 

BlackRock Liquidity Funds, TempFund, Institutional Class

     73,708,080         (71,335,427     2,372,653       $ 9,016       $ 3,550   

BlackRock Liquidity Series, LLC, Money Market Series

   $ 8,060,661       $ (3,590,447   $ 4,470,214       $ 85,508           

 

(g) Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    41


Schedule of Investments (continued)      BlackRock U.S. Opportunities Portfolio   

 

 

Ÿ  

For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 

Ÿ  

Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows:

 

  Ÿ  

Level 1 – unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

  Ÿ  

Level 2 – other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

  Ÿ  

Level 3 – unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments, refer to Note 2 of the Notes to Financial Statements.

As of March 31, 2015, the following table summarizes the Fund’s investments categorized in the disclosure hierarchy:

 

      Level 1      Level 2      Level 3      Total  

Assets:

           

Investments:

           

Long-Term Investments:

           

Common Stocks:

           

Aerospace & Defense

   $ 18,335,672                       $ 18,335,672   

Airlines

     27,143,282                         27,143,282   

Auto Components

     50,096,029                         50,096,029   

Automobiles

     4,900,469                         4,900,469   

Banks

     72,180,063                         72,180,063   

Beverages

     8,807,435                         8,807,435   

Biotechnology

     33,293,560                         33,293,560   

Capital Markets

     29,155,177                         29,155,177   

Chemicals

     80,374,855                         80,374,855   

Communications Equipment

     15,440,684                         15,440,684   

Consumer Finance

     14,814,415                         14,814,415   

Containers & Packaging

     21,972,635                         21,972,635   

Electric Utilities

     26,756,738                         26,756,738   

Electrical Equipment

     18,178,819                         18,178,819   

Electronic Equipment, Instruments & Components

     22,429,230                         22,429,230   

Energy Equipment & Services

     5,872,089                         5,872,089   

Food Products

     47,044,620                         47,044,620   

Health Care Equipment & Supplies

     45,650,124                         45,650,124   

Health Care Providers & Services

     59,719,254                         59,719,254   

Health Care Technology

     7,162,791                         7,162,791   

Hotels, Restaurants & Leisure

     28,564,654                         28,564,654   

Household Durables

     38,823,584                         38,823,584   

Household Products

     13,915,440                         13,915,440   

Independent Power and Renewable Electricity Producers

     8,804,660                         8,804,660   

Industrial Conglomerates

     21,383,040                         21,383,040   

Insurance

     49,334,612                         49,334,612   

Internet & Catalog Retail

     11,179,770                         11,179,770   

Internet Software & Services

     38,948,418       $ 32,725,713                 71,674,131   

IT Services

     50,002,171                         50,002,171   

Leisure Products

     6,341,400                         6,341,400   

Life Sciences Tools & Services

     44,325,833                         44,325,833   

Machinery

     46,559,903                         46,559,903   

Media.

     46,101,085                         46,101,085   

Metals & Mining

     9,092,631                         9,092,631   

Oil, Gas & Consumable Fuels

     58,983,454                         58,983,454   

 

See Notes to Financial Statements.

 

42    BLACKROCK FUNDS    MARCH 31, 2015     


Schedule of Investments (continued)      BlackRock U.S. Opportunities Portfolio   

 

      Level 1      Level 2      Level 3      Total  

Pharmaceuticals

   $ 50,438,010                       $ 50,438,010   

Professional Services

     20,502,780                         20,502,780   

Real Estate Investment Trusts (REITs)

     101,742,427                         101,742,427   

Real Estate Management & Development

     20,621,846                         20,621,846   

Semiconductors & Semiconductor Equipment

     71,433,833                         71,433,833   

Software

     36,342,662                         36,342,662   

Specialty Retail

     41,716,240                         41,716,240   

Textiles, Apparel & Luxury Goods

     47,274,623                         47,274,623   

Thrifts & Mortgage Finance

     9,399,021               $ 6,458,244         15,857,265   

Trading Companies & Distributors

     10,399,077                         10,399,077   

Transportation Infrastructure

     16,861,221                         16,861,221   

Wireless Telecommunication Services

     20,404,930                         20,404,930   

Investment Companies

     11,391,485                         11,391,485   

Preferred Stocks:

           

Internet Software & Services

                     15,253,138         15,253,138   

Software

                     15,735,247         15,735,247   

Short-Term Securities

     2,372,653       $ 4,470,214                 6,842,867   
  

 

 

 

Total

   $ 1,542,589,404       $ 37,195,927       $ 37,446,629       $ 1,617,231,960   
  

 

 

 

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of March 31, 2015, collateral on securities loaned at value of $4,470,214 is categorized as Level 2 within the disclosure hierarchy.

During the period ended March 31, 2015, there were no transfers between Level 1 and Level 2.

A reconciliation of Level 3 investments is presented when the Fund had a significant amount of Level 3 investments at the beginning and/or end of the period in relation to net assets. The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used in determining fair value:

 

      Common
Stocks
    Preferred
Stocks
    Total  

Assets:

      

Opening Balance, as of September 30, 2014

   $ 7,756,059      $ 47,325,756      $ 55,081,815   

Transfers into Level 3

                     

Transfers out of Level 31

     (28,476,941       (28,476,941

Other2

     27,759,025        (27,759,025       

Accrued discounts/premiums

                     

Net realized gain (loss)

                     

Net change in unrealized appreciation/depreciation3,4

     (579,899     7,679,343        7,099,444   

Purchases

            3,742,311        3,742,311   

Sales

                     
  

 

 

 

Closing Balance, as of March 31, 2015

   $ 6,458,244      $ 30,988,385      $ 37,446,629   
  

 

 

 

Net change in unrealized appreciation/depreciation on investments still held at March 31, 20154

   $ (579,899   $ 7,679,343      $ 7,099,444   
  

 

 

 

 

  1   

As of September 30, 2014, the Fund used significant unobservable inputs in determining the value of certain investments. As of March 31, 2015, the Fund used observable inputs in determining the value of the same investments. As a result, investments with a beginning period value of $28,476,941 transferred from Level 3 to Level 2 in the disclosure hierarchy.

 

  2   

Certain Level 3 investments were re-classified between Common Stocks and Preferred Stocks.

 

  3   

Included in the related net change in unrealized appreciation/depreciation in the Statements of Operations.

 

  4   

Any difference between Net change in unrealized appreciation/depreciation and Net change in unrealized appreciation/depreciation on investments still held at March 31, 2015, is generally due to investments no longer held or categorized as Level 3 at period end.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    43


Schedule of Investments (concluded)    BlackRock U.S. Opportunities Portfolio

 

The following table summarizes the valuation techniques used and unobservable inputs utilized by the BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) to determine the value of certain of the Fund’s Level 3 investments as of March 31, 2015. The table does not include Level 3 investments with values based upon unadjusted third party pricing information in the amount of $6,458,244.

 

      Value      Valuation Techniques   

Unobservable

Inputs

   Range of
Unobservable Inputs
Utilized
 

Assets:

           

Preferred Stocks1

   $ 17,662,284       Probability-Weighted Expected Return Model    Years to IPO2      0.75-2.9   
         IPO Exit Probability3      90.00% - 95.00%   
         Discount Rate2      21.30% - 22.31%   
         Margin3      20.00%   
         Revenue Multiple3      10.0x-16.0x   
     3,826,922       Probability-Weighted Expected Return Model    Years to IPO2      1-2   
         IPO Exit Probability3      75.00%   
         Discount Rate2      20.00%   
         Revenue Multiple3      8.0x   
         Merger and/or Acquisition Probability3      25.00%   
     9,499,179       Market Comparable Companies    2016 Revenue Multiple3      11.0x   
      Options Pricing Model    Years to IPO2      1-2   
         Risk Free Rate2      0.31%   
                 Volatility3      30.00%   

Total

   $ 30,988,385                      

 

  1   

For the period ended March 31, 2015, the valuation technique for certain investments classified as preferred stocks changed to a Probability-Weighted Expected Return Model. The investments were previously valued utilizing a market comparable company and option pricing model approach. A Probability-Weighted Expected Return Model was considered to be a more relevant measure of fair value for these investments which leverages the most recent equity raise pre-money valuation and secondary market transactions.

 

  2   

Decrease in unobservable input may result in a significant increase to value, while an increase in the unobservable input may result in a significant decrease to value.

 

  3   

Increase in unobservable input may result in a significant increase to value, while a decrease in the unobservable input may result in a significant decrease to value.

 

See Notes to Financial Statements.

 

44    BLACKROCK FUNDS    MARCH 31, 2015     


Statements of Assets and Liabilities     

 

March 31, 2015 (Unaudited)    BlackRock
Global
Opportunities
Portfolio
   

BlackRock

Health

Sciences
Opportunities
Portfolio

    BlackRock
International
Opportunities
Portfolio
   

BlackRock
Science

& Technology
Opportunities
Portfolio

   

BlackRock

U.S.
Opportunities
Portfolio

 
Assets                                         

Investments at value — unaffiliated1,2

   $     306,603,110      $     5,477,803,854      $     1,102,078,748      $     235,638,754      $     1,610,389,093   

Investments at value — affiliated3

     4,279,087        130,202,388        7,228,512        3,881,225        6,842,867   

Cash pledged as collateral for options written

            11,387,775               718,200          

Foreign currency at value4

     2,795,824        67,343,198        111,499        546,693          

Investments sold receivable

     1,871,582        45,261,516        30,913,361        6,505,904        17,010,618   

Options written receivable

                          85,989          

Unrealized appreciation on forward foreign currency exchange contracts

     1,178,015        17,983,614        12,130,410        154,316          

Capital shares sold receivable

     57,269        16,033,141        3,347,231        229,509        1,987,337   

Dividends receivable — unaffiliated

     592,997        5,172,478        3,417,712        73,961        2,201,637   

Dividends receivable — affiliated

     128        9,258        598        350        704   

Receivable from Manager

     60,815               113        116        220,716   

Securities lending income receivable — affiliated

     6,619        8,184        7,938        929        34,917   

Prepaid expenses

     44,812        151,210        56,902        57,834        65,397   
  

 

 

 

Total assets

     317,490,258        5,771,356,616        1,159,293,024        247,893,780        1,638,753,286   
  

 

 

 
          
Liabilities                                         

Options written at value5

            144,838               183,462          

Collateral on securities loaned at value

     1,974,042        7,494,299        1,430,717        26,200        4,470,214   

Deferred foreign capital gain tax payable

     190,246               693,325        205,810          

Investments purchased payable

     486,602        119,910,833        2,561,716        7,135,916        7,430,348   

Unrealized depreciation on forward foreign currency exchange contracts

     940,698        8,136,893        13,301,833        58,027          

Capital shares redeemed payable

     251,405        11,058,648        7,077,835        383,133        2,772,699   

Investment advisory fees payable

     236,983        3,206,355        885,892        205,966        1,133,670   

Service and distribution fees payable

     87,666        1,584,579        214,368        62,771        297,901   

Other affiliates payable

     12,255        318,334        118,253        23,392        155,797   

Officer’s and Trustees’ fees payable

     3,104        20,345        14,842        2,054        11,821   

Other accrued expenses payable

     254,653        1,554,683        1,036,313        241,705        1,257,105   
  

 

 

 

Total liabilities

     4,437,654        153,429,807        27,335,094        8,528,436        17,529,555   
  

 

 

 

Net Assets

   $ 313,052,604      $ 5,617,926,809      $ 1,131,957,930      $ 239,365,344      $ 1,621,223,731   
  

 

 

 
          
Net Assets Consist of                                         

Paid-in capital

   $ 356,546,565      $ 3,466,076,635      $ 1,016,853,690      $ 183,518,665      $ 1,102,422,320   

Accumulated (distributions in excess of) net investment income (loss)

     (3,170,662     (14,305,702     (19,429,189     (3,392,221     (893,647

Accumulated net realized gain (loss)

     (88,153,156     370,899,893        (3,313,297     (10,128,102     72,262,319   

Net unrealized appreciation/depreciation

     47,829,857        1,795,255,983        137,846,726        69,367,002        447,432,739   
  

 

 

 

Net Assets

   $ 313,052,604      $ 5,617,926,809      $ 1,131,957,930      $ 239,365,344      $ 1,621,223,731   
  

 

 

 

1       Investments at cost — unaffiliated

   $ 258,798,269      $ 3,692,087,079      $ 962,132,301      $ 166,240,668      $ 1,162,956,354   

2       Securities loaned at value

   $ 1,947,265      $ 7,043,505      $ 1,334,135      $ 24,817      $ 4,430,030   

3       Investments at cost — affiliated

   $ 4,279,087      $ 130,202,388      $ 7,228,512      $ 3,881,225      $ 6,842,867   

4       Foreign currency at cost

   $ 2,796,205      $ 67,701,240      $ 112,945      $ 546,581          

5       Premiums received

          $ 339,405             $ 256,144          

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    45


Statements of Assets and Liabilities (concluded)     

 

 

March 31, 2015 (Unaudited)    BlackRock
Global
Opportunities
Portfolio
    

BlackRock
Health

Sciences
Opportunities
Portfolio

     BlackRock
International
Opportunities
Portfolio
     BlackRock
Science
& Technology
Opportunities
Portfolio
     BlackRock
U.S.
Opportunities
Portfolio
 
              
Net Asset Value                                             

Institutional

              

Net assets

   $ 65,734,276       $ 1,518,558,187       $     507,227,238       $ 60,260,829       $     918,604,856   
  

 

 

 

Shares outstanding1

     4,501,621         26,918,256         14,847,158         3,736,812         22,198,818   
  

 

 

 

Net asset value

   $ 14.60       $ 56.41       $ 34.16       $ 16.13       $ 41.38   
  

 

 

 
              

Service

              

Net assets

           $ 35,983,372       $ 25,367,726       $ 1,393,929       $ 32,154,117   
  

 

 

 

Shares outstanding1

             658,926         775,863         90,104         817,021   
  

 

 

 

Net asset value

           $ 54.61       $ 32.70       $ 15.47       $ 39.36   
  

 

 

 
              

Investor A

              

Net assets

   $     186,952,886       $ 2,799,471,211       $ 482,335,528       $     135,403,639       $ 434,899,852   
  

 

 

 

Shares outstanding1

     12,921,126         51,415,274         14,923,428         8,916,047         11,386,805   
  

 

 

 

Net asset value

   $ 14.47       $ 54.45       $ 32.32       $ 15.19       $ 38.19   
  

 

 

 
              

Investor B

              

Net assets

   $ 1,440,974       $ 19,826,452       $ 2,416,864       $ 989,721       $ 10,182,222   
  

 

 

 

Shares outstanding1

     101,809         392,138         81,419         73,523         317,008   
  

 

 

 

Net asset value

   $ 14.15       $ 50.56       $ 29.68       $ 13.46       $ 32.12   
  

 

 

 
              

Investor C

              

Net assets

   $ 48,674,958       $     1,124,315,609       $ 114,610,574       $ 36,533,972       $ 225,382,684   
  

 

 

 

Shares outstanding1

     3,472,663         22,614,806         3,912,870         2,722,473         7,016,993   
  

 

 

 

Net asset value

   $ 14.02       $ 49.72       $ 29.29       $ 13.42       $ 32.12   
  

 

 

 
              

Class R

              

Net assets

   $ 10,249,510       $ 119,771,978               $ 4,783,254           
  

 

 

 

Shares outstanding1

     710,976         2,221,411                 309,565           
  

 

 

 

Net asset value

   $ 14.42       $ 53.92               $ 15.45           
  

 

 

 

 

  1   

Unlimited number of shares authorized, $0.001 par value.

 

See Notes to Financial Statements.

 

46    BLACKROCK FUNDS    MARCH 31, 2015     


Statements of Operations     

 

 

Six Months Ended March 31, 2015 (Unaudited)    BlackRock
Global
Opportunities
Portfolio
    BlackRock
Health
Sciences
Opportunities
Portfolio
    BlackRock
International
Opportunities
Portfolio
    BlackRock
Science &
Technology
Opportunities
Portfolio
    BlackRock
U.S.
Opportunities
Portfolio
 
          
Investment Income                                         

Dividends — unaffiliated

   $ 2,206,405      $ 26,276,127      $ 11,500,033      $ 732,386      $ 8,358,961   

Dividends — affiliated

     1,028        29,999        2,254        993        9,016   

Securities lending — affiliated — net

     41,286        51,703        97,820        15,577        85,508   

Foreign taxes withheld

     (154,514     (861,274     (1,252,364     (7,170       
  

 

 

 

Total income

     2,094,205        25,496,555        10,347,743        741,786        8,453,485   
  

 

 

 
          
Expenses                                         

Investment advisory

     1,407,102        16,624,030        6,466,851        1,008,795        8,406,976   

Service and distribution — class specific

     515,878        8,196,423        1,355,907        345,910        1,752,807   

Transfer agent — class specific

     244,129        2,489,053        1,266,077        273,897        1,192,085   

Administration

     92,243        1,127,235        355,523        65,476        406,289   

Professional

     47,948        42,022        50,741        35,256        46,833   

Custodian

     38,399        97,560        156,177        17,599        40,038   

Administration — class specific

     35,269        431,468        142,383        25,165        167,838   

Registration

     30,914        95,520        53,277        38,414        47,574   

Accounting services

     22,571        271,917        75,124        17,629        69,923   

Printing

     10,871        65,987        46,630        8,648        32,955   

Officer and Trustees

     6,626        60,968        24,017        5,076        23,844   

Miscellaneous

     15,051        39,624        28,303        11,938        18,241   

Recoupment of past waived and/or reimbursed fees — class specific

                   1,675        23,422        9,265   
  

 

 

 

Total expenses

     2,467,001        29,541,807        10,022,685        1,877,225        12,214,668   

Less fees waived by Manager

     (15,202     (39,085     (656,842     (1,088     (2,022,413

Less administration fees waived — class specific

     (35,269            (15,237     (6,821     (141,510

Less transfer agent fees waived — class specific

     (7,408            (1,602     (1,645     (9,569

Less transfer agent fees reimbursed — class specific

     (187,933            (1,676     (1,402     (662,870
  

 

 

 

Total expenses after fees waived and/or reimbursed

     2,221,189        29,502,722        9,347,328        1,866,269        9,378,306   
  

 

 

 

Net investment income (loss)

     (126,984     (4,006,167     1,000,415        (1,124,483     (924,821
  

 

 

 
          
Realized and Unrealized Gain (Loss)                                         

Net realized gain (loss) from:

          

Investments

     4,581,648        379,358,269        (6,735,398     7,849,149        83,301,733   

Capital gain distributions received from affiliated investment companies

            7,875                      3,550   

Options written

            285,157               41,146          

Foreign currency transactions

     1,575,609        4,853,357        6,911,650        404,523          
  

 

 

 
     6,157,257        384,504,658        176,252        8,294,818        83,305,283   
  

 

 

 

Net change in unrealized appreciation/depreciation on:

          

Investments

     8,443,528 1      510,198,146        13,598,949 1      18,445,291 1      94,439,285   

Options written

            194,567               72,682          

Foreign currency translations

     (781,514     (875,342     (9,895,874     (293,778       
  

 

 

 
     7,662,014        509,517,371        3,703,075        18,224,195        94,439,285   
  

 

 

 

Net realized and unrealized gain

     13,819,271        894,022,029        3,879,327        26,519,013        177,744,568   
  

 

 

 

Net Increase in Net Assets Resulting from Operations

   $ 13,692,287      $ 890,015,862      $ 4,879,742      $ 25,394,530      $ 176,819,747   
  

 

 

 

 

  1   

Net of ($190,246, $693,325 and $205,810) foreign capital gain tax for Global Opportunities, International Opportunities and Science & Technology Opportunities, respectively.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    47


Statements of Changes in Net Assets     

 

 

     BlackRock
Global Opportunities
Portfolio
    BlackRock
Health Sciences
Opportunities
Portfolio
 
Increase (Decrease) in Net Assets:   

Six Months
Ended
March 31,

2015
(Unaudited)

    Year Ended
September 30,
2014
   

Six Months
Ended

March 31,

2015

(Unaudited)

    Year Ended
September 30,
2014
 
        
Operations                                 

Net investment income (loss)

   $ (126,984   $ 1,572,501      $ (4,006,167   $ (5,669,420

Net realized gain

     6,157,257        31,453,698        384,504,658        356,507,986   

Net change in unrealized appreciation/depreciation

     7,662,014        (14,244,616     509,517,371        504,697,663   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     13,692,287        18,781,583        890,015,862        855,536,229   
  

 

 

   

 

 

 
        
Distributions to Shareholders From1                                 

Net investment income:

        

Institutional

     (1,182,326            (3,636,341     (2,684,586

Service

                   (7,864     (15,999

Investor A

     (2,755,653            (969,029     (1,334,162

Investor C

     (299,620                     

Class R

     (109,637                     

Net realized gain:

        

Institutional

                   (81,656,297     (73,784,321

Service

                   (2,189,953     (2,296,130

Investor A

                   (152,909,044     (159,449,440

Investor B

                   (1,328,584     (3,350,382

Investor C

                   (61,611,824     (60,490,412

Class R

                   (5,828,156     (3,720,373
  

 

 

   

 

 

 

Decrease in net assets resulting from distributions to shareholders

     (4,347,236            (310,137,092     (307,125,805
  

 

 

   

 

 

 
        
Capital Share Transactions                                 

Net increase (decrease) in net assets derived from capital share transactions

     (15,773,200     (38,945,315     893,295,462        517,643,012   
  

 

 

   

 

 

 
        
Net Assets                                 

Total increase (decrease) in net assets

     (6,428,149     (20,163,732     1,473,174,232        1,066,053,436   

Beginning of period

     319,480,753        339,644,485        4,144,752,577        3,078,699,141   
  

 

 

   

 

 

 

End of period

   $     313,052,604      $     319,480,753      $     5,617,926,809      $     4,144,752,577   
  

 

 

   

 

 

 

Undistributed (accumulated) net investment income (loss), end of period

   $ (3,170,662   $ 1,303,558      $ (14,305,702   $ (5,686,301
  

 

 

   

 

 

 

 

  1   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

See Notes to Financial Statements.

 

48    BLACKROCK FUNDS    MARCH 31, 2015     


Statements of Changes in Net Assets (concluded)     

 

 

     BlackRock
International
Opportunities
Portfolio
    BlackRock
Science &
Technology
Opportunities
Portfolio
    BlackRock
U.S. Opportunities
Portfolio
 
Increase (Decrease) in Net Assets:    Six Months
Ended March 31,
2015 (Unaudited)
    Year Ended
September 30,
2014
    Six Months
Ended
March 31, 2015
(Unaudited)
    Year Ended
September 30,
2014
    Six Months
Ended March 31,
2015 (Unaudited)
    Year Ended
September 30,
2014
 
            
Operations                                                 

Net investment income (loss)

   $ 1,000,415      $ 17,062,650      $ (1,124,483   $ (2,371,646   $ (924,821   $ (8,010,488

Net realized gain

     176,252        116,647,309        8,294,818        24,040,750        83,305,283        294,616,993   

Net change in unrealized appreciation/depreciation

     3,703,075        (125,627,644     18,224,195        5,667,184        94,439,285        (50,830,763
  

 

 

   

 

 

   

 

 

 

Net increase in net assets resulting from operations

     4,879,742        8,082,315        25,394,530        27,336,288        176,819,747        235,775,742   
  

 

 

   

 

 

   

 

 

 
            
Distributions to Shareholders From1                                                 

Net investment income:

            

Institutional

     (14,511,734     (1,532,662                            

Service

     (656,317     (48,294                            

Investor A

     (13,763,636     (919,073                            

Investor B

     (46,718                                   

Investor C

     (2,388,654                                   

Net realized gain:

            

Institutional

     (58,313,799     (2,005,514                   (119,058,466     (134,711,811

Service

     (2,959,800     (101,390                   (4,386,546     (31,011,668

Investor A

     (62,289,732     (1,953,372                   (63,008,538     (103,656,072

Investor B

     (313,352     (14,262                   (1,680,434     (2,930,164

Investor C

     (14,061,426     (410,265                   (34,791,331     (47,392,290
  

 

 

   

 

 

   

 

 

 

Decrease in net assets resulting from distributions to shareholders

     (169,305,168     (6,984,832                   (222,925,315     (319,702,005
  

 

 

   

 

 

   

 

 

 
            
Capital Share Transactions                                                 

Net increase (decrease) in net assets derived from capital share transactions

     (264,289,686     (164,685,699     1,964,199        15,083,112        148,325,942        33,482,653   
  

 

 

   

 

 

   

 

 

 
            
Net Assets                                                 

Total increase (decrease) in net assets

     (428,715,112     (163,588,216     27,358,729        42,419,400        102,220,374        (50,443,610

Beginning of period

     1,560,673,042        1,724,261,258        212,006,615        169,587,215        1,519,003,357        1,569,446,967   
  

 

 

   

 

 

   

 

 

 

End of period

   $     1,131,957,930      $     1,560,673,042      $     239,365,344      $     212,006,615      $     1,621,223,731      $     1,519,003,357   
  

 

 

   

 

 

   

 

 

 

Undistributed (distributions in excess of) net investment income (loss), end of period

   $ (19,429,189   $ 10,937,455      $ (3,392,221   $ (2,267,738   $ (893,647   $ 31,174   
  

 

 

   

 

 

   

 

 

 

 

  1   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    49


Financial Highlights      BlackRock Global Opportunities Portfolio   

 

 

     Institutional  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 14.19      $ 13.42      $ 11.11      $ 9.32      $ 10.52      $ 10.13   
  

 

 

 

Net investment income1

     0.02        0.12        0.10        0.14        0.08        0.06   

Net realized and unrealized gain (loss)

     0.64        0.65        2.36        1.67        (1.20 )2      0.48 2 
  

 

 

 

Net increase (decrease) from investment operations

     0.66        0.77        2.46        1.81        (1.12     0.54   
  

 

 

 

Distributions from net investment income3

     (0.25            (0.15     (0.02     (0.08     (0.15
  

 

 

 

Net asset value, end of period

   $ 14.60      $ 14.19      $ 13.42      $ 11.11      $ 9.32      $ 10.52   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     4.77 %5      5.74     22.40     19.45     (10.81 )%6      5.32 %6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.21 %7      1.20     1.22     1.25     1.53 %8      1.43 %8 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.06 %7      1.06     1.06     1.06     1.34     1.37
  

 

 

 

Net investment income

     0.29 %7      0.82     0.83     1.35     0.68     0.64
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 65,734      $ 61,601      $ 63,182      $ 54,448      $ 58,793      $ 21,699   
  

 

 

 

Portfolio turnover rate

     31     99     149     122     137     146
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Annualized.

 

  8   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2011 and September 30, 2010 the ratio would have been 1.52% and 1.42%, respectively.

 

See Notes to Financial Statements.

 

50    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock Global Opportunities Portfolio   

 

 

     Investor A  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 14.04      $ 13.32      $ 11.02      $ 9.26      $ 10.45      $ 10.08   
  

 

 

 

Net investment income1

     0.00 2      0.08        0.07        0.11        0.05        0.03   

Net realized and unrealized gain (loss)

     0.64        0.64        2.35        1.66        (1.20 )3      0.46 3 
  

 

 

 

Net increase (decrease) from investment operations

     0.64        0.72        2.42        1.77        (1.15     0.49   
  

 

 

 

Distributions from net investment income4

     (0.21            (0.12     (0.01     (0.04     (0.12
  

 

 

 

Net asset value, end of period

   $ 14.47      $ 14.04      $ 13.32      $ 11.02      $ 9.26      $ 10.45   
  

 

 

 
            
Total Return5                                                 

Based on net asset value

     4.63 %6      5.41     22.14     19.16     (11.11 )%7      4.92 %7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.49 %8      1.46     1.48     1.52     1.76 %9      1.72 %9 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.33 %8      1.33     1.33     1.33     1.61     1.67
  

 

 

 

Net investment income

     0.01 %8      0.56     0.56     1.06     0.42     0.32
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 186,953      $ 191,653      $ 202,343      $ 195,961      $ 210,299      $ 39,280   
  

 

 

 

Portfolio turnover rate

     31     99     149     122     137     146
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Amount is less than $0.005 per share.

 

  3   

Includes redemption fees, which are less than $0.005 per share.

 

  4   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  5   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  6   

Aggregate total return.

 

  7   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  8   

Annualized.

 

  9   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2011 and September 30, 2010 the ratio would have been 1.74% and 1.70%, respectively.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    51


Financial Highlights (continued)      BlackRock Global Opportunities Portfolio   

 

 

     Investor B  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 13.59      $     12.99      $     10.75      $     9.10      $     10.31      $     9.93   
  

 

 

 

Net investment income (loss)1

     (0.06     (0.03     (0.03     0.02        (0.04     (0.04

Net realized and unrealized gain (loss)

     0.62        0.63        2.28        1.63        (1.17 )2      0.45 2 
  

 

 

 

Net increase (decrease) from investment operations

     0.56        0.60        2.25        1.65        (1.21     0.41   
  

 

 

 

Distributions from net investment income3

                   (0.01                   (0.03
  

 

 

 

Net asset value, end of period

   $ 14.15      $ 13.59      $ 12.99      $ 10.75      $ 9.10      $ 10.31   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     4.12 %5      4.62     20.95     18.13     (11.74 )%6      4.09 %6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     2.60 %7      2.21 %8      2.19 %8      2.21 %8      2.56 %8      2.45 %8 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     2.18 %7      2.18     2.18     2.18     2.42     2.43
  

 

 

 

Net investment income (loss)

     (0.87 )%7      (0.24 )%      (0.29 )%      0.21     (0.39 )%      (0.44 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 1,441      $ 1,900      $ 4,254      $ 5,412      $ 6,750      $ 3,617   
  

 

 

 

Portfolio turnover rate

     31     99     149     122     137     146
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Annualized.

 

  8   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2012 and September 30, 2011, the ratio would have been 2.20% and 2.53%, respectively. There was no financial impact to the expense ratios for the years ended September 30, 2014, September 30, 2013 and September 30, 2010.

 

See Notes to Financial Statements.

 

52    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock Global Opportunities Portfolio   

 

 

 

     Investor C  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 13.54      $ 12.94      $ 10.71      $ 9.06      $ 10.27      $ 9.91   
  

 

 

 

Net investment income (loss)1

     (0.05     (0.03     (0.03     0.03        (0.04     (0.04

Net realized and unrealized gain (loss)

     0.61        0.63        2.28        1.62        (1.17 )2      0.45 2 
  

 

 

 

Net increase (decrease) from investment operations

     0.56        0.60        2.25        1.65        (1.21     0.41   
  

 

 

 

Distributions from net investment income3

     (0.08            (0.02                   (0.05
  

 

 

 

Net asset value, end of period

   $ 14.02      $ 13.54      $ 12.94      $ 10.71      $ 9.06      $ 10.27   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     4.19 %5      4.64     21.07     18.21     (11.78 )%6      4.13 %6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     2.28 %7      2.24     2.28     2.32     2.59 %8      2.49 %8 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     2.14 %7      2.14     2.14     2.14     2.42     2.44
  

 

 

 

Net investment income (loss)

     (0.81 )%7      (0.25 )%      (0.25 )%      0.26     (0.38 )%      (0.40 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 48,675      $ 58,036      $ 55,494      $ 54,332      $ 58,687      $ 19,554   
  

 

 

 

Portfolio turnover rate

     31     99     149     122     137     146
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Annualized.

 

  8   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the year ended September 30, 2011 the ratio would have been 2.57% . There was no financial impact to the expense ratios for the year ended September 30, 2010.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    53


Financial Highlights (concluded)      BlackRock Global Opportunities Portfolio   

 

 

     Class R  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,     Period
September 12,
20111 to
September 30,
2011
 
       2014     2013     2012    
Per Share Operating Performance                                         

Net asset value, beginning of period

   $ 13.94      $ 13.28      $ 10.99      $ 9.26      $ 9.76   
  

 

 

 

Net investment income (loss)2

     (0.03     0.02        0.02        0.08        0.00 3 

Net realized and unrealized gain (loss)

     0.64        0.64        2.35        1.65        (0.50 )4 
  

 

 

 

Net increase (decrease) from investment operations

     0.61        0.66        2.37        1.73        (0.50
  

 

 

 

Distributions from net investment income5

     (0.13            (0.08     (0.00 )6        
  

 

 

 

Net asset value, end of period

   $ 14.42      $ 13.94      $ 13.28      $ 10.99      $ 9.26   
  

 

 

 
          
Total Return7                                         

Based on net asset value

     4.47 %8      4.97     21.71     18.72     (4.83 )%8,9 
  

 

 

 
          
Ratios to Average Net Assets                                         

Total expenses

     1.83 %10      1.81 %11      1.81 %11      1.80 %11      1.98 %10,11 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.72 %10      1.72     1.72     1.65     1.72 %10 
  

 

 

 

Net investment income (loss)

     (0.41 )%10      0.17     0.18     0.74     0.23 %10 
  

 

 

 
          
Supplemental Data                                         

Net assets, end of period (000)

   $ 10,250      $ 12,483      $ 14,371      $ 14,704      $ 14,891   
  

 

 

 

Portfolio turnover rate

     31     99     149     122     137
  

 

 

 

 

  1   

Commencement of operations.

 

  2   

Based on average shares outstanding.

 

  3   

Amount is less than $0.005 per share.

 

  4   

Includes redemption fees, which are less than $0.005 per share.

 

  5   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  6   

Amount is greater than $(0.005) per share.

 

  7   

Where applicable, assumes the reinvestment of distributions.

 

  8   

Aggregate total return.

 

  9   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  10   

Annualized.

 

  11   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2013 and September 30, 2012, the ratio would have been 1.80% and 1.79%, respectively. There was no financial impact to the expense ratios for the year ended September 30, 2014 and the period ended September 30, 2011.

 

See Notes to Financial Statements.

 

54    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights      BlackRock Health Sciences Opportunities Portfolio   

 

 

     Institutional  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 50.07      $ 43.24      $ 34.62      $ 28.77      $ 28.92      $ 26.29   
  

 

 

 

Net investment income1

     0.05        0.09        0.20        0.15        0.02        0.06   

Net realized and unrealized gain

     9.86        10.94        10.82        7.26        1.23 2      2.57 2 
  

 

 

 

Net increase from investment operations

     9.91        11.03        11.02        7.41        1.25        2.63   
  

 

 

 

Distributions from:3

            

Net investment income

     (0.15     (0.15     (0.18            (0.05       

Net realized gain

     (3.42     (4.05     (2.22     (1.56     (1.35       
  

 

 

 

Total distributions

     (3.57     (4.20     (2.40     (1.56     (1.40       
  

 

 

 

Net asset value, end of period

   $ 56.41      $ 50.07      $ 43.24      $ 34.62      $ 28.77      $ 28.92   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     20.58 %5      27.74     34.07     27.06     4.41 %6      10.00 %6,7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     0.86 %8      0.91     0.94     0.98     1.00     1.00
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     0.86 %8      0.91     0.94     0.98     1.00     1.00
  

 

 

 

Net investment income

     0.19 %8      0.20     0.54     0.47     0.07     0.21
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 1,518,558      $ 1,141,938      $ 748,148      $ 473,193      $ 362,292      $ 232,697   
  

 

 

 

Portfolio turnover rate

     28     57     94     135     135     184
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    55


Financial Highlights (continued)      BlackRock Health Sciences Opportunities Portfolio   

 

 

     Service  
    

Six Months

Ended

March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 48.51      $ 42.02      $ 33.72      $ 28.05      $ 28.22      $ 25.74   
  

 

 

 

Net investment income (loss)1

     (0.03     (0.04     0.09        0.05        (0.07     (0.03

Net realized and unrealized gain

     9.56        10.61        10.53        7.10        1.19 2      2.51 2 
  

 

 

 

Net increase from investment operations

     9.53        10.57        10.62        7.15        1.12        2.48   
  

 

 

 

Distributions from:3

            

Net investment income

     (0.01     (0.03     (0.10                     

Net realized gain

     (3.42     (4.05     (2.22     (1.48     (1.29       
  

 

 

 

Total distributions

     (3.43     (4.08     (2.32     (1.48     (1.29       
  

 

 

 

Net asset value, end of period

   $ 54.61      $ 48.51      $ 42.02      $ 33.72      $ 28.05      $ 28.22   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     20.42 %5      27.36     33.68     26.73     4.04 %6      9.64 %6,7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.15 %8      1.21     1.23     1.28     1.32 %9      1.33
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.15 %8      1.20     1.23     1.28     1.31     1.32
  

 

 

 

Net investment income (loss)

     (0.10 )%8      (0.08 )%      0.25     0.18     (0.24 )%      (0.12 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 35,983      $ 30,139      $ 23,035      $ 14,921      $ 13,478      $ 11,704   
  

 

 

 

Portfolio turnover rate

     28     57     94     135     135     184
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  8   

Annualized.

 

  9   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the year ended September 30, 2011 the ratio would have been 1.31%.

 

See Notes to Financial Statements.

 

56    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock Health Sciences Opportunities Portfolio   

 

 

     Investor A  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 48.38      $ 41.92      $ 33.64      $ 28.00      $ 28.18      $ 25.69   
  

 

 

 

Net investment income (loss)1

     (0.02     (0.03     0.09        0.05        (0.07     (0.03

Net realized and unrealized gain

     9.53        10.57        10.51        7.07        1.19 2      2.52 2 
  

 

 

 

Net increase from investment operations

     9.51        10.54        10.60        7.12        1.12        2.49   
  

 

 

 

Distributions from:3

            

Net investment income

     (0.02     (0.03     (0.10                     

Net realized gain

     (3.42     (4.05     (2.22     (1.48     (1.30       
  

 

 

 

Total distributions

     (3.44     (4.08     (2.32     (1.48     (1.30       
  

 

 

 

Net asset value, end of period

   $ 54.45      $ 48.38      $ 41.92      $ 33.64      $ 28.00      $ 28.18   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     20.44 %5      27.37     33.73     26.68     4.03 %6      9.69 %6,7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.14 %8      1.19     1.22     1.29     1.31     1.31
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.14 %8      1.19     1.21     1.28     1.31     1.31
  

 

 

 

Net investment income (loss)

     (0.09 )%8      (0.07 )%      0.26     0.17     (0.24 )%      (0.11 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 2,799,471      $ 2,051,816      $ 1,641,026      $ 1,018,429      $ 825,046      $ 682,857   
  

 

 

 

Portfolio turnover rate

     28     57     94     135     135     184
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    57


Financial Highlights (continued)      BlackRock Health Sciences Opportunities Portfolio   

 

 

     Investor B  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 44.84      $ 38.99      $ 31.46      $ 26.26      $ 26.39      $ 24.25   
  

 

 

 

Net investment loss1

     (0.23     (0.34     (0.17     (0.17     (0.28     (0.23

Net realized and unrealized gain

     8.86        9.83        9.79        6.63        1.14 2      2.37 2 
  

 

 

 

Net increase from investment operations

     8.63        9.49        9.62        6.46        0.86        2.14   
  

 

 

 

Distributions from:3

            

Net investment income

                                          

Net realized gain

     (2.91     (3.64     (2.09     (1.26     (0.99       
  

 

 

 

Total distributions

     (2.91     (3.64     (2.09     (1.26     (0.99       
  

 

 

 

Net asset value, end of period

   $ 50.56      $ 44.84      $ 38.99      $ 31.46      $ 26.26      $ 26.39   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     19.93 %5      26.40     32.63     25.70     3.27 %6      8.82 %6,7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.98 %8      1.98     2.02     2.07     2.06     2.10
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.98 %8      1.98     2.02     2.07     2.06     2.09
  

 

 

 

Net investment loss

     (0.95 )%8      (0.85 )%      (0.51 )%      (0.59 )%      (0.99 )%      (0.88 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 19,826      $ 23,321      $ 39,048      $ 40,452      $ 46,180      $ 47,855   
  

 

 

 

Portfolio turnover rate

     28     57     94     135     135     184
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

58    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock Health Sciences Opportunities Portfolio   

 

 

     Investor C  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 44.36      $ 38.77      $ 31.34      $ 26.18      $ 26.37      $ 24.22   
  

 

 

 

Net investment loss1

     (0.19     (0.32     (0.16     (0.16     (0.27     (0.21

Net realized and unrealized gain

     8.72        9.74        9.74        6.62        1.14 2      2.36 2 
  

 

 

 

Net increase from investment operations

     8.53        9.42        9.58        6.46        0.87        2.15   
  

 

 

 

Distributions from:3

            

Net investment income

                   (0.00 )4                      

Net realized gain

     (3.17     (3.83     (2.15     (1.30     (1.06       
  

 

 

 

Total distributions

     (3.17     (3.83     (2.15     (1.30     (1.06       
  

 

 

 

Net asset value, end of period

   $ 49.72      $ 44.36      $ 38.77      $ 31.34      $ 26.18      $ 26.37   
  

 

 

 
            
Total Return5                                                 

Based on net asset value

     20.00 %6      26.46     32.71     25.80     3.32 %7      8.88 %7,8 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.87 %9      1.91     1.95     2.01     2.02     2.04
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.86 %9      1.91     1.95     2.01     2.02     2.04
  

 

 

 

Net investment loss

     (0.81 )%9      (0.80 )%      (0.48 )%      (0.55 )%      (0.95 )%      (0.83 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 1,124,316      $ 822,928      $ 596,123      $ 384,910      $ 327,855      $ 285,428   
  

 

 

 

Portfolio turnover rate

     28     57     94     135     135     184
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Amount is greater than $(0.005) per share.

 

  5   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  6   

Aggregate total return.

 

  7   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  8   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  9   

Annualized.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    59


Financial Highlights (concluded)      BlackRock Health Sciences Opportunities Portfolio   

 

 

     Class R  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,     Period
September 12,
20111 to
September 30,
2011
 
       2014     2013     2012    
Per Share Operating Performance                                         

Net asset value, beginning of period

   $ 47.94      $ 41.62      $ 33.46      $ 28.00      $ 28.19   
  

 

 

 

Net investment loss2

     (0.09     (0.17     (0.03     (0.07     (0.01

Net realized and unrealized gain (loss)

     9.43        10.52        10.43        7.05        (0.18 )3 
  

 

 

 

Net increase (decrease) from investment operations

     9.34        10.35        10.40        6.98        (0.19
  

 

 

 

Distributions from:4

          

Net investment income

                   (0.02              

Net realized gain

     (3.36     (4.03     (2.22     (1.52       
  

 

 

 

Total distributions

     (3.36     (4.03     (2.24     (1.52       
  

 

 

 

Net asset value, end of period

   $ 53.92      $ 47.94      $ 41.62      $ 33.46      $ 28.00   
  

 

 

 
          
Total Return5                                         

Based on net asset value

     20.25 %6      27.05     33.21     26.17     (0.64 )%6,7 
  

 

 

 
          
Ratios to Average Net Assets                                         

Total expenses

     1.43 %8      1.49     1.55 %9      1.70     1.75 %8 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.43 %8      1.49     1.55     1.68     1.75 %8 
  

 

 

 

Net investment loss

     (0.36 )%8      (0.38 )%      (0.09 )%      (0.24 )%      (0.82 )%8 
  

 

 

 
          
Supplemental Data                                         

Net assets, end of period (000)

   $ 119,772      $ 74,611      $ 31,319      $ 14,613      $ 9,580   
  

 

 

 

Portfolio turnover rate

     28     57     94     135     135
  

 

 

 

 

  1   

Commencement of operations.

 

  2   

Based on average shares outstanding.

 

  3   

Includes redemption fees, which are less than $0.005 per share.

 

  4   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  5   

Where applicable, assumes the reinvestment of distributions.

 

  6   

Aggregate total return.

 

  7   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  8   

Annualized.

 

  9   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the year ended September 30, 2013 the ratio would have been 1.54%.

 

See Notes to Financial Statements.

 

60    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights      BlackRock International Opportunities Portfolio   

 

 

     Institutional  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 38.51      $ 38.58      $ 32.82      $ 28.37      $ 32.76      $ 31.36   
  

 

 

 

Net investment income1

     0.07        0.48        0.48        0.56        0.49        0.28   

Net realized and unrealized gain (loss)

     0.21        (0.38     5.84        4.49        (4.52 )2      1.58 2 
  

 

 

 

Net increase (decrease) from investment operations

     0.28        0.10        6.32        5.05        (4.03     1.86   
  

 

 

 

Distributions from:3

            

Net investment income

     (0.92     (0.07     (0.56     (0.60     (0.36     (0.46

Net realized gain

     (3.71     (0.10                            
  

 

 

 

Total distributions

     (4.63     (0.17     (0.56     (0.60     (0.36     (0.46
  

 

 

 

Net asset value, end of period

   $ 34.16      $ 38.51      $ 38.58      $ 32.82      $ 28.37      $ 32.76   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     1.50 %5      0.25     19.50     18.08     (12.50 )%6      5.99 %6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.29 %7      1.22     1.23     1.29     1.26     1.35 %8 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.19 %7      1.19     1.23     1.29     1.26     1.35
  

 

 

 

Net investment income

     0.39 %7      1.19     1.34     1.83     1.41     0.91
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 507,227      $ 730,062      $ 775,659      $ 798,205      $ 792,695      $ 802,167   
  

 

 

 

Portfolio turnover rate

     33     138     157     99     116     116
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Annualized.

 

  8   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the year ended September 30, 2010 the ratio would have been 1.34%

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    61


Financial Highlights (continued)      BlackRock International Opportunities Portfolio   

 

 

     Service  
    

Six Months

Ended

March 31,

2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 37.01      $ 37.16      $ 31.62      $ 27.34      $ 31.58      $ 30.26   
  

 

 

 

Net investment income1

     0.03        0.34        0.26        0.39        0.34        0.16   

Net realized and unrealized gain (loss)

     0.19        (0.34     5.67        4.33        (4.37 )2      1.53 2 
  

 

 

 

Net increase (decrease) from investment operations

     0.22        0.00        5.93        4.72        (4.03     1.69   
  

 

 

 

Distributions from:3

            

Net investment income

     (0.82     (0.05     (0.39     (0.44     (0.21     (0.37

Net realized gain

     (3.71     (0.10                            
  

 

 

 

Total distributions

     (4.53     (0.15     (0.39     (0.44     (0.21     (0.37
  

 

 

 

Net asset value, end of period

   $ 32.70      $ 37.01      $ 37.16      $ 31.62      $ 27.34      $ 31.58   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     1.38 %5      (0.03 )%      18.93     17.48     (12.88 )%6      5.63 %6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.56 %7,8      1.51 %7      1.71 %7      1.90 %7      1.66 %7      1.72 %7 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.46 %8      1.48     1.71     1.80     1.65     1.72
  

 

 

 

Net investment income

     0.17 %8      0.87     0.76     1.31     1.02     0.53
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 25,368      $ 30,049      $ 40,885      $ 47,598      $ 47,846      $ 70,365   
  

 

 

 

Portfolio turnover rate

     33     138     157     99     116     116
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2013 and September 30, 2010, the ratio would have been 1.60% and 1.69%, respectively. There was no financial impact to the expense ratios for the six months ended March 31, 2015, and the years ended September 30, 2014, September 30, 2012 and September 30, 2011.

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

62    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock International Opportunities Portfolio   

 

 

     Investor A  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 36.64      $ 36.80      $ 31.33      $ 27.10      $ 31.33      $ 30.02   
  

 

 

 

Net investment income1

     0.01        0.33        0.35        0.45        0.39        0.21   

Net realized and unrealized gain (loss)

     0.20        (0.34     5.59        4.30        (4.34 )2      1.50 2 
  

 

 

 

Net increase (decrease) from investment operations

     0.21        (0.01     5.94        4.75        (3.95     1.71   
  

 

 

 

Distributions from:3

            

Net investment income

     (0.82     (0.05     (0.47     (0.52     (0.28     (0.40

Net realized gain

     (3.71     (0.10                            
  

 

 

 

Total distributions

     (4.53     (0.15     (0.47     (0.52     (0.28     (0.40
  

 

 

 

Net asset value, end of period

   $ 32.32      $ 36.64      $ 36.80      $ 31.33      $ 27.10      $ 31.33   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     1.35 %5      (0.06 )%      19.16     17.74     (12.77 )%6      5.73 %6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.61 %7,8      1.53     1.52     1.57     1.54     1.59
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.51 %8      1.50     1.52     1.57     1.53     1.59
  

 

 

 

Net investment income

     0.06 %8      0.86     1.02     1.52     1.16     0.72
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 482,336      $ 662,683      $ 753,074      $ 692,445      $ 703,201      $ 794,034   
  

 

 

 

Portfolio turnover rate

     33     138     157     99     116     116
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Includes recoupment of past waived and/or reimbursed fees. There was no financial impact to the expense ratio for the six months ended March 31, 2015.

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    63


Financial Highlights (continued)      BlackRock International Opportunities Portfolio   

 

 

     Investor B  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 33.89      $ 34.27      $ 29.15      $ 25.18      $ 29.10      $ 27.83   
  

 

 

 

Net investment income (loss)1

     (0.11     (0.04     0.02        0.16        0.10        (0.05

Net realized and unrealized gain (loss)

     0.16        (0.24     5.25        4.03        (4.01 )2      1.42 2 
  

 

 

 

Net increase (decrease) from investment operations

     0.05        (0.28     5.27        4.19        (3.91     1.37   
  

 

 

 

Distributions from:3

            

Net investment income

     (0.55            (0.15     (0.22     (0.01     (0.10

Net realized gain

     (3.71     (0.10                            
  

 

 

 

Total distributions

     (4.26     (0.10     (0.15     (0.22     (0.01     (0.10
  

 

 

 

Net asset value, end of period

   $ 29.68      $ 33.89      $ 34.27      $ 29.15      $ 25.18      $ 29.10   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     0.91 %5      (0.84 )%      18.15     16.72     (13.45 )%6      4.92 %6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     2.57 %7      2.39     2.40     2.41     2.32     2.38
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     2.36 %7      2.29     2.40     2.41     2.32     2.38
  

 

 

 

Net investment income (loss)

     (0.75 )%7      (0.12 )%      0.06     0.60     0.34     (0.18 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 2,416      $ 3,058      $ 6,507      $ 10,813      $ 15,568      $ 25,080   
  

 

 

 

Portfolio turnover rate

     33     138     157     99     116     116
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Annualized.

 

See Notes to Financial Statements.

 

64    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (concluded)      BlackRock International Opportunities Portfolio   

 

 

     Investor C  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 33.56      $ 33.93      $ 28.91      $ 24.98      $ 28.92      $ 27.74   
  

 

 

 

Net investment income (loss)1

     (0.09     0.04        0.07        0.20        0.11        (0.02

Net realized and unrealized gain (loss)

     0.16        (0.31     5.17        3.98        (3.98 )2      1.39 2 
  

 

 

 

Net increase (decrease) from investment operations

     0.07        (0.27     5.24        4.18        (3.87     1.37   
  

 

 

 

Distributions from:3

            

Net investment income

     (0.63            (0.22     (0.25     (0.07     (0.19

Net realized gain

     (3.71     (0.10                            
  

 

 

 

Total distributions

     (4.34     (0.10     (0.22     (0.25     (0.07     (0.19
  

 

 

 

Net asset value, end of period

   $ 29.29      $ 33.56      $ 33.93      $ 28.91      $ 24.98      $ 28.92   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     0.99 %5      (0.82 )%      18.25     16.83     (13.44 )%6      4.95 %6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     2.34 %7      2.27     2.30     2.34     2.31     2.36
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     2.24 %7      2.23     2.30     2.34     2.31     2.36
  

 

 

 

Net investment income (loss)

     (0.60 )%7      0.11     0.24     0.73     0.37     (0.06 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 114,611      $ 134,821      $ 148,136      $ 148,910      $ 169,481      $ 224,958   
  

 

 

 

Portfolio turnover rate

     33     138     157     99     116     116
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Annualized.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    65


Financial Highlights      BlackRock Science & Technology Opportunities Portfolio   

 

 

     Institutional  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 14.37      $ 12.27      $ 10.01      $ 8.61      $ 9.02      $ 7.79   
  

 

 

 

Net investment loss1

     (0.05     (0.10     (0.03     (0.06     (0.06     (0.05

Net realized and unrealized gain (loss)

     1.81        2.20        2.29        1.46        (0.35 )2      1.28 2 
  

 

 

 

Net increase (decrease) from investment operations

     1.76        2.10        2.26        1.40        (0.41     1.23   
  

 

 

 

Net asset value, end of period

   $ 16.13      $ 14.37      $ 12.27      $ 10.01      $ 8.61      $ 9.02   
  

 

 

 
            
Total Return3                                                 

Based on net asset value

     12.25 %4      17.11     22.58     16.26     (4.55 )%5      15.79 %5,6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.31 %7,8      1.36     1.50 %7      1.45 %7      1.46 %7      1.55 %7 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.29 %8      1.29     1.36     1.39     1.39     1.39
  

 

 

 

Net investment loss

     (0.63 )%8      (0.74 )%      (0.34 )%      (0.63 )%      (0.60 )%      (0.59 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 60,261      $ 53,922      $ 36,218      $ 34,022      $ 33,982      $ 33,135   
  

 

 

 

Portfolio turnover rate

     38     99     86     320     103     97
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Where applicable, assumes the reinvestment of distributions.

 

  4   

Aggregate total return.

 

  5   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  6   

Includes proceeds received from a settlement of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would have been 15.53%.

 

  7   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2013 and September 30, 2012, the ratio would have been 1.49% and 1.44%, respectively. There was no financial impact to the expense ratios for the six months ended March 31, 2015, and the years ended September 30, 2011 and September 30, 2010.

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

66    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock Science & Technology Opportunities Portfolio   

 

 

                                                                 
     Service  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 13.80      $ 11.81      $ 9.66      $ 8.32      $ 8.72      $ 7.56   
  

 

 

 

Net investment loss1

     (0.06     (0.13     (0.05     (0.08     (0.07     (0.08

Net realized and unrealized gain (loss)

     1.73        2.12        2.20        1.42        (0.33 )2      1.24 2 
  

 

 

 

Net increase (decrease) from investment operations

     1.67        1.99        2.15        1.34        (0.40     1.16   
  

 

 

 

Net asset value, end of period

   $ 15.47      $ 13.80      $ 11.81      $ 9.66      $ 8.32      $ 8.72   
  

 

 

 
            
Total Return3                                                 

Based on net asset value

     12.10 %4      16.85     22.26     16.11     (4.59 )%5      15.34 %5,6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.54 %7,8      1.50     1.56 %7      1.57 %7      1.55 %7      1.76 %7 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.54 %8      1.46     1.56     1.57     1.53     1.74
  

 

 

 

Net investment loss

     (0.88 )%8      (0.93 )%      (0.54 )%      (0.81 )%      (0.74 )%      (0.94 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 1,394      $ 1,297      $ 869      $ 944      $ 851      $ 659   
  

 

 

 

Portfolio turnover rate

     38     99     86     320     103     97
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Where applicable, assumes the reinvestment of distributions.

 

  4   

Aggregate total return.

 

  5   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  6   

Includes proceeds received from a settlement of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would have been 15.08%.

 

  7   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the six months ended March 31, 2015, and the years ended September 30, 2012, September 30, 2011 and September 30, 2010, the ratio would have been 1.47%, 1.56%, 1.54% and 1.67%, respectively. There was no financial impact to the expense ratios for the year ended September 30, 2013.

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    67


Financial Highlights (continued)      BlackRock Science & Technology Opportunities Portfolio   

 

 

     Investor A  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 13.55      $ 11.61      $ 9.51      $ 8.21      $ 8.62      $ 7.48   
  

 

 

 

Net investment loss1

     (0.07     (0.14     (0.06     (0.09     (0.09     (0.08

Net realized and unrealized gain (loss)

     1.71        2.08        2.16        1.39        (0.32 )2      1.22 2 
  

 

 

 

Net increase (decrease) from investment operations

     1.64        1.94        2.10        1.30        (0.41     1.14   
  

 

 

 

Net asset value, end of period

   $ 15.19      $ 13.55      $ 11.61      $ 9.51      $ 8.21      $ 8.62   
  

 

 

 
            
Total Return3                                                 

Based on net asset value

     12.10 %4      16.71     22.08     15.84     (4.76 )%5      15.24 %5,6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.62 %7,8      1.64 %7      1.72 %7      1.72 %7      1.79 %7      1.82 %7 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.61 %8      1.61     1.70     1.71     1.78     1.79
  

 

 

 

Net investment loss

     (0.95 )%8      (1.07 )%      (0.67 )%      (0.95 )%      (0.98 )%      (0.99 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 135,404      $ 118,814      $ 97,437      $ 106,466      $ 106,632      $ 105,577   
  

 

 

 

Portfolio turnover rate

     38     99     86     320     103     97
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  4   

Aggregate total return.

 

  5   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  6   

Includes proceeds received from a settlement of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would have been 14.97%.

 

  7   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the six months ended March 31, 2015, and the years ended September 30, 2014, September 30, 2012, September 30, 2011 and September 30, 2010, the ratio would have been 1.59%, 1.63%, 1.70%, 1.71% and 1.81%, respectively. There was no financial impact to the expense ratios for the year ended September 30, 2013.

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

68    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock Science & Technology Opportunities Portfolio   

 

 

                                                                 
     Investor B  
    

Six Months
Ended
March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 12.06      $ 10.42      $ 8.60      $ 7.48      $ 7.93      $ 6.94   
  

 

 

 

Net investment loss1

     (0.11     (0.22     (0.13     (0.15     (0.16     (0.14

Net realized and unrealized gain (loss)

     1.51        1.86        1.95        1.27        (0.29 )2      1.13 2 
  

 

 

 

Net increase (decrease) from investment operations

     1.40        1.64        1.82        1.12        (0.45     0.99   
  

 

 

 

Net asset value, end of period

   $ 13.46      $ 12.06      $ 10.42      $ 8.60      $ 7.48      $ 7.93   
  

 

 

 
            
Total Return3                                                 

Based on net asset value

     11.61 %4      15.74     21.16     14.97     (5.68 )%5      14.27 %5,6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     2.61 %7,8      2.42 %7      2.50 %7      2.52 %7      2.67 %7      2.70 %7 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     2.42 %8      2.41     2.49     2.52     2.66     2.69
  

 

 

 

Net investment loss

     (1.76 )%8      (1.90 )%      (1.47 )%      (1.76 )%      (1.87 )%      (1.90 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 990      $ 1,585      $ 2,275      $ 2,645      $ 3,130      $ 4,390   
  

 

 

 

Portfolio turnover rate

     38     99     86     320     103     97
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  4   

Aggregate total return.

 

  5   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  6   

Includes proceeds received from a settlement of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would have been 13.98%.

 

  7   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2011 and September 30, 2010, the ratio would have been 2.44% and 2.65%, respectively. There was no financial impact to the expense ratios for the six months ended March 31, 2015, and the years ended September 30, 2014, September 30, 2013 and September 30, 2012.

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    69


Financial Highlights (continued)      BlackRock Science & Technology Opportunities Portfolio   

 

 

     Investor C  
    

Six Months

Ended

March 31,

2015
(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 12.03      $ 10.39      $ 8.58      $ 7.47      $ 7.92      $ 6.94   
  

 

 

 

Net investment loss1

     (0.11     (0.22     (0.14     (0.15     (0.16     (0.14

Net realized and unrealized gain (loss)

     1.50        1.86        1.95        1.26        (0.29 )2      1.12 2 
  

 

 

 

Net increase (decrease) from investment operations

     1.39        1.64        1.81        1.11        (0.45     0.98   
  

 

 

 

Net asset value, end of period

   $ 13.42      $ 12.03      $ 10.39      $ 8.58      $ 7.47      $ 7.92   
  

 

 

 
            
Total Return3                                                 

Based on net asset value

     11.55 %4      15.78     21.10     14.86     (5.68 )%5      14.12 %5,6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     2.45 %7,8      2.46 %7      2.58 %7      2.60 %7      2.68 %7      2.73 %7 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     2.45 %8      2.44     2.57     2.60     2.67     2.71
  

 

 

 

Net investment loss

     (1.79 )%8      (1.90 )%      (1.56 )%      (1.84 )%      (1.88 )%      (1.92 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 36,534      $ 32,194      $ 28,234      $ 26,543      $ 27,651      $ 27,053   
  

 

 

 

Portfolio turnover rate

     38     99     86     320     103     97
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  4   

Aggregate total return.

 

  5   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  6   

Includes proceeds received from a settlement of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would have been 13.83%.

 

  7   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the six months ended March 31, 2015, and the years ended September 30, 2014, September 30, 2012 and September 30, 2011, the ratio would have been 2.42%, 2.45%, 2.59%, and 2.59%, respectively. There was no financial impact to the expense ratios for the years ended September 30, 2013 and September 30, 2010.

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

70    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (concluded)      BlackRock Science & Technology Opportunities Portfolio   

 

 

     Class R  
    

Six Months

Ended
March 31,
2015
(Unaudited)

    Year Ended September 30,  
     2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 13.81      $ 11.86      $ 9.74      $ 8.43      $ 8.88      $ 7.72   
  

 

 

 

Net investment loss1

     (0.09     (0.18     (0.09     (0.12     (0.12     (0.11

Net realized and unrealized gain (loss)

     1.73        2.13        2.21        1.43        (0.33 )2      1.27 2 
  

 

 

 

Net increase (decrease) from investment operations

     1.64        1.95        2.12        1.31        (0.45     1.16   
  

 

 

 

Net asset value, end of period

   $ 15.45      $       13.81      $       11.86      $       9.74      $       8.43      $       8.88   
  

 

 

 
            
Total Return3                                                 

Based on net asset value

     11.88 %4      16.44     21.77     15.54     (5.07 )%5      15.03 %5,6 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.90 %7,8      1.91 %7      1.97 %7      2.00 %7      2.00 %7      2.10 %7 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.89 %8      1.89     1.93     1.99     2.00     2.09
  

 

 

 

Net investment loss

     (1.23 )%8      (1.35 )%      (0.92 )%      (1.23 )%      (1.21 )%      (1.29 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 4,783      $ 4,195      $ 4,555      $ 4,329      $ 3,518      $ 2,961   
  

 

 

 

Portfolio turnover rate

     38     99     86     320     103     97
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3  

Where applicable, assumes the reinvestment of distributions.

 

  4   

Aggregate total return.

 

  5   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  6   

Includes proceeds received from a settlement of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would have been 14.77%.

 

  7   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the six months ended March 31, 2015, and the years ended September 30, 2014 and September 30, 2012, the ratio would have been 1.85%, 1.89% and 1.99%, respectively. There was no financial impact to the expense ratios for the years ended September 30, 2013, September 30, 2011 and September 30, 2010.

 

  8   

Annualized.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    71


Financial Highlights      BlackRock U.S. Opportunities Portfolio   

 

 

     Institutional  
    

Six Months

Ended

March 31,

2015
(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 42.91      $ 45.82      $ 36.42      $ 33.86      $ 36.94      $ 32.20   
  

 

 

 

Net investment income (loss)1

     0.04        (0.07     0.11        0.19        0.05        0.04   

Net realized and unrealized gain (loss)

     4.61        6.49        10.41        6.31        (2.44 )2      4.77 2 
  

 

 

 

Net increase (decrease) from investment operations

     4.65        6.42        10.52        6.50        (2.39     4.81   
  

 

 

 

Distributions from:3

            

Net investment income

                   (0.33                   (0.07

Net realized gains

     (6.18     (9.33     (0.79     (3.94     (0.69       
  

 

 

 

Total distributions

     (6.18     (9.33     (1.12     (3.94     (0.69     (0.07
  

 

 

 

Net asset value, end of period

   $ 41.38      $ 42.91      $ 45.82      $ 36.42      $ 33.86      $ 36.94   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     12.16 %5      16.28     29.79     20.40     (6.75 )%6      14.96 %6,7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.33 %8      1.34 %9      1.37     1.30     1.36     1.30
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     0.91 %8      0.94     1.01     1.03     1.03     1.03
  

 

 

 

Net investment income (loss)

     0.19 %8      (0.17 )%      0.28     0.52     0.12     0.13
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 918,605      $ 732,297      $ 676,540      $ 1,294,928      $ 1,905,254      $ 1,588,509   
  

 

 

 

Portfolio turnover rate

     27     66     82     106     120     123
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  8   

Annualized.

 

  9   

Includes recoupment of past waived and/or reimbursed fees. There was no financial impact to the expense ratio.

 

See Notes to Financial Statements.

 

72    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock U.S. Opportunities Portfolio   

 

 

     Service  
    

Six Months

Ended

March 31,

2015
(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 40.51      $ 43.72      $ 34.71      $ 32.44      $ 35.40      $ 30.93   
  

 

 

 

Net investment income (loss)1

     (0.07     (0.23     (0.09     0.02        (0.12     (0.11

Net realized and unrealized gain (loss)

     4.41        6.16        9.98        6.03        (2.34 )2      4.58 2 
  

 

 

 

Net increase (decrease) from investment operations

     4.34        5.93        9.89        6.05        (2.46     4.47   
  

 

 

 

Distributions from:3

            

Net investment income

                   (0.09                     

Net realized gains

     (5.49     (9.14     (0.79     (3.78     (0.50       
  

 

 

 

Total distributions

     (5.49     (9.14     (0.88     (3.78     (0.50       
  

 

 

 

Net asset value, end of period

   $ 39.36      $ 40.51      $ 43.72      $ 34.71      $ 32.44      $ 35.40   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     11.93 %5      15.82     29.26     19.80     (7.16 )%6      14.45 %6,7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.69 %8      1.59 %9      1.61     1.62     1.57 %9      1.60 %9 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.31 %8      1.34     1.45     1.51     1.46     1.48
  

 

 

 

Net investment income (loss)

     (0.34 )%8      (0.57 )%      (0.22 )%      0.05     (0.30 )%      (0.34 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 32,154      $ 140,498      $ 155,414      $ 159,939      $ 183,604      $ 235,926   
  

 

 

 

Portfolio turnover rate

     27     66     82     106     120     123
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  8   

Annualized.

 

  9   

Includes recoupment of past waived and/or reimbursed fees. There was no financial impact to the expense ratio.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    73


Financial Highlights (continued)    BlackRock U.S. Opportunities Portfolio

 

 

     Investor A  
    

Six Months

Ended

March 31,

2015
(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 39.96      $ 43.23      $ 34.30      $ 32.08      $ 35.02      $ 30.61   
  

 

 

 

Net investment income (loss)1

     (0.04     (0.23     (0.09     0.01        (0.13     (0.12

Net realized and unrealized gain (loss)

     4.27        6.09        9.86        5.97        (2.31 )2      4.53 2 
  

 

 

 

Net increase (decrease) from investment operations

     4.23        5.86        9.77        5.98        (2.44     4.41   
  

 

 

 

Distributions from:3

            

Net investment income

                   (0.05                     

Net realized gains

     (6.00     (9.13     (0.79     (3.76     (0.50       
  

 

 

 

Total distributions

     (6.00     (9.13     (0.84     (3.76     (0.50       
  

 

 

 

Net asset value, end of period

   $ 38.19      $ 39.96      $ 43.23      $ 34.30      $ 32.08      $ 35.02   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     11.93 %5      15.83     29.19     19.82     (7.19 )%6      14.41 %6,7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     1.63 %8,9      1.61 %8      1.63 %8      1.62 %8      1.59     1.64 %8 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     1.31 %9      1.34     1.47     1.51     1.49     1.51
  

 

 

 

Net investment income (loss)

     (0.23 )%9      (0.58 )%      (0.23 )%      0.03     (0.34 )%      (0.37 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 434,900      $ 423,779      $ 512,224      $ 610,343      $ 888,293      $ 1,158,626   
  

 

 

 

Portfolio turnover rate

     27     66     82     106     120     123
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  8   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the six months ended March 31, 2015, and the year ended September 30, 2014, the ratio would have been 1.62% and 1.60%, respectively. There was no financial impact to the expense ratios for the years ended, September 30, 2013, September 30, 2012 and September 30, 2010.

 

  9   

Annualized.

 

See Notes to Financial Statements.

 

74    BLACKROCK FUNDS    MARCH 31, 2015     


Financial Highlights (continued)      BlackRock U.S. Opportunities Portfolio   

 

 

     Investor B  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 34.37      $ 38.39      $ 30.72      $ 29.11      $ 31.96      $ 28.16   
  

 

 

 

Net investment loss1

     (0.17     (0.48     (0.35     (0.23     (0.40     (0.35

Net realized and unrealized gain (loss)

     3.62        5.31        8.79        5.39        (2.06 )2      4.15 2 
  

 

 

 

Net increase (decrease) from investment operations

     3.45        4.83        8.44        5.16        (2.46     3.80   
  

 

 

 

Distributions from net realized gains3

     (5.70     (8.85     (0.77     (3.55     (0.39       
  

 

 

 

Net asset value, end of period

   $ 32.12      $ 34.37      $ 38.39      $ 30.72      $ 29.11      $ 31.96   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     11.50 %5      14.90     28.19     18.87     (7.90 )%6      13.49 %6,7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     2.40 %8      2.39 %9      2.43 %9      2.42 %9      2.39 %9      2.44 %9 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     2.10 %8      2.14     2.26     2.30     2.28     2.30
  

 

 

 

Net investment loss

     (1.03 )%8      (1.37 )%      (1.04 )%      (0.74 )%      (1.12 )%      (1.18 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 10,182      $ 10,935      $ 13,107      $ 12,833      $ 15,047      $ 20,255   
  

 

 

 

Portfolio turnover rate

     27     66     82     106     120     123
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  8   

Annualized.

 

  9   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2014, September 30, 2013 and September 30, 2011, the ratio would have been 2.37%, 2.42% and 2.37%, respectively. There was no financial impact to the expense ratios for the six months ended March 31, 2015, and the years ended September 30, 2012 and September 30, 2010.

 

See Notes to Financial Statements.

 

     BLACKROCK FUNDS    MARCH 31, 2015    75


Financial Highlights (concluded)      BlackRock U.S. Opportunities Portfolio   

 

 

     Investor C  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                 

Net asset value, beginning of period

   $ 34.43      $ 38.44      $ 30.75      $ 29.11      $ 31.95      $ 28.14   
  

 

 

 

Net investment loss1

     (0.16     (0.46     (0.33     (0.21     (0.38     (0.33

Net realized and unrealized gain (loss)

     3.62        5.32        8.79        5.39        (2.07 )2      4.14 2 
  

 

 

 

Net increase (decrease) from investment operations

     3.46        4.86        8.46        5.18        (2.45     3.81   
  

 

 

 

Distributions from net realized gains3

     (5.77     (8.87     (0.77     (3.54     (0.39       
  

 

 

 

Net asset value, end of period

   $ 32.12      $ 34.43      $ 38.44      $ 30.75      $ 29.11      $ 31.95   
  

 

 

 
            
Total Return4                                                 

Based on net asset value

     11.51 %5      14.97     28.22     18.94     (7.87 )%6      13.54 %6,7 
  

 

 

 
            
Ratios to Average Net Assets                                                 

Total expenses

     2.33 %8      2.33 %9      2.38     2.35     2.34 %9      2.39 %9 
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly

     2.07 %8      2.09     2.22     2.25     2.24     2.27
  

 

 

 

Net investment loss

     (0.98 )%8      (1.32 )%      (0.98 )%      (0.69 )%      (1.08 )%      (1.12 )% 
  

 

 

 
            
Supplemental Data                                                 

Net assets, end of period (000)

   $ 225,383      $ 211,493      $ 212,162      $ 226,350      $ 282,586      $ 334,958   
  

 

 

 

Portfolio turnover rate

     27     66     82     106     120     123
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Includes redemption fees, which are less than $0.005 per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

 

  7   

Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

 

  8   

Annualized.

 

  9   

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2014, September 30, 2011 and September 30, 2010, the ratio would have been 2.32%, 2.33% and 2.38%, respectively.

 

See Notes to Financial Statements.

 

76    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (Unaudited)     

 

1. Organization:

BlackRock FundsSM (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust is organized as a Massachusetts business trust. The following are referred to herein collectively as the “Funds” or individually, a “Fund”:

 

Fund Name    Herein Referred To As    Diversification Classification

BlackRock Global Opportunities Portfolio

   (“Global Opportunities”)    Diversified

BlackRock Health Sciences Opportunities Portfolio

   (“Health Sciences Opportunities”)    Non-diversified

BlackRock International Opportunities Portfolio

   (“International Opportunities”)    Diversified

BlackRock Science & Technology Opportunities Portfolio

   (“Science & Technology Opportunities”)    Diversified

BlackRock U.S. Opportunities Portfolio

   (“U.S. Opportunities”)    Diversified

Each Fund offers multiple classes of shares. All classes of shares have identical voting, dividend, liquidation and other rights and are subject to the same terms and conditions, except that certain classes bear expenses related to the shareholder servicing and distribution of such shares. Institutional and Service Shares are sold only to certain eligible investors. Investor B Shares are only available through exchanges and distribution reinvestments by current holders and for purchase by certain employer-sponsored retirement plans. Class R Shares are available only to certain employer-sponsored retirement plans. Investor A and Investor C Shares are generally available through financial intermediaries. Each class has exclusive voting rights with respect to matters relating to its shareholder servicing and distribution expenditures (except that Investor B shareholders may vote on material changes to the Investor A distribution and service plan).

 

Share Class    Initial Sales Charge    CDSC    Conversion Privilege

Institutional, Service and Class R Shares

     No      No    None

Investor A Shares

   Yes       No1    None

Investor B Shares

     No    Yes    To Investor A Shares after approximately 8 years

Investor C Shares

     No    Yes    None

 

  1   

Investor A Shares may be subject to a CDSC where no initial sales charge was paid at the time of purchase.

The Funds, together with certain other registered investment companies advised by the Manager or its affiliates, are included in a complex of open-end funds referred to as the Equity-Liquidity Complex.

2. Significant Accounting Policies:

The Funds’ financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Each Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Funds:

Valuation: The Funds’ investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”)(generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Funds would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Funds determine the fair values of their financial instruments at market value using independent dealers or pricing services under policies approved by the Board. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Funds for all financial instruments.

Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. Investments in open-end registered investment companies are valued at NAV each business day.

Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE. Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.

Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options trade. An exchange-traded option for which there is no mean price is valued at the last bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price will be used, unless it is determined that the prior day’s price no longer reflects the fair value of the option. Over-the-counter (“OTC”) options are valued by an independent pricing service using a mathematical model, which incorporates a number of market data factors, such as the trades and prices of the underlying instruments.

 

     BLACKROCK FUNDS    MARCH 31, 2015    77


Notes to Financial Statements (continued)     

 

The Funds value their investments in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon their pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. Each Fund may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.

In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that each Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement, which include the market approach, income approach and/or in the case of recent investments, the cost approach, as appropriate. The market approach generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to present value and is adjusted for liquidity as appropriate. These factors include but are not limited to: (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates. Due to the inherent uncertainty of valuations of such investments, the fair values may differ from the values that would have been used had an active market existed. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Funds’ pricing vendors, regular reviews of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.

Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of each Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Investments and be valued at their fair value, as determined in good faith by the Global Valuation Committee, or its delegate, using a pricing service and/or policies approved by the Board. Each business day, the Funds use a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and OTC options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of business on the NYSE, which follows the close of the local markets.

Foreign Currency: Each Fund’s books and records are maintained in U.S. dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, each Fund’s investments denominated in that currency will lose value because that currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value.

Each Fund does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated in the Statements of Operations from the effects of changes in market prices of those investments, but are included as a component of net realized and unrealized gain (loss) from investments. Each Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for federal income tax purposes.

Segregation and Collateralization: In cases where a Fund enters into certain investments (e.g., forward foreign currency exchange contracts and options written) that would be “senior securities” for 1940 Act purposes, a Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the amount of a Fund’s future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Funds may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Funds are informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital

 

78    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

gains, dividends and interest. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Distributions: Distributions paid by the Funds are recorded on the ex-dividend dates. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.

Recent Accounting Standard: In June 2014, the Financial Accounting Standards Board issued guidance to improve the financial reporting of reverse repurchase agreements and other similar transactions. The guidance will require expanded disclosure for entities that enter into reverse repurchase agreements and similar transactions accounted for as secured borrowings. It is effective for financial statements with fiscal years beginning on or after December 15, 2014 and for interim periods beginning after March 15, 2015. Management is evaluating the impact, if any, of this guidance on the Funds’ financial statement disclosures.

Other: Expenses directly related to a Fund or its classes are charged to that Fund or the applicable class. Other operating expenses shared by several funds are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Funds and other shared expenses prorated to the Funds are allocated daily to each class based on its relative net assets or other appropriate methods.

The Funds have an arrangement with their custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statements of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.

3. Securities and Other Investments:

Preferred Stock: Each Fund may invest in preferred stock. Preferred stock has a preference over common stock in liquidation (and generally in receiving dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.

Securities Lending: Each Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Funds collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by each Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund on the next business day. During the term of the loan, each Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.

The market value of securities on loan and the value of the related collateral are shown separately in the Statements of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of March 31, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedules of Investments.

Securities lending transactions are entered into by the Funds under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, each Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Funds can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.

 

     BLACKROCK FUNDS    MARCH 31, 2015    79


Notes to Financial Statements (continued)     

 

As of March 31, 2015 the following tables are a summary of the Funds’ securities lending agreements by counterparty which are subject to offset under an MSLA:

 

Global Opportunities                       
Counterparty    Securities Loaned
at Value
     Cash  Collateral
Received1
    Net
Amount
 

Goldman Sachs & Co

   $ 1,385,514       $ (1,385,514       

JP Morgan Securities LLC

     558,261         (558,261       

Morgan Stanley

     3,490         (3,490       
  

 

 

 

Total

   $ 1,947,265       $ (1,947,265       
  

 

 

 
       
Health Sciences Opportunities                       
Counterparty    Securities Loaned
at Value
     Cash Collateral
Received1
    Net
Amount
 

Credit Suisse Securities (USA) LLC

   $ 379,245       $ (379,245       

Goldman Sachs & Co

     3,878,744         (3,878,744       

Merrill Lynch, Pierce, Fenner & Smith, Inc

     1,324,016         (1,324,016       

Morgan Stanley

     1,461,500         (1,461,500       
  

 

 

 

Total

   $ 7,043,505       $ (7,043,505       
  

 

 

 
       
International Opportunities                       
Counterparty    Securities Loaned
at Value
     Cash Collateral
Received1
    Net
Amount
 

Goldman Sachs & Co

   $ 1,334,135       $ (1,334,135       
  

 

 

 
       
Science & Technology Opportunities                       
Counterparty    Securities Loaned
at Value
     Cash Collateral
Received1
    Net
Amount
 

Merrill Lynch, Pierce, Fenner & Smith, Inc

   $ 24,817       $ (24,817       
  

 

 

 
       
U.S. Opportunities                       
Counterparty    Securities Loaned
at Value
     Cash Collateral
Received1
    Net
Amount
 

Goldman Sachs & Co

   $ 4,219,857       $ (4,219,857       

Morgan Stanley

     210,173         (210,173       
  

 

 

 

Total

   $ 4,430,030       $ (4,430,030       
  

 

 

 

 

  1   

Collateral with a value of $1,974,042, $7,494,299, $1,430,717, $26,200 and $4,470,214 has been received in connection with securities lending agreements for Global Opportunities, Health Sciences Opportunities, International Opportunities, Science & Technology Opportunities and U.S. Opportunities, respectively. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes.

The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Funds benefit from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of borrower default. Each Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.

4. Derivative Financial Instruments:

The Funds engage in various portfolio investment strategies using derivative contracts both to increase the returns of the Funds and/or to economically manage their exposure to certain risks such as equity risk or foreign currency exchange rate risk. These contracts may be transacted on an exchange or OTC.

 

80    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

Forward Foreign Currency Exchange Contracts: Certain Funds enter into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Funds, help to manage the overall exposure to the currencies in which some of the investments held by the Funds are denominated. The contract is marked-to-market daily and the change in market value is recorded by the Funds as an unrealized gain or loss. When the contract is closed, the Funds record a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.

Options: Certain Funds purchase and write call and put options to increase or decrease their exposure to underlying instruments (including equity risk) and/or in the case of options written, to generate gains from options premiums. A call option gives the purchaser (holder) of the option the right (but not the obligation) to buy, and obligates the seller (writer) to sell (when the option is exercised) the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. When a Fund purchases (writes) an option, an amount equal to the premium paid (received) by a Fund is reflected as an asset (liability). The amount of the asset (liability) is subsequently marked-to-market to reflect the current market value of the option purchased (written). When an instrument is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the instrument acquired or deducted from (or added to) the proceeds of the instrument sold. When an option expires (or a Fund enters into a closing transaction), a Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premiums received or paid). When a Fund writes a call option, such option is “covered,” meaning that a Fund holds the underlying instrument subject to being called by the option counterparty. When a Fund writes a put option, such option is covered by cash in an amount sufficient to cover the obligation.

In purchasing and writing options, a Fund bears the risk of an unfavorable change in the value of the underlying instrument or the risk that a Fund may not be able to enter into a closing transaction due to an illiquid market. Exercise of a written option could result in a Fund purchasing or selling a security when it otherwise would not, or at a price different from the current market value.

For the six months ended March 31, 2015, transactions in options written were as follows:

 

      Health Sciences Opportunities  
      Puts  
     Contracts     Premiums
Received
 
  

 

 

 

Outstanding options, beginning of period

              

Options written

     2,736      $ 624,562   

Options expired

     (1,530     (285,157
  

 

 

 

Outstanding options, end of period

     1,206      $ 339,405   
  

 

 

 
    
      Science & Technology Opportunities  
      Calls  
     Contracts     Premiums
Received
 
  

 

 

 

Outstanding options, beginning of period

              

Options written

     2,967      $ 314,897   

Options closed

     (536     (58,753
  

 

 

 

Outstanding options, end of period

     2,431      $ 256,144   
  

 

 

 

As of March 31, 2015, the value of Science & Technology Opportunities securities subject to covered call options written was $17,064,741.

 

 

     BLACKROCK FUNDS    MARCH 31, 2015    81


Notes to Financial Statements (continued)     

 

The following is a summary of the Funds’ derivative financial instruments categorized by risk exposure:

 

Fair Values of Derivative Financial Instruments as of March 31, 2015  
          Global
Opportunities
  

Health Sciences

Opportunities

 
          Value  
      Statements of Assets and Liabilities Location    Derivative
Assets
     Derivative
Liabilities
           Derivative
Assets
     Derivative
Liabilities
 

Foreign currency exchange contracts

   Unrealized appreciation/depreciation on forward foreign currency exchange contracts    $ 1,178,015       $ 940,698          $ 17,983,614       $ 8,136,893   
  

 

 

Equity contracts

   Options written at value                                 144,838   
  

 

 

Total

      $ 1,178,015       $ 940,698          $ 17,983,614       $ 8,281,731   
  

 

 

 

Fair Values of Derivative Financial Instruments as of March 31, 2015  
          International
Opportunities
   Science &
Technology
Opportunities
 
          Value  
      Statements of Assets and Liabilities Location    Derivative
Assets
     Derivative
Liabilities
           Derivative
Assets
     Derivative
Liabilities
 

Foreign currency exchange contracts

   Unrealized appreciation/depreciation on forward foreign currency exchange contracts    $ 12,130,410       $ 13,301,833          $ 154,316       $ 58,027   
  

 

 

Equity contracts

   Options written at value                                 183,462   
  

 

 

Total

      $ 12,130,410       $ 13,301,833          $ 154,316       $ 241,489   
  

 

 

 

The Effect of Derivative Financial Instruments in the Statements of Operations

Six Months Ended March 31, 2015

 
     Net Realized Gain (Loss) from          Net Change in Unrealized Appreciation/Depreciation on  
      Global
Opportunities
     Health Sciences
Opportunities
         Global Opportunities     Health Sciences
Opportunities
 

Foreign currency exchange contracts:

            

    Foreign currency transactions/translations

   $ 1,760,137       $ 5,081,351         $ (772,843   $ (460,506

Equity contracts:

            

    Options

             285,157                    194,567   

Total

   $ 1,760,137       $ 5,366,508           $ (772,843   $ (265,939
            

 

 

 

The Effect of Derivative Financial Instruments in the Statements of Operations

Six Months Ended March 31, 2015

 
     Net Realized Gain (Loss) from          Net Change in Unrealized Appreciation/Depreciation on  
      International
Opportunities
       Science &  
  Technology  
  Opportunities  
         International
Opportunities
    Science &
Technology
Opportunities
 

Foreign currency exchange contracts:

            

    Foreign currency transactions/translations

   $ 7,508,920       $ 361,748         $ (9,828,980   $ (357,053

Equity contracts:

            

    Options

             41,146                  72,682   

Total

   $ 7,508,920       $ 402,894           $ (9,828,980   $ (284,371
            

 

 

For the six months ended March 31, 2015, the average quarterly balances of outstanding derivative financial instruments were as follows:

 

  

      Global
Opportunities
             Health Sciences
Opportunities
                  International
Opportunities
            

Science &

Technology

Opportunities

 

Forward foreign currency exchange contracts:

                      

Average amounts purchased - in USD

   $ 31,217,559                    $ 241,284,843                      $ 351,255,505                    $ 13,016,287   

Average amounts sold - in USD

   $ 23,594,510          $ 53,111,463            $ 360,518,316          $ 2,119,038   

Options:

                      

Average notional value of option contracts written

 

                    $ 72,419                                     $ 91,731   

Counterparty Credit Risk: A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.

 

 

82    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

A Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by such Fund. For OTC options purchased, each Fund bears the risk of loss of the amount of the premiums paid plus the positive change in market values net of any collateral held by such Fund should the counterparty fail to perform under the contracts. Options written by the Funds do not typically give rise to counterparty credit risk, as options written generally obligate the Funds, and not the counterparty, to perform.

With exchange-traded purchased options, there is less counterparty credit risk to the Funds since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Funds do not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse.

In order to better define its contractual rights and to secure rights that will help the Funds mitigate their counterparty risk, a Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between each Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, each Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrict or prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event a Fund’s net assets decline by a stated percentage or a Fund fails to meet the terms of its ISDA Master Agreements, which would cause a Fund to accelerate payment of any net liability owed to the counterparty.

Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by a Fund and the counterparty.

Cash collateral that has been pledged to cover obligations of the Funds and cash collateral received from the counterparty, if any, is reported separately on the Statements of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedules of Investments. Generally, the amount of collateral due from or to a party has to exceed a minimum transfer amount threshold (typically either $250,000 or $500,000) before a transfer is required, which is determined at the close of business of the Funds. Any additional required collateral is delivered to/pledged by the Funds on the next business day. Typically, the Funds and counterparties are not permitted to sell, re-pledge or use the collateral they receive. To the extent amounts due to the Funds from its counterparties are not fully collateralized, the Funds bear the risk of loss from counterparty non-performance. Likewise, to the extent the Funds have delivered collateral to a counterparty and stand ready to perform under the terms of its agreement with such counterparty, the Funds bear the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral.

For financial reporting purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Statements of Assets and Liabilities.

As of March 31, 2015, the Funds’ derivative assets and liabilities (by type) are as follows:

                                                     
      

Global

Opportunities

           

Health Sciences

Opportunities

 
        Assets        Liabilities             Assets        Liabilities  

Derivative Financial Instruments:

                                  

Forward foreign currency exchange contracts.

       $1,178,015           $940,698             $17,983,614           $8,136,893   

Options

                                         144,838   

Total derivative assets and liabilities in the Statements of Assets and Liabilities.

       $1,178,015           $940,698             $17,983,614           $8,281,731   

Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”)

                                         (144,838

Total derivative assets and liabilities subject to an MNA

       $1,178,015           $940,698               $17,983,614           $8,136,893   

 

 

     BLACKROCK FUNDS    MARCH 31, 2015    83


Notes to Financial Statements (continued)     

 

      International      Science & Technology  
     Opportunities      Opportunities  
      Assets      Liabilities      Assets      Liabilities  

Derivative Financial Instruments:

           

Forward foreign currency exchange contracts.

   $ 12,130,410       $ 13,301,833       $ 154,316       $ 58,027   

Options

                             183,462   

Total derivative assets and liabilities in the Statements of Assets and Liabilities

   $ 12,130,410       $ 13,301,833       $ 154,316       $ 241,489   

Derivatives not subject to an MNA

                             (183,462

Total derivative assets and liabilities subject to an MNA

   $ 12,130,410       $ 13,301,833       $ 154,316       $ 58,027   

As of March 31, 2015, the following tables present the Funds’ derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateral received and pledged by the Funds:

 

Global Opportunities                                       
Counterparty    Derivative Assets
Subject to an MNA by
Counterparty
     Derivatives Available
for  Offset1
    Non-cash
Collateral
Received
     Cash
Collateral
Received
     Net Amount of
Derivative Assets2
 

The Bank of New York Mellon

   $ 2,018       $ (2,018                       

BNP Paribas S.A

     9,458         (9,458                       

Citibank N.A

     1,188         (1,188                       

Goldman Sachs International

     672,940         (138,737                   $ 534,203   

HSBC Bank PLC

     48,657                                48,657   

Morgan Stanley Capital Services LLC

     226,951         (225,343                     1,608   

Royal Bank of Canada

     85,740         (85,740                       

State Street Bank and Trust Co

     72,033         (6,014                     66,019   

TD Securities, Inc

     25,181         (25,181                       

UBS AG

     33,849         (33,849                       
  

 

 

 

Total

   $ 1,178,015       $ (527,528                   $ 650,487   
  

 

 

 
             
Counterparty    Derivative Liabilities
Subject to an MNA by
Counterparty
     Derivatives Available
for Offset1
    Non-cash
Collateral
Pledged
     Cash
Collateral
Pledged
     Net Amount of
Derivative Liabilities3
 

Bank of America N.A

   $ 2,026                              $ 2,026   

The Bank of New York Mellon

     19,167       $ (2,018                     17,149   

BNP Paribas S.A

     105,363         (9,458                     95,905   

Citibank N.A

     91,934         (1,188                     90,746   

Deutsche Bank AG

     18,304                                18,304   

Goldman Sachs International

     138,737         (138,737                       

JPMorgan Chase Bank N.A

     13,741                                13,741   

Morgan Stanley Capital Services LLC

     225,343         (225,343                       

Royal Bank of Canada

     179,679         (85,740                     93,939   

State Street Bank and Trust Co

     6,014         (6,014                       

TD Securities, Inc

     98,891         (25,181                     73,710   

UBS AG

     41,499         (33,849                     7,650   
  

 

 

 

Total

   $ 940,698       $ (527,528                   $ 413,170   
  

 

 

 
             
Health Sciences Opportunities                                       
Counterparty    Derivative Assets
Subject to an MNA by
Counterparty
     Derivative Available
for Offset1
    Non-cash
Collateral
Received
     Cash
Collateral
Received
     Net Amount of
Derivative Assets2
 

Bank of America N.A

   $ 94,275                              $ 94,275   

Deutsche Bank AG

     1,241,890       $ (1,241,890                       

Goldman Sachs Bank USA

     119,318                                119,318   

Morgan Stanley Capital Services LLC

     14,664,894                                14,664,894   

Royal Bank of Canada

     1,725,016                                1,725,016   

Royal Bank of Scotland PLC

     3,481                                3,481   

UBS AG

     134,740         (134,740                       
  

 

 

 

Total

   $ 17,983,614       $ (1,376,630                   $ 16,606,984   
  

 

 

 

 

84    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

 

Counterparty    Derivative Liabilities
Subject to an MNA  by
Counterparty
     Derivative Available for
Offset1
    Non-cash
Collateral
Pledged
     Cash
Collateral
Pledged
     Net Amount of
Derivative Liabilities3
 

Deutsche Bank AG

   $ 7,299,309       $ (1,241,890                   $ 6,057,419   

JPMorgan Chase Bank N.A

     67,622                                67,622   

UBS AG

     769,962         (134,740                     635,222   
  

 

 

 

Total

   $ 8,136,893       $ (1,376,630                   $ 6,760,263   
  

 

 

 
             
International Opportunities                                       
Counterparty    Derivative Assets
Subject to an MNA by
Counterparty
    

Derivative Available

for Offset1

    Non-cash
Collateral
Received
     Cash
Collateral
Received
     Net Amount of
Derivative Assets2
 

Bank of America N.A

   $ 1,366,193       $ (251,034                   $ 1,115,159   

The Bank of New York Mellon

     173,025         (69,092                     103,933   

Barclays Bank PLC

     121,288                                121,288   

BNP Paribas S.A

     67,070         (67,070                       

Citibank N.A

     116,935         (116,935                       

Deutsche Bank AG

     133,180         (133,180                       

Goldman Sachs International

     6,320,754         (3,192,998                     3,127,756   

JPMorgan Chase Bank N.A

     351,223                                351,223   

Morgan Stanley Capital Services LLC

     1,906,175         (1,906,175                       

Royal Bank of Canada

     941,566                                941,566   

Royal Bank of Scotland PLC

     24,388         (24,388                       

State Street Bank and Trust Co

     203,616         (203,616                       

TD Securities, Inc

     113,061         (113,061                       

UBS AG

     291,936                                291,936   
  

 

 

 

Total

   $ 12,130,410       $ (6,077,549                   $ 6,052,861   
  

 

 

 
             
Counterparty    Derivative Liabilities
Subject to an MNA by
Counterparty
    

Derivative Available

for Offset1

    Non-cash
Collateral
Pledged
     Cash
Collateral
Pledged
     Net Amount of
Derivative Liabilities3
 

Bank of America N.A

   $ 251,034       $ (251,034                       

The Bank of New York Mellon

     69,092         (69,092                       

BNP Paribas S.A

     256,141         (67,070                   $ 189,071   

Citibank N.A

     1,047,536         (116,935                     930,601   

Deutsche Bank AG

     3,470,832         (133,180                     3,337,652   

Goldman Sachs International

     3,192,998         (3,192,998                       

HSBC Bank PLC

     703,266                                703,266   

Morgan Stanley Capital Services LLC

     2,284,600         (1,906,175                     378,425   

Royal Bank of Scotland PLC

     64,504         (24,388                     40,116   

State Street Bank and Trust Co

     1,182,585         (203,616                     978,969   

TD Securities, Inc

     779,245         (113,061                     666,184   
  

 

 

 

Total

   $ 13,301,833       $ (6,077,549                   $ 7,224,284   
  

 

 

 
             
Science & Technology Opportunities                                       
Counterparty    Derivative Assets
Subject to an MNA by
Counterparty
    

Derivative Available

for Offset1

    Non-cash
Collateral
Received
     Cash
Collateral
Received
     Net Amount of
Derivative Assets2
 

Citibank N.A

   $ 32                              $ 32   

Goldman Sachs Bank USA

     101                                101   

Goldman Sachs International

     57,362                                57,362   

Morgan Stanley Capital Services LLC

     84,467                                84,467   

TD Securities, Inc

     12,354                                12,354   
  

 

 

 

Total

   $ 154,316                              $ 154,316   
  

 

 

 
             
Counterparty    Derivative Liabilities
Subject to an MNA by
Counterparty
    

Derivative Available

for Offset1

    Non-cash
Collateral
Pledged
     Cash
Collateral
Pledged
     Net Amount of
Derivative Liabilities3
 

HSBC Bank PLC

   $ 58,027                              $ 58,027   

 

  1   

The amount of derivatives available for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA.

 

  2   

Net amount represents the net amount receivable from the counterparty in the event of default.

 

  3   

Net amount represents the net amount payable due to the counterparty in the event of default.

5. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.

 

     BLACKROCK FUNDS    MARCH 31, 2015    85


Notes to Financial Statements (continued)     

 

The Trust, on behalf of the Funds, entered into an Investment Advisory Agreement with the Manager, the Funds’ investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory services. The Manager is responsible for the management of each Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of each Fund. For such services, each Fund pays the Manager a monthly fee based on a percentage of each Fund’s average daily net assets at the following annual rates:

 

      First $1 Billion     $1 Billion - $2  Billion     $2 Billion - $3  Billion     Greater than $3 Billion  

Global Opportunities and Science & Technology Opportunities

     0.900     0.850     0.800     0.750

Health Sciences Opportunities

     0.750     0.700     0.675     0.650

International Opportunities

     1.000     0.950     0.900     0.850

U.S. Opportunities

     1.100     1.050     1.025     1.000

Effective June 1, 2014, the Manager has contractually agreed to waive 0.10% of International Opportunities investment advisory fee until February 1, 2016. For the six months ended March 31, 2015, the amount waived was $654,478.

The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees each Fund pays to the Manager indirectly through its investment in affiliated money market funds. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with each Fund’s investment in other affiliated investment companies, if any. These amounts are included in fees waived by the Manager in the Statements of Operations. For the six months ended March 31, 2015, the amounts waived were as follows:

 

Global Opportunities

   $ 1,078   

Health Sciences Opportunities

   $ 39,085   

International Opportunities

   $ 2,364   

Science & Technology Opportunities

   $ 1,088   

U.S. Opportunities

   $ 13,754   

The Trust, on behalf of the Funds, entered into a Distribution Agreement and a Distribution and Service Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution and Service Plan and in accordance with Rule 12b-1 under the 1940 Act, each Fund pays BRIL ongoing service and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the relevant share class of each Fund as follows:

 

      Service     Investor A     Investor B     Investor C     Class R  

Service Fee

     0.25     0.25     0.25     0.25     0.25

Distribution Fee

                   0.75     0.75     0.25

Pursuant to sub-agreements with BRIL, broker-dealers and BRIL provide shareholder servicing and distribution services to each Fund. The ongoing service and/or distribution fee compensates BRIL and each broker-dealer for providing shareholder servicing and/or distribution related servicesto Service, Investor A, Investor B, Investor C and Class R shareholders.

For the six months ended March 31, 2015, the following table shows the class specific service and distribution fees borne directly by each class of each Fund:

 

      Service      Investor A      Investor B      Investor C      Class R      Total  

Global Opportunities

           $ 232,809       $ 8,150       $ 247,315       $ 27,604       $ 515,878   

Health Sciences Opportunities

   $ 41,811       $ 3,011,302       $ 107,617       $ 4,798,903       $ 236,790       $ 8,196,423   

International Opportunities

   $ 34,978       $ 703,954       $ 13,292       $ 603,683               $ 1,355,907   

Science & Technology Opportunities

   $ 1,672       $ 157,912       $ 5,385       $ 170,067       $ 10,874       $ 345,910   

U.S. Opportunities

   $ 86,194       $ 537,749       $ 51,993       $ 1,076,871               $ 1,752,807   

Pursuant to written agreements, certain financial intermediaries, some of which may be affiliates, provide the Funds with sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to sub-accounts they service. For these services, these entities receive an asset-based fee or an annual fee per shareholder account, which will vary depending on share class and/or net assets. For the six months ended March 31, 2015, the Funds paid the following amounts to affiliates of BlackRock in return for these services, which are included in transfer agent — class specific in the Statements of Operations:

 

      Institutional      Service      Investor A      Investor C      Total  

Health Sciences Opportunities

   $ 247       $ 87       $ 290       $ 48       $ 672   

International Opportunities

   $ 101,964       $ 1,115       $ 6,369               $ 109,448   

Science & Technology Opportunities

   $ 6               $ 2,101               $ 2,107   

U.S. Opportunities

   $ 43,217       $ 53       $ 4,834               $ 48,104   

The Manager maintains a call center, which is responsible for providing certain shareholder services to the Funds, such as responding to shareholder inquiries and processing transactions based upon instructions from shareholders with respect to the subscription and redemption of Fund shares. For

 

86    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

the six months ended March 31, 2015, each Fund reimbursed the Manager the following amounts for costs incurred in running the call center, which are included in transfer agent — class specific in the Statements of Operations:

 

      Institutional      Service      Investor A      Investor B      Investor C      Class R      Total  

Global Opportunities

   $ 1,849               $ 4,501       $ 280       $ 747       $ 31       $ 7,408   

Health Sciences Opportunities

   $ 7,888       $ 92       $ 35,001       $ 1,622       $ 9,000       $ 446       $ 54,049   

International Opportunities

   $ 2,262       $ 69       $ 10,273       $ 314       $ 2,363               $ 15,281   

Science & Technology Opportunities

   $ 4,293       $ 11       $ 5,138       $ 144       $ 1,543       $ 24       $ 11,153   

U.S. Opportunities

   $ 828       $ 235       $ 9,628       $ 423       $ 1,508               $ 12,622   

For the six months ended March 31, 2015, the following table shows the class specific transfer agent fees borne directly by each class of each Fund:

 

      Institutional      Service      Investor A      Investor B      Investor C      Class R      Total  

Global Opportunities

   $ 38,790               $ 141,416       $ 4,172       $ 46,191       $ 13,560       $ 244,129   

Health Sciences Opportunities

   $ 548,125       $ 19,620       $ 1,409,678       $ 21,080       $ 422,175       $ 68,375       $ 2,489,053   

International Opportunities

   $ 462,990       $ 24,680       $ 650,704       $ 5,825       $ 121,878               $ 1,266,077   

Science & Technology Opportunities

   $ 59,199       $ 797       $ 150,991       $ 2,721       $ 54,788       $ 5,401       $ 273,897   

U.S. Opportunities

   $ 558,792       $ 84,583       $ 390,590       $ 10,582       $ 147,538               $ 1,192,085   

Effective January 1, 2015, the Trust, on behalf of the Funds, entered into an Administration Agreement with the Manager, an indirect, wholly-owned subsidiary of BlackRock, to provide administrative services. For these services, the Manager receives an administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of the Funds. The administration fee, which is shown as administration in the Statements of Operations, is paid at the annual rates below.

 

Average Daily Net Assets    Administration Fee  

First $500 Million.

     0.0425

$500 Million - $1 Billion

     0.0400

$1 Billion - $2 Billion

     0.0375

$2 Billion - $4 Billion

     0.0350

$4 Billion - $13 Billion

     0.0325

Greater than $13 Billion

     0.0300

In addition, the Manager charges each of the share classes an administration fee, which is shown as administration — class specific in the Statements of Operations, at an annual rate of 0.02% of the average daily net assets of each respective class.

Prior to January 1, 2015, BNY Mellon Investment Servicing (US) Inc. (“BNYMIS”) and the Manager acted as co-administrators for the Funds. For these services, the co-administrators received an administration fee computed daily and payable monthly to each administrator pursuant to separate fee arrangements, based on a percentage of the average daily net assets of each Fund. The combined administration fee, which is shown as administration in the Statements of Operations, was paid at the annual rates shown below. In addition, each of the share classes was charged an administration fee, which is shown as administration — class specific in the Statements of Operations, based on the following percentages of average daily net assets of each respective class:

 

Average Daily Net Assets    Administration Fee     Administration Fee —
Class Specific
 

First $500 Million.

     0.075     0.025

$500 Million - $1 Billion

     0.065     0.015

Greater than $1 Billion

     0.055     0.005

For the six months ended March 31, 2015, the Funds paid the following to the Manager in return for these services, which are included in administration and administration — class specific in the Statements of Operations:

 

Global Opportunities

   $ 104,265   

Health Sciences Opportunities

   $ 1,314,847   

International Opportunities

   $ 409,226   

Science & Technology Opportunities

   $ 73,516   

U.S. Opportunities

   $ 503,909   

 

     BLACKROCK FUNDS    MARCH 31, 2015    87


Notes to Financial Statements (continued)     

 

For the six months ended March 31, 2015, the following table shows the class specific administration fees borne directly by each class of each Fund:

 

      Institutional      Service      Investor A      Investor B      Investor C      Class R      Total  

Global Opportunities

   $ 7,260               $ 20,988       $ 186       $ 5,578       $ 1,257       $ 35,269   

Health Sciences Opportunities

   $ 123,189       $ 3,749       $ 194,197       $ 2,437       $ 97,362       $ 10,534       $ 431,468   

International Opportunities

   $ 64,066       $ 3,171       $ 61,173       $ 303       $ 13,670               $ 142,383   

Science & Technology Opportunities

   $ 6,409       $ 151       $ 14,177       $ 122       $ 3,817       $ 489       $ 25,165   

U.S. Opportunities

   $ 85,741       $ 8,229       $ 48,464       $ 1,175       $ 24,229               $ 167,838   

BNYMIS and the Manager may have, at their discretion, voluntarily waived all or any portion of their administration fees for a Fund or a share class, which are included in administration fees waived – class specific in the Statements of Operations.

The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Funds’ business. The expense limitations as a percentage of average daily net assets are as follows:

 

      Global
Opportunities
    Health Sciences
Opportunities
    International
Opportunities
    Science & Technology
Opportunities
    U.S.
Opportunities
 

Institutional

     1.06     N/A        1.24     1.29     0.91

Service

     1.70 %2      N/A        1.52     1.61     1.31

Investor A

     1.33     N/A        1.52     1.61     1.31

Investor B

     2.18     N/A        2.36     2.42     2.10

Investor C

     2.14     N/A        2.29     2.49     2.07

Class R

     1.72     1.81 %1      2.13 %2      1.89     2.19 %2 

 

  1   

The contractual expense limitation expired on January 31, 2015.

 

  2   

There were no shares outstanding as of March 31, 2015.

The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to February 1, 2016, unless approved by the Board, including a majority of the independent Trustees.

These amounts waived or reimbursed, are included in fees waived by the Manager, and shown as administration fees waived — class specific, transfer agent fees waived — class specific and transfer agent fees reimbursed — class specific, respectively, in the Statements of Operations. For the six months ended March 31, 2015, the amounts included in fees waived by the Manager were as follows:

 

Global Opportunities

   $ 14,124   

U.S. Opportunities

   $ 2,008,659   

Class specific expense waivers and reimbursements are as follows:

 

Administration Fees Waived   

 

Institutional

     Service      Investor A      Investor B      Investor C      Class R      Total  

Global Opportunities

   $ 7,260               $ 20,988       $ 186       $ 5,578       $ 1,257       $ 35,269   

International Opportunities

                   $ 14,934       $ 303                       $ 15,237   

Science & Technology Opportunities

   $ 3,785               $ 2,835       $ 106       $ 16       $ 79       $ 6,821   

U.S. Opportunities

   $ 85,741       $ 8,229       $ 41,608       $ 1,098       $ 4,834               $ 141,510   
Transfer Agent Fees Waived   

 

Institutional

     Service      Investor A      Investor B      Investor C      Class R      Total  

Global Opportunities

   $ 1,849               $ 4,501       $ 280       $ 747       $ 31       $ 7,408   

International Opportunities

                   $ 1,308       $ 294                       $ 1,602   

Science & Technology Opportunities

   $ 1,157               $ 362       $ 123               $ 3       $ 1,645   

U.S. Opportunities

   $ 828       $ 235       $ 8,172       $ 334                       $ 9,569   
Transfer Agent Fees Reimbursed   

 

Institutional

     Service      Investor A      Investor B      Investor C      Class R      Total  

Global Opportunities

   $ 36,717               $ 117,852       $ 2,897       $ 25,971       $ 4,496       $ 187,933   

International Opportunities

                   $ 845       $ 831                       $ 1,676   

Science & Technology Opportunities

   $ 426               $ 169       $ 790               $ 17       $ 1,402   

U.S. Opportunities

   $ 557,944       $ 33,011       $ 71,379       $ 536                       $ 662,870   

 

 

88    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

If during a Fund’s fiscal year the operating expenses of a share class, that at any time during the prior two fiscal years received a waiver or reimbursement from the Manager, are less than the expense limit for that share class, the Manager is entitled to be reimbursed by such share class up to the lesser of (a) the amount of fees waived or expenses reimbursed during those prior two fiscal years under the agreement and (b) the amount by which the expense limit for that share class exceeds the operating expenses of the share class for the current fiscal year, provided that: (1) the Fund, of which the share class is a part, has more than $50 million in assets for the fiscal year and (2) the Manager or an affiliate continues to serve as the Fund’s investment advisor or administrator. In the event the expense limit for a share class is changed subsequent to a fiscal year in which the Manager becomes entitled to reimbursement for fees waived or reimbursed, the amount available to reimburse the Manager shall be calculated by reference to the expense limit for that share class in effect at the time the Manager became entitled to receive such reimbursement, rather than the subsequently changed expense limit for that share class.

For the six months ended March 31, 2015, the Manager recouped the following Fund level and class specific waivers and/or reimbursements previously recorded by the Funds:

 

      Share Classes  
      Institutional      Service      Investor A      Investor B      Investor C      Class R      Total  

International Opportunities

           $ 213       $ 1,462                               $ 1,675   

Science & Technology Opportunities

   $ 472       $ 449       $ 16,815       $ 10       $ 4,669       $ 1,007       $ 23,422   

U.S. Opportunities

                   $ 4,586               $ 4,679               $ 9,265   

On March 31, 2015, the Fund level and class specific waivers and/or reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:

 

      Expiring September 30,  
      2015      2016      2017  

Global Opportunities

        

Fund Level

   $ 14,155       $ 6,998       $ 14,124   

Institutional

   $ 91,262       $ 86,621       $ 45,826   

Investor A

   $ 293,364       $ 267,938       $ 143,341   

Investor B

   $ 359       $ 858       $ 3,363   

Investor C

   $ 73,264       $ 53,906       $ 32,296   

Class R

   $ 12,010       $ 12,490       $ 5,784   

International Opportunities

        

Fund Level

                   $ 654,478   

Investor A

                   $ 17,087   

Investor B

                   $ 1,428   

Science & Technology Opportunities

        

Institutional

   $ 42,884       $ 32,859       $ 5,368   

Investor A

           $ 21,780       $ 3,366   

Investor B

           $ 314       $ 1,019   

Investor C

                   $ 16   

Class R

           $ 420       $ 99   

U.S. Opportunities

        

Fund Level

   $ 2,794,164       $ 3,593,356       $ 2,008,659   

Institutional

   $ 1,866,300       $ 1,207,231       $ 644,513   

Service

   $ 414       $ 38,565       $ 41,475   

Investor A

   $ 866       $ 171,493       $ 121,159   

Investor B

   $ 180       $ 2,743       $ 1,968   

Investor C

           $ 11,666       $ 4,834   

For the six months ended March 31, 2015, affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of each Fund’s Investor A Shares as follows:

 

Global Opportunities

   $ 1,509   

Health Sciences Opportunities

   $ 312,918   

International Opportunities

   $ 13,200   

Science & Technology Opportunities

   $ 8,428   

U.S. Opportunities

   $ 21,689   

 

 

     BLACKROCK FUNDS    MARCH 31, 2015    89


Notes to Financial Statements (continued)     

 

For the six months ended March 31, 2015, affiliates received CDSCs as follows:

 

      Investor A      Investor B      Investor C  

Global Opportunities

   $ 122       $ 5       $ 2,949   

Health Sciences Opportunities

   $ 2,326       $ 210       $ 54,250   

International Opportunities

   $ 2,922       $ 74       $ 8,273   

Science & Technology Opportunities

   $ 112       $ 7       $ 1,974   

U.S. Opportunities

   $ 2,572       $ 473       $ 2,749   

The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Funds, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Funds are responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Funds.

Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. Each Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent. BIM may lend securities only when the difference between the borrower rebate rate and the risk free rate exceeds a certain level (such securities, the “specials only securities”).

Pursuant to such agreement, each Fund retains 80% of securities lending income. In addition, commencing the business day following the date that the aggregate securities lending income earned across certain funds in the Equity-Liquidity Complex in a calendar year exceeds a specified threshold, each Fund, pursuant to the securities lending agreement, will retain for the remainder of the calendar year securities lending income in an amount equal to 85% of securities lending income. The share of securities lending income earned by each Fund is shown as securities lending — affiliated — net in the Statements of Operations. For the six months ended March 31, 2015, each Fund paid BIM the following amounts for securities lending agent services:

 

Global Opportunities

   $ 7,899   

Health Sciences Opportunities

   $ 11,167   

International Opportunities

   $ 19,135   

Science & Technology Opportunities

   $ 3,147   

U.S. Opportunities

   $ 20,479   

Certain officers and/or trustees of the Trust are officers and/or directors of BlackRock or its affiliates. The Funds reimburse the Manager for a portion of the compensation paid to the Trust’s Chief Compliance Officer, which is included in officer and trustees in the Statements of Operations.

The Funds may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment advisor, common officers, or common trustees. For the six months ended March 31, 2015, the purchase and sale transactions with an affiliated fund in compliance with Rule 17a-7 under the 1940 Act were as follows:

 

      Global
Opportunities
           Health
Sciences
Opportunities
 

Purchases

              $ 28,085,450   

Sales

   $ 2,155,830            $ 8,112,260   

6. Purchases and Sales:

Purchases and sales of investments, excluding short-term securities, for the six months ended March 31, 2015, were as follows:

 

     

Global

Opportunities

    

Health

Sciences

Opportunities

    

International

Opportunities

    

Science &

Technology

Opportunities

    

U.S.

Opportunities

 

Purchases

   $ 96,492,632       $ 1,864,828,161       $ 427,327,513       $ 91,884,122       $ 421,843,093   

Sales

   $ 118,791,160       $ 1,346,630,777       $ 853,013,535       $ 85,629,706       $ 470,975,443   

 

 

90    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

7. Income Tax Information:

It is the Funds’ policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of their taxable income to their shareholders. Therefore, no federal income tax provision is required.

The Funds file U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Funds’ U.S. federal tax returns remains open for each of the four years ended September 30, 2014. The statutes of limitations on each Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.

Management has analyzed tax laws and regulations and their application to the Funds as of March 31, 2015, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Funds’ financial statements.

As of September 30, 2014, the Funds had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:

 

Expires September 30,    Global
Opportunities
     Science &
Technology
Opportunities
 

2015

           $ 12,880,909   

2017

   $ 83,723,600         4,448,928   

2018

     9,946,168           

2019

             783,208   

Total

   $ 93,669,768       $ 18,113,045   
  

 

 

 

As of March 31, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:

 

      Global
Opportunities
    Health
Sciences
Opportunities
    International
Opportunities
    Science &
Technology
Opportunities
    U.S.
Opportunities
 

Tax cost

   $ 265,807,836      $ 3,829,519,668      $ 984,340,149      $ 170,431,768      $ 1,170,549,140   
  

 

 

 

Gross unrealized appreciation

   $ 54,504,028      $ 1,792,821,009      $ 159,752,130      $ 72,693,909      $ 470,945,897   

Gross unrealized depreciation

     (9,429,667     (14,334,435     (34,785,019     (3,605,698     (24,263,077
  

 

 

 

Net unrealized appreciation

   $ 45,074,361      $ 1,778,486,574      $ 124,967,111      $ 69,088,211      $ 446,682,820   
  

 

 

 

8. Bank Borrowings:

The Trust, on behalf of the Funds, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), was a party to a 364-day, $1.1 billion credit agreement with a group of lenders, under which the Funds may borrow to fund shareholder redemptions. Excluding commitments designated for a certain individual fund, the Participating Funds, including the Funds, could borrow up to an aggregate commitment amount of $650 million, subject to asset coverage and other limitations as specified in the agreement. Effective November 25, 2014, the credit agreement was amended to an aggregate commitment amount of $2.1 billion, of which the Participating Funds, including the Funds, can borrow up to $1.6 billion at any time outstanding, subject to asset coverage and other limitations as specified in the agreement. The agreement terminates on April 23, 2015, unless otherwise extended to November 24, 2015 or renewed for a period of 364 days from April 23, 2015. The amended agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statements of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended March 31, 2015, the Funds did not borrow under the credit agreement.

 

     BLACKROCK FUNDS    MARCH 31, 2015    91


Notes to Financial Statements (continued)     

 

9. Principal Risks:

In the normal course of business, the Funds invest in securities and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Funds may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Funds; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Funds may be exposed to counterparty credit risk, or the risk that an entity with which the Funds have unsettled or open transactions may fail to or be unable to perform on its commitments. The Funds manage counterparty credit risk by entering into transactions only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Funds to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Funds’ exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statements of Assets and Liabilities, less any collateral held by the Funds.

Global Opportunities and International Opportunities invest a significant portion of their assets in securities of issuers located in Europe or with significant exposure to European issuers or countries. The European financial markets have recently experienced volatility and adverse trends due to concerns about economic downturns in, or rising government debt levels of, several European countries. These events may spread to other countries in Europe and may affect the value and liquidity of certain of Global Opportunities’ and International Opportunities’ investments.

As of March 31, 2015, Health Sciences Opportunities invested a significant portion of its assets in securities in the health care sector. Changes in economic conditions affecting such sector would have a greater impact on Health Sciences Opportunities and could affect the value, income and/or liquidity of positions in such securities.

As of March 31, 2015, Science & Technology Opportunities invested a significant portion of its assets in securities in the information technology sector. Changes in economic conditions affecting such sector would have a greater impact on Science & Technology Opportunities and could affect the value, income and/or liquidity of positions in such securities.

Global Opportunities and International Opportunities invest a substantial amount of their assets in issuers located in a single country or a limited number of countries. When a Fund concentrates its investments in this manner, it assumes the risk that economic, political and social conditions in those countries may have a significant impact on its investment performance. Foreign issuers may not be subject to the same uniform accounting, auditing and financial reporting standards and practices as used in the United States. Foreign securities markets may also be less liquid, more volatile, and less subject to governmental supervision not typically associated with investing in U.S. securities. Investment percentages in specific countries are presented in the Schedule of Investments.

As of March 31, 2015, the Funds listed below had the following industry classifications:

 

Industry    Global
Opportunities
    International
Opportunities
 

Pharmaceuticals

     9     15

Banks

     9        9   

Internet Software & Services

     8          

Oil, Gas & Consumable Fuels

     7        6   

Machinery

            5   

Other1

     67        65   

 

  1   

All other industries held were each less than 5% of long-term investments.

 

92    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

10. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

 

     Six Months Ended
March 31, 2015
           Year Ended
September 30, 2014
 
Global Opportunities    Shares     Amount             Shares     Amount  

Institutional

                                         

Shares sold

     659,151      $ 9,378,539           559,973      $ 8,067,694   

Shares issued in reinvestment of distributions

     73,078        999,712                           

Shares redeemed

     (570,316     (8,008,409        (927,126     (13,279,874
  

 

 

      

 

 

 

Net increase (decrease)

     161,913      $ 2,369,842           (367,153   $ (5,212,180
  

 

 

      

 

 

 
           

Investor A

                                         

Shares sold and automatic conversion of shares

     375,276      $ 5,247,459           1,174,324      $ 16,846,920   

Shares issued in reinvestment of distributions

     173,048        2,348,269                    

Shares redeemed

     (1,275,444     (17,864,810        (2,722,327     (38,978,663
  

 

 

      

 

 

 

Net decrease

     (727,120   $ (10,269,082        (1,548,003   $ (22,131,743
  

 

 

      

 

 

 
           

Investor B

                                         

Shares sold

     328      $ 4,709           4,031      $ 54,489   

Shares redeemed and automatic conversion of shares

     (38,360     (518,180        (191,601     (2,656,037
  

 

 

      

 

 

 

Net decrease

     (38,032   $ (513,471        (187,570   $ (2,601,548
  

 

 

      

 

 

 
           

Investor C

                                         

Shares sold

     80,095      $ 1,078,910           253,192      $ 3,506,834   

Shares issued in reinvestment of distributions

     19,855        261,485                    

Shares redeemed

     (457,087     (6,181,066        (711,580     (9,849,263
  

 

 

      

 

 

 

Net decrease

     (357,137   $ (4,840,671        (458,388   $ (6,342,429
  

 

 

      

 

 

 
           

Class R

                                         

Shares sold

     87,564      $ 1,224,702           255,598      $ 3,633,694   

Shares issued in reinvestment of distributions

     8,103        109,637                    

Shares redeemed

     (279,912     (3,854,157        (442,796     (6,291,109
  

 

 

      

 

 

 

Net decrease

     (184,245   $ (2,519,818        (187,198   $ (2,657,415
  

 

 

      

 

 

 

Total Net Decrease

     (1,144,621   $ (15,773,200        (2,748,312   $ (38,945,315
  

 

 

      

 

 

 

 

     BLACKROCK FUNDS    MARCH 31, 2015    93


Notes to Financial Statements (continued)     

 

 

     Six Months Ended
March 31, 2015
         Year Ended
September 30, 2014
 
Health Sciences Opportunities    Shares     Amount           Shares     Amount  

Institutional

                                     

Shares sold

     5,257,640      $ 280,344,724           7,644,570      $ 351,072,043   

Shares issued in reinvestment of distributions

     1,580,160        80,367,006           1,752,835        71,375,071   

Shares redeemed

     (2,726,866     (144,116,925        (3,893,043     (175,249,757
  

 

 

      

 

 

 

Net increase

     4,110,934      $ 216,594,805           5,504,362      $ 247,197,357   
  

 

 

      

 

 

 
           

Service

                                     

Shares sold

     126,228      $ 6,526,606           256,116      $ 11,207,546   

Shares issued in reinvestment of distributions

     44,544        2,194,689           58,067        2,296,543   

Shares redeemed

     (133,093     (6,841,007        (241,136     (10,553,404
  

 

 

      

 

 

 

Net increase

     37,679      $ 1,880,288           73,047      $ 2,950,685   
  

 

 

      

 

 

 
           

Investor A

                                     

Shares sold and automatic conversion of shares

     11,361,475      $ 584,377,973           14,209,197      $ 623,988,278   

Shares issued in reinvestment of distributions

     3,077,194        151,182,544           4,007,405        158,051,325   

Shares redeemed

     (5,430,620     (277,846,986        (14,958,299     (651,906,905
  

 

 

      

 

 

 

Net increase

     9,008,049      $ 457,713,531           3,258,303      $ 130,132,698   
  

 

 

      

 

 

 
           

Investor B

                                     

Shares sold

     8,785      $ 422,735           23,020      $ 924,810   

Shares issued in reinvestment of distributions

     27,405        1,253,222           87,259        3,209,380   

Shares redeemed and automatic conversion of shares

     (164,086     (7,670,219        (591,665     (23,846,033
  

 

 

      

 

 

 

Net decrease

     (127,896   $ (5,994,262        (481,386   $ (19,711,843
  

 

 

      

 

 

 
           

Investor C

                                     

Shares sold

     4,132,563      $ 195,112,794           4,155,253      $ 168,011,937   

Shares issued in reinvestment of distributions

     1,315,606        59,149,656           1,589,322        57,803,090   

Shares redeemed

     (1,384,730     (64,933,720        (2,570,701     (103,456,988
  

 

 

      

 

 

 

Net increase

     4,063,439      $ 189,328,730           3,173,874      $ 122,358,039   
  

 

 

      

 

 

 
           

Class R

                                     

Shares sold

     798,011      $ 40,598,680           1,080,547      $ 47,107,098   

Shares issued in reinvestment of distributions

     119,635        5,825,014           94,950        3,718,232   

Shares redeemed

     (252,722     (12,651,324        (371,441     (16,109,254
  

 

 

      

 

 

 

Net increase

     664,924      $ 33,772,370           804,056      $ 34,716,076   
  

 

 

      

 

 

 

Total Net Increase

     17,757,129      $ 893,295,462           12,332,256      $ 517,643,012   
  

 

 

      

 

 

 

 

94    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

    
 
Six Months Ended
March 31, 2015
 
  
   
 
Year Ended
September 30, 2014
 
  
International Opportunities    Shares     Amount     Shares     Amount  

Institutional

                                

Shares sold

     1,697,612      $ 57,277,743        6,167,293      $ 249,506,958   

Shares issued in reinvestment of distributions

     2,003,498        64,292,313        77,908        3,096,054   

Shares redeemed

     (7,811,584     (274,681,544     (7,391,101     (300,896,765
  

 

 

   

 

 

 

Net decrease

     (4,110,474   $ (153,111,488     (1,145,900   $ (48,293,753
  

 

 

   

 

 

 
        

Service

                                

Shares sold

     160,431      $ 5,372,384        198,084      $ 7,714,316   

Shares issued in reinvestment of distributions

     116,696        3,586,080        3,882        148,540   

Shares redeemed

     (313,269     (10,246,966     (490,070     (19,061,712
  

 

 

   

 

 

 

Net decrease

     (36,142   $ (1,288,502     (288,104   $ (11,198,856
  

 

 

   

 

 

 
        

Investor A

                                

Shares sold and automatic conversion of shares

     1,574,163      $ 51,278,104        5,068,943      $ 197,126,704   

Shares issued in reinvestment of distributions

     2,461,235        74,796,935        74,728        2,832,191   

Shares redeemed

     (7,198,520     (231,452,565     (7,519,102     (289,257,711
  

 

 

   

 

 

 

Net decrease

     (3,163,122   $ (105,377,526     (2,375,431   $ (89,298,816
  

 

 

   

 

 

 
        

Investor B

                                

Shares sold

     1,218      $ 40,075        3,750      $ 135,739   

Shares issued in reinvestment of distributions

     12,504        349,877        389        13,713   

Shares redeemed and automatic conversion of shares

     (22,521     (670,111     (103,778     (3,745,813
  

 

 

   

 

 

 

Net decrease

     (8,799   $ (280,159     (99,639   $ (3,596,361
  

 

 

   

 

 

 
        

Investor C

                                

Shares sold

     160,889      $ 4,792,194        573,025      $ 20,482,057   

Shares issued in reinvestment of distributions

     565,596        15,610,427        11,153        389,466   

Shares redeemed

     (830,492     (24,634,632     (933,331     (33,169,436
  

 

 

   

 

 

 

Net decrease

     (104,007   $ (4,232,011     (349,153   $ (12,297,913
  

 

 

   

 

 

 

Total Net Decrease

     (7,422,544   $ (264,289,686     (4,258,227   $ (164,685,699
  

 

 

   

 

 

 

 

     BLACKROCK FUNDS    MARCH 31, 2015    95


Notes to Financial Statements (continued)     

 

 

    
 
Six Months Ended
March 31, 2015
 
  
   
 
Year Ended
September 30, 2014
 
  
Science & Technology Opportunities    Shares     Amount     Shares     Amount  

Institutional

                                

Shares sold

     433,391      $ 6,625,000        1,532,531      $ 21,948,213   

Shares redeemed

     (449,425     (6,885,238     (730,845     (10,315,532
  

 

 

   

 

 

 

Net increase (decrease)

     (16,034   $ (260,238     801,686      $ 11,632,681   
  

 

 

   

 

 

 
        

Service

                                

Shares sold

     7,137      $ 105,162        94,776      $ 1,339,215   

Shares redeemed

     (11,022     (156,132     (74,410     (992,076
  

 

 

   

 

 

 

Net increase (decrease)

     (3,885   $ (50,970     20,366      $ 347,139   
  

 

 

   

 

 

 
        

Investor A

                                

Shares sold and automatic conversion of shares

     963,539      $ 13,964,345        3,095,255      $ 41,547,658   

Shares redeemed

     (815,094     (11,717,917     (2,718,632     (35,844,015
  

 

 

   

 

 

 

Net increase

     148,445      $ 2,246,428        376,623      $ 5,703,643   
  

 

 

   

 

 

 
        

Investor B

                                

Shares sold

     1,394      $ 17,364        44,407      $ 502,217   

Shares redeemed and automatic conversion of shares

     (59,301     (723,593     (131,358     (1,547,200
  

 

 

   

 

 

 

Net decrease

     (57,907   $ (706,229     (86,951   $ (1,044,983
  

 

 

   

 

 

 
        

Investor C

                                

Shares sold

     282,807      $ 3,605,563        651,585      $ 7,783,124   

Shares redeemed

     (237,384     (2,977,194     (691,770     (8,220,073
  

 

 

   

 

 

 

Net increase (decrease)

     45,423      $ 628,369        (40,185   $ (436,949
  

 

 

   

 

 

 
        

Class R

                                

Shares sold

     70,087      $ 1,038,007        185,320      $ 2,514,750   

Shares redeemed

     (64,319     (931,168     (265,410     (3,633,169
  

 

 

   

 

 

 

Net increase (decrease)

     5,768      $ 106,839        (80,090   $ (1,118,419
  

 

 

   

 

 

 

Total Net Increase

     121,810      $ 1,964,199        991,449      $ 15,083,112   
  

 

 

   

 

 

 

 

96    BLACKROCK FUNDS    MARCH 31, 2015     


Notes to Financial Statements (concluded)     

 

 

     Six Months Ended
March 31, 2015
         Year Ended
September 30, 2014
 
U.S. Opportunities    Shares     Amount           Shares     Amount  

Institutional

                                     

Shares sold

     4,861,724      $ 206,238,647           4,156,486      $ 181,387,913   

Shares issued in reinvestment of distributions

     2,949,945        111,832,341           3,132,585        120,980,318   

Shares redeemed

     (2,678,678     (109,574,482        (4,989,778     (215,505,257
  

 

 

      

 

 

 

Net increase

     5,132,991      $ 208,496,506           2,299,293      $ 86,862,974   
  

 

 

      

 

 

 
           

Service

                                     

Shares sold

     38,608      $ 1,488,434           51,647      $ 2,099,262   

Shares issued in reinvestment of distributions

     120,784        4,360,312           846,209        30,945,870   

Shares redeemed

     (2,810,663     (117,319,557        (984,665     (39,784,451
  

 

 

      

 

 

 

Net decrease

     (2,651,271   $ (111,470,811        (86,809   $ (6,739,319
  

 

 

      

 

 

 
           

Investor A

                                     

Shares sold and automatic conversion of shares

     1,883,794      $ 71,333,587           1,624,273      $ 64,380,292   

Shares issued in reinvestment of distributions

     1,775,552        62,197,586           2,833,685        102,239,143   

Shares redeemed

     (2,876,969     (107,123,431        (5,701,512     (228,766,152
  

 

 

      

 

 

 

Net increase (decrease)

     782,377      $ 26,407,742           (1,243,554   $ (62,146,717
  

 

 

      

 

 

 
           

Investor B

                                     

Shares sold

     2,553      $ 83,240           7,754      $ 256,750   

Shares issued in reinvestment of distributions

     55,908        1,650,948           91,556        2,859,297   

Shares redeemed and automatic conversion of shares

     (59,628     (1,926,742        (122,587     (4,173,014
  

 

 

      

 

 

 

Net decrease

     (1,167   $ (192,554        (23,277   $ (1,056,967
  

 

 

      

 

 

 
           

Investor C

                                     

Shares sold

     368,453      $ 11,739,092           348,094      $ 12,036,883   

Shares issued in reinvestment of distributions

     1,144,808        33,806,149           1,461,947        45,714,858   

Shares redeemed

     (639,147     (20,460,182        (1,186,064     (41,189,059
  

 

 

      

 

 

 

Net increase

     874,114      $ 25,085,059           623,977      $ 16,562,682   
  

 

 

      

 

 

 

Total Net Increase

     4,137,044      $ 148,325,942           1,569,630      $ 33,482,653   
  

 

 

      

 

 

 

11. Subsequent Events:

Management’s evaluation of the impact of all subsequent events on the Funds’ financial statements was completed through the date the financial statements were issued and the following item was noted:

Effective April 23, 2015, the 364-day, $2.1 billion credit agreement to which the Funds are a party, was further amended to expire on April 21, 2016, unless otherwise extended or renewed.

 

     BLACKROCK FUNDS    MARCH 31, 2015    97


Officers and Trustees     

 

Rodney D. Johnson, Chair of the Board and Trustee

David O. Beim, Trustee

Collette Chilton, Trustee

Frank J. Fabozzi, Trustee

Dr. Matina S. Horner, Trustee

Herbert I. London, Trustee

Ian A. MacKinnon, Trustee

Cynthia A. Montgomery, Trustee

Barbara G. Novick, Trustee

Joseph P. Platt, Trustee

Robert C. Robb, Jr., Trustee

Toby Rosenblatt, Trustee

Mark Stalnecker, Trustee

Kenneth L. Urish, Trustee

Frederick W. Winter, Trustee

John M. Perlowski, President and Chief Executive Officer

Jennifer McGovern, Vice President

Neal Andrews, Chief Financial Officer

Jay Fife, Treasurer

Charles Park, Chief Compliance Officer

Fernanda Piedra, Anti-Money Laundering Compliance Officer

Benjamin Archibald, Secretary

 

Effective December 31, 2014, Paul L. Audet and Henry Gabbay resigned as Trustees of the Trust and Ronald W. Forbes resigned as a Trustee of the Trust and Co-Chair of the Board. Effective January 1, 2015, Collette Chilton, Barbara G. Novick and Mark Stalnecker were appointed to serve as Trustees of the Trust.

Effective March 1, 2015, Charles Park resigned as Anti-Money Laundering Compliance Officer of the Trust and Fernanda Piedra became Anti-Money Laundering Compliance Officer of the Trust.

 

       

Investment Advisor and

Administrator

BlackRock Advisors, LLC

Wilmington, DE 19809

 

Accounting Agent and

Transfer Agent

BNY Mellon Investment

Servicing (US) Inc.

Wilmington, DE 19809

 

Independent Registered

Public Accounting Firm

Deloitte & Touche LLP

Philadelphia, PA 19103

 

Address of the Trust

100 Bellevue Parkway

Wilmington, DE 19809

     

Custodian

The Bank of New York Mellon

New York, NY 10286

 

Distributor

BlackRock Investments, LLC

New York, NY 10022

 

Legal Counsel

Sidley Austin LLP

New York, NY 10019

 

 

98    BLACKROCK FUNDS    MARCH 31, 2015     


Additional Information     

 

General Information

Householding

The Funds will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please call the Funds at (800) 441-7762.

Availability of Quarterly Schedule of Investments

The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Funds’ Forms N-Q may also be obtained upon request and without charge by calling (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available upon request and without charge (1) by calling (800) 441-7762; (2) at http://www.blackrock.com; and (3) on the SEC’s website at http://www.sec.gov.

Availability of Proxy Voting Record

Information about how the Funds voted proxies relating to securities held in the Funds’ portfolios during the most recent 12-month period ended June 30 is available upon request and without charge (1) at http://www.blackrock.com or by calling (800) 441-7762 and (2) on the SEC’s website at http://www.sec.gov.

BlackRock’s Mutual Fund Family

BlackRock offers a diverse lineup of open-end mutual funds crossing all investment styles and managed by experts in equity, fixed income and tax-exempt investing. Visit http://www.blackrock.com for more information.

 

Shareholder Privileges

Account Information

Call us at (800) 441-7762 from 8:00 AM to 6:00 PM EST on any business day to get information about your account balances, recent transactions and share prices. You can also reach us on the Web at http://www.blackrock.com/funds.

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 funds.

Systematic Withdrawal Plans

Investor Class shareholders can establish a systematic withdrawal plan and receive periodic payments of $50 or more from their BlackRock funds, as long as their account balance is at least $10,000.

Retirement Plans

Shareholders may make investments in conjunction with Traditional, Rollover, Roth, Coverdell, Simple IRAs, SEP IRAs and 403(b) Plans.

 

     BLACKROCK FUNDS    MARCH 31, 2015    99


Additional Information (concluded)     

 

 

BlackRock Privacy Principles

BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, “Clients”) and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why in certain cases we share such information with select parties.

If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different privacy-related rights beyond what is set forth below, then BlackRock will comply with those specific laws, rules or regulations.

BlackRock obtains or verifies personal non-public information from and about you from different sources, including the following: (i) information we receive from you or, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions with us, our affiliates, or others; (iii) information we receive from a consumer reporting agency; and (iv) from visits to our websites.

BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose.

We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information.

 

100    BLACKROCK FUNDS    MARCH 31, 2015     


 

 

 

 

 

 

This report is intended for current holders. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Funds unless preceded or accompanied by the Funds’ current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.

 

 

LOGO

 

Eq-Opps-3/15-SAR

   LOGO

 


MARCH 31, 2015        

 

 

SEMI-ANNUAL REPORT (UNAUDITED)

 

      BLACKROCK®

 

 

  BlackRock Managed Volatility Portfolio   

of BlackRock FundsSM

 

 

 

 

 

 

Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee  

 


Table of Contents     

 

 

       Page   

The Markets in Review

     3   

About Fund Performance

     6   

Disclosure of Expenses

     6   

Derivative Financial Instruments

     7   

Financial Statements:

  

Schedule of Investments

     8   

Statement of Assets and Liabilities

     34   

Statement of Operations

     35   

Statements of Changes in Net Assets

     36   

Financial Highlights

     37   

Notes to Financial Statements

     40   

Officers and Trustees

     55   

Additional Information

     56   

 

 

 

 

 

LOGO

 

2    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


The Markets in Review

Dear Shareholder,

Market volatility has remained low from a long-term perspective, but increased over the course of 2014 amid higher valuations in risk assets (such as equities and high yield bonds), geopolitical risks, uneven global economic growth and uncertainty around policy moves from the world’s largest central banks. As the U.S. Federal Reserve (the “Fed”) gradually reduced its bond buying program (which ultimately ended in October 2014), U.S. interest rates surprisingly trended lower and stock prices forged ahead despite high valuations on the back of a multi-year bull market. Geopolitical tensions intensified in Ukraine and the Middle East and oil prices became highly volatile in the middle of the summer, stoking worries about economic growth outside the United States. As the U.S. economy continued to show steady improvement, the stronger data caused concern among investors that the Fed would raise short-term rates sooner than previously anticipated. The U.S. dollar appreciated and global credit markets tightened, ultimately putting a strain on investor flows, and financial markets broadly weakened in the third quarter.

U.S. economic growth picked up considerably in the fourth quarter while the broader global economy showed signs of slowing. U.S. markets significantly outperformed international markets even as the European Central Bank (“ECB”) and the Bank of Japan eased monetary policy, which drove further strengthening in the U.S. dollar. Oil prices plummeted in the fourth quarter due to a global supply-and-demand imbalance, sparking a selloff in energy-related assets and stress in emerging markets. Fixed income investors piled into U.S. Treasuries as their persistently low yields became relatively attractive as compared to international sovereign debt.

Equity markets reversed in the first quarter of 2015 and U.S. stocks underperformed international markets, notably Europe and Japan, but also emerging markets. Investors had held high expectations for the U.S. economy, but after a harsh winter, first-quarter data disappointed and high valuations took their toll on U.S. stocks. Meanwhile, economic reports in Europe and Asia easily beat investors’ very low expectations for those economies, and accommodative policies from global central banks helped international equities rebound. The ECB’s asset purchase program (announced in January and commenced in March) was the largest in scale and effect on the markets. Overall, market volatility decreased in the first quarter as global risks abated, with a ceasefire in Ukraine and an improving outlook for Greece’s continued membership in the Eurozone.

At BlackRock, we believe investors need to think globally, extend their scope across a broad array of asset classes and be prepared to move freely as market conditions change over time. We encourage you to talk with your financial advisor and visit blackrock.com for further insight about investing in today’s markets.

Sincerely,

 

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

 

 

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

Total Returns as of March 31, 2015  
    6-month     12-month  

U.S. large cap equities
(S&P 500® Index)

    5.93     12.73

U.S. small cap equities
(Russell 2000® Index)

    14.46        8.21   

International equities
(MSCI Europe, Australasia, Far East Index)

    1.13        (0.92

Emerging market equities
(MSCI Emerging Markets Index)

    (2.37     0.44   

3-month Treasury bill
(BofA Merrill Lynch 3-Month U.S. Treasury Bill Index)

    0.01        0.03   

U.S. Treasury securities
(BofA Merrill Lynch 10-Year U.S. Treasury Index)

    6.25        9.88   

U.S. investment grade bonds
(Barclays U.S. Aggregate Bond Index)

    3.43        5.72   

Tax-exempt municipal bonds
(S&P Municipal Bond Index)

    2.29        6.60   

U.S. high yield bonds
(Barclays U.S. Corporate High Yield 2% Issuer Capped Index)

    1.50        2.00   
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.     

 

 

 

     THIS PAGE NOT PART OF YOUR FUND REPORT         3


Fund Summary as of March 31, 2015     

 

Investment Objective

BlackRock Managed Volatility Portfolio’s (the “Fund”) investment objective is to seek total return.

 

Portfolio Management Commentary

 

How did the Fund perform?

 

Ÿ  

For the six-month period ended March 31, 2015, the Fund outperformed its reference benchmark (50% MSCI All Country World Index (“MSCI ACWI”)/50% Citigroup World Government Bond Index (hedged into USD) (“Citigroup WGBI (hedged into USD)”). The Fund is entirely unconstrained relative to the 50/50 benchmark and can deviate substantially in regards to risk and overall asset allocation. The Fund also outperformed its performance benchmark, the BofA Merrill Lynch 3-Month U.S. Treasury Bill Index, for the same six-month period.

What factors influenced performance?

 

Ÿ  

An overweight to equities relative to the reference benchmark contributed positively to the Fund’s performance, as equities broadly outperformed fixed income over the six-month period, supported by continued monetary easing outside the U.S. and stabilizing oil prices. The most significant contributors to performance included exposure to European and Japanese equities, both of which benefited from supportive policy measures and stronger economic data. Additionally, an underweight to the yen was a primary contributor to performance, as additional stimulus measures from the Bank of Japan weakened the yen and boosted equity markets. The Fund also benefited from sector overweights in information technology, consumer discretionary and health care.

 

Ÿ  

On a broad asset allocation level, a relatively high allocation to cash negatively impacted performance as markets rallied during the period. A Eurozone recovery theme, reflected in a European equity overweight position, detracted from performance in the fourth quarter of 2014 due to weak economic data, but rebounded in early 2015, supported by improving growth dynamics and positive sentiment with respect to European Central Bank (“ECB”) plans to purchase sovereign bonds. Within U.S. equities, exposure to energy detracted from performance given a sharp decline in oil prices over the period. Additionally, interest rate hedges detracted relative to the cash benchmark.

Describe recent portfolio activity.

 

Ÿ  

From a broad asset allocation perspective, the Fund remained overweight in equities relative to fixed income, consistent with the view that improving economic growth and easy global monetary policy could create a favorable backdrop for equities, particularly in the developed markets. The Fund shifted exposure toward international developed equities, most notably in Europe and Japan, where valuations were relatively attractive and accommodative monetary policies should support risk assets. In addition, data out of the Eurozone suggests stronger conditions for growth. Conversely, the Fund reduced its overweight in U.S. equities as leading economic indicators showed signs of softening growth, a stronger dollar provided a headwind to corporate earnings and the volatility in oil prices continues to negatively impact energy companies.

 

Ÿ  

Within fixed income, the Fund continued to hold a significant underweight in duration (lower sensitivity to interest rate movements) relative to the reference benchmark index given a more cautious view on the direction of interest rates.

 

Ÿ  

During the period, the Fund used derivatives in executing its investment strategy. The use of derivatives did not have a material impact on performance.

Describe portfolio positioning at period end.

 

Ÿ  

Compared to the reference benchmark, the Fund ended the period overweight in equities relative to fixed income, while continuing to hold an allocation to cash. While the Fund held an underweight to U.S. equities, the Fund favored developed market equities overall, and in particular leaned toward Europe and Japan. Additionally, the Fund had currency hedges and a reduced duration profile in anticipation of a gradual rise in U.S. interest rates, especially at the front-end of the curve.

 

 

The views expressed reflect the opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results.

 

Portfolio Information

 

Ten Largest Holdings   

Percent of

Long-Term  Investments

Government of Japan

     6

iShares 1-3 Year Credit Bond ETF

     4   

Fannie Mae Mortgage-Backed Securities

     2   

United Kingdom Gilt

     2   

LVMH Moet Hennessy Louis Vuitton SA

     1   

U.S. Treasury Notes

     1   

Freddie Mac Mortgage-Backed Securities

     1   

Ginnie Mae Mortgage-Backed Securities

     1   

Daimler AG, Registered Shares

     1   

Inditex SA

     1   
Portfolio Composition   

Percent of

Long-Term  Investments

Common Stocks

     57

Foreign Government Obligations

     15   

Corporate Bonds

     12   

U.S. Government Sponsored Agency Securities

     5   

Investment Companies

     4   

U.S. Treasury Obligations

     3   

Foreign Agency Obligations

     2   

Asset-Backed Securities

     1   

Non-Agency Mortgage-Backed Securities

     1   
 

 

4    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


      

 

Total Return Based on a $10,000 Investment

 

 

LOGO

 

  1 

Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees and administration fees, if any. Institutional Shares do not have a sales charge.

 

  2 

The Fund uses an asset allocation strategy, investing varying percentages of its portfolio in three major categories: stocks, bonds and money market instruments.

 

  3 

An unmanaged index that tracks 3-month U.S. Treasury securities.

 

  4 

A free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 46 country indexes comprising of 23 developed and 23 emerging market country indexes.

 

  5 

A market capitalization weighted bond index consisting of government bond markets of 23 countries, including the United States.

 

  6 

A customized weighted index is comprised of the returns of the 50% MSCI ACWI/50% Citigroup WGBI (hedged into USD).

 

Performance Summary for the Period Ended March 31, 2015   
            Average Annual Total Returns7  
            1 Year      5 Years      10 Years  
      6-Month
Total Returns
     w/o sales
charge
     w/ sales
charge
     w/o sales
charge
     w/ sales
charge
     w/o sales
charge
     w/ sales
charge
 

Institutional

     4.92      6.66      N/A         7.36      N/A         6.08      N/A   

Service

     4.77         6.28         N/A         7.04         N/A         5.77         N/A   

Investor A

     4.80         6.32         0.74      7.03         5.88      5.72         5.15

Investor B

     4.24         5.28         0.84         6.09         5.77         5.04         5.04   

Investor C

     4.42         5.62         4.63         6.29         6.29         4.97         4.97   

BofA Merrill Lynch 3-Month U.S. Treasury Bill Index

     0.01         0.03         N/A         0.09         N/A         1.49         N/A   

50% MSCI ACWI/50% Citigroup WGBI (hedged into USD)

     3.83         6.96         N/A         7.07         N/A         5.98         N/A   

MSCI ACWI

     2.73         5.42         N/A         8.99         N/A         6.44         N/A   

Citigroup WGBI (hedged into USD)

     4.77         8.31         N/A         4.54         N/A         4.69         N/A   

 

  7   

Assuming maximum sales charges, if any. Average annual total returns with and without sales charges reflect reductions for distribution and service fees. See “About Fund Performance” on page 6 for a detailed description of share classes, including any related sales charges and fees.

 

       N/A—Not applicable as share class and index do not have a sales charge.

 

       Past performance is not indicative of future results.

 

Expense Example
   

Actual

 

Hypothetical9

   
    

Beginning

Account Value
October 1, 2014

 

Ending

Account Value
March 31, 2015

  Expenses Paid
During the Period8
 

Beginning

Account Value
October 1, 2014

 

Ending

Account Value
March 31, 2015

  Expenses Paid
During the Period8
 

Annualized

Expense Ratio

Institutional

  $1,000.00   $1,049.20   $4.04   $1,000.00   $1,020.99   $3.98   0.79%

Service

  $1,000.00   $1,047.70   $5.97   $1,000.00   $1,019.10   $5.89   1.17%

Investor A

  $1,000.00   $1,048.00   $5.67   $1,000.00   $1,019.40   $5.59   1.11%

Investor B

  $1,000.00   $1,042.40   $10.90   $1,000.00   $1,014.26   $10.75   2.14%

Investor C

  $1,000.00   $1,044.20   $9.17   $1,000.00   $1,015.96   $9.05   1.80%

 

  8   

For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period shown). The fees and expenses of the underlying funds in which the Fund invests are not included in the Fund’s annualized expense ratio.

 

  9   

Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.

 

       See “Disclosure of Expenses” on page 6 for further information on how expenses were calculated.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    5


About Fund Performance     

 

Ÿ  

Institutional Shares are not subject to any sales charge. These shares bear no ongoing distribution or service fees and are available only to certain eligible investors.

 

Ÿ  

Service Shares are not subject to any sales charge. These shares are subject to a service fee of 0.25% per year (but no distribution fee) and are only available to certain eligible investors.

 

Ÿ  

Investor A Shares are subject to a maximum initial sales charge (front-end load) of 5.25% and a service fee of 0.25% per year (but no distribution fee). Certain redemptions of these shares may be subject to a contingent deferred sales charge (“CDSC”) where no initial sales charge was paid at the time of purchase. These shares are generally available through financial intermediaries.

 

Ÿ  

Investor B Shares are subject to a maximum CDSC of 4.50%, declining to 0% after six years. In addition, these shares are subject to a distribution fee of 0.75% per year and a service fee of 0.25% per year. These shares automatically convert to Investor A Shares after approximately eight years. (There is no initial sales charge for automatic share conversions.) All returns for periods greater than eight years reflect this conversion. These shares are only available through exchanges and distribution reinvestments by current holders and for purchase by certain employer-sponsored retirement plans.

 

Ÿ  

Investor C Shares are subject to a 1.00% CDSC if redeemed within one year of purchase. In addition, these shares are subject to a distribution

fee of 0.75% per year and a service fee of 0.25% per year. These shares are generally available through financial intermediaries.

Performance information reflects past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Refer to www.blackrock.com/funds to obtain performance data current to the most recent month end. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in the performance table on the previous page assume reinvestment of all distributions, if any, at net asset value (“NAV”) on the ex-dividend date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Distributions paid to each class of shares will vary because of the different levels of service, distribution and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders.

BlackRock Advisors, LLC (the “Manager”), the Fund’s investment advisor, has contractually agreed to waive and/or reimburse a portion of the Fund’s expenses. Without such waiver and/or reimbursement, the Fund’s performance would have been lower. The Manager is under no obligation to continue waiving and/or reimbursing its fees after the applicable termination date of such agreement. See Note 5 of the Notes to Financial Statements for additional information on waivers and/or reimbursements.

 

 

Disclosure of Expenses

 

Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, administration fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses and other Fund expenses. The expense example on the previous page (which is based on a hypothetical investment of $1,000 invested on October 1, 2014 and held through March 31, 2015) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.

The expense example provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled “Expenses Paid During the Period.”

The expense example also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in the Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.

The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical example is useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.

 

 

6    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Derivative Financial Instruments     
  

 

The Fund may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the derivative

financial instrument. The Fund’s ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation the Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these instruments are discussed in detail in the Notes to Financial Statements.

 

 

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    7


Schedule of Investments March 31, 2015 (Unaudited)         
     (Percentages shown are based on Net Assets)   

 

Asset-Backed Securities (a)           

Par  

(000)

     Value  

Amortizing Residential Collateral Trust, Series 2002-BC5, Class M2, 1.96%, 7/25/32

     USD         9       $ 7,814   

Asset-Backed European Securitisation Transaction S.r.l., Series 9, Class A, 0.74%, 12/10/28

     EUR         215         232,019   

Auto ABS, Series 2012-3, Class A, 3.25%, 9/27/24

        382         411,229   

Bumper Mortgage, Series 2014-6, Class A, 0.44%, 3/19/29

        400         430,937   

Driver GmbH, Series 12, Class A, 0.35%, 5/22/20

        389         418,718   

E-Carat PLC, Series 5, Class A, 0.91%, 4/18/23

     GBP         500         741,760   

Knollwood CDO Ltd., Series 2004-1A, Class C, 3.50% (3.50% Cash or PIK), 1/10/39 (b)(c)

     USD         138         1   

MOTOR PLC, Series 2015-1X, Class A2, 1.00%, 6/25/22

     GBP         345         511,778   

SMART Trust, Series 2014-2E, Class AE, 0.42%, 6/14/21

     EUR         369         396,153   

Sunrise S.r.l., Series 2014-1, Class A, 1.15%, 5/27/31

        117         126,026   

Turbo Finance PLC, Series 5, Class A, 0.98%, 8/20/21

     GBP         420         623,779   

Total Asset-Backed Securities — 0.5%

                       3,900,214   
        
Common Stocks            Shares          

Aerospace & Defense — 1.1%

        

Airbus Group NV

        58,934         3,831,337   

Finmeccanica SpA (d)

        36,412         432,505   

MTU Aero Engines AG

        3,317         324,963   

Safran SA

        27,747         1,938,718   

Thales SA

        12,552         696,412   

Zodiac Aerospace

        17,843         590,361   
        

 

 

 
                         7,814,296   

Air Freight & Logistics — 1.2%

        

Bollore SA

        173,964         926,915   

bpost SA

        13,228         371,252   

Deutsche Post AG, Registered Shares

        142,175         4,429,429   

Kintetsu World Express, Inc.

        2,200         98,885   

Oesterreichische Post AG

        4,290         211,266   

PostNL NV (d)

        28,998         123,192   
Common Stocks  

    

Shares

    Value  

Air Freight & Logistics (concluded)

   

Royal Mail PLC

    378,650      $ 2,455,987   

TNT Express NV

    35,236        223,811   

Yamato Holdings Co. Ltd.

    9,100        209,743   
   

 

 

 
              9,050,480   

Airlines — 0.2%

   

ANA Holdings, Inc.

    78,000        208,819   

Deutsche Lufthansa AG, Registered Shares

    31,366        439,206   

International Consolidated Airlines Group SA (d)

    125,213        1,121,891   
   

 

 

 
              1,769,916   

Auto Components — 1.6%

   

Aisin Seiki Co. Ltd.

    5,400        195,779   

Autoliv, Inc.

    1,090        128,369   

BorgWarner, Inc.

    1,803        109,045   

Brembo SpA

    4,373        178,696   

Bridgestone Corp.

    8,700        348,347   

Calsonic Kansei Corp.

    11,000        72,796   

Cie Generale des Etablissements Michelin

    11,850        1,178,418   

Continental AG

    12,458        2,933,803   

Cooper Tire & Rubber Co.

    3,067        131,390   

Dana Holding Corp.

    4,484        94,881   

Delphi Automotive PLC

    2,348        187,230   

Denso Corp.

    8,500        387,475   

Eagle Industry Co. Ltd.

    3,200        64,640   

ElringKlinger AG

    4,002        119,982   

Exedy Corp.

    3,300        78,600   

Faurecia

    7,841        341,914   

FCC Co. Ltd.

    4,300        67,015   

Gentex Corp.

    5,289        96,789   

The Goodyear Tire & Rubber Co.

    4,945        133,911   

Johnson Controls, Inc.

    5,018        253,108   

Koito Manufacturing Co. Ltd.

    4,600        138,316   

Leoni AG

    2,067        130,567   

Mitsuba Corp.

    2,700        59,619   

NGK Spark Plug Co. Ltd.

    6,000        161,064   

NHK Spring Co. Ltd.

    8,900        92,588   

Nifco, Inc.

    2,900        99,967   

Nippon Seiki Co. Ltd.

    5,000        98,536   

Nissin Kogyo Co. Ltd.

    4,900        77,823   

NOK Corp.

    4,500        135,304   

Nokian Renkaat OYJ

    9,331        278,080   

Pirelli & C. SpA

    31,566        522,501   

Plastic Omnium SA

    9,451        249,075   

Showa Corp.

    6,300        63,592   

Stanley Electric Co. Ltd.

    5,200        117,376   

Sumitomo Electric Industries Ltd.

    14,600        191,383   
 
Portfolio Abbreviations
ADR    American Depositary Receipts      GBP    British Pound    PIK    Payment-in-kind
AUD    Australian Dollar      ILS    Israeli Shekel    PLN    Polish Zloty
BRL    Brazilian Real      INR    Indian Rupee    REIT    Real Estate Investment Trust
CAD    Canadian Dollar      JPY    Japanese Yen    S&P    Standard & Poor’s
CDO    Collateralized Debt Obligation      KRW    Korean Won    SEK    Swedish Krona
CHF    Swiss Franc      LIBOR    London Interbank Offered Rate    SGD    Singapore Dollar
CZK    Czech Koruna      LP    Limited Partnership    TBA    To-be-announced
DKK    Danish Krone      MXN    Mexican Peso    THB    Thai Baht
ETF    Exchange Traded Fund      MYR    Malaysian Ringgit    TRY    Turkish Lira
EUR    Euro      NOK    Norwegian Krone    TWD    Taiwan New Dollar
EURIBOR    Euro Interbank Offer Rate      NZD    New Zealand Dollar    USD    U.S. Dollar
FTSE    Financial Times Stock Exchange      OTC    Over-the-counter    ZAR    South African Rand

 

See Notes to Financial Statements.

 

8    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Schedule of Investments (continued)         
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Auto Components (concluded)

     

Sumitomo Rubber Industries Ltd.

     6,500       $ 119,817   

Tenneco, Inc. (d)

     1,900         109,098   

Tokai Rika Co. Ltd.

     4,500         104,291   

Topre Corp.

     4,600         71,813   

Toyo Tire & Rubber Co. Ltd.

     4,900         88,030   

Toyoda Gosei Co. Ltd.

     4,700         104,919   

Toyota Industries Corp.

     4,500         257,386   

TPR Co. Ltd.

     2,300         61,568   

TRW Automotive Holdings Corp. (d)

     1,071         112,294   

TS Tech Co. Ltd.

     3,200         86,289   

Unipres Corp.

     3,300         67,297   

Valeo SA

     4,915         733,095   

The Yokohama Rubber Co. Ltd.

     10,000         103,081   
     

 

 

 
                11,536,957   

Automobiles — 3.9%

     

Bayerische Motoren Werke AG

     39,332         4,898,196   

Daihatsu Motor Co. Ltd.

     10,400         159,074   

Daimler AG, Registered Shares

     67,143         6,448,034   

Fiat Chrysler Automobiles NV (d)

     83,756         1,359,695   

Ford Motor Co.

     30,690         495,337   

Fuji Heavy Industries Ltd.

     10,400         345,241   

General Motors Co.

     13,126         492,225   

Harley-Davidson, Inc.

     4,879         296,350   

Honda Motor Co. Ltd.

     13,000         424,358   

Isuzu Motors Ltd.

     14,900         197,685   

Mazda Motor Corp.

     134,900         2,733,321   

Mitsubishi Motors Corp.

     21,200         191,155   

Nissan Motor Co. Ltd.

     33,700         342,748   

Peugeot SA

     49,901         834,122   

Porsche Automobil Holding SE, Preference Shares

     10,095         988,583   

Renault SA

     20,101         1,825,767   

Suzuki Motor Corp.

     9,600         288,328   

Tesla Motors, Inc. (d)

     2,443         461,165   

Thor Industries, Inc.

     3,341         211,185   

Toyota Motor Corp.

     12,900         900,468   

Volkswagen AG

     18,790         4,831,308   

Yamaha Motor Co. Ltd.

     6,800         163,816   
     

 

 

 
                28,888,161   

Banks — 1.2%

     

Aozora Bank Ltd.

     40,000         141,782   

The Bank of Yokohama Ltd.

     25,000         146,416   

The Chiba Bank Ltd.

     19,000         139,252   

The Chugoku Bank Ltd.

     8,000         119,456   

Fukuoka Financial Group, Inc.

     26,000         133,705   

The Gunma Bank Ltd.

     16,000         108,088   

The Hachijuni Bank Ltd.

     17,000         119,869   

The Hiroshima Bank Ltd.

     20,000         107,787   

Hokuhoku Financial Group, Inc.

     52,000         115,912   

ING Groep NV — CVA (d)

     125,473         1,837,918   

The Iyo Bank Ltd.

     10,800         128,080   

The Joyo Bank Ltd.

     25,000         128,479   

KBC Groep NV

     25,839         1,596,904   

The Keiyo Bank Ltd.

     15,000         86,833   

Mitsubishi UFJ Financial Group, Inc.

     81,700         506,002   

Mizuho Financial Group, Inc.

     213,400         375,046   

The Nishi-Nippon City Bank Ltd.

     36,000         104,348   

North Pacific Bank Ltd.

     18,800         70,954   

Resona Holdings, Inc.

     41,700         206,947   

Senshu Ikeda Holdings, Inc.

     15,700         74,551   

Seven Bank Ltd.

     32,200         158,770   

Shinsei Bank Ltd.

     70,000         139,184   

The Shizuoka Bank Ltd.

     14,000         139,631   

Société Générale SA

     28,190         1,361,065   
Common Stocks    Shares      Value  

Banks (concluded)

     

Sumitomo Mitsui Financial Group, Inc.

     10,900       $ 417,520   

Sumitomo Mitsui Trust Holdings, Inc.

     57,000         236,782   

Suruga Bank Ltd.

     6,700         139,137   

Yamaguchi Financial Group, Inc.

     9,000         103,440   
     

 

 

 
                8,943,858   

Beverages — 0.4%

     

Asahi Group Holdings Ltd.

     7,400         234,643   

Brown-Forman Corp., Class B

     1,742         157,390   

The Coca-Cola Co.

     13,304         539,477   

Constellation Brands, Inc., Class A (d)

     3,311         384,771   

Dr Pepper Snapple Group, Inc.

     4,790         375,919   

Ito En Ltd.

     4,500         97,073   

Kirin Holdings Co. Ltd.

     15,100         198,056   

Monster Beverage Corp. (d)

     4,101         567,558   

PepsiCo, Inc.

     6,908         660,543   
     

 

 

 
                3,215,430   

Biotechnology — 0.2%

     

Genmab A/S (d)

     23,623         1,772,931   

Building Products — 0.6%

     

Aica Kogyo Co. Ltd.

     4,300         100,127   

Asahi Glass Co. Ltd.

     27,000         176,850   

Bunka Shutter Co. Ltd.

     7,000         57,891   

Cie de Saint-Gobain

     78,108         3,429,498   

Daikin Industries Ltd.

     4,200         280,787   

LIXIL Group Corp.

     7,100         168,027   

Nichias Corp.

     10,000         57,677   

Sankyo Tateyama, Inc.

     2,700         52,148   

Sanwa Holdings Corp.

     11,900         88,278   

TOTO Ltd.

     8,000         118,792   

Wienerberger AG

     7,642         121,945   
     

 

 

 
                4,652,020   

Capital Markets — 0.2%

     

Daiwa Securities Group, Inc.

     30,000         236,157   

Ichiyoshi Securities Co. Ltd.

     4,900         53,021   

Jafco Co. Ltd.

     2,400         89,139   

kabu.com Securities Co. Ltd.

     12,700         83,305   

Kyokuto Securities Co. Ltd.

     3,400         50,070   

Matsui Securities Co. Ltd.

     9,300         84,369   

Nomura Holdings, Inc.

     43,500         255,503   

Okasan Securities Group, Inc.

     10,000         79,347   

SBI Holdings, Inc.

     9,200         111,369   

Tokai Tokyo Financial Holdings, Inc.

     12,200         93,981   
     

 

 

 
                1,136,261   

Chemicals — 1.1%

     

Air Water, Inc.

     5,000         89,289   

Akzo Nobel NV

     25,805         1,951,099   

Asahi Kasei Corp.

     21,000         200,542   

Daicel Corp.

     10,300         122,771   

Denki Kagaku Kogyo KK

     22,000         86,673   

DIC Corp.

     29,000         84,316   

Hitachi Chemical Co. Ltd.

     6,200         132,392   

JSR Corp.

     8,000         138,537   

Kansai Paint Co. Ltd.

     7,000         127,398   

Kuraray Co. Ltd.

     11,000         148,937   

Mitsubishi Chemical Holdings Corp.

     31,100         180,538   

Nihon Parkerizing Co. Ltd.

     7,400         89,514   

Nippon Kayaku Co. Ltd.

     8,000         100,165   

Nippon Paint Holdings Co. Ltd.

     4,900         179,128   

The Nippon Synthetic Chemical Industry Co. Ltd.

     8,000         53,093   

Nissan Chemical Industries Ltd.

     5,200         107,457   

Nitto Denko Corp.

     3,300         220,354   
 

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    9


Schedule of Investments (continued)         
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Chemicals (concluded)

     

NOF Corp.

     11,000       $ 81,599   

OCI NV (d)

     13,739         425,183   

Shin-Etsu Chemical Co. Ltd.

     5,400         352,556   

Sumitomo Chemical Co. Ltd.

     40,000         205,298   

Syngenta AG, Registered Shares

     6,585         2,237,113   

Taiyo Holdings Co. Ltd.

     2,400         84,324   

Taiyo Nippon Sanso Corp.

     10,000         136,078   

Toray Industries, Inc.

     26,000         217,620   

Tosoh Corp.

     21,000         105,777   

Zeon Corp.

     10,000         92,260   
     

 

 

 
                7,950,011   

Commercial Services & Supplies — 0.2%

     

Aeon Delight Co. Ltd.

     3,000         71,724   

Bilfinger SE

     3,106         179,528   

Dai Nippon Printing Co. Ltd.

     19,000         184,550   

Edenred

     14,919         372,226   

Park24 Co. Ltd.

     4,900         100,253   

Pilot Corp.

     1,400         78,727   

Secom Co. Ltd.

     3,700         246,791   

Societe BIC SA

     3,052         434,819   

Sohgo Security Services Co. Ltd.

     4,000         136,115   
     

 

 

 
                1,804,733   

Communications Equipment — 0.0%

     

Hitachi Kokusai Electric, Inc.

     6,000         80,380   

Construction & Engineering — 1.1%

     

Abengoa SA, B Shares

     50,524         183,090   

ACS Actividades de Construccion y Servicios SA

     20,245         716,555   

Arcadis NV

     5,529         177,563   

Boskalis Westminster NV

     7,897         389,231   

Bouygues SA

     21,746         853,653   

Chiyoda Corp.

     12,000         102,511   

COMSYS Holdings Corp.

     7,700         94,993   

Eiffage SA

     5,707         339,653   

Ferrovial SA

     48,235         1,025,571   

Fomento de Construcciones y Contratas SA (d)

     10,718         130,525   

Hazama Ando Corp.

     13,700         78,270   

HOCHTIEF AG

     4,679         354,046   

JGC Corp.

     7,000         139,003   

Kajima Corp.

     34,000         157,631   

Kyowa Exeo Corp.

     7,100         76,141   

Maeda Road Construction Co. Ltd.

     6,000         97,265   

Nippo Corp.

     5,000         82,419   

Obayashi Corp.

     24,000         155,569   

Obrascon Huarte Lain SA

     7,324         155,868   

Orascom Construction Ltd. (d)

     6,870         91,364   

Outotec OYJ (e)

     8,305         50,834   

Sacyr SA (d)

     32,259         135,366   

Shimizu Corp.

     25,000         169,020   

Sumitomo Mitsui Construction Co. Ltd.

     54,800         75,599   

Taisei Corp.

     28,000         158,040   

Toshiba Plant Systems & Services Corp.

     6,600         90,933   

Vinci SA

     36,099         2,062,462   
     

 

 

 
                8,143,175   

Construction Materials — 0.0%

     

Sumitomo Osaka Cement Co. Ltd.

     27,000         82,941   

Taiheiyo Cement Corp.

     34,000         103,812   
     

 

 

 
                186,753   

Consumer Finance — 0.1%

     

Acom Co. Ltd. (d)

     43,200         149,805   

AEON Financial Service Co. Ltd.

     4,900         123,608   

Aiful Corp. (d)

     25,000         88,668   

Credit Saison Co. Ltd.

     5,700         102,251   
Common Stocks    Shares      Value  

Consumer Finance (concluded)

     

Hitachi Capital Corp.

     4,400       $ 92,872   

J Trust Co. Ltd.

     9,700         83,564   

Orient Corp. (d)

     47,200         76,629   
     

 

 

 
                717,397   

Containers & Packaging — 0.0%

     

FP Corp.

     2,400         87,036   

Distributors — 0.1%

     

D’ieteren SA/NV

     3,839         134,651   

Genuine Parts Co.

     4,155         387,204   

LKQ Corp. (d)

     10,234         261,581   

Pool Corp.

     2,662         185,701   
     

 

 

 
                969,137   

Diversified Consumer Services — 0.1%

     

Apollo Education Group, Inc. (d)

     8,070         152,684   

Benesse Holdings, Inc.

     4,400         138,415   

Bright Horizons Family Solutions, Inc. (d)

     3,434         176,061   

Graham Holdings Co., Class B

     243         255,060   

Service Corp. International

     9,266         241,379   
     

 

 

 
                963,599   

Diversified Financial Services — 0.1%

     

Century Tokyo Leasing Corp.

     3,200         97,479   

Fuyo General Lease Co. Ltd.

     1,800         72,318   

IBJ Leasing Co. Ltd.

     2,800         57,907   

Japan Exchange Group, Inc.

     4,900         141,869   

Mitsubishi UFJ Lease & Finance Co. Ltd.

     22,400         110,696   

ORIX Corp.

     18,000         252,920   

Ricoh Leasing Co. Ltd.

     2,000         59,350   
     

 

 

 
                792,539   

Diversified Telecommunication Services — 0.1%

     

Nippon Telegraph & Telephone Corp.

     7,700         475,329   

Electric Utilities — 0.1%

     

Tohoku Electric Power Co., Inc.

     15,500         176,056   

Tokyo Electric Power Co., Inc. (d)

     42,900         162,374   
     

 

 

 
                338,430   

Electrical Equipment — 1.1%

     

Alstom SA (d)

     20,873         642,284   

AMETEK, Inc.

     29,794         1,565,377   

Fuji Electric Co. Ltd.

     21,000         99,078   

Gamesa Corp Tecnologica SA (d)

     18,517         233,194   

GS Yuasa Corp.

     20,000         90,004   

Legrand SA

     16,685         903,786   

Mitsubishi Electric Corp.

     25,000         296,787   

Nexans SA (d)

     2,803         94,783   

Nidec Corp.

     4,400         292,080   

OSRAM Licht AG

     6,733         333,302   

Prysmian SpA

     13,572         279,716   

Schneider Electric SE

     40,785         3,173,827   

SGL Carbon SE (d)(e)

     6,296         102,242   
     

 

 

 
                8,106,460   

Electronic Equipment, Instruments & Components — 0.5%

  

  

Alps Electric Co. Ltd.

     5,400         130,028   

Anritsu Corp.

     9,900         69,131   

Enplas Corp.

     1,600         63,994   

Hamamatsu Photonics KK

     4,800         144,682   

Hirose Electric Co. Ltd.

     1,155         148,707   

Hitachi High-Technologies Corp.

     4,000         121,729   

Hitachi Ltd.

     50,000         341,493   

Horiba Ltd.

     2,400         91,689   

Hoya Corp.

     6,500         260,223   

Japan Aviation Electronics Industry Ltd.

     4,000         96,591   
 

 

See Notes to Financial Statements.

 

10    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Schedule of Investments (continued)         
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Electronic Equipment, Instruments & Components (concluded)

  

Keyence Corp.

     600       $ 327,418   

Kyocera Corp.

     5,400         295,125   

Murata Manufacturing Co. Ltd.

     2,300         315,880   

Oki Electric Industry Co. Ltd.

     39,000         80,731   

Omron Corp.

     4,000         180,197   

Shimadzu Corp.

     11,000         122,506   

Tabuchi Electric Co. Ltd.

     4,300         49,134   

TDK Corp.

     3,100         219,503   

Topcon Corp.

     4,700         115,134   

Yaskawa Electric Corp.

     7,300         106,684   

Yokogawa Electric Corp.

     11,700         126,050   
     

 

 

 
                3,406,629   

Food & Staples Retailing — 1.2%

     

Aeon Co. Ltd.

     18,800         206,225   

Ain Pharmaciez, Inc.

     1,900         75,257   

Casey’s General Stores, Inc.

     2,390         215,339   

Cosmos Pharmaceutical Corp.

     700         109,385   

Costco Wholesale Corp.

     4,442         672,941   

CVS Health Corp.

     11,727         1,210,344   

FamilyMart Co. Ltd.

     3,300         138,265   

The Fresh Market, Inc. (d)

     4,420         179,629   

The Kroger Co.

     8,968         687,487   

Kusuri No Aoki Co. Ltd.

     1,000         75,110   

Lawson, Inc.

     2,300         159,436   

Matsumotokiyoshi Holdings Co. Ltd.

     2,400         85,401   

Mitsubishi Shokuhin Co. Ltd.

     3,700         77,395   

Rite Aid Corp. (d)

     38,496         334,530   

Seven & i Holdings Co. Ltd.

     8,900         374,007   

Sugi Holdings Co. Ltd.

     2,400         118,695   

Sundrug Co. Ltd.

     2,200         114,196   

Sysco Corp.

     12,474         470,644   

Tsuruha Holdings, Inc.

     1,700         130,137   

United Natural Foods, Inc. (d)

     2,846         219,256   

Valor Co. Ltd.

     3,200         69,096   

Walgreens Boots Alliance, Inc.

     12,221         1,034,874   

Wal-Mart Stores, Inc.

     15,652         1,287,377   

Welcia Holdings Co. Ltd.

     2,200         82,142   

Whole Foods Market, Inc.

     8,824         459,554   
     

 

 

 
                8,586,722   

Food Products — 1.1%

     

Ajinomoto Co., Inc.

     9,000         197,446   

Archer-Daniels-Midland Co.

     7,388         350,191   

Bunge Ltd.

     1,137         93,643   

Calbee, Inc.

     3,600         156,284   

Campbell Soup Co.

     6,838         318,309   

ConAgra Foods, Inc.

     10,917         398,798   

Darling Ingredients, Inc. (d)

     10,008         140,212   

Dean Foods Co.

     9,478         156,671   

Ezaki Glico Co. Ltd.

     3,300         133,409   

Flowers Foods, Inc.

     11,743         267,036   

General Mills, Inc.

     8,645         489,307   

The Hain Celestial Group, Inc. (d)

     3,043         194,904   

The Hershey Co.

     3,692         372,560   

Hormel Foods Corp.

     7,399         420,633   

Ingredion, Inc.

     1,969         153,228   

Kellogg Co.

     5,204         343,204   

Keurig Green Mountain, Inc.

     3,737         417,535   

Kewpie Corp.

     5,800         141,128   

Kikkoman Corp.

     5,000         158,546   

Kraft Foods Group, Inc.

     9,329         812,696   

Lancaster Colony Corp.

     2,019         192,148   

Maruha Nichiro Corp.

     4,000         56,428   

McCormick & Co, Inc., Non-Voting Shares

     2,675         206,269   

MEIJI Holdings Co. Ltd.

     1,400         170,534   
Common Stocks    Shares      Value  

Food Products (concluded)

     

Mondelez International, Inc., Class A

     4,153       $ 149,882   

NH Foods Ltd.

     6,000         138,262   

Nichirei Corp.

     16,000         89,636   

Nissin Foods Holdings Co. Ltd.

     3,600         176,926   

Snyder’s-Lance, Inc.

     5,369         171,593   

Toyo Suisan Kaisha Ltd.

     3,600         126,656   

TreeHouse Foods, Inc. (d)

     1,937         164,684   

Tyson Foods, Inc., Class A

     9,457         362,203   

The WhiteWave Foods Co. (d)

     6,678         296,103   

Yakult Honsha Co. Ltd.

     3,400         236,853   
     

 

 

 
                8,253,917   

Gas Utilities — 0.1%

     

Osaka Gas Co. Ltd.

     41,000         171,453   

Tokyo Gas Co. Ltd.

     35,000         220,036   
     

 

 

 
                391,489   

Health Care Equipment & Supplies — 0.1%

     

Asahi Intecc Co. Ltd.

     1,600         111,665   

Nakanishi, Inc.

     2,300         89,755   

Nihon Kohden Corp.

     4,000         108,797   

Olympus Corp.

     6,000         222,454   

Sysmex Corp.

     3,600         199,609   

Terumo Corp.

     7,400         194,938   
     

 

 

 
                927,218   

Health Care Providers & Services — 0.2%

     

Alfresa Holdings Corp.

     8,000         112,731   

Healthscope Ltd.

     388,383         902,928   

Medipal Holdings Corp.

     9,100         118,611   

Miraca Holdings, Inc.

     2,100         96,543   

Ship Healthcare Holdings, Inc.

     3,200         73,051   
     

 

 

 
                1,303,864   

Health Care Technology — 0.0%

     

M3, Inc.

     7,900         167,597   

Hotels, Restaurants & Leisure — 1.7%

     

Accor SA

     15,259         795,694   

Autogrill SpA (d)

     16,670         161,476   

Brinker International, Inc.

     3,702         227,895   

Caesars Entertainment Corp. (d)

     16,364         172,313   

Carnival Corp.

     6,961         333,014   

The Cheesecake Factory, Inc.

     3,406         168,018   

Chipotle Mexican Grill, Inc. (d)

     788         512,626   

Cracker Barrel Old Country Store, Inc.

     1,608         244,641   

Darden Restaurants, Inc.

     5,078         352,109   

Domino’s Pizza, Inc.

     2,258         227,042   

GTECH SpA (e)

     11,736         232,483   

HIS Co. Ltd.

     3,400         119,397   

Jack in the Box, Inc.

     2,328         223,302   

Las Vegas Sands Corp.

     28,450         1,565,888   

Life Time Fitness, Inc. (d)

     3,106         220,402   

Marriott International, Inc., Class A

     6,203         498,225   

McDonald’s Corp.

     3,665         357,118   

Melia Hotels International SA

     10,705         132,083   

MGM Resorts International (d)

     11,579         243,506   

Oriental Land Co. Ltd.

     4,000         302,873   

Panera Bread Co., Class A (d)

     1,372         219,513   

Resorttrust, Inc.

     4,400         114,657   

Royal Caribbean Cruises Ltd.

     3,276         268,141   

Sands China Ltd.

     444,000         1,836,044   

Six Flags Entertainment Corp.

     4,569         221,185   

Sodexo SA

     10,161         991,032   

Starbucks Corp.

     7,562         716,121   

Starwood Hotels & Resorts Worldwide, Inc.

     1,470         122,745   

TUI AG

     18,071         316,509   
 

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    11


Schedule of Investments (continued)         
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Hotels, Restaurants & Leisure (concluded)

     

Vail Resorts, Inc.

     2,415       $ 249,759   

The Wendy’s Co.

     16,991         185,202   

Wyndham Worldwide Corp.

     3,082         278,829   

Wynn Resorts Ltd.

     848         106,746   

Yum! Brands, Inc.

     2,148         169,091   
     

 

 

 
                12,885,679   

Household Durables — 0.7%

     

Casio Computer Co. Ltd.

     7,400         140,168   

De’ Longhi

     10,264         222,162   

DR Horton, Inc.

     12,966         369,272   

Fujitsu General Ltd.

     5,000         65,494   

Garmin Ltd.

     3,710         176,299   

Haseko Corp.

     10,800         105,202   

Iida Group Holdings Co. Ltd.

     10,200         126,893   

Jarden Corp. (d)

     4,312         228,105   

Leggett & Platt, Inc.

     4,601         212,060   

Lennar Corp., Class A

     6,501         336,817   

MDC Holdings, Inc.

     4,842         137,997   

Misawa Homes Co. Ltd.

     4,900         42,717   

Mohawk Industries, Inc. (d)

     1,898         352,554   

Newell Rubbermaid, Inc.

     6,453         252,119   

Nikon Corp.

     11,100         148,835   

NVR, Inc. (d)

     198         263,075   

Panasonic Corp.

     30,900         405,780   

Pressance Corp.

     1,600         50,808   

PulteGroup, Inc.

     14,412         320,379   

Rinnai Corp.

     1,700         125,989   

SEB SA

     3,448         248,681   

Sekisui Chemical Co. Ltd.

     11,000         142,725   

Sekisui House Ltd.

     12,300         178,596   

Starts Corp., Inc.

     4,100         62,314   

Sumitomo Forestry Co. Ltd.

     7,800         85,168   

Toll Brothers, Inc. (d)

     7,533         296,348   

Whirlpool Corp.

     1,126         227,520   
     

 

 

 
                5,324,077   

Household Products — 0.3%

     

The Clorox Co.

     3,081         340,112   

Colgate-Palmolive Co.

     3,178         220,363   

Energizer Holdings, Inc.

     1,247         172,148   

Kimberly-Clark Corp.

     3,430         367,387   

Pigeon Corp.

     1,400         117,647   

The Procter & Gamble Co.

     7,548         618,483   

Spectrum Brands Holdings, Inc.

     1,519         136,042   

Unicharm Corp.

     9,800         256,564   
     

 

 

 
                2,228,746   

Independent Power and Renewable Electricity Producers — 0.0%

  

Electric Power Development Co. Ltd.

     4,700         158,329   

Industrial Conglomerates — 1.1%

     

Keihan Electric Railway Co. Ltd.

     18,000         109,545   

Koninklijke Philips NV

     61,168         1,735,327   

Rheinmetall AG

     2,422         116,496   

Siemens AG, Registered Shares (d)

     57,760         6,246,959   

Toshiba Corp.

     58,000         243,024   
     

 

 

 
                8,451,351   

Insurance — 0.2%

     

The Dai-ichi Life Insurance Co. Ltd.

     16,500         239,334   

MS&AD Insurance Group Holdings, Inc.

     8,300         232,367   

Sompo Japan Nipponkoa Holdings, Inc.

     6,900         214,510   

Sony Financial Holdings, Inc.

     8,300         133,514   

T&D Holdings, Inc.

     11,800         162,086   

Tokio Marine Holdings, Inc.

     7,800         294,425   
     

 

 

 
                1,276,236   
Common Stocks    Shares      Value  

Internet & Catalog Retail — 0.6%

     

Amazon.com, Inc. (d)

     2,085       $ 775,829   

Expedia, Inc.

     2,520         237,208   

Groupon, Inc. (d)

     17,730         127,833   

HSN, Inc.

     3,501         238,873   

Liberty Interactive Corp., Class A (d)

     10,027         292,688   

Liberty Ventures, Series A (d)

     7,002         294,154   

Netflix, Inc. (d)

     1,142         475,860   

The Priceline Group, Inc. (d)

     264         307,336   

Rakuten, Inc.

     16,200         285,252   

Start Today Co. Ltd.

     4,200         110,565   

TripAdvisor, Inc. (d)

     15,067         1,253,122   

Yoox SpA (d)

     4,008         110,519   
     

 

 

 
                4,509,239   

Internet Software & Services — 0.1%

     

COOKPAD, Inc.

     2,400         109,616   

Dena Co. Ltd.

     100         1,957   

F@N Communications, Inc.

     10,200         86,607   

GMO internet, Inc.

     5,600         68,798   

Gree, Inc.

     14,400         100,196   

Kakaku.com, Inc.

     7,600         126,112   

Mixi, Inc.

     3,200         129,357   

Yahoo Japan Corp.

     79,100         326,263   
     

 

 

 
                948,906   

IT Services — 0.2%

     

Fujitsu Ltd.

     32,000         218,228   

Itochu Techno-Solutions Corp.

     5,000         103,721   

NEC Networks & System Integration Corp.

     4,100         82,492   

Nomura Research Institute Ltd.

     4,900         184,094   

NS Solutions Corp.

     3,200         98,578   

NTT Data Corp.

     4,900         212,819   

Obic Co. Ltd.

     3,300         139,938   

Otsuka Corp.

     2,800         119,322   

SCSK Corp.

     4,100         114,747   

Transcosmos, Inc.

     3,800         80,007   
     

 

 

 
                1,353,946   

Leisure Products — 0.2%

     

Bandai Namco Holdings, Inc.

     7,600         147,927   

Brunswick Corp.

     2,896         148,999   

Hasbro, Inc.

     2,459         155,507   

Heiwa Corp.

     4,600         90,359   

Mattel, Inc.

     7,206         164,657   

Polaris Industries, Inc.

     1,719         242,551   

Sega Sammy Holdings, Inc.

     10,400         151,533   

Shimano, Inc.

     1,500         222,903   

Universal Entertainment Corp.

     4,500         73,525   

Yamaha Corp.

     7,100         123,983   
     

 

 

 
                1,521,944   

Machinery — 1.5%

     

Aalberts Industries NV

     6,496         204,444   

ANDRITZ AG

     6,455         385,408   

Cargotec OYJ, B Shares

     3,597         124,375   

CNH Industrial NV (d)

     82,482         675,961   

Construcciones y Auxiliar de Ferrocarriles SA

     204         67,826   

DMG MORI SEIKI AG

     4,731         155,602   

Duerr AG

     2,113         232,047   

Ebara Corp.

     20,000         84,198   

FANUC Corp.

     1,900         414,796   

GEA Group AG

     12,950         622,522   

Hino Motors Ltd.

     10,500         149,400   

Hitachi Construction Machinery Co. Ltd.

     6,700         116,956   

Hoshizaki Electric Co. Ltd.

     2,300         149,359   

IHI Corp.

     35,000         163,651   
 

 

See Notes to Financial Statements.

 

12    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Schedule of Investments (continued)         
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Machinery (concluded)

     

JTEKT Corp.

     9,400       $ 146,560   

Kawasaki Heavy Industries Ltd.

     31,000         156,396   

KION Group AG

     5,959         243,628   

Komatsu Ltd.

     12,100         237,192   

Kone OYJ, B Shares

     28,113         1,246,534   

Konecranes OYJ

     4,020         126,674   

Krones AG

     1,976         205,137   

Kubota Corp.

     15,000         236,984   

Makita Corp.

     3,300         171,007   

MAN SE

     8,950         942,155   

Metso OYJ

     9,722         284,044   

Minebea Co. Ltd.

     9,000         141,556   

Mitsubishi Heavy Industries Ltd.

     44,000         242,100   

Mitsui Engineering & Shipbuilding Co. Ltd.

     50,000         85,249   

Nabtesco Corp.

     4,000         115,557   

Nachi-Fujikoshi Corp.

     15,000         82,130   

Namura Shipbuilding Co. Ltd.

     6,000         56,569   

NGK Insulators Ltd.

     7,000         149,146   

NSK Ltd.

     11,000         160,551   

Obara Group, Inc.

     1,500         84,700   

OKUMA Corp.

     9,000         83,461   

OSG Corp.

     4,600         89,458   

Rational AG

     721         241,002   

SMC Corp.

     900         267,987   

Sumitomo Heavy Industries Ltd.

     22,000         143,975   

Tadano Ltd.

     6,000         80,566   

Takuma Co. Ltd.

     8,000         62,662   

THK Co. Ltd.

     5,600         142,300   

Tsubakimoto Chain Co.

     10,000         83,285   

Vallourec SA

     9,759         238,192   

Wartsila OYJ Abp

     12,352         546,332   

Zardoya Otis SA

     26,499         342,001   
     

 

 

 
                10,981,635   

Marine — 0.0%

     

Kawasaki Kisen Kaisha Ltd.

     44,000         118,151   

Nippon Yusen KK

     55,000         158,220   
     

 

 

 
                276,371   

Media — 3.9%

     

Altice SA (d)

     14,517         1,574,202   

AMC Networks, Inc., Class A (d)

     3,335         255,594   

Atresmedia Corp de Medios de Comunicacion SA

     13,874         209,876   

Avex Group Holdings, Inc.

     3,900         62,208   

Axel Springer SE

     6,065         357,966   

Cablevision Systems Corp., Class A

     12,234         223,882   

CBS Corp., Class B, Non-Voting Shares

     9,125         553,249   

Charter Communications, Inc., Class A (d)

     2,787         538,198   

Cinemark Holdings, Inc.

     4,141         186,635   

Comcast Corp., Class A

     22,132         1,249,794   

CTS Eventim AG & Co. KGaA

     6,434         202,701   

CyberAgent, Inc.

     2,000         114,555   

Daiichikosho Co. Ltd.

     2,900         90,083   

Dentsu, Inc.

     4,500         192,504   

DIRECTV (d)

     6,887         586,084   

Discovery Communications, Inc., Class A (d)

     72,041         2,215,981   

DISH Network Corp. (d)

     6,054         424,143   

DreamWorks Animation SKG, Inc., Class A (d)

     7,495         181,379   

Eutelsat Communications SA

     14,149         469,338   

Fuji Media Holdings, Inc.

     9,100         128,987   

Gannett Co., Inc.

     8,135         301,646   

Grupo Televisa SAB — ADR (d)

     47,594         1,571,078   

Hakuhodo DY Holdings, Inc.

     12,400         131,828   

Havas SA

     26,002         197,387   

The Interpublic Group of Cos., Inc.

     8,871         196,227   
Common Stocks    Shares      Value  

Media (concluded)

     

JCDecaux SA

     13,375       $ 450,387   

John Wiley & Sons, Inc., Class A

     1,655         101,187   

Kabel Deutschland Holding AG (d)

     5,685         737,955   

Kadokawa Dwango (d)

     4,700         73,678   

Lagardere SCA

     8,749         262,954   

Liberty Global PLC, Series A (d)

     49,608         2,553,324   

Lions Gate Entertainment Corp.

     5,575         189,104   

Live Nation Entertainment, Inc. (d)

     6,552         165,307   

The Madison Square Garden Co., Class A (d)

     3,248         274,943   

Mediaset Espana Comunicacion SA (d)

     25,021         313,230   

Mediaset SpA (d)

     71,282         324,454   

Meredith Corp.

     3,031         169,039   

Metropole Television SA

     7,876         157,948   

Morningstar, Inc.

     1,992         149,221   

The New York Times Co., Class A

     11,497         158,199   

Nippon Television Holdings, Inc.

     8,900         148,144   

NOS SGPS

     31,268         226,608   

Numericable-SFR SAS (d)

     23,212         1,266,400   

Publicis Groupe SA

     14,080         1,086,361   

Reed Elsevier NV

     48,272         1,202,817   

Regal Entertainment Group, Class A

     8,814         201,312   

RTL Group SA

     9,914         953,329   

Scripps Networks Interactive, Inc., Class A

     4,324         296,453   

SES SA, Receipt

     21,421         759,376   

Sinclair Broadcast Group, Inc., Class A

     6,272         197,004   

Sirius XM Holdings, Inc. (d)

     131,782         503,407   

Sky Deutschland AG (d)

     58,806         427,502   

Societe Television Francaise 1

     13,835         244,277   

Telenet Group Holding NV (d)

     7,534         414,560   

Time Warner Cable, Inc.

     5,114         766,486   

Time Warner, Inc.

     8,630         728,717   

Toho Co. Ltd.

     5,200         127,144   

Usen Corp. (d)

     17,000         50,836   

Viacom, Inc., Class B

     6,261         427,626   

Wolters Kluwer NV

     18,288         597,186   
     

 

 

 
                28,922,000   

Metals & Mining — 0.2%

     

Asahi Holdings, Inc.

     3,100         53,064   

Dowa Holdings Co. Ltd.

     10,000         85,408   

Hitachi Metals Ltd.

     10,000         153,266   

JFE Holdings, Inc.

     9,300         205,280   

Kobe Steel Ltd.

     80,000         147,553   

Mitsubishi Materials Corp.

     34,000         114,249   

Mitsui Mining & Smelting Co. Ltd.

     35,000         79,598   

Nippon Steel & Sumitomo Metal Corp.

     108,000         271,556   

Sumitomo Metal Mining Co. Ltd.

     11,000         160,773   
     

 

 

 
                1,270,747   

Multiline Retail — 0.8%

     

Big Lots, Inc.

     3,404         163,494   

Dillard’s, Inc., Class A

     2,057         280,801   

Dollar General Corp.

     7,832         590,376   

Dollar Tree, Inc. (d)

     5,682         461,066   

Don Quijote Holdings Co. Ltd.

     1,700         138,190   

Family Dollar Stores, Inc.

     4,432         351,192   

Isetan Mitsukoshi Holdings Ltd.

     10,800         178,446   

Izumi Co. Ltd.

     2,600         95,149   

J Front Retailing Co. Ltd.

     8,300         130,299   

J.C. Penney Co., Inc. (d)

     20,422         171,749   

Kohl’s Corp.

     5,787         452,833   

Macy’s, Inc.

     8,424         546,802   

Marui Group Co. Ltd.

     11,300         128,049   

Nordstrom, Inc.

     5,630         452,202   

Ryohin Keikaku Co. Ltd.

     700         101,648   
 

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    13


Schedule of Investments (continued)         
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Multiline Retail (concluded)

     

Sears Holdings Corp. (d)

     5,671       $ 234,666   

Seria Co. Ltd.

     2,100         75,967   

Takashimaya Co. Ltd.

     13,000         127,707   

Target Corp.

     10,418         855,005   
     

 

 

 
                5,535,641   

Oil, Gas & Consumable Fuels — 0.1%

     

Inpex Corp.

     23,900         263,349   

JX Holdings, Inc.

     54,100         208,158   

Longview Energy Co. (Acquired 8/13/04,
cost $48,000) (d)(f)

     3,200         5,632   

Matador Resources Co. (Acquired 4/13/06,
cost $8,451) (d)(f)

     939         20,583   

Nippon Gas Co. Ltd.

     3,100         76,536   

Showa Shell Sekiyu KK

     14,400         131,523   
     

 

 

 
                705,781   

Paper & Forest Products — 0.0%

     

Ainsworth Lumber Co. Ltd. (d)

     26,991         74,495   

Ainsworth Lumber Co. Ltd. (b)(d)

     19,432         53,545   

Daio Paper Corp.

     8,000         68,539   

Oji Holdings Corp.

     32,000         130,930   
     

 

 

 
                327,509   

Personal Products — 0.3%

     

Dr Ci:Labo Co. Ltd.

     1,900         66,334   

The Estee Lauder Cos., Inc., Class A

     18,938         1,574,884   

Kao Corp.

     5,900         294,611   

Kobayashi Pharmaceutical Co. Ltd.

     1,700         121,652   

Kose Corp.

     2,500         137,879   

Shiseido Co. Ltd.

     10,100         179,175   
     

 

 

 
                2,374,535   

Pharmaceuticals — 1.8%

     

Astellas Pharma, Inc.

     23,600         386,684   

AstraZeneca PLC

     52,568         3,607,119   

Chugai Pharmaceutical Co. Ltd.

     8,900         280,892   

Daiichi Sankyo Co. Ltd.

     12,700         201,814   

Eisai Co. Ltd.

     4,200         298,737   

Hisamitsu Pharmaceutical Co., Inc.

     3,100         127,321   

Kaken Pharmaceutical Co. Ltd.

     3,000         86,729   

KYORIN Holdings, Inc.

     4,000         95,626   

Kyowa Hakko Kirin Co. Ltd.

     103,000         1,342,586   

Mitsubishi Tanabe Pharma Corp.

     11,800         202,434   

Mochida Pharmaceutical Co. Ltd.

     1,300         85,347   

Novo Nordisk A/S, Class B

     32,146         1,716,075   

Ono Pharmaceutical Co. Ltd.

     2,500         282,110   

Otsuka Holdings Co. Ltd.

     8,900         278,425   

Rohto Pharmaceutical Co. Ltd.

     6,900         98,074   

Santen Pharmaceutical Co. Ltd.

     11,000         160,444   

Sawai Pharmaceutical Co. Ltd.

     1,500         88,827   

Shionogi & Co. Ltd.

     6,200         206,401   

Shire PLC

     19,075         1,520,711   

Sumitomo Dainippon Pharma Co. Ltd.

     13,200         156,344   

Taisho Pharmaceutical Holdings Co. Ltd.

     2,600         193,186   

Takeda Pharmaceutical Co. Ltd.

     8,300         414,319   

Teva Pharmaceutical Industries Ltd. — ADR

     26,980         1,680,854   

Towa Pharmaceutical Co. Ltd.

     1,100         62,885   

Tsumura & Co.

     3,100         76,558   
     

 

 

 
                13,650,502   

Professional Services — 0.6%

     

Bureau Veritas SA

     30,060         644,927   

Meitec Corp.

     2,500         83,603   

Nihon M&A Center, Inc.

     3,000         103,382   

Randstad Holding NV

     11,715         710,160   

Recruit Holdings Co. Ltd.

     73,500         2,293,307   
Common Stocks    Shares      Value  

Professional Services (concluded)

     

Teleperformance

     3,637       $ 249,249   

Temp Holdings Co. Ltd.

     3,200         110,412   
     

 

 

 
                4,195,040   

Real Estate Management & Development — 0.3%

     

Aeon Mall Co. Ltd.

     6,000         118,819   

Daikyo, Inc.

     52,000         78,369   

Daito Trust Construction Co. Ltd.

     1,700         189,832   

Daiwa House Industry Co. Ltd.

     10,200         201,045   

Hulic Co. Ltd.

     12,600         141,574   

Leopalace21 Corp. (d)

     16,900         88,466   

Mitsubishi Estate Co. Ltd.

     14,000         324,688   

Mitsui Fudosan Co. Ltd.

     10,000         293,680   

Nomura Real Estate Holdings, Inc.

     6,000         108,055   

NTT Urban Development Corp.

     11,900         118,867   

Relo Holdings, Inc.

     900         79,625   

Sumitomo Real Estate Sales Co. Ltd.

     3,100         84,211   

Sumitomo Realty & Development Co. Ltd.

     6,000         216,008   

Takara Leben Co. Ltd.

     11,800         63,195   

Tokyo Tatemono Co. Ltd.

     13,000         95,242   

Tokyu Fudosan Holdings Corp.

     17,500         119,360   
     

 

 

 
                2,321,036   

Road & Rail — 0.3%

     

Central Japan Railway Co.

     1,700         307,223   

East Japan Railway Co.

     3,600         288,482   

Hankyu Hanshin Holdings, Inc.

     23,000         142,080   

Keio Corp.

     19,000         148,809   

Keisei Electric Railway Co. Ltd.

     8,000         99,292   

Kintetsu Corp.

     37,000         135,749   

Nagoya Railroad Co. Ltd.

     28,000         111,806   

Nankai Electric Railway Co. Ltd.

     23,000         95,019   

Nippon Express Co. Ltd.

     33,000         184,381   

Nishi-Nippon Railroad Co. Ltd.

     19,000         87,045   

Odakyu Electric Railway Co. Ltd.

     14,000         142,589   

Sankyu, Inc.

     18,000         78,294   

Senko Co. Ltd.

     10,000         64,788   

Sotetsu Holdings, Inc.

     17,000         78,744   

Tobu Railway Co. Ltd.

     26,000         123,181   

Tokyu Corp.

     24,000         148,483   

West Japan Railway Co.

     3,200         167,777   
     

 

 

 
                2,403,742   

Semiconductors & Semiconductor Equipment — 0.3%

  

  

Disco Corp.

     1,100         112,234   

MediaTek, Inc.

     114,000         1,539,657   

Nuflare Technology, Inc.

     900         39,990   

Sanken Electric Co. Ltd.

     10,000         69,089   

Shindengen Electric Manufacturing Co. Ltd.

     11,000         54,849   

Tokyo Electron Ltd.

     3,900         270,519   
     

 

 

 
                2,086,338   

Software — 0.3%

     

GungHo Online Entertainment, Inc.

     40,700         158,994   

Nexon Co. Ltd.

     14,600         155,477   

Oracle Corp.

     3,500         150,618   

Trend Micro, Inc.

     48,700         1,604,690   
     

 

 

 
                2,069,779   

Specialty Retail — 3.3%

     

Aaron’s, Inc. (d)

     5,500         155,705   

ABC-Mart, Inc.

     2,200         128,668   

Abercrombie & Fitch Co., Class A

     4,505         99,290   

Advance Auto Parts, Inc.

     2,404         359,855   

American Eagle Outfitters, Inc.

     11,506         196,522   

ANN, Inc. (d)

     4,104         168,387   
 

 

See Notes to Financial Statements.

 

14    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Schedule of Investments (continued)         
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Specialty Retail (concluded)

     

AOKI Holdings, Inc.

     5,900       $ 83,391   

Ascena Retail Group, Inc. (d)

     12,945         187,832   

AutoNation, Inc. (d)

     4,685         301,386   

AutoZone, Inc. (d)

     820         559,371   

Bed Bath & Beyond, Inc. (d)

     5,496         421,955   

Best Buy Co., Inc.

     8,186         309,349   

The Buckle, Inc.

     3,670         187,500   

Cabela’s, Inc. (d)

     4,035         225,879   

CarMax, Inc. (d)

     6,572         453,534   

Chico’s FAS, Inc.

     9,883         174,830   

CST Brands, Inc.

     2,910         127,545   

Dick’s Sporting Goods, Inc.

     4,700         267,853   

DSW, Inc., Class A

     5,485         202,287   

Fast Retailing Co. Ltd.

     1,100         425,324   

Foot Locker, Inc.

     4,406         277,578   

GameStop Corp., Class A

     4,072         154,573   

The Gap, Inc.

     7,821         338,884   

Genesco, Inc. (d)

     2,159         153,786   

GNC Holdings, Inc., Class A

     5,133         251,876   

Gulliver International Co. Ltd.

     8,800         72,370   

Hikari Tsushin, Inc.

     1,500         97,148   

The Home Depot, Inc.

     12,208         1,386,951   

Inditex SA

     197,285         6,333,945   

Kingfisher PLC

     554,284         3,127,296   

Komeri Co. Ltd.

     3,000         70,647   

K’s Holdings Corp.

     2,700         87,311   

L Brands, Inc.

     5,537         522,084   

Lowe’s Companies, Inc.

     13,114         975,550   

Lumber Liquidators Holdings, Inc. (d)

     2,389         73,533   

The Men’s Wearhouse, Inc.

     2,747         143,393   

Nitori Holdings Co. Ltd.

     2,100         142,156   

O’Reilly Automotive, Inc. (d)

     2,440         527,626   

Penske Automotive Group, Inc.

     3,174         163,429   

Pier 1 Imports, Inc.

     9,025         126,169   

Ross Stores, Inc.

     5,353         563,992   

Sally Beauty Holdings, Inc. (d)

     6,355         218,421   

Sanrio Co. Ltd.

     3,700         98,837   

Shimamura Co. Ltd.

     1,200         111,145   

Signet Jewelers Ltd.

     2,558         355,025   

Staples, Inc.

     15,667         255,137   

T-Gaia Corp.

     4,300         56,879   

Tiffany & Co.

     2,406         211,752   

The TJX Cos., Inc.

     8,775         614,689   

Tractor Supply Co.

     4,546         386,683   

Ulta Salon Cosmetics & Fragrance, Inc. (d)

     2,417         364,604   

United Arrows Ltd.

     2,100         62,332   

Urban Outfitters, Inc. (d)

     5,735         261,803   

USS Co. Ltd.

     8,300         143,420   

VT Holdings Co. Ltd.

     11,400         49,926   

Williams-Sonoma, Inc.

     2,281         181,819   

World Duty Free SpA (d)

     16,520         177,645   

Yamada Denki Co. Ltd.

     32,600         134,245   
     

 

 

 
                24,311,122   

Technology Hardware, Storage & Peripherals — 0.2%

     

Brother Industries Ltd.

     8,900         141,402   

Canon, Inc.

     12,400         438,728   

Elecom Co. Ltd.

     2,800         58,164   

FUJIFILM Holdings Corp.

     8,600         305,958   

Konica Minolta, Inc.

     16,200         164,176   

NEC Corp.

     58,000         170,371   

Ricoh Co. Ltd.

     15,100         164,189   

Seiko Epson Corp.

     9,200         162,944   

Wacom Co. Ltd.

     15,200         73,221   
     

 

 

 
                1,679,153   
Common Stocks    Shares      Value  

Textiles, Apparel & Luxury Goods — 2.8%

     

adidas AG

     15,236       $ 1,203,080   

Asics Corp.

     5,500         149,668   

Brunello Cucinelli SpA

     4,380         77,096   

Carter’s, Inc.

     2,614         241,717   

Christian Dior SE

     12,554         2,362,876   

Cie Financiere Richemont SA, Registered Shares

     21,887         1,758,640   

Coach, Inc.

     6,484         268,632   

Columbia Sportswear Co.

     2,727         166,074   

Deckers Outdoor Corp. (d)

     1,867         136,048   

Fossil Group, Inc. (d)

     1,321         108,916   

Gerry Weber International AG

     2,961         102,171   

Hanesbrands, Inc.

     11,600         388,716   

HUGO BOSS AG

     4,678         568,336   

Iconix Brand Group, Inc. (d)

     3,149         106,027   

Kering

     8,609         1,680,633   

lululemon athletica, inc. (d)

     2,905         185,978   

Luxottica Group SpA

     29,964         1,897,784   

LVMH Moet Hennessy Louis Vuitton SA

     36,077         6,348,916   

Moncler SpA

     17,680         296,393   

NIKE, Inc., Class B

     4,173         418,677   

PVH Corp.

     2,161         230,276   

Ralph Lauren Corp.

     1,886         248,009   

Salvatore Ferragamo SpA

     11,814         377,998   

Seiko Holdings Corp.

     13,000         65,534   

Steven Madden Ltd. (d)

     4,396         167,048   

Tod’s SpA

     2,085         188,870   

Under Armour, Inc., Class A (d)

     5,049         407,707   

VF Corp.

     5,897         444,103   

Wolverine World Wide, Inc.

     4,656         155,743   
     

 

 

 
                20,751,666   

Tobacco — 0.3%

     

Imperial Tobacco Group PLC

     37,203         1,631,949   

Japan Tobacco, Inc.

     13,700         433,124   
     

 

 

 
                2,065,073   

Trading Companies & Distributors — 0.4%

     

BayWa AG

     2,320         90,763   

Brenntag AG

     9,507         567,990   

ITOCHU Corp.

     22,500         243,492   

Iwatani Corp.

     13,000         85,163   

Kanamoto Co. Ltd.

     2,400         69,079   

Kanematsu Corp.

     34,000         49,433   

Kloeckner & Co. SE (d)

     6,927         65,977   

Marubeni Corp.

     30,000         173,445   

MISUMI Group, Inc.

     3,200         128,964   

Mitsubishi Corp.

     15,700         315,473   

Mitsui & Co. Ltd.

     21,700         290,610   

MonotaRO Co. Ltd.

     2,900         105,033   

Nippon Steel & Sumikin Bussan Corp.

     17,000         58,709   

Nishio Rent All Co. Ltd.

     2,400         69,036   

Rexel SA

     18,850         355,430   

Sojitz Corp.

     64,000         106,992   

Sumitomo Corp.

     19,700         210,218   

Toyota Tsusho Corp.

     6,700         177,266   

Yuasa Trading Co. Ltd.

     2,500         52,280   
     

 

 

 
                3,215,353   

Transportation Infrastructure — 0.6%

     

Abertis Infraestructuras SA

     60,429         1,092,224   

Aeroports de Paris

     6,490         775,709   

Ansaldo STS SpA

     12,911         130,815   

Atlantia SpA

     55,254         1,450,984   

Fraport AG Frankfurt Airport Services Worldwide

     6,003         358,569   
 

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    15


Schedule of Investments (continued)         
     (Percentages shown are based on Net Assets)   

 

Common Stocks           

    

Shares

     Value  

Transportation Infrastructure (concluded)

  

     

Groupe Eurotunnel SA, Registered Shares

        34,682       $ 497,200   

Hamburger Hafen und Logistik AG

        4,801         100,750   

Societa Iniziative Autostradali e Servizi SpA

        15,108         175,843   
        

 

 

 
                         4,582,094   

Wireless Telecommunication Services — 0.6%

  

     

KDDI Corp.

        18,900         426,999   

NTT DOCOMO, Inc.

        29,200         510,300   

SoftBank Corp.

        8,900         518,331   

Vodafone Group PLC

        940,770         3,078,491   
        

 

 

 
                         4,534,121   

Total Common Stocks — 41.6%

                       309,350,416   
        
       
Corporate Bonds            Par  
(000)
         

Aerospace & Defense — 0.1%

        

Airbus Group Finance BV, 2.70%, 4/17/23 (b)

     USD         500         502,184   

Airlines — 0.0%

        

Ryanair Ltd., 1.88%, 6/17/21

     EUR         200         226,144   

Auto Components — 0.2%

        

AA Bond Co. Ltd., 5.50%, 7/31/22

     GBP         200         299,645   

Delphi Automotive PLC, 1.50%, 3/10/25

     EUR         325         347,694   

Faurecia, 3.13%, 6/15/22

        375         404,528   

Schaeffler Finance BV, 3.25%, 5/15/25

        225         241,381   
        

 

 

 
                         1,293,248   

Automobiles — 0.1%

        

Volkswagen International Finance NV,
2.00%, 1/14/20

              400         459,982   

Banks — 3.0%

        

Abbey National Treasury Services PLC:

        

4.25%, 4/12/21

        500         664,108   

5.25%, 2/16/29

     GBP         200         399,181   

Akbank TAS, 5.00%, 10/24/22

     USD         200         200,900   

Asian Development Bank, 2.35%, 6/21/27

     JPY         20,000         204,289   

Banca Monte dei Paschi di Siena SpA,
2.88%, 4/16/22

     EUR         300         361,974   

Banco Popular Espanol SA, 2.13%, 10/08/19

        100         115,759   

Bank of America Corp., 5.70%, 1/24/22

     USD         600         701,543   

Bank of Ireland:

        

1.25%, 4/09/20

     EUR         150         160,432   

10.00%, 12/19/22

        100         147,345   

Bankia SA, 4.00%, 5/22/24 (a)

        400         437,023   

Barclays Bank PLC, 6.00%, 1/14/21

        100         132,521   

CaixaBank SA, 2.63%, 3/21/24

        200         252,734   

Canadian Imperial Bank of Commerce,
2.60%, 7/02/15 (b)

     USD         290         291,499   

Carrefour Banque SA, 2.88%, 9/25/15

     EUR         94         102,365   

Cooperatieve Centrale Raiffeisen- Boerenleenbank BA, 2.50%, 5/26/26 (a)

        225         250,652   

Credit Agricole SA:

        

2.38%, 5/20/24

        200         238,945   

2.63%, 3/17/27

        125         137,939   

Danske Bank A/S:

        

3.88%, 5/18/16

        500         559,984   

3.88%, 10/04/23 (a)

        300         350,102   

2.75%, 5/19/26 (a)

        100         113,873   

Dexia Credit Local SA, 0.63%, 1/21/22

        1,600         1,741,726   

Heta Asset Resolution AG, 2.38%, 12/13/22

        1,300         1,525,155   

HSBC Bank Brasil SA — Banco Multiplo,
4.00%, 5/11/16 (b)

     USD         680         690,200   

ING Bank NV, 3.38%, 1/11/18

     EUR         250         294,112   
Corporate Bonds            Par  
(000)
     Value  

Banks (concluded)

        

Intesa Sanpaolo SpA:

        

1.13%, 1/14/20

     EUR         350       $ 379,464   

6.63%, 9/13/23

        200         276,202   

3.38%, 1/24/25

        200         271,211   

3.25%, 2/10/26

        100         136,544   

Intesa Sanpaolo Vita SpA, 5.35%, 9/18/18

        100         121,902   

JPMorgan Chase & Co., 1.38%, 9/16/21

        525         581,836   

KBC Groep NV, 2.38%, 11/25/24 (a)

        600         665,902   

KFW:

        

1.13%, 12/23/19

     GBP         200         296,539   

1.50%, 4/20/20

     USD         5,200         5,197,228   

Lloyds Bank PLC:

        

6.50%, 3/24/20

     EUR         300         401,560   

4.00%, 9/29/20

        250         323,732   

1.00%, 11/19/21

        225         244,874   

Macquarie Bank Ltd.:

        

2.50%, 9/18/18

        200         229,254   

2.60%, 6/24/19 (b)

     USD         800         811,326   

Nordea Bank AB, 4.88%, 5/13/21 (b)

        800         877,201   

The Royal Bank of Scotland PLC, 7.50%, 4/29/24

     GBP         100         206,043   

Société Générale SFH, 2.88%, 3/14/19

     EUR         500         597,497   

Swedbank AB, 3.00%, 12/05/22 (a)

        384         436,376   

UniCredit SpA, 3.00%, 1/31/24

        180         233,210   

Wells Fargo & Co., 5.38%, 11/02/43

     USD         100         117,798   
        

 

 

 
                         22,480,060   

Beverages — 0.1%

        

PepsiCo, Inc., 3.60%, 8/13/42

              400         387,888   

Biotechnology — 0.0%

        

Gilead Sciences, Inc., 4.50%, 2/01/45

              300         331,325   

Capital Markets — 0.4%

        

Credit Suisse AG, 1.00%, 3/12/19

     EUR         525         581,877   

Deutsche Bank AG:

        

2.75%, 2/17/25

        300         331,060   

4.50%, 4/01/25

     USD         300         299,674   

The Goldman Sachs Group, Inc., 5.75%, 1/24/22

        700         817,151   

Morgan Stanley, 3.75%, 2/25/23

        650         680,770   

UBS AG, 4.75%, 2/12/26 (a)

     EUR         175         209,311   
        

 

 

 
                         2,919,843   

Chemicals — 0.2%

        

Brenntag Finance BV, 5.50%, 7/19/18

        400         493,310   

LYB International Finance BV, 4.88%, 3/15/44

     USD         100         107,415   

Monsanto Co., 4.20%, 7/15/34

        500         535,822   
        

 

 

 
                         1,136,547   

Commercial Services & Supplies — 0.0%

        

Paprec Holding, 5.25%, 4/01/22

     EUR         100         110,213   

Pitney Bowes, Inc., 4.63%, 3/15/24

     USD         200         209,790   
        

 

 

 
                         320,003   

Construction & Engineering — 0.1%

        

ACS Actividades de Construccion y Servicios SA,
2.88%, 4/01/20

     EUR         400         435,367   

Consumer Finance — 0.0%

        

Ally Financial, Inc., 3.50%, 1/27/19

     USD         139         137,263   

Containers & Packaging — 0.0%

        

Smurfit Kappa Acquisitions, 2.75%, 2/01/25

     EUR         150         164,532   

Diversified Financial Services — 0.7%

        

American Honda Finance Corp., 1.88%, 9/04/19

        500         571,556   
 

 

See Notes to Financial Statements.

 

16    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Schedule of Investments (continued)         
     (Percentages shown are based on Net Assets)   

 

Corporate Bonds            Par  
(000)
     Value  

Diversified Financial Services (concluded)

        

APT Pipelines Ltd.:

        

1.38%, 3/22/22

     EUR         200       $ 215,544   

2.00%, 3/22/27

        375         405,215   

AyT Cedulas Cajas X Fondo de Titulizacion,
3.75%, 6/30/25

        200         267,637   

Caisse Centrale du Credit Immobilier de France SA, 0.50%, 5/19/17

        1,000         1,087,181   

Cedulas TDA 6 Fondo de Titulizacion de Activos, 4.25%, 4/10/31

        100         148,016   

Fundacion Bancaria Caixa d’Estalvis i Pensions de Barcelona, 2.38%, 5/09/19

        200         226,725   

Imperial Tobacco Finance PLC, 3.38%, 2/26/26

        170         212,365   

JPMorgan Chase Bank, NA, 6.00%, 10/01/17

     USD         445         492,546   

LCR Finance PLC, 4.50%, 12/07/38

     GBP         30         60,916   

The NASDAQ OMX Group, Inc., 3.88%, 6/07/21

     EUR         200         248,213   

Nationwide Building Society:

        

3.13%, 4/03/17

        100         113,643   

4.13%, 3/20/23 (a)

        150         173,957   

1.25%, 3/03/25

        700         761,313   

Old Mutual PLC, 7.13%, 10/19/16

     GBP         200         320,671   
        

 

 

 
                         5,305,498   

Diversified Telecommunication Services — 0.2%

        

AT&T Inc., 4.80%, 6/15/44

     USD         500         512,015   

Sunrise Communications Holdings SA, 2.13%, 3/31/22

     CHF         425         431,166   

Verizon Communications, Inc.:

        

3.50%, 11/01/21

     USD         240         250,869   

6.40%, 2/15/38

        200         249,315   

6.55%, 9/15/43

        150         195,324   
        

 

 

 
                         1,638,689   

Electric Utilities — 0.2%

        

Alabama Power Co., 3.95%, 6/01/21

        220         243,177   

Berkshire Hathaway Energy Co., 6.50%, 9/15/37

        150         203,069   

Enel Finance International NV, 5.63%, 8/14/24

     GBP         100         180,905   

ESB Finance Ltd., 6.25%, 9/11/17

     EUR         200         245,631   

Georgia Power Co., 3.00%, 4/15/16

     USD         390         399,682   

PacifiCorp, 6.25%, 10/15/37

        100         137,450   
        

 

 

 
                         1,409,914   

Electrical Equipment — 0.0%

        

Vestas Wind Systems A/S, 2.75%, 3/11/22

     EUR         275         293,105   

Food & Staples Retailing — 0.1%

        

Wal-Mart Stores, Inc., 4.00%, 4/11/43

     USD         500         530,369   

WM Morrison Supermarkets PLC, 4.63%, 12/08/23

     GBP         300         478,291   
        

 

 

 
                         1,008,660   

Gas Utilities — 0.1%

        

Gas Natural Finance BV, 3.88%, 1/17/23

     EUR         100         130,336   

KeySpan Gas East Corp., 5.82%, 4/01/41 (b)

     USD         185         245,287   

Southern Gas Networks PLC, 2.50%, 2/03/25

     GBP         150         220,206   
        

 

 

 
                         595,829   

Health Care Equipment & Supplies — 0.2%

        

CareFusion Corp., 4.88%, 5/15/44

     USD         150         166,270   

Covidien International Finance SA, 3.20%, 6/15/22

        500         519,243   

Medtronic, Inc., 4.38%, 3/15/35 (b)

        625         679,652   

Mölnlycke Holding AB, 1.50%, 2/28/22

     EUR         100         111,562   

Stryker Corp., 4.38%, 5/15/44

     USD         200         210,305   
        

 

 

 
                         1,687,032   
Corporate Bonds            Par  
(000)
     Value  

Health Care Providers & Services — 0.1%

        

Laboratory Corp. of America Holdings:

        

3.60%, 2/01/25

     USD         300       $ 301,224   

4.70%, 2/01/45

        100         102,930   

McKesson Corp., 4.88%, 3/15/44

        100         114,761   
        

 

 

 
                         518,915   

Hotels, Restaurants & Leisure — 0.2%

        

Accor SA, 2.63%, 2/05/21

     EUR         600         697,115   

Merlin Entertainments PLC, 2.75%, 3/15/22

        125         135,414   

Wyndham Worldwide Corp.:

        

4.25%, 3/01/22

     USD         330         344,395   

3.90%, 3/01/23

        200         203,860   
        

 

 

 
                         1,380,784   

Household Durables — 0.0%

        

Indesit Co. SpA, 4.50%, 4/26/18

     EUR         300         357,430   

Independent Power and Renewable Electricity Producers — 0.1%

  

  

Comision Federal de Electricidad, 4.88%, 1/15/24

     USD         200         213,000   

Southern Electric Power Distribution PLC,
4.63%, 2/20/37

     GBP         100         178,193   
        

 

 

 
                         391,193   

Industrial Conglomerates — 0.1%

        

Smiths Group PLC, 4.13%, 5/05/17

     EUR         500         575,638   

Insurance — 0.3%

        

AIA Group Ltd., 3.13%, 3/13/23

     USD         600         606,690   

Allianz SE, 2.40%, 7/07/45 (a)

     EUR         300         322,100   

Aon PLC, 2.88%, 5/14/26

        200         246,461   

Aviva PLC, 6.13%, 11/14/36 (a)

     GBP         100         173,820   

NN Group NV:

        

1.00%, 3/18/22

     EUR         275         294,187   

4.63%, 4/08/44 (a)

        200         241,902   

Talanx AG, 3.13%, 2/13/23

        100         124,772   
        

 

 

 
                         2,009,932   

Internet & Catalog Retail — 0.1%

        

Expedia, Inc., 4.50%, 8/15/24

     USD         300         303,203   

The Priceline Group, Inc., 1.80%, 3/03/27

     EUR         350         374,944   
        

 

 

 
                         678,147   

Internet Software & Services — 0.1%

        

Alibaba Group Holding Ltd., 3.13%, 11/28/21 (b)

     USD         450         453,173   

Baidu, Inc.:

        

2.75%, 6/09/19

        200         202,070   

3.50%, 11/28/22

        200         203,047   
        

 

 

 
                         858,290   

IT Services — 0.1%

        

MasterCard Inc., 3.38%, 4/01/24

              425         447,433   

Life Sciences Tools & Services — 0.0%

        

Life Technologies Corp., 6.00%, 3/01/20

              230         265,625   

Media — 0.2%

        

Altice SA, 6.25%, 2/15/25

     EUR         150         161,247   

Sky PLC, 3.75%, 9/16/24 (b)

     USD         425         439,384   

Time Warner Cable, Inc.:

        

5.00%, 2/01/20

        150         167,394   

4.50%, 9/15/42

        6         6,155   

Unitymedia Hessen GmbH & Co. KG/Unitymedia NRW GmbH, 3.50%, 1/15/27

     EUR         200         216,049   

Virgin Media Finance PLC, 4.50%, 1/15/25

        125         140,750   
        

 

 

 
                         1,130,979   
 

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    17


Schedule of Investments (continued)         
     (Percentages shown are based on Net Assets)   

 

Corporate Bonds            Par  
(000)
     Value  

Multi-Utilities — 0.1%

        

Centrica PLC, 6.38%, 3/10/22

     GBP         100       $ 185,069   

Dominion Resources, Inc., 1.95%, 8/15/16

     USD         305         308,622   
        

 

 

 
                         493,691   

Oil, Gas & Consumable Fuels — 0.3%

        

Enterprise Products Operating LLC, Series L,
6.30%, 9/15/17

        250         279,088   

Kinder Morgan, Inc., 5.30%, 12/01/34

        300         309,924   

Orlen Capital AB, 2.50%, 6/30/21

     EUR         100         111,281   

Petroleos Mexicanos:

        

4.88%, 1/18/24

     USD         400         423,400   

5.63%, 1/23/46

        229         232,435   

Petronas Capital Ltd., 4.50%, 3/18/45

        300         301,306   

Vier Gas Transport GmbH, 3.13%, 7/10/23

     EUR         150         189,640   
        

 

 

 
                         1,847,074   

Paper & Forest Products — 0.0%

        

Metsa Board OYJ, 4.00%, 3/13/19

              100         116,530   

Pharmaceuticals — 0.2%

        

Actavis Funding SCS:

        

3.80%, 3/15/25

     USD         150         154,805   

4.55%, 3/15/35

        150         156,348   

4.75%, 3/15/45

        75         79,714   

Bayer U.S. Finance LLC, 3.00%, 10/08/21 (b)

        275         284,518   

Novartis Capital Corp., 4.40%, 5/06/44

        300         345,512   

VRX Escrow Corp., 4.50%, 5/15/23

     EUR         350         378,688   
        

 

 

 
                         1,399,585   

Professional Services — 0.1%

        

Experian Finance PLC, 4.75%, 11/23/18

     GBP         400         659,730   

Real Estate Investment Trusts (REITs) — 0.2%

        

American Tower Corp., 3.50%, 1/31/23

     USD         500         495,619   

Gecina SA, 1.75%, 7/30/21

     EUR         200         225,243   

Goodman Funding Pty. Ltd., 6.38%, 4/15/21 (b)

     USD         400         469,213   

Ventas Realty LP/Ventas Capital Corp.,
4.75%, 6/01/21

        135         149,037   

WEA Finance LLC/Westfield UK & Europe Finance PLC:

        

2.70%, 9/17/19 (b)

        200         202,458   

4.75%, 9/17/44 (b)

        200         217,674   
        

 

 

 
                         1,759,244   

Real Estate Management & Development — 0.2%

  

  

Citycon OYJ, 3.75%, 6/24/20

     EUR         547         661,472   

Grand City Properties SA, 2.00%, 10/29/21

        100         111,019   

Tesco Property Finance 1 PLC, 7.62%, 7/13/39

     GBP         330         598,092   
        

 

 

 
                         1,370,583   

Road & Rail — 0.1%

        

National Express Group PLC, 6.63%, 6/17/20

        400         707,521   

Network Rail Infrastructure Finance PLC,
3.00%, 9/07/23

        100         164,120   
        

 

 

 
                         871,641   

Semiconductors & Semiconductor Equipment — 0.1%

  

  

ASML Holding NV, 3.38%, 9/19/23

     EUR         200         255,485   

Intel Corp., 4.25%, 12/15/42

     USD         200         208,373   

TSMC Global Ltd., 1.63%, 4/03/18 (b)

        300         297,406   
        

 

 

 
                         761,264   
Corporate Bonds            Par  
(000)
     Value  

Software — 0.1%

        

Adobe Systems, Inc., 3.25%, 2/01/25

     USD         400       $ 404,295   

Specialty Retail — 0.1%

        

Marks & Spencer PLC, 4.75%, 6/12/25

     GBP         200         334,639   

O’Reilly Automotive, Inc., 3.80%, 9/01/22

     USD         500         522,329   
        

 

 

 
                         856,968   

Technology Hardware, Storage & Peripherals — 0.0%

  

  

Seagate HDD Cayman, 4.75%, 1/01/25 (b)

              250         258,873   

Textiles, Apparel & Luxury Goods — 0.1%

        

LVMH Moet Hennessy Louis Vuitton SA,
1.63%, 6/29/17 (b)

              800         808,002   

Thrifts & Mortgage Finance — 0.0%

        

Achmea Bank NV, 2.75%, 2/18/21

     EUR         150         177,196   

Tobacco — 0.2%

        

Altria Group, Inc., 2.85%, 8/09/22

     USD         800         795,299   

BAT International Finance PLC, 2.00%, 3/13/45

     EUR         150         161,111   

Imperial Tobacco Finance PLC, 4.88%, 6/07/32

     GBP         100         171,933   

Philip Morris International, Inc., 3.88%, 8/21/42

     USD         300         295,340   

Reynolds American, Inc., 4.75%, 11/01/42

        200         206,295   
        

 

 

 
                         1,629,978   

Trading Companies & Distributors — 0.0%

        

Travis Perkins PLC, 4.38%, 9/15/21

     GBP         200         311,497   

Transportation Infrastructure — 0.1%

        

Brisa Concessao Rodoviaria SA, 3.88%, 4/01/21

     EUR         100         122,034   

Manchester Airport Group Funding PLC,
4.75%, 3/31/34

     GBP         100         173,857   

Silk Bidco AS, 7.50%, 2/01/22

     EUR         200         222,576   

Transurban Finance Co. Pty. Ltd, 1.88%, 9/16/24

        475         540,594   
        

 

 

 
                         1,059,061   

Wireless Telecommunication Services — 0.3%

  

     

Crown Castle Towers LLC, 6.11%, 1/15/40 (b)

     USD         500         570,390   

EE Finance PLC, 4.38%, 3/28/19

     GBP         200         323,183   

SK Telecom Co. Ltd., 2.13%, 5/01/18 (b)

     USD         950         956,965   

Telefonica Emisiones SAU, 4.71%, 1/20/20

     EUR         100         127,241   
        

 

 

 
                         1,977,779   

Total Corporate Bonds — 9.2%

                       68,110,470   
        
Foreign Agency Obligations                        

Banco Nacional de Desenvolvimento Economico e Social, 5.75%, 9/26/23 (b)

     USD         200         206,040   

Caisse d’Amortissement de la Dette Sociale:

        

1.88%, 2/12/22 (b)

        1,200         1,199,340   

1.38%, 11/25/24

     EUR         220         256,693   

Canada Housing Trust No. 1:

        

2.75%, 6/15/16

     CAD         400         323,761   

3.35%, 12/15/20

        250         220,668   

2.55%, 3/15/25

        140         118,164   

CDP Financial, Inc., 3.15%, 7/24/24 (b)

     USD         300         311,300   

CNOOC Curtis Funding No. 1 Pty Ltd.,
4.50%, 10/03/23 (b)

        200         217,196   
 

 

See Notes to Financial Statements.

 

18    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Schedule of Investments (continued)         
     (Percentages shown are based on Net Assets)   

 

  
Foreign Agency Obligations
        

Par  

(000)

     Value  

Development Bank of Japan (20 Year),
1.05%, 6/20/23

   JPY      50,000       $ 440,636   

European Financial Stability Facility:

        

1.50%, 1/22/20

   EUR      250         288,623   

2.35%, 7/29/44

        410         625,267   

European Investment Bank:

        

1.25%, 5/15/18

   USD      600         603,996   

1.50%, 4/15/21

   EUR      1,150         1,349,799   

1.88%, 2/10/25

   USD      1,568         1,545,488   

2.15%, 1/18/27

   JPY      20,000         199,840   

3.88%, 6/08/37

   GBP      100         188,398   

FMS Wertmanagement AoeR, 0.63%, 1/30/17

   USD      1,446         1,444,824   

Hydro-Quebec:

        

8.40%, 1/15/22

        405         549,795   

5.00%, 2/15/50

   CAD      100         115,922   

Instituto de Credito Oficial, 4.75%, 4/30/20

   EUR      200         259,036   

Japan Bank for International Cooperation,
3.00%, 5/29/24

   USD      200         212,718   

Propertize BV, 0.50%, 2/27/17

   EUR      500         543,241   

SNCF Reseau, 5.25%, 12/07/28

   GBP      60         118,802   

Total Foreign Agency Obligations — 1.5%

                   11,339,547   
        
Foreign Government Obligations                      

Australia — 0.4%

        

Commonwealth of Australia:

        

4.75%, 6/15/16

   AUD      900         709,551   

5.50%, 4/21/23

        500         473,037   

3.25%, 4/21/25

        280         230,856   

4.75%, 4/21/27

        150         141,468   

New South Wales Treasury Corp.:

        

6.00%, 2/01/18

        400         338,658   

6.00%, 5/01/30

        50         52,002   

Queensland Treasury Corp.:

        

6.25%, 2/21/20

        400         360,476   

4.75%, 7/21/25

        100         88,865   

Treasury Corp. of Victoria, 6.00%, 6/15/20

        250         226,058   

Western Australian Treasury Corp., 5.00%, 7/23/25

        140         127,272   
        

 

 

 
                     2,748,243   

Austria — 0.1%

        

Republic of Austria, 1.65%, 10/21/24

   EUR      570         689,521   

Belgium — 0.4%

        

Kingdom of Belgium:

        

3.50%, 6/28/17

        550         640,053   

2.60%, 6/22/24

        920         1,189,811   

0.80%, 6/22/25

        400         445,316   

3.75%, 6/22/45

        200         365,832   
        

 

 

 
                     2,641,012   

Brazil — 0.1%

        

Federative Republic of Brazil, 8.88%, 4/15/24

   USD      300         396,000   

Canada — 0.7%

        

Government of Canada:

        

1.75%, 3/01/19

   CAD      900         742,142   

8.00%, 6/01/27

        370         504,451   

4.00%, 6/01/41

        490         544,666   

Province of Alberta, 3.10%, 6/01/24

        200         173,823   

Province of British Columbia, 4.80%, 6/15/21

        350         332,593   

Province of Manitoba:

        

4.30%, 3/01/16

        200         163,051   

1.75%, 5/30/19

   USD      490         495,673   

3.30%, 6/02/24

   CAD      140         122,806   

Province of New Brunswick, 3.80%, 8/14/45

        60         55,381   
Foreign Government Obligations         

Par  

(000)

     Value  

Canada (concluded)

        

Province of Ontario:

        

4.30%, 3/08/17

   CAD      600       $ 505,411   

6.20%, 6/02/31

        400         467,222   

3.50%, 6/02/43

        200         178,046   

Province of Quebec:

        

4.50%, 12/01/19

        500         453,515   

2.75%, 9/01/25

        140         116,487   

5.00%, 12/01/41

        150         165,037   
        

 

 

 
                     5,020,304   

Czech Republic — 0.0%

        

Czech Republic, 3.85%, 9/29/21

   CZK      4,300         207,622   

Denmark — 0.1%

        

Kingdom of Denmark:

        

4.00%, 11/15/19

   DKK      3,200         550,304   

4.50%, 11/15/39

        540         146,905   
        

 

 

 
                     697,209   

Finland — 0.1%

        

Republic of Finland:

        

1.13%, 9/15/18

   EUR      20         22,440   

0.63%, 9/15/20

        400         438,739   
        

 

 

 
                     461,179   

France — 0.6%

        

France Government Bond OAT:

        

1.75%, 11/25/24

        1,700         2,055,329   

2.50%, 5/25/30

        550         737,126   

3.25%, 5/25/45

        1,160         1,932,743   
        

 

 

 
                     4,725,198   

Germany — 0.2%

        

Federal Republic of Germany:

        

5.50%, 1/04/31

        350         667,733   

2.50%, 7/04/44

        640         1,042,489   
        

 

 

 
                     1,710,222   

Indonesia — 0.0%

        

Republic of Indonesia, 4.13%, 1/15/25

   USD      308         316,085   

Ireland — 0.3%

        

Republic of Ireland:

        

3.40%, 3/18/24

   EUR      1,670         2,222,291   

2.00%, 2/18/45

        220         270,507   
        

 

 

 
                     2,492,798   

Israel — 0.1%

        

State of Israel:

        

4.25%, 8/31/16

   ILS      1,000         265,994   

3.75%, 3/31/24

        400         119,106   
        

 

 

 
                     385,100   

Italy — 0.7%

        

Buoni Poliennali Del Tesoro:

        

1.15%, 5/15/17

   EUR      1,250         1,371,122   

2.15%, 12/15/21

        2,350         2,732,648   

3.25%, 9/01/46

        700         952,743   
        

 

 

 
                     5,056,513   

Ivory Coast — 0.0%

        

African Development Bank, 1.63%, 10/02/18

   USD      100         101,521   

Japan — 4.4%

        

Government of Japan (5 Year):

        

Series 102, 0.30%, 12/20/16

   JPY      430,000         3,601,305   

Series 105, 0.20%, 6/20/17

        195,000         1,631,303   

Series 113, 0.30%, 6/20/18

        280,000         2,354,092   
 

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    19


Schedule of Investments (continued)         
     (Percentages shown are based on Net Assets)   

 

Foreign Government Obligations         

Par  

(000)

     Value  

Japan (concluded)

        

Government of Japan (10 Year):

        

Series 300, 1.50%, 3/20/19

   JPY      485,000       $ 4,268,522   

Series 309, 1.10%, 6/20/20

        155,000         1,357,631   

Series 313, 1.30%, 3/20/21

        210,000         1,870,060   

Series 323, 0.90%, 6/20/22

        290,000         2,539,405   

Series 325, 0.80%, 9/20/22

        85,000         739,208   

Government of Japan (20 Year):

        

Series 76, 1.90%, 3/20/25

        75,000         718,202   

Series 94, 2.10%, 3/20/27

        370,000         3,645,559   

Series 127, 1.90%, 3/20/31

        82,000         794,771   

Series 137, 1.70%, 6/20/32

        237,000         2,216,033   

Series 146, 1.70%, 9/20/33

        140,000         1,299,351   

Government of Japan (30 Year):

        

Series 26, 2.40%, 3/20/37

        100,000         1,020,383   

Series 36, 2.00%, 3/20/42

        137,000         1,317,905   

Series 42, 1.70%, 3/20/44

        65,000         586,780   

Government of Japan (40 Year),
Series 5, 2.00%, 3/20/52

        42,000         406,073   

Japan Finance Organization for Municipalities:

        

2.00%, 5/09/16

        100,000         851,068   

2.38%, 2/13/25 (b)

   USD      1,100         1,086,754   
        

 

 

 
                     32,304,405   

Malaysia — 0.1%

        

Federation of Malaysia, 3.58%, 9/28/18

   MYR      1,200         325,422   

Mexico — 0.1%

        

United Mexican States:

        

6.50%, 6/09/22

   MXN      7,500         513,965   

7.75%, 5/29/31

        1,000         74,875   

8.30%, 8/15/31

   USD      194         297,790   
        

 

 

 
                     886,630   

Netherlands — 0.2%

        

Kingdom of the Netherlands:

        

0.50%, 4/15/17

   EUR      400         436,209   

1.25%, 1/15/19

        450         508,765   

1.75%, 7/15/23

        220         266,437   

5.50%, 1/15/28

        100         175,475   
        

 

 

 
                     1,386,886   

New Zealand — 0.0%

        

Government of New Zealand, 5.00%, 3/15/19

   NZD      300         239,814   

Norway — 0.0%

        

Kingdom of Norway, 2.00%, 5/24/23

   NOK      800         104,087   

Panama — 0.0%

        

Republic of Panama, 4.00%, 9/22/24

   USD      200         209,500   

Poland — 0.1%

        

Republic of Poland:

        

1.63%, 1/15/19

   EUR      400         452,291   

5.13%, 4/21/21

   USD      200         229,760   

5.00%, 3/23/22

        250         287,188   
        

 

 

 
                     969,239   

Singapore — 0.0%

        

Republic of Singapore, 2.25%, 6/01/21

   SGD      350         257,371   

South Africa — 0.1%

        

Republic of South Africa:

        

5.50%, 3/09/20

   USD      100         109,687   

7.00%, 2/28/31

   ZAR      3,000         220,801   

8.75%, 2/28/48

        700         59,918   
        

 

 

 
                     390,406   
Foreign Government Obligations         

Par  

(000)

     Value  

Spain — 0.6%

        

Kingdom of Spain:

        

2.10%, 4/30/17

   EUR      600       $ 671,529   

3.80%, 4/30/24

        1,000         1,320,150   

1.60%, 4/30/25

        930         1,035,826   

5.15%, 10/31/28

        1,020         1,581,010   
        

 

 

 
                     4,608,515   

Sweden — 0.1%

        

Kingdom of Sweden:

        

3.75%, 8/12/17

   SEK      6,000         763,837   

3.50%, 6/01/22

        1,000         143,286   

2.50%, 5/12/25

        540         75,412   
        

 

 

 
                     982,535   

Thailand — 0.1%

        

Kingdom of Thailand:

        

3.45%, 3/08/19

   THB      13,500         434,306   

4.85%, 6/17/61

        3,000         108,063   
        

 

 

 
                     542,369   

Turkey — 0.0%

        

Republic of Turkey, 8.80%, 11/14/18

   TRY      600         234,104   

United Kingdom — 1.2%

        

United Kingdom Gilt:

        

1.75%, 1/22/17

   GBP      1,500         2,278,269   

3.75%, 9/07/19

        200         332,028   

3.75%, 9/07/21

        250         427,291   

5.00%, 3/07/25

        800         1,557,961   

4.25%, 6/07/32

        650         1,268,326   

4.50%, 12/07/42

        990         2,134,053   

4.25%, 12/07/55

        320         725,766   

3.50%, 7/22/68

        100         203,892   
        

 

 

 
                     8,927,586   

Total Foreign Government Obligations — 10.8%

  

     80,017,396   
  
Investment Companies — 3.2%          Shares          

iShares 1-3 Year Credit Bond ETF (g)

          221,827         23,409,403   
        
Non-Agency Mortgage-Backed Securities         

 

Par  

(000)

         

Collateralized Mortgage Obligations — 0.4%

        

Fosse Master Issuer PLC, Series 2015-1X, Class A3, 0.82%, 10/18/54 (a)(h)

   GBP      290         430,184   

Granite Master Issuer PLC:

        

Series 2006-2, Class A4,
0.26%, 12/20/54 (a)

   USD      410         408,299   

Series 2007-1, Class 5A1,
0.73%, 12/20/54 (a)

   GBP      124         183,606   

Lanark Master Issuer PLC, Series 2014-2X,
Class 1A, 0.45%, 12/22/54 (a)(h)

   EUR      800         862,214   

Silverstone Master Issuer PLC, Series 2015-1X,
Class 1A, 0.91%, 1/21/70

   GBP      445         661,478   

Storm BV, Series 2014-2, Class A1,
0.32%, 3/22/51 (a)(h)

   EUR      80         86,619   
        

 

 

 
                     2,632,400   

Commercial Mortgage-Backed Securities — 0.1%

  

  

Banc of America Commercial Mortgage Trust,
Series 2007-1, Class AMFX,
5.48%, 1/15/49 (a)

   USD      30         31,263   

COBALT CMBS Commercial Mortgage Trust,
Series 2006-C1, Class A4,
5.22%, 8/15/48

        286         300,390   
 

 

See Notes to Financial Statements.

 

20    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Schedule of Investments (continued)         
     (Percentages shown are based on Net Assets)   

 

Non-Agency Mortgage-Backed Securities         

Par  

(000)

     Value  

Commercial Mortgage-Backed Securities (concluded)

  

  

Greenwich Capital Commercial Funding Corp.,
Series 2006-GG7, Class AJ,
5.79%, 7/10/38 (a)

   USD      170       $ 173,991   

JPMorgan Chase Commercial Mortgage Securities Trust, Series 2006-CB14, Class AM,
5.43%, 12/12/44 (a)

        180         184,595   

LB-UBS Commercial Mortgage Trust, Series 2007-C1,
Class AM, 5.46%, 2/15/40

        165         176,256   
        

 

 

 
                     866,495   

Total Non-Agency Mortgage-Backed Securities — 0.5%

  

     3,498,895   
  
U.S. Government Sponsored Agency Securities                      

Agency Obligations — 0.2%

        

Fannie Mae, 6.63%, 11/15/30

        200         301,019   

Federal Home Loan Bank, 5.63%, 6/13/16

        890         944,610   

Small Business Administration Participation Certificates, Series 1997-20F, Class 1,
7.20%, 6/01/17

        40         41,996   

Tennessee Valley Authority, 5.25%, 9/15/39

        145         189,863   
        

 

 

 
                     1,477,488   

Collateralized Mortgage Obligations — 0.0%

        

Freddie Mac:

        

Series K712, Class A2, 1.87%, 11/25/19

        180         181,944   

Series K029, Class A2, 3.32%, 2/25/23

        130         139,770   
        

 

 

 
                     321,714   

Mortgage-Backed Securities — 3.3%

        

Fannie Mae Mortgage-Backed Securities:

        

2.50%, 4/01/30 (i)

        640         657,300   

3.00%, 4/01/30-4/01/45 (i)

        2,380         2,446,665   

3.50%, 4/01/30-4/01/45 (i)

        2,850         3,003,272   

4.00%, 4/01/30-4/01/45 (i)

        2,240         2,390,236   

4.50%, 4/01/45 (i)

        950         1,036,391   

5.00%, 4/01/45 (i)

        540         600,455   

5.50%, 4/01/45 (i)

        390         439,420   

6.00%, 4/01/45 (i)

        340         387,866   

Freddie Mac Mortgage-Backed Securities:

        

2.50%, 4/01/30 (i)

        430         440,884   

3.00%, 4/01/30-4/01/45 (i)

        1,320         1,361,119   

3.50%, 4/01/30-4/01/45 (i)

        1,340         1,406,821   

4.00%, 4/01/30-4/01/45 (i)

        1,340         1,428,373   

4.50%, 4/01/45 (i)

        900         980,086   

5.00%, 4/01/45 (i)

        380         421,384   

5.50%, 4/01/45 (i)

        300         336,609   

6.00%, 4/01/45 (i)

        200         227,539   

Ginnie Mae Mortgage-Backed Securities:

        

3.00%, 4/15/45 (i)

        1,130         1,163,426   

3.50%, 4/15/45 (i)

        1,700         1,788,947   

4.00%, 4/15/45 (i)

        1,320         1,416,525   

4.50%, 4/15/45 (i)

        830         915,101   

5.00%, 4/15/45 (i)

        870         969,540   

5.50%, 4/15/45 (i)

        170         191,755   

6.00%, 4/15/44 (i)

        120         136,592   
        

 

 

 
                     24,146,306   

Total U.S. Government Sponsored Agency Securities — 3.5%

  

     25,945,508   
U.S. Treasury Obligations   

Par  

(000)

     Value  

U.S. Treasury Bonds:

     

5.25%, 11/15/28

   USD 500       $ 682,539   

5.38%, 2/15/31

     1,000         1,420,938   

5.00%, 5/15/37

     570         828,460   

4.38%, 5/15/41

     950         1,294,821   

3.00%, 5/15/42

     1,068         1,165,122   

3.38%, 5/15/44

     500         585,742   

U.S. Treasury Inflation Indexed Notes, 0.25%, 1/15/25

     2,220         2,235,700   

U.S. Treasury Notes:

     

0.88%, 7/15/17

     4,000         4,020,000   

1.00%, 6/30/19

     2,380         2,355,829   

2.50%, 5/15/24

     500         525,234   

Total U.S. Treasury Obligations — 2.0%

  

     15,114,385   

Total Long-Term Investments

(Cost — $544,764,132) — 72.8%

              540,686,234   
     
Short-Term Securities    Shares          

BlackRock Liquidity Funds, TempFund, Institutional Class, 0.06% (g)(j)

     211,570,778         211,570,778   
     

Beneficial
Interest

(000)

         

BlackRock Liquidity Series, LLC, Money Market Series, 0.22% (g)(j)(k)

   $ 345         344,954   

Total Short-Term Securities (Cost — $211,915,732) — 28.5%

  

     211,915,732   
     
Options Purchased                

(Cost — $24,441) — 0.0%

              55,087   

Total Investments Before Options Written

(Cost — $756,704,305) — 101.3%

  

  

     752,657,053   
  
Options Written                

(Premiums Received — $ 266,989) — (0.0)%

  

     (291,931

Total Investments Net of Options Written — 101.3%

  

     752,365,122   

Liabilities in Excess of Other Assets — (1.3)%

  

     (9,654,668
     

 

 

 

Net Assets — 100.0%

      $ 742,710,454   
     

 

 

 
 

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    21


Schedule of Investments (continued)     

 

Notes to Schedule of Investments

 

(a) Variable rate security. Rate shown is as of report date.

 

(b) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors.

 

(c) Represents a payment-in-kind security which may pay interest/dividends in additional par/shares and/or in cash. Rates shown are the current rate and possible payment rates.

 

(d) Non-income producing security.

 

(e) Security, or a portion of security, is on loan.

 

(f) Restricted security as to resale. As of report date, the Fund held less than 0.01% of its net assets, with a current value of $26,215 and an original cost of $56,451 of its net assets.

 

(g) During the six months ended March 31, 2015, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate   

Shares/

Beneficial

Interest

Held at
September 30, 2014

     Shares/
Beneficial Interest
Purchased
    Shares/
Beneficial Interest
Sold
   

Shares/
Beneficial
Interest

Held at
March 31, 2015

    

Value at

March 31, 2015

     Income      Realized
Gain
 

BlackRock Liquidity Funds, TempFund, Institutional Class

     420,264,224                208,693,446 1      211,570,778       $ 211,570,778       $ 79,525       $ 28,007   

BlackRock Liquidity Series, LLC, Money Market Series

           $ 344,954 2           $ 344,954       $ 344,954       $ 4,913           

iShares 1-3 Year Credit Bond ETF

     221,827                       221,827       $ 23,409,403       $ 115,184           

 

  1   

Represents net shares sold.

 

  2   

Represents net beneficial interest purchased.

 

(h) Represents a step-up bond that pays an initial coupon rate for the first period and then a higher coupon rate for the following periods. Rate shown is as of report date.

 

(i) Represents or includes a TBA transaction. As of March 31, 2015, unsettled TBA transactions were as follows:

 

Counterparty    Value      Unrealized
Appreciation
 

Barclays Capital, Inc.

   $ 4,874,515       $ 31,196   

Citigroup Global Markets, Inc.

   $ 4,933,685       $ 30,382   

Deutsche Bank Securities, Inc.

   $ 2,418,939       $ 13,107   

Goldman Sachs & Co.

   $ 6,704,561       $ 47,359   

Merrill Lynch, Pierce, Fenner & Smith, Inc.

   $ 795,722       $ 8,166   

Morgan Stanley & Co. LLC

   $ 4,418,884       $ 39,602   

 

(j) Represents the current yield as of report date.

 

(k) Security was purchased with the cash collateral from loaned securities. The Fund may withdraw up to 25% of its investment daily, although the manager of the BlackRock Liquidity Series, LLC, Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.

 

Ÿ  

For Fund compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 

Ÿ  

As of March 31, 2015, financial futures contracts outstanding were as follows:

 

Contracts
Long/
(Short)
    Issue   Exchange   Expiration    

Notional

Value

    Unrealized
Appreciation
(Depreciation)
 
  70      IBEX 35 Index   Madrid     April 2015        USD        8,648,427      $ 390,306   
  2,882      SGX CNX Nifty Index   Singapore     April 2015        USD        49,218,796        (754,366
  445      Australian Government Bonds (3 Year)   Sydney     June 2015        USD        38,180,889        174,776   
  111      Australian Government Bonds (10 Year)   Sydney     June 2015        USD        11,216,745        193,559   
  10      Canadian Government Bonds (10 Year)   Montreal     June 2015        USD        1,126,998        (688
  19      Euro-Bobl   Eurex     June 2015        USD        2,644,212        (77
  29      Euro-Schatz   Eurex     June 2015        USD        3,468,232        1,899   
  80      FTSE/MIB Index   Milan     June 2015        USD        9,813,982        188,544   
  9      Nikkei 225 Index   Osaka     June 2015        USD        1,441,531        42,918   
  37      U.S. Treasury Notes (2 Year)   Chicago Board of Trade     June 2015        USD        8,108,781        (17,223
  137      U.S. Treasury Notes (5 Year)   Chicago Board of Trade     June 2015        USD        16,468,899        (109,789
  79      U.S. Treasury Notes (10 Year)   Chicago Board of Trade     June 2015        USD        10,183,594        (72,984
  (85   AUD Currency Futures   Chicago Mercantile     June 2015        USD        6,443,850        50,705   
  (33   CHF Currency Futures   Chicago Mercantile     June 2015        USD        4,254,938        (143,869
  (91   EUR Currency Futures   Chicago Mercantile     June 2015        USD        12,232,675        (163,092
  (734   E-Mini S&P 500 Futures   Chicago Mercantile     June 2015        USD        75,631,360        275,165   
  (22   Euro-Bund   Eurex     June 2015        USD        3,755,532        (7,528

 

See Notes to Financial Statements.

 

22    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Schedule of Investments (continued)     

 

Ÿ  

As of March 31, 2015, financial futures contracts outstanding were as follows: (concluded)

 

Contracts
Long/
(Short)
    Issue   Exchange     Expiration            Notional
Value
    Unrealized
Appreciation
(Depreciation)
 
  (2   Euro-Buxl     Eurex        June 2015        USD        378,831      $ (24,471
  (156   FTSE 100 Index     London        June 2015        USD        15,566,904        103,281   
  (168   GBP Currency Futures     Chicago Mercantile        June 2015        USD        15,578,850        64,697   
  (19   Long Gilt British     NYSE Liffe        June 2015        USD        3,403,274        (6,175
  (94   JPY Currency Futures     Chicago Mercantile        June 2015        USD        9,806,550        (112,069
  (10   SEK Currency Futures     Chicago Mercantile        June 2015        USD        23,228        23   
  (9   U.S. Treasury Bonds (30 Year)     Chicago Board of Trade        June 2015        USD        1,474,875        4,342   
  (1,070   U.S. Treasury Notes (2 Year)     Chicago Board of Trade        June 2015        USD        234,497,187        (498,056
  (820   U.S. Treasury Notes (5 Year)     Chicago Board of Trade        June 2015        USD        98,572,970        (657,133
  (397   U.S. Treasury Notes (10 Year)     Chicago Board of Trade        June 2015        USD        51,175,781        (366,768
  (6   U.S. Ultra Treasury Bonds     Chicago Board of Trade        June 2015        USD        1,019,250        7,226   
  Total                $ (1,436,847
           

 

 

 

 

Ÿ  

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows:

 

Currency
Purchased
       Currency
Sold
    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
BRL        690,000           USD           215,423      Deutsche Bank AG     4/02/15         $ 658   
BRL        840,000           USD           269,058      Deutsche Bank AG     4/02/15           (6,003
BRL        990,000           USD           303,216      Deutsche Bank AG     4/02/15           6,814   
BRL        600,000           USD           190,900      Goldman Sachs International     4/02/15           (3,004
BRL        798,098           USD           277,103      JPMorgan Chase Bank N.A.     4/02/15           (27,170
BRL        501,902           USD           174,120      Morgan Stanley & Co. International PLC     4/02/15           (16,944
USD        35,971           BRL           114,128      Barclays Bank PLC     4/02/15           231   
USD        430,179           BRL           1,300,000      Deutsche Bank AG     4/02/15           23,069   
USD        71,942           BRL           227,799      Goldman Sachs International     4/02/15           605   
USD        185,128           BRL           600,000      JPMorgan Chase Bank N.A.     4/02/15           (2,769
USD        600,939           BRL           1,920,000      JPMorgan Chase Bank N.A.     4/02/15           (331
USD        81,349           BRL           258,074      Morgan Stanley & Co. International PLC     4/02/15           530   
AUD        3,640,000           USD           2,779,944      Westpac Banking Corp.     4/07/15           (8,725
CAD        6,893,436           USD           5,442,692      HSBC Bank PLC     4/07/15           (471
CHF        430,000           USD           442,790      HSBC Bank PLC     4/07/15           (182
CZK        4,700,000           USD           183,194      HSBC Bank PLC     4/07/15           161   
DKK        4,400,000           USD           632,547      HSBC Bank PLC     4/07/15           829   
EUR        13,265,000           USD           14,247,407      Deutsche Bank AG     4/07/15           17,123   
EUR        13,265,000           USD           14,247,407      Goldman Sachs International     4/07/15           17,123   
EUR        13,265,000           USD           14,247,468      Morgan Stanley & Co. International PLC     4/07/15           17,061   
EUR        13,265,000           USD           14,247,459      UBS AG     4/07/15           17,071   
GBP        2,995,000           USD           4,445,883      Deutsche Bank AG     4/07/15           (3,333
GBP        2,995,000           USD           4,445,898      Goldman Sachs International     4/07/15           (3,348
GBP        300,000           USD           463,514      JPMorgan Chase Bank N.A.     4/07/15           (18,518
GBP        2,990,000           USD           4,438,655      Morgan Stanley & Co. International PLC     4/07/15           (3,522
GBP        2,995,000           USD           4,445,868      UBS AG     4/07/15           (3,318
ILS        2,000,000           USD           502,940      HSBC Bank PLC     4/07/15           (342
JPY        965,900,000           USD           8,054,201      Deutsche Bank AG     4/07/15           229   
JPY        965,900,000           USD           8,054,872      Goldman Sachs International     4/07/15           (442
JPY        965,900,000           USD           8,054,201      Morgan Stanley & Co. International PLC     4/07/15           229   
JPY        965,900,000           USD           8,054,818      UBS AG     4/07/15           (388
MXN        10,150,000           USD           666,222      HSBC Bank PLC     4/07/15           (1,119
NOK        5,350,000           USD           663,846      HSBC Bank PLC     4/07/15           139   
NZD        350,000           USD           262,342      Westpac Banking Corp.     4/07/15           (871

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    23


Schedule of Investments (continued)     

 

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows: (continued)

 

Currency
Purchased
       Currency
Sold
    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
SEK        11,400,000           USD           1,321,971      HSBC Bank PLC     4/07/15         $ 1,882   
SGD        400,000           USD           291,585      HSBC Bank PLC     4/07/15           (164
THB        19,200,000           USD           589,929      HSBC Bank PLC     4/07/15           (87
TRY        600,000           USD           231,080      HSBC Bank PLC     4/07/15           (684
USD        2,843,572           AUD           3,640,000      UBS AG     4/07/15           72,353   
USD        373,203           CAD           470,000      Citibank N.A.     4/07/15           2,148   
USD        5,141,443           CAD           6,423,436      UBS AG     4/07/15           70,277   
USD        454,173           CHF           430,000      Deutsche Bank AG     4/07/15           11,565   
USD        191,859           CZK           4,700,000      Deutsche Bank AG     4/07/15           8,504   
USD        662,122           DKK           4,400,000      UBS AG     4/07/15           28,745   
USD        271,559           EUR           250,000      Citibank N.A.     4/07/15           2,722   
USD        14,452,197           EUR           12,880,000      Deutsche Bank AG     4/07/15           601,677   
USD        850,252           EUR           800,000      Goldman Sachs International     4/07/15           (10,029
USD        561,041           EUR           500,000      JPMorgan Chase Bank N.A.     4/07/15           23,366   
USD        14,441,182           EUR           12,870,000      JPMorgan Chase Bank N.A.     4/07/15           601,416   
USD        14,452,326           EUR           12,880,000      Morgan Stanley & Co. International PLC     4/07/15           601,806   
USD        14,452,339           EUR           12,880,000      UBS AG     4/07/15           601,819   
USD        1,828,108           GBP           1,210,000      Citibank N.A.     4/07/15           33,288   
USD        3,962,976           GBP           2,565,000      Deutsche Bank AG     4/07/15           158,255   
USD        440,374           GBP           300,000      Goldman Sachs International     4/07/15           (4,623
USD        3,970,591           GBP           2,570,000      JPMorgan Chase Bank N.A.     4/07/15           158,453   
USD        3,963,035           GBP           2,565,000      Morgan Stanley & Co. International PLC     4/07/15           158,314   
USD        736,678           GBP           500,000      UBS AG     4/07/15           (4,983
USD        3,963,043           GBP           2,565,000      UBS AG     4/07/15           158,322   
USD        501,637           ILS           2,000,000      Deutsche Bank AG     4/07/15           (961
USD        7,930,789           JPY           947,650,000      Deutsche Bank AG     4/07/15           28,542   
USD        610,933           JPY           73,000,000      JPMorgan Chase Bank N.A.     4/07/15           2,202   
USD        7,930,789           JPY           947,650,000      JPMorgan Chase Bank N.A.     4/07/15           28,542   
USD        7,931,061           JPY           947,650,000      Morgan Stanley & Co. International PLC     4/07/15           28,814   
USD        7,930,789           JPY           947,650,000      UBS AG     4/07/15           28,542   
USD        106,396           MXN           1,650,000      Citibank N.A.     4/07/15           (1,724
USD        567,120           MXN           8,500,000      Deutsche Bank AG     4/07/15           10,137   
USD        700,496           NOK           5,350,000      Deutsche Bank AG     4/07/15           36,511   
USD        263,988           NZD           350,000      Deutsche Bank AG     4/07/15           2,516   
USD        1,367,210           SEK           11,400,000      Deutsche Bank AG     4/07/15           43,356   
USD        293,794           SGD           400,000      Deutsche Bank AG     4/07/15           2,373   
USD        592,410           THB           19,200,000      Deutsche Bank AG     4/07/15           2,568   
USD        228,753           TRY           600,000      Citibank N.A.     4/07/15           (1,644
USD        255,982           ZAR           3,000,000      UBS AG     4/07/15           8,944   
ZAR        3,000,000           USD           247,399      HSBC Bank PLC     4/07/15           (361
AUD        2,220,000           USD           1,798,489      Deutsche Bank AG     4/16/15           (109,279
CAD        2,882,000           USD           2,410,755      Credit Suisse International     4/16/15           (135,728
BRL        1,920,000           USD           596,033      JPMorgan Chase Bank N.A.     5/05/15           (145
USD        456,355           BRL           1,490,000      JPMorgan Chase Bank N.A.     5/05/15           (6,078
EUR        420,000           USD           451,271      Citibank N.A.     5/06/15           557   
SEK        3,200,000           USD           371,227      HSBC Bank PLC     5/06/15           547   
USD        2,775,333           AUD           3,640,000      Westpac Banking Corp.     5/06/15           8,902   
USD        5,440,497           CAD           6,893,436      HSBC Bank PLC     5/06/15           301   
USD        443,276           CHF           430,000      HSBC Bank PLC     5/06/15           135   

 

See Notes to Financial Statements.

 

24    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Schedule of Investments (continued)     

 

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows: (continued)

 

Currency
Purchased
       Currency
Sold
    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
USD        183,251           CZK           4,700,000      HSBC Bank PLC     5/06/15         $ (179
USD        633,149           DKK           4,400,000      HSBC Bank PLC     5/06/15           (894
USD        14,252,779           EUR           13,265,000      Deutsche Bank AG     5/06/15           (17,463
USD        14,253,044           EUR           13,265,000      Goldman Sachs International     5/06/15           (17,198
USD        14,252,794           EUR           13,265,000      Morgan Stanley & Co. International PLC     5/06/15           (17,447
USD        14,252,528           EUR           13,265,000      UBS AG     5/06/15           (17,714
USD        4,445,149           GBP           2,995,000      Deutsche Bank AG     5/06/15           3,486   
USD        4,445,104           GBP           2,995,000      Goldman Sachs International     5/06/15           3,441   
USD        4,437,809           GBP           2,990,000      Morgan Stanley & Co. International PLC     5/06/15           3,561   
USD        4,445,083           GBP           2,995,000      UBS AG     5/06/15           3,420   
USD        502,883           ILS           2,000,000      HSBC Bank PLC     5/06/15           290   
USD        664,909           MXN           10,150,000      HSBC Bank PLC     5/06/15           1,135   
USD        663,236           NOK           5,350,000      HSBC Bank PLC     5/06/15           (177
USD        261,601           NZD           350,000      Westpac Banking Corp.     5/06/15           901   
USD        1,322,496           SEK           11,400,000      HSBC Bank PLC     5/06/15           (1,950
USD        291,345           SGD           400,000      HSBC Bank PLC     5/06/15           136   
USD        588,392           THB           19,200,000      HSBC Bank PLC     5/06/15           (661
USD        229,279           TRY           600,000      HSBC Bank PLC     5/06/15           757   
USD        246,221           ZAR           3,000,000      HSBC Bank PLC     5/06/15           403   
GBP        2,548,000           USD           3,746,363      Goldman Sachs International     5/07/15           32,362   
JPY        25,000,000           USD           208,559      Barclays Bank PLC     5/07/15           3   
USD        3,832,332           GBP           2,548,000      Citibank N.A.     5/07/15           53,607   
USD        8,057,224           JPY           965,900,000      Deutsche Bank AG     5/07/15           (794
USD        8,057,862           JPY           965,900,000      Goldman Sachs International     5/07/15           (155
USD        8,057,392           JPY           965,900,000      Morgan Stanley & Co. International PLC     5/07/15           (626
USD        208,556           JPY           25,000,000      UBS AG     5/07/15           (6
USD        8,057,775           JPY           965,900,000      UBS AG     5/07/15           (243
AUD        270,000           USD           209,712      Bank of America N.A.     6/10/15           (4,895
AUD        550,000           USD           422,494      Bank of America N.A.     6/10/15           (5,273
AUD        134,000           USD           104,543      Barclays Bank PLC     6/10/15           (2,893
AUD        291,555           USD           222,267      Barclays Bank PLC     6/10/15           (1,099
AUD        269,000           USD           208,978      Citibank N.A.     6/10/15           (4,920
AUD        979,000           USD           748,246      Credit Suisse International     6/10/15           (5,594
AUD        124,505           USD           94,452      Goldman Sachs International     6/10/15           (5
AUD        44,000           USD           33,792      HSBC Bank PLC     6/10/15           (414
AUD        306,000           USD           240,749      JPMorgan Chase Bank N.A.     6/10/15           (8,623
AUD        404,000           USD           317,852      JPMorgan Chase Bank N.A.     6/10/15           (11,385
AUD        713,000           USD           542,600      JPMorgan Chase Bank N.A.     6/10/15           (1,731
AUD        81,495           USD           61,730      UBS AG     6/10/15           91   
AUD        256,446           USD           195,501      UBS AG     6/10/15           (966
AUD        1,600,000           USD           1,230,336      UBS AG     6/10/15           (16,605
AUD        2,730,999           USD           2,100,029      UBS AG     6/10/15           (28,342
CAD        738,000           USD           582,187      Citibank N.A.     6/10/15           (62
CAD        94,000           USD           73,801      Royal Bank of Canada     6/10/15           345   
EUR        65,690           PLN           270,000      Barclays Bank PLC     6/10/15           (377
EUR        176,234           PLN           730,000      Barclays Bank PLC     6/10/15           (2,497
EUR        175,595           PLN           730,000      Credit Suisse International     6/10/15           (3,184
EUR        246,662           PLN           1,020,000      Credit Suisse International     6/10/15           (3,039
EUR        243,000           USD           257,414      Barclays Bank PLC     6/10/15           4,127   

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    25


Schedule of Investments (continued)     

 

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows: (continued)

 

Currency
Purchased
       Currency
Sold
    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
EUR        315,000           USD           346,261      Barclays Bank PLC     6/10/15         $ (7,226
EUR        190,000           USD           200,373      BNP Paribas S.A.     6/10/15           4,124   
EUR        417,000           USD           454,578      Citibank N.A.     6/10/15           (5,761
EUR        760,000           USD           830,616      Citibank N.A.     6/10/15           (12,628
EUR        283,000           USD           307,921      Credit Suisse International     6/10/15           (3,328
EUR        343,000           USD           372,666      Credit Suisse International     6/10/15           (3,495
EUR        565,000           USD           598,618      Credit Suisse International     6/10/15           9,492   
EUR        93,000           USD           98,593      Deutsche Bank AG     6/10/15           1,503   
EUR        1,073,000           USD           1,166,957      Goldman Sachs International     6/10/15           (12,087
EUR        190,000           USD           200,068      HSBC Bank PLC     6/10/15           4,429   
EUR        786,000           USD           854,852      HSBC Bank PLC     6/10/15           (8,880
EUR        190,000           USD           200,526      JPMorgan Chase Bank N.A.     6/10/15           3,971   
EUR        423,000           USD           448,633      JPMorgan Chase Bank N.A.     6/10/15           6,642   
EUR        1,070,000           USD           1,171,051      JPMorgan Chase Bank N.A.     6/10/15           (19,410
EUR        512,000           USD           563,064      Morgan Stanley & Co. International PLC     6/10/15           (11,998
EUR        900,000           USD           961,817      Morgan Stanley & Co. International PLC     6/10/15           6,853   
EUR        925,000           USD           1,015,747      State Street Bank and Trust Co.     6/10/15           (20,169
EUR        216,000           USD           227,727      UBS AG     6/10/15           4,754   
EUR        260,000           USD           280,584      UBS AG     6/10/15           (746
EUR        260,000           USD           282,632      UBS AG     6/10/15           (2,794
EUR        262,000           USD           278,498      UBS AG     6/10/15           3,493   
GBP        61,000           USD           91,978      Barclays Bank PLC     6/10/15           (1,535
GBP        85,000           USD           128,293      Barclays Bank PLC     6/10/15           (2,266
GBP        170,000           USD           252,131      Barclays Bank PLC     6/10/15           (76
GBP        240,000           USD           354,708      Barclays Bank PLC     6/10/15           1,134   
GBP        291,204           USD           431,417      Barclays Bank PLC     6/10/15           344   
GBP        296,000           USD           441,885      Barclays Bank PLC     6/10/15           (3,013
GBP        563,193           USD           847,048      Barclays Bank PLC     6/10/15           (12,016
GBP        170,442           USD           252,418      Citibank N.A.     6/10/15           293   
GBP        1,031,000           USD           1,529,824      Citibank N.A.     6/10/15           (1,185
GBP        170,000           USD           252,060      Credit Suisse International     6/10/15           (5
GBP        458,000           USD           680,037      Credit Suisse International     6/10/15           (972
GBP        511,000           USD           771,745      Credit Suisse International     6/10/15           (14,098
GBP        50,000           USD           74,465      Goldman Sachs International     6/10/15           (331
GBP        55,807           USD           83,944      Goldman Sachs International     6/10/15           (1,200
GBP        136,354           USD           201,905      Goldman Sachs International     6/10/15           263   
GBP        192,000           USD           287,011      Goldman Sachs International     6/10/15           (2,337
GBP        163,000           USD           241,443      HSBC Bank PLC     6/10/15           233   
GBP        282,000           USD           422,143      HSBC Bank PLC     6/10/15           (4,028
GBP        420,000           USD           634,570      HSBC Bank PLC     6/10/15           (11,847
GBP        455,000           USD           676,234      HSBC Bank PLC     6/10/15           (1,617
GBP        60,000           USD           88,778      JPMorgan Chase Bank N.A.     6/10/15           183   
GBP        172,000           USD           255,639      UBS AG     6/10/15           (619
INR        17,100,000           USD           271,127      Credit Suisse International     6/10/15           (2,103
INR        12,100,000           USD           190,611      HSBC Bank PLC     6/10/15           (249
INR        13,500,000           USD           214,082      Morgan Stanley & Co. International PLC     6/10/15           (1,694
INR        16,900,000           USD           265,713      UBS AG     6/10/15           165   
INR        19,300,000           USD           303,889      UBS AG     6/10/15           (254
JPY        24,915,000           USD           208,637      Bank of America N.A.     6/10/15           (693

 

See Notes to Financial Statements.

 

26    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Schedule of Investments (continued)     

 

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows: (continued)

 

Currency
Purchased
       Currency
Sold
    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
JPY        24,915,000           USD           208,672      Bank of America N.A.     6/10/15         $ (728
JPY        27,250,000           USD           225,322      Bank of America N.A.     6/10/15           2,110   
JPY        27,250,000           USD           225,565      Bank of America N.A.     6/10/15           1,867   
JPY        39,500,000           USD           332,028      Bank of America N.A.     6/10/15           (2,355
JPY        42,400,000           USD           354,148      Bank of America N.A.     6/10/15           (271
JPY        9,200,000           USD           75,991      Barclays Bank PLC     6/10/15           794   
JPY        13,800,000           USD           115,927      Barclays Bank PLC     6/10/15           (751
JPY        15,500,000           USD           129,355      Barclays Bank PLC     6/10/15           11   
JPY        16,600,000           USD           137,434      Barclays Bank PLC     6/10/15           1,112   
JPY        16,968,652           USD           140,190      Barclays Bank PLC     6/10/15           1,433   
JPY        37,400,000           USD           314,518      Barclays Bank PLC     6/10/15           (2,372
JPY        25,670,000           USD           215,122      BNP Paribas S.A.     6/10/15           (877
JPY        40,200,000           USD           336,495      Citibank N.A.     6/10/15           (980
JPY        111,400,000           USD           935,817      Citibank N.A.     6/10/15           (6,056
JPY        41,481,392           USD           342,678      Credit Suisse International     6/10/15           3,532   
JPY        7,500,000           USD           61,871      Goldman Sachs International     6/10/15           726   
JPY        16,886,562           USD           139,579      Goldman Sachs International     6/10/15           1,359   
JPY        27,149,956           USD           224,304      Goldman Sachs International     6/10/15           2,294   
JPY        37,500,000           USD           309,353      Goldman Sachs International     6/10/15           3,628   
JPY        6,500,000           USD           53,809      HSBC Bank PLC     6/10/15           441   
JPY        6,513,438           USD           53,846      Morgan Stanley & Co. International PLC     6/10/15           516   
JPY        15,900,000           USD           131,389      UBS AG     6/10/15           1,315   
JPY        11,700,000           USD           98,148      Westpac Banking Corp.     6/10/15           (498
KRW        237,600,000           USD           214,247      Barclays Bank PLC     6/10/15           (578
KRW        299,300,000           USD           268,647      HSBC Bank PLC     6/10/15           508   
KRW        299,500,000           USD           270,796      JPMorgan Chase Bank N.A.     6/10/15           (1,461
KRW        343,800,000           USD           305,654      JPMorgan Chase Bank N.A.     6/10/15           3,519   
KRW        213,700,000           USD           189,703      Morgan Stanley & Co. International PLC     6/10/15           2,474   
MXN        3,190,000           USD           212,064      Credit Suisse International     6/10/15           (3,952
MXN        4,060,000           USD           271,133      Credit Suisse International     6/10/15           (6,264
MXN        4,100,000           USD           263,395      Credit Suisse International     6/10/15           4,084   
MXN        2,788,396           USD           180,224      Deutsche Bank AG     6/10/15           1,687   
MXN        181,604           USD           11,740      Morgan Stanley & Co. International PLC     6/10/15           108   
MXN        4,710,000           USD           306,333      Morgan Stanley & Co. International PLC     6/10/15           941   
MYR        1,480,000           USD           399,568      JPMorgan Chase Bank N.A.     6/10/15           (2,421
NOK        130,123           USD           16,596      Barclays Bank PLC     6/10/15           (475
NOK        600,160           USD           73,538      Credit Suisse International     6/10/15           816   
NOK        1,442,000           USD           179,165      Credit Suisse International     6/10/15           (514
NOK        1,580,000           USD           193,593      Credit Suisse International     6/10/15           2,154   
NOK        2,160,000           USD           265,930      Credit Suisse International     6/10/15           1,674   
NOK        2,195,000           USD           272,226      Credit Suisse International     6/10/15           (286
NOK        2,228,000           USD           275,094      Credit Suisse International     6/10/15           935   
NOK        4,093,000           USD           501,525      Credit Suisse International     6/10/15           5,560   
NOK        2,160,000           USD           266,791      Goldman Sachs International     6/10/15           813   
NOK        128,000           USD           15,363      HSBC Bank PLC     6/10/15           495   
NOK        765,000           USD           93,793      HSBC Bank PLC     6/10/15           983   
NOK        1,880,000           USD           230,392      HSBC Bank PLC     6/10/15           2,523   
NOK        1,707,000           USD           211,875      JPMorgan Chase Bank N.A.     6/10/15           (393
NOK        1,945,000           USD           247,103      JPMorgan Chase Bank N.A.     6/10/15           (6,136

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    27


Schedule of Investments (continued)     

 

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows: (continued)

 

Currency
Purchased
       Currency
Sold
    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
NOK        2,593,000           USD           318,648      JPMorgan Chase Bank N.A.     6/10/15         $ 2,601   
NOK        3,082,840           USD           377,397      JPMorgan Chase Bank N.A.     6/10/15           4,538   
NOK        3,374,000           USD           414,430      JPMorgan Chase Bank N.A.     6/10/15           3,577   
NOK        5,160,000           USD           632,577      JPMorgan Chase Bank N.A.     6/10/15           6,699   
NOK        234,877           USD           29,948      UBS AG     6/10/15           (849
NOK        2,190,000           USD           276,875      UBS AG     6/10/15           (5,554
NZD        281,000           USD           205,855      Goldman Sachs International     6/10/15           2,760   
PLN        730,000           EUR           175,976      Barclays Bank PLC     6/10/15           2,775   
PLN        1,020,000           EUR           246,557      Barclays Bank PLC     6/10/15           3,153   
PLN        810,000           EUR           196,243      Credit Suisse International     6/10/15           2,021   
PLN        1,000,000           EUR           242,550      Credit Suisse International     6/10/15           2,200   
PLN        1,200,000           EUR           289,500      Credit Suisse International     6/10/15           4,319   
SEK        4,960,000           USD           587,148      Barclays Bank PLC     6/10/15           (10,566
SEK        5,235,000           USD           619,701      Barclays Bank PLC     6/10/15           (11,152
SEK        2,636,000           USD           305,386      Credit Suisse International     6/10/15           1,039   
SEK        2,970,000           USD           344,773      Credit Suisse International     6/10/15           478   
SEK        3,865,000           USD           457,224      Credit Suisse International     6/10/15           (7,932
SEK        4,961,000           USD           587,397      UBS AG     6/10/15           (10,700
SEK        5,231,000           USD           619,366      UBS AG     6/10/15           (11,282
TRY        39,102           USD           14,760      Barclays Bank PLC     6/10/15           9   
TRY        445,225           USD           171,488      Barclays Bank PLC     6/10/15           (3,324
TRY        244,775           USD           94,213      Deutsche Bank AG     6/10/15           (1,760
TRY        470,898           USD           177,704      Deutsche Bank AG     6/10/15           157   
TRY        560,000           USD           215,062      JPMorgan Chase Bank N.A.     6/10/15           (3,547
TRY        810,000           USD           305,603      Morgan Stanley & Co. International PLC     6/10/15           339   
USD        653,901           AUD           847,000      Citibank N.A.     6/10/15           11,382   
USD        56,468           AUD           72,871      Credit Suisse International     6/10/15           1,190   
USD        71,320           AUD           91,000      Credit Suisse International     6/10/15           2,289   
USD        84,392           AUD           109,000      Credit Suisse International     6/10/15           1,707   
USD        370,936           AUD           485,000      Credit Suisse International     6/10/15           3,023   
USD        32,802           AUD           42,336      Deutsche Bank AG     6/10/15           686   
USD        62,314           AUD           80,209      Goldman Sachs International     6/10/15           1,470   
USD        275,046           AUD           359,000      Goldman Sachs International     6/10/15           2,715   
USD        375,781           AUD           490,000      Goldman Sachs International     6/10/15           4,076   
USD        826,789           AUD           1,070,000      Goldman Sachs International     6/10/15           15,106   
USD        1,297,984           AUD           1,702,000      Goldman Sachs International     6/10/15           6,878   
USD        80,640           AUD           105,000      HSBC Bank PLC     6/10/15           989   
USD        189,324           AUD           250,000      HSBC Bank PLC     6/10/15           (321
USD        159,298           AUD           205,000      JPMorgan Chase Bank N.A.     6/10/15           3,788   
USD        422,114           AUD           550,000      JPMorgan Chase Bank N.A.     6/10/15           4,894   
USD        8,201           AUD           10,584      Morgan Stanley & Co. International PLC     6/10/15           172   
USD        279,660           AUD           369,638      UBS AG     6/10/15           (741
USD        40,046           AUD           52,000      Westpac Banking Corp.     6/10/15           600   
USD        124,496           AUD           164,362      Westpac Banking Corp.     6/10/15           (186
USD        164,225           AUD           216,000      Westpac Banking Corp.     6/10/15           371   
USD        832,259           AUD           1,075,000      Westpac Banking Corp.     6/10/15           16,783   
USD        419,734           CAD           524,000      Barclays Bank PLC     6/10/15           6,410   
USD        94,368           CAD           118,000      BNP Paribas S.A.     6/10/15           1,291   
USD        123,958           CAD           155,000      BNP Paribas S.A.     6/10/15           1,696   

 

See Notes to Financial Statements.

 

28    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Schedule of Investments (continued)     

 

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows: (continued)

 

Currency
Purchased
       Currency
Sold
    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
USD        169,945           CAD           214,000      Citibank N.A.     6/10/15         $ 1,145   
USD        258,701           CAD           329,000      JPMorgan Chase Bank N.A.     6/10/15           (810
USD        1,227,883           CAD           1,547,000      UBS AG     6/10/15           7,629   
USD        2,110,498           CAD           2,659,000      UBS AG     6/10/15           13,114   
USD        1,265,252           EUR           1,177,000      Citibank N.A.     6/10/15           (1,554
USD        300,572           EUR           275,000      Credit Suisse International     6/10/15           4,590   
USD        426,092           EUR           399,000      Credit Suisse International     6/10/15           (3,352
USD        461,493           EUR           430,000      Credit Suisse International     6/10/15           (1,316
USD        419,866           EUR           390,000      Deutsche Bank AG     6/10/15           109   
USD        151,272           EUR           137,000      Goldman Sachs International     6/10/15           3,819   
USD        201,019           EUR           184,863      Goldman Sachs International     6/10/15           2,051   
USD        278,184           EUR           256,137      Goldman Sachs International     6/10/15           2,504   
USD        373,035           EUR           343,000      Goldman Sachs International     6/10/15           3,864   
USD        813,499           EUR           748,000      Goldman Sachs International     6/10/15           8,426   
USD        421,939           EUR           393,000      HSBC Bank PLC     6/10/15           (1,047
USD        799,588           EUR           759,000      JPMorgan Chase Bank N.A.     6/10/15           (17,324
USD        306,575           EUR           285,000      Morgan Stanley & Co. International PLC     6/10/15           (170
USD        810,796           EUR           744,000      Morgan Stanley & Co. International PLC     6/10/15           10,029   
USD        375,730           EUR           342,000      State Street Bank and Trust Co.     6/10/15           7,635   
USD        71,452           EUR           66,000      UBS AG     6/10/15           416   
USD        220,852           EUR           204,000      UBS AG     6/10/15           1,287   
USD        14,831           GBP           10,000      Barclays Bank PLC     6/10/15           5   
USD        67,815           GBP           45,775      Barclays Bank PLC     6/10/15           (54
USD        351,953           GBP           236,000      Barclays Bank PLC     6/10/15           2,041   
USD        39,678           GBP           26,792      Citibank N.A.     6/10/15           (46
USD        19,275           GBP           13,000      Credit Suisse International     6/10/15             
USD        101,464           GBP           68,000      Credit Suisse International     6/10/15           642   
USD        129,749           GBP           87,000      Credit Suisse International     6/10/15           756   
USD        31,738           GBP           21,434      Goldman Sachs International     6/10/15           (41
USD        141,684           GBP           96,000      Goldman Sachs International     6/10/15           (653
USD        147,001           GBP           99,000      Goldman Sachs International     6/10/15           216   
USD        384,176           GBP           257,000      Goldman Sachs International     6/10/15           3,129   
USD        436,996           GBP           294,333      Goldman Sachs International     6/10/15           597   
USD        57,471           GBP           39,000      HSBC Bank PLC     6/10/15           (354
USD        78,849           GBP           53,000      HSBC Bank PLC     6/10/15           267   
USD        128,299           GBP           85,000      HSBC Bank PLC     6/10/15           2,272   
USD        140,181           GBP           93,000      HSBC Bank PLC     6/10/15           2,292   
USD        205,278           GBP           136,000      HSBC Bank PLC     6/10/15           3,635   
USD        237,889           GBP           160,000      HSBC Bank PLC     6/10/15           661   
USD        1,420,345           GBP           941,000      HSBC Bank PLC     6/10/15           25,148   
USD        243,282           GBP           164,000      JPMorgan Chase Bank N.A.     6/10/15           123   
USD        1,289,289           GBP           867,000      JPMorgan Chase Bank N.A.     6/10/15           3,809   
USD        1,052,382           GBP           705,000      State Street Bank and Trust Co.     6/10/15           7,096   
USD        90,871           GBP           61,000      UBS AG     6/10/15           428   
USD        208,798           GBP           140,667      UBS AG     6/10/15           234   
USD        183,271           INR           11,700,000      HSBC Bank PLC     6/10/15           (798
USD        189,804           INR           12,100,000      HSBC Bank PLC     6/10/15           (558
USD        63,032           INR           4,000,000      Morgan Stanley & Co. International PLC     6/10/15           102   
USD        265,348           INR           16,900,000      UBS AG     6/10/15           (530

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    29


Schedule of Investments (continued)     

 

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows: (continued)

 

Currency
Purchased
       Currency
Sold
    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
USD        180,286           JPY           21,700,000      Bank of America N.A.     6/10/15         $ (826
USD        113,263           JPY           13,605,836      Barclays Bank PLC     6/10/15           (294
USD        132,707           JPY           16,100,000      Barclays Bank PLC     6/10/15           (1,666
USD        237,049           JPY           28,476,909      Barclays Bank PLC     6/10/15           (624
USD        215,670           JPY           26,100,000      Citibank N.A.     6/10/15           (2,164
USD        68,620           JPY           8,238,215      Credit Suisse International     6/10/15           (137
USD        206,363           JPY           25,000,000      Credit Suisse International     6/10/15           (2,291
USD        413,423           JPY           49,900,000      Credit Suisse International     6/10/15           (3,049
USD        75,825           JPY           9,200,000      Goldman Sachs International     6/10/15           (959
USD        154,635           JPY           18,500,000      Goldman Sachs International     6/10/15           231   
USD        194,381           JPY           23,200,000      Goldman Sachs International     6/10/15           750   
USD        216,915           JPY           26,200,000      Goldman Sachs International     6/10/15           (1,755
USD        817,594           JPY           99,200,000      Goldman Sachs International     6/10/15           (10,344
USD        22,692           JPY           2,700,000      HSBC Bank PLC     6/10/15           157   
USD        193,727           JPY           23,400,000      HSBC Bank PLC     6/10/15           (1,573
USD        309,632           JPY           37,400,000      HSBC Bank PLC     6/10/15           (2,514
USD        1,236,873           JPY           149,400,000      HSBC Bank PLC     6/10/15           (10,042
USD        1,241,899           JPY           148,800,000      JPMorgan Chase Bank N.A.     6/10/15           (8
USD        58,056           JPY           6,973,091      UBS AG     6/10/15           (143
USD        113,264           JPY           13,605,949      UBS AG     6/10/15           (293
USD        137,027           JPY           16,600,000      UBS AG     6/10/15           (1,519
USD        211,457           JPY           25,500,000      UBS AG     6/10/15           (1,370
USD        204,999           KRW           227,200,000      HSBC Bank PLC     6/10/15           682   
USD        184,554           KRW           209,100,000      Morgan Stanley & Co. International PLC     6/10/15           (3,486
USD        189,711           KRW           213,700,000      Morgan Stanley & Co. International PLC     6/10/15           (2,466
USD        267,304           KRW           299,300,000      Morgan Stanley & Co. International PLC     6/10/15           (1,851
USD        189,897           MXN           2,970,000      Credit Suisse International     6/10/15           (3,862
USD        197,974           MXN           3,010,000      Morgan Stanley & Co. International PLC     6/10/15           1,606   
USD        263,844           MXN           4,100,000      Morgan Stanley & Co. International PLC     6/10/15           (3,635
USD        184,216           MXN           2,860,000      UBS AG     6/10/15           (2,367
USD        323,319           MYR           1,200,000      BNP Paribas S.A.     6/10/15           1,308   
USD        248,982           NOK           2,050,000      Credit Suisse International     6/10/15           (4,994
USD        305,373           NOK           2,511,000      Credit Suisse International     6/10/15           (5,717
USD        804,322           NOK           6,379,000      JPMorgan Chase Bank N.A.     6/10/15           14,023   
USD        1,415,728           NOK           11,228,000      JPMorgan Chase Bank N.A.     6/10/15           24,683   
USD        2,548           NZD           3,485      BNP Paribas S.A.     6/10/15           (39
USD        53,040           NZD           72,548      BNP Paribas S.A.     6/10/15           (820
USD        166,900           NZD           228,293      BNP Paribas S.A.     6/10/15           (2,585
USD        168,879           NZD           231,000      BNP Paribas S.A.     6/10/15           (2,615
USD        52,345           NZD           69,000      Credit Suisse International     6/10/15           1,120   
USD        311,637           NZD           427,000      Credit Suisse International     6/10/15           (5,369
USD        682,558           NZD           930,000      Credit Suisse International     6/10/15           (7,875
USD        28,150           NZD           38,525      Goldman Sachs International     6/10/15           (450
USD        77,840           NZD           104,849      Goldman Sachs International     6/10/15             
USD        585,989           NZD           801,941      Goldman Sachs International     6/10/15           (9,373
USD        69,784           NZD           94,151      UBS AG     6/10/15           (113
USD        5,103           NZD           6,990      Westpac Banking Corp.     6/10/15           (86
USD        106,232           NZD           145,511      Westpac Banking Corp.     6/10/15           (1,796
USD        310,518           NZD           425,000      Westpac Banking Corp.     6/10/15           (5,003

 

See Notes to Financial Statements.

 

30    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Schedule of Investments (continued)     

 

Ÿ  

As of March 31, 2015, forward foreign currency exchange contracts outstanding were as follows: (concluded)

 

Currency
Purchased
       Currency
Sold
    Counterparty   Settlement
Date
       Unrealized
Appreciation
(Depreciation)
 
USD        139,842           SEK           1,207,791      Barclays Bank PLC     6/10/15         $ (559
USD        139,788           SEK           1,192,457      Credit Suisse International     6/10/15           1,169   
USD        149,117           SEK           1,289,000      Credit Suisse International     6/10/15           (725
USD        177,792           SEK           1,536,000      Credit Suisse International     6/10/15           (762
USD        271,488           SEK           2,311,000      Credit Suisse International     6/10/15           2,843   
USD        397,341           SEK           3,406,000      Credit Suisse International     6/10/15           1,407   
USD        181,550           SEK           1,563,000      Goldman Sachs International     6/10/15           (143
USD        396,091           SEK           3,356,000      Goldman Sachs International     6/10/15           5,969   
USD        233,435           SEK           2,015,000      HSBC Bank PLC     6/10/15           (801
USD        118,783           SEK           1,014,543      JPMorgan Chase Bank N.A.     6/10/15           846   
USD        161,665           SEK           1,380,000      JPMorgan Chase Bank N.A.     6/10/15           1,246   
USD        399,688           SEK           3,454,000      JPMorgan Chase Bank N.A.     6/10/15           (1,827
USD        404,086           SEK           3,560,000      JPMorgan Chase Bank N.A.     6/10/15           (9,750
USD        429,833           SEK           3,685,000      JPMorgan Chase Bank N.A.     6/10/15           1,466   
USD        633,493           SEK           5,465,000      JPMorgan Chase Bank N.A.     6/10/15           (1,793
USD        1,089,413           SEK           9,250,000      JPMorgan Chase Bank N.A.     6/10/15           14,135   
USD        222,581           SEK           1,923,209      UBS AG     6/10/15           (985
USD        188,804           TRY           510,000      Credit Suisse International     6/10/15           (3,826
USD        183,027           TRY           490,000      Royal Bank of Scotland PLC     6/10/15           (2,049
USD        324,174           TRY           860,000      Royal Bank of Scotland PLC     6/10/15           (653
USD        17,988,503           EUR           16,456,260      Citibank N.A.     6/24/15           272,836   
USD        102,253,599           EUR           93,543,740      Citibank N.A.     6/24/15           1,550,905   
USD        69,939,996           JPY           8,475,000,000      Standard Chartered Bank     6/24/15           (810,035
Total                         $ 4,179,029   
                       

 

 

 

 

Ÿ  

As of March 31, 2015, exchange-traded options purchased were as follows:

 

Description    Put/
Call
    

Strike

Price

     Expiration
Date
     Contracts      Value  

Euro Dollar 2-Year Mid-Curve

     Put         USD         97.75         6/12/15         54       $ 41,175   

Euro Dollar 2-Year Mid-Curve

     Put         USD         96.75         6/12/15         53         13,912   

Total

                  $ 55,087   
                 

 

 

 

 

Ÿ  

As of March 31, 2015, exchange-traded options written were as follows:

 

Description    Put/
Call
    

Strike

Price

     Expiration
Date
     Contracts      Value  

U.S. Treasury Notes (10 Year)

     Call         USD         127.00         4/24/15         113       $ (229,531

U.S. Treasury Notes (10 Year)

     Put         USD         127.00         4/24/15         114         (14,250

Euro Dollar 2-Year Mid-Curve

     Put         USD         97.25         6/12/15         107         (48,150

Total

                  $ (291,931
                 

 

 

 

 

Ÿ  

As of March 31, 2015, centrally cleared interest rate swaps outstanding were as follows:

 

Fixed

Rate

  

Floating

Rate

   Clearinghouse    Effective
Date
    Expiration
Date
    

Notional
Amount

(000)

    

Unrealized

Depreciation

 

1.94%1

   3-month LIBOR    Chicago Mercantile      6/30/15 2      12/31/21         USD         5,410       $ (39,204

0.64%1

   6-month EURIBOR    Chicago Mercantile      6/10/15 2      2/15/24         EUR         3,130         (36,724

0.52%1

   6-month EURIBOR    Chicago Mercantile      6/10/15 2      2/15/24         EUR         2,150         (974

Total

                    $ (76,902
                   

 

 

 

 

  1   

Fund pays the fixed rate and receives the floating rate.

 

  2   

Forward swap.

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    31


Schedule of Investments (continued)     

 

Ÿ  

As of March 31, 2015, centrally cleared credit default swaps — sold protection outstanding were as follows:

 

Index    Receive
Fixed Rate
    Clearinghouse    Expiration
Date
     Issuer
Credit
Rating1
     Notional
Amount
(000)2
     Unrealized
Appreciation
 

iTraxx Europe Crossover Series 23 Version 1

     5.00   InterContinental Exchange      6/20/20         B+         EUR         3,684       $ 14,634   

 

  1   

Using S&P’s rating of the issuer of the underlying securities of the index, as applicable.

 

  2   

The maximum potential amount the Fund may pay should a negative credit event take place as defined under the terms of the agreement.

 

Ÿ  

As of March 31, 2015, OTC total return swaps outstanding were as follows:

 

Reference Entity    Fixed Notional Amount     Counterparty    Expiration
Date
   Contract
Amount
     Value     Premiums
Paid
(Received)
     Unrealized
Depreciation
 

TAIEX Futures Contracts April 2015

   TWD     717,478,091 1    Deutsche Bank AG    4/15/15      374       $ (23,793           $ (23,793

 

  1   

Fund receives the total return of the reference entity and pays the floating amount. Net payment made at termination.

 

Ÿ  

Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities. The three levels of the fair value hierarchy are as follows:

 

  Ÿ  

Level 1 — unadjusted quoted prices in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

  Ÿ  

Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

  Ÿ  

Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to Note 2 of the Notes to Financial Statements.

As of March 31, 2015, the following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:

 

      Level 1    Level 2    Level 3    Total

Assets:

                   

Investments:

                   

Long-Term Investments:

                   

Asset-Backed Securities

              $ 3,900,214                 $ 3,900,214  

Common Stocks

     $ 84,251,709          225,093,075        $ 5,632          309,350,416  

Corporate Bonds

                68,110,470                   68,110,470  

Foreign Agency Obligations

                11,339,547                   11,339,547  

Foreign Government Obligations

                80,017,396                   80,017,396  

Investment Companies

       23,409,403                            23,409,403  

Non-Agency Mortgage-Backed Securities

                3,498,895                   3,498,895  

U.S. Government Sponsored Agency Securities

                25,945,508                   25,945,508  

U.S. Treasury Obligations

                15,114,385                   15,114,385  

Short-Term Securities

       211,570,778          344,954                   211,915,732  

Options Purchased:

                   

Interest Rate Contracts

       55,087                            55,087  
    

 

 

 

Total

     $ 319,286,977        $ 433,364,444          $5,632        $ 752,657,053  
    

 

 

 

 

See Notes to Financial Statements.

 

32    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Schedule of Investments (concluded)     

 

      Level 1   Level 2   Level 3    Total

Derivative Financial Instruments1

                 

Assets:

                 

Credit contracts

             $ 14,634                $ 14,634  

Equity contracts

     $ 1,000,214                          1,000,214  

Foreign currency exchange contracts

       115,425         5,978,260                  6,093,685  

Interest rate contracts

       381,802                          381,802  

Liabilities:

                 

Equity contracts

       (754,366 )       (23,793 )                (778,159 )

Foreign currency exchange contracts

       (419,030 )       (1,799,231 )                (2,218,261 )

Interest rate contracts

       (2,052,823 )       (76,902 )                (2,129,725 )
    

 

 

 

Total

     $ (1,728,778 )     $ 4,092,968                $ 2,364,190  
    

 

 

 

1    Derivative financial instruments are swaps, financial futures contracts, forward foreign currency exchange contracts and options written. Swaps, financial futures contracts and forward foreign currency exchange contracts are valued at the unrealized appreciation/depreciation on the instrument and options written are shown at value.

        

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of March 31, 2015, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:    
                 
      Level 1   Level 2   Level 3    Total

Assets:

                 

Cash pledged for financial futures contracts

     $ 12,358,000                        $ 12,358,000  

Cash pledged for centrally cleared swaps

       485,000                          485,000  

Foreign currency at value

       6,153,754                          6,153,754  

Liabilities:

                 

Bank overdraft

             $ (1,276,381 )                (1,276,381 )

Collateral on securities loaned at value

               (344,954 )                (344,954 )
    

 

 

 

Total

     $ 18,996,754       $ (1,621,335 )              $ 17,375,419  
    

 

 

 

During the six months ended March 31, 2015, there were no transfers between levels.

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    33


Statement of Assets and Liabilities     

 

 

March 31, 2015 (Unaudited)       
  
Assets         

Investments at value — unaffiliated (including securities loaned at value of $311,234) (cost — $521,400,879)

   $     517,331,918   

Investments at value — affiliated (cost — $235,303,426)

     235,325,135   

Cash pledged for financial futures contracts

     12,358,000   

Cash pledged for centrally cleared swaps

     485,000   

Foreign currency at value (cost — $6,121,339)

     6,153,754   

Variation margin receivable on centrally cleared swaps

     4,614   

Variation margin receivable on financial futures contracts

     1,038,405   

Investments sold receivable

     172,792   

Unrealized appreciation on forward foreign currency exchange contracts

     5,978,260   

Capital shares sold receivable

     330,430   

Interest receivable

     1,362,558   

Dividends receivable — unaffiliated

     630,205   

Dividends receivable — affiliated

     15,165   

Securities lending income receivable — affiliated

     1,711   

Receivable from Manager

     94   

Prepaid expenses

     62,608   
  

 

 

 

Total assets

     781,250,649   
  

 

 

 
  
Liabilities         

Bank overdraft

     1,276,381   

Options written at value (premiums received — $266,989)

     291,931   

Collateral on securities loaned at value

     344,954   

Variation margin payable on financial futures contracts

     646,926   

Investments purchased payable

     32,061,723   

Unrealized depreciation on forward foreign currency exchange contracts

     1,799,231   

Unrealized depreciation on OTC swaps

     23,793   

Capital shares redeemed payable

     945,029   

Investment advisory fees payable

     336,469   

Service and distribution fees payable

     140,282   

Other affiliates payable

     140,020   

Officer’s and Trustees’ fees payable

     5,020   

Other accrued expenses payable

     528,436   
  

 

 

 

Total liabilities

     38,540,195   
  

 

 

 

Net Assets

   $ 742,710,454   
  

 

 

 
  
Net Assets Consist of         

Paid-in capital

   $ 700,636,486   

Distributions in excess of net investment income

     (7,157,135

Undistributed net realized gain

     50,704,543   

Net unrealized appreciation/depreciation

     (1,473,440
  

 

 

 

Net Assets

   $ 742,710,454   
  

 

 

 
  
Net Asset Value         

Institutional — Based on net assets of $317,475,613 and 21,039,038 shares outstanding, unlimited number of shares authorized, $0.001 par value

   $ 15.09   
  

 

 

 

Service — Based on net assets of $1,694,785 and 112,767 shares outstanding, unlimited number of shares authorized, $0.001 par value

   $ 15.03   
  

 

 

 

Investor A — Based on net assets of $346,138,058 and 23,043,568 shares outstanding, unlimited number of shares authorized, $0.001 par value

   $ 15.02   
  

 

 

 

Investor B — Based on net assets of $5,527,446 and 374,140 shares outstanding, unlimited number of shares authorized, $0.001 par value

   $ 14.77   
  

 

 

 

Investor C — Based on net assets of $71,874,552 and 4,902,940 shares outstanding, unlimited number of shares authorized, $0.001 par value

   $ 14.66   
  

 

 

 

 

See Notes to Financial Statements.

 

34    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Statement of Operations     

 

Six Months Ended March 31, 2015 (Unaudited)       
  
Investment Income   

Interest

   $ 1,887,166   

Dividends — unaffiliated

     1,968,736   

Dividends — affiliated

     194,709   

Securities lending — affiliated — net

     4,913   

Foreign taxes withheld

     (117,329
  

 

 

 

Total income

     3,938,195   
  

 

 

 
  
Expenses         

Investment advisory

     2,037,998   

Service and distribution — class specific

     817,345   

Transfer agent — class specific

     587,662   

Administration

     211,297   

Administration — class specific

     83,646   

Professional

     61,582   

Accounting services

     48,485   

Registration

     46,014   

Printing

     30,845   

Custodian

     28,490   

Officer and Trustees

     12,492   

Miscellaneous

     37,480   

Recoupment of past waived and/or reimbursed fees — class specific

     4,099   
  

 

 

 

Total expenses

     4,007,435   

Less fees waived by Manager

     (115,467

Less administration fees waived — class specific

     (693

Less transfer agent fees waived — class specific

     (1,983

Less transfer agent fees reimbursed — class specific

     (1,109
  

 

 

 

Total expenses after fees waived and/or reimbursed

     3,888,183   
  

 

 

 

Net investment income

     50,012   
  

 

 

 
  
Realized and Unrealized Gain (Loss)         

Net realized gain (loss) from:

  

Investments — unaffiliated

     9,081,439   

Capital gain distributions received from affiliated investment companies

     28,007   

Options written

     19,285   

Financial futures contracts

     13,235,549   

Swaps

     145,048   

Foreign currency transactions

     28,245,560   
  

 

 

 
     50,754,888   
  

 

 

 

Net change in unrealized appreciation/depreciation on:

  

Investments — unaffiliated

     (12,707,865

Investments — affiliated

     55,456   

Options written

     (23,410

Financial futures contracts

     (3,294,396

Swaps

     995,300   

Foreign currency translations

     (1,663,717
  

 

 

 
     (16,638,632
  

 

 

 

Net realized and unrealized gain

     34,116,256   
  

 

 

 

Net Increase in Net Assets Resulting from Operations

   $ 34,166,268   
  

 

 

 

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    35


Statements of Changes in Net Assets

 

Increase in Net Assets:   

Six Months
Ended
March 31,

2015
(Unaudited)

    Year Ended
September 30,
2014
 
    
Operations                 

Net investment income

   $ 50,012      $ 82,013   

Net realized gain

     50,754,888        53,147,382   

Net change in unrealized appreciation/depreciation

     (16,638,632     (9,681,308
  

 

 

 

Net increase in net assets resulting from operations

     34,166,268        43,548,087   
  

 

 

 
    
Distributions to Shareholders From1                 

Net investment income:

    

Institutional

     (7,149,829     (2,940,379

Service

     (31,675     (17,511

Investor A

     (6,670,170     (3,753,926

Investor B

     (61,710     (78,744

Investor C

     (1,086,621     (649,050

Net realized gain:

    

Institutional

     (16,489,741     (19,653,564

Service

     (83,973     (140,882

Investor A

     (17,397,558     (30,046,152

Investor B

     (318,235     (927,559

Investor C

     (3,827,246     (6,652,735
  

 

 

 

Decrease in net assets resulting from distributions to shareholders

     (53,116,758     (64,860,502
  

 

 

 
    
Capital Share Transactions                 

Net increase (decrease) in net assets derived from capital share transactions

     (14,294,554     194,193,414   
  

 

 

 
    
Net Assets                 

Total increase (decrease) in net assets

     (33,245,044     172,880,999   

Beginning of period

     775,955,498        603,074,499   
  

 

 

 

End of period

   $     742,710,454      $     775,955,498   
  

 

 

 

Undistributed (distributions in excess of) net investment income, end of period

   $ (7,157,135   $ 7,792,858   
  

 

 

 

 

  1  

Distributions for annual periods determined in accordance with federal tax regulations.

 

See Notes to Financial Statements.

 

36    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Financial Highlights

 

     Institutional     Service  
     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
       2014     2013     2012     2011     2010       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                           

Net asset value, beginning of period

   $ 15.52      $ 15.95      $ 15.37      $ 14.03      $ 14.31      $ 13.28      $ 15.44      $ 15.90      $ 15.31      $ 13.99      $ 14.27      $ 13.24   
  

 

 

   

 

 

 

Net investment income (loss)1

     0.02        0.04        0.19        0.23        0.29        0.29        (0.01     (0.01     0.15        0.19        0.25        0.25   

Net realized and unrealized gain (loss)

     0.70        1.04        1.19        1.68        (0.26     1.02        0.70        1.02        1.19        1.67        (0.26     1.03   
  

 

 

   

 

 

 

Net increase (decrease) from investment operations

     0.72        1.08        1.38        1.91        0.03        1.31        0.69        1.01        1.34        1.86        (0.01     1.28   
  

 

 

   

 

 

 

Distributions from:2

                        

Net investment income

     (0.35     (0.20     (0.22     (0.26     (0.31     (0.28     (0.30     (0.16     (0.17     (0.23     (0.27     (0.25

Net realized gain

     (0.80     (1.31     (0.58     (0.31                   (0.80     (1.31     (0.58     (0.31              
  

 

 

   

 

 

 

Total distributions

     (1.15     (1.51     (0.80     (0.57     (0.31     (0.28     (1.10     (1.47     (0.75     (0.54     (0.27     (0.25
  

 

 

   

 

 

 

Net asset value, end of period

   $ 15.09      $ 15.52      $ 15.95      $ 15.37      $ 14.03      $ 14.31      $ 15.03      $ 15.44      $ 15.90      $ 15.31      $ 13.99      $ 14.27   
  

 

 

   

 

 

 
                        
Total Return3                                                           

Based on net asset value

     4.92 %4      7.02     9.35     13.89     0.06     9.99     4.77 %4      6.57     9.06     13.53     (0.21 )%      9.74
  

 

 

   

 

 

 
                        
Ratios to Average Net Assets                                                           

Total expenses5

     0.82 %6,7      0.85 %6      0.91 %6      0.95 %6      0.94     0.95     1.20 %7,8      1.21 %8      1.24 %8      1.27     1.24     1.27
  

 

 

   

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly5

     0.79 %7      0.82     0.87     0.90     0.90     0.91     1.17 %7      1.17     1.17     1.18     1.18     1.19
  

 

 

   

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly and excluding interest expense5

     0.79 %7      0.82     0.87     0.89     0.89     0.89     1.17 %7      1.17     1.17     1.17     1.17     1.17
  

 

 

   

 

 

 

Net investment income (loss)5

     0.27 %7      0.28     1.22     1.59     1.91     2.09     (0.10 )%7      (0.04 )%      0.95     1.30     1.63     1.80
  

 

 

   

 

 

 
                        
Supplemental Data                                                           

Net assets, end of period (000)

   $ 317,476      $ 342,794      $ 132,007      $ 59,041      $ 40,259      $ 39,083      $ 1,695      $ 1,703      $ 1,774      $ 1,915      $ 1,676      $ 1,652   
  

 

 

   

 

 

 

Portfolio turnover rate9

     92     181     192     324     401     400     92     181     192     324     401     400
  

 

 

   

 

 

 

 

  1  

Based on average shares outstanding.

 

  2  

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  3  

Where applicable, assumes the reinvestment of distributions.

 

  4  

Aggregate total return.

 

  5  

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

    

 

 
    

Six Months

Ended

March 31,

2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011      2010  

Investments in underlying funds

     0.10     0.11     0.10     0.05               

 

  6  

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2013 and September 30, 2012, the ratio would have been 0.89% and 0.91%, respectively. There was no financial impact to the expense ratios for the six months ended March 31, 2015 and the year ended September 30, 2014.

 

  7  

Annualized.

 

  8  

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the six months ended March 31, 2015 and the years ended September 30, 2014 and September 30, 2013, the ratios would have been 1.18%, 1.17% and 1.23%, respectively.

 

  9  

Includes mortgage dollar roll transactions (“MDRs”). Additional information regarding portfolio turnover rate is as follows:

 

    

 

 
    

Six Months

Ended

March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  

Portfolio turnover rate (excluding MDRs)

     92     181     192     254     236     302

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    37


Financial Highlights (continued)     

 

    Investor A     Investor B  
   

Six Months

Ended

March 31,

2015

(Unaudited)

    Year Ended September 30,     Six Months
Ended
March 31,
2015
(Unaudited)
    Year Ended September 30,  
      2014     2013     2012     2011     2010       2014     2013     2012     2011     2010  
Per Share Operating Performance                                                                                   

Net asset value, beginning of period

  $ 15.43      $ 15.89      $ 15.30      $ 13.98      $ 14.26      $ 13.23      $ 15.12      $ 15.69      $ 15.10      $ 13.83      $ 14.10      $ 13.08   
 

 

 

   

 

 

 

Net investment income (loss)1

    (0.00 )2      (0.00 )2      0.15        0.19        0.25        0.24        (0.08     (0.15     0.01        0.06        0.13        0.12   

Net realized and unrealized gain (loss)

    0.70        1.01        1.19        1.66        (0.26     1.03        0.68        1.00        1.16        1.65        (0.26     1.03   
 

 

 

   

 

 

 

Net increase (decrease) from investment operations

    0.70        1.01        1.34        1.85        (0.01     1.27        0.60        0.85        1.17        1.71        (0.13     1.15   
 

 

 

   

 

 

 

Distributions from:3

                       

Net investment income

    (0.31     (0.16     (0.17     (0.22     (0.27     (0.24     (0.15     (0.11     (0.01     (0.13     (0.14     (0.13

Net realized gain

    (0.80     (1.31     (0.58     (0.31                   (0.80     (1.31     (0.57     (0.31              
 

 

 

   

 

 

 

Total distributions

    (1.11     (1.47     (0.75     (0.53     (0.27     (0.24     (0.95     (1.42     (0.58     (0.44     (0.14     (0.13
 

 

 

   

 

 

 

Net asset value, end of period

  $ 15.02      $ 15.43      $ 15.89      $ 15.30      $ 13.98      $ 14.26      $ 14.77      $ 15.12      $ 15.69      $ 15.10      $ 13.83      $ 14.10   
 

 

 

   

 

 

 
                       
Total Return4                                                                                                

Based on net asset value

    4.80 %5      6.58     9.09     13.51     (0.23 )%      9.70     4.24 %5      5.56     8.04     12.60     (1.01 )%      8.78
 

 

 

   

 

 

 
                       
Ratios to Average Net Assets                                                                                                

Total expenses6

    1.14 %7      1.16 %8      1.18     1.23     1.20     1.23 %8      2.30 %7      2.16 %9      2.10     2.08     2.00     2.04 %9 
 

 

 

   

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly6

    1.11 %7      1.13     1.14     1.20     1.20     1.22     2.14 %7      2.13     2.06     2.06     2.00     2.04
 

 

 

   

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly and excluding interest expense6

    1.11 %7      1.13     1.14     1.19     1.19     1.20     2.14 %7      2.13     2.06     2.05     1.98     2.02
 

 

 

   

 

 

 

Net investment income (loss)6

    (0.05 )%7      (0.00 )%      0.98     1.28     1.61     1.75     (1.10 )%7      (0.98 )%      0.08     0.45     0.84     0.91
 

 

 

   

 

 

 
                       
Supplemental Data                                                                                                

Net assets, end of period (000)

  $ 346,138      $ 350,131      $ 374,715      $ 390,209      $ 370,916      $ 385,511      $ 5,527      $ 6,861      $ 12,730      $ 19,077      $ 31,595      $ 49,315   
 

 

 

   

 

 

 

Portfolio turnover rate10

    92     181     192     324     401     400     92     181     192     324     401     400
 

 

 

   

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Amount is greater than $(0.005) per share.

 

  3   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  4   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  5   

Aggregate total return.

 

  6   

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

      

Six Months
Ended

March 31,

2015

(Unaudited)

     Year Ended September 30,
          2014      2013      2012      2011    2010

Investments in underlying funds

       0.10      0.11      0.10      0.05      

 

7    Annualized.

 

8    Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2014 and September 30, 2010, the ratios would have been 1.15% and 1.22%, respectively.

 

9    Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the years ended September 30, 2014 and September 30, 2010, the ratios would have been 2.15% and 2.02%, respectively.

 

10   Includes mortgage dollar roll transactions (“MDRs”). Additional information regarding portfolio turnover rate is as follows:

 

      

Six Months
Ended

March 31,

2015

(Unaudited)

     Year Ended September 30,
          2014      2013      2012      2011    2010

Portfolio turnover rate (excluding MDRs)

       92      181      192      254    236%    302%

 

See Notes to Financial Statements.

 

38    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Financial Highlights (concluded)

 

 

     Investor C  
    

Six Months
Ended

March 31,
2015

(Unaudited)

    Year Ended September 30,  
       2014     2013     2012     2011     2010  
Per Share Operating Performance                                 

Net asset value, beginning of period

   $ 15.06      $ 15.60      $ 15.02      $ 13.76      $ 14.04      $ 13.04   
  

 

 

 

Net investment income (loss)1

     (0.05     (0.10     0.04        0.08        0.13        0.14   

Net realized and unrealized gain (loss)

     0.68        1.00        1.17        1.64        (0.25     1.02   
  

 

 

 

Net increase (decrease) from investment operations

     0.63        0.90        1.21        1.72        (0.12     1.16   
  

 

 

 

Distributions from:2

        

Net investment income

     (0.23     (0.13     (0.05     (0.15     (0.16     (0.16

Net realized gain

     (0.80     (1.31     (0.58     (0.31              
  

 

 

 

Total distributions

     (1.03     (1.44     (0.63     (0.46     (0.16     (0.16
  

 

 

 

Net asset value, end of period

   $ 14.66      $ 15.06      $ 15.60      $ 15.02      $ 13.76      $ 14.04   
  

 

 

 
            
Total Return3                                 

Based on net asset value

     4.42 %4      5.91     8.29     12.75     (0.94 )%      8.86
  

 

 

 
            
Ratios to Average Net Assets                                 

Total expenses5

     1.83 %6      1.84 %7      1.88     1.93     1.93     1.94
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly5

     1.80 %6      1.81     1.83     1.90     1.93     1.94
  

 

 

 

Total expenses after fees waived and/or reimbursed and paid indirectly and excluding interest expense5

     1.80 %6      1.81     1.83     1.90     1.92     1.92
  

 

 

 

Net investment income (loss)5

     (0.73 )%6      (0.68 )%      0.28     0.58     0.89     1.05
  

 

 

 
            
Supplemental Data                                 

Net assets, end of period (000)

   $ 71,875      $ 74,467      $ 81,850      $ 86,947      $ 81,644      $ 84,367   
  

 

 

 

Portfolio turnover rate8

     92     181     192     324     401     400
  

 

 

 

 

  1  

Based on average shares outstanding.

 

  2  

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  3  

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  4  

Aggregate total return.

 

  5  

Excludes expenses incurred indirectly as a result of investments in underlying funds as follows:

 

    

 

    

Six Months

Ended

March 31,

2015

(Unaudited)

   Year Ended September 30,
         2014    2013    2012    2011    2010
Investments in underlying funds    0.10%    0.11%    0.10%    0.05%      

 

  6  

Annualized.

 

  7  

Includes recoupment of past waived and/or reimbursed fees. Excluding the recoupment of past waived and/or reimbursed fees for the year ended September 30, 2014 the ratio would have been 1.83%.

 

  8  

Includes mortgage dollar roll transactions (“MDRs”). Additional information regarding portfolio turnover rate is as follows:

 

    

 

    

Six Months

Ended

March 31,
2015

(Unaudited)

   Year Ended September 30,
         2014    2013    2012    2011    2010
Portfolio turnover rate (excluding MDRs)    92%    181%    192%    254%    236%    302%

 

See Notes to Financial Statements.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    39


Notes to Financial Statements (Unaudited)     

 

1. Organization:

BlackRock FundsSM (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust is organized as a Massachusetts business trust. These financial statements relate to one series of the Trust BlackRock Managed Volatility Portfolio (the “Fund”). The Fund is classified as diversified.

The Fund offers multiple classes of shares. All classes of shares have identical voting, dividend, liquidation and other rights and are subject to the same terms and conditions, except that certain classes bear expenses related to the shareholder servicing and distribution of such shares. Institutional and Service Shares are sold without a sales charge and only to certain eligible investors. Investor B Shares are only available through exchanges and distribution reinvestments by current holders and for purchase by certain employer-sponsored retirement plans. Investor A and Investor C Shares are generally available through financial intermediaries. Each class has exclusive voting rights with respect to matters relating to its shareholder servicing and distribution expenditures (except that Investor B shareholders may vote on material changes to the Investor A distribution and service plan).

 

Share Class    Initial Sales Charge    CDSC   

Conversion

Privilege

Institutional and Service Shares

   No    No    None

Investor A Shares

   Yes    No1    None

Investor B Shares

   No    Yes    To Investor A Shares after approximately 8 years

Investor C Shares

   No    Yes    None

 

  1  

Investor A Shares may be subject to a CDSC where no initial sales charge was paid at the time of purchase.

The Fund, together with certain other registered investment companies advised by the Manager or its affiliates, is included in a complex of open-end funds referred to as the Equity-Liquidity Complex.

2. Significant Accounting Policies:

The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund:

Valuation: The Fund’s investments are valued at fair value as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Trustees of the Trust (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Fund for all financial instruments.

Bond investments are valued on the basis of last available bid prices or current market quotations provided by dealers or pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more brokers or dealers as obtained from a pricing service. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments, various relationships observed in the market between investments and calculated yield measures. Asset-backed and mortgage-backed securities are valued by independent pricing services using models that consider estimated cash flows of each tranche of the security, establish a benchmark yield and develop an estimated tranche-specific spread to the benchmark yield based on the unique attributes of the tranche. Financial futures contracts traded on exchanges are valued at their last sale price. To-be-announced (“TBA”) commitments are valued on the basis of last available bid prices or current market quotations provided by pricing services. Swap agreements are valued utilizing quotes received daily by the Fund’s pricing service or through brokers, which are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments. Certain centrally cleared swaps are valued at the price determined by the relevant exchange or clearinghouse. Investments in open-end registered investment companies are valued at NAV each business day. The market value of the Fund’s investments in the Underlying Funds is based on the published NAV of each Underlying Fund computed as of the close of regular trading on the NYSE on days when the NYSE is open.

Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price.

Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of business on the NYSE. Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.

 

40    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options trade. An exchange-traded option for which there is no mean price is valued at the last bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price will be used, unless it is determined that the prior day’s price no longer reflects the fair value of the option. Over-the-counter (“OTC”) options and options on swaps (“swaptions”) are valued by an independent pricing service using a mathematical model, which incorporates a number of market data factors, such as the trades and prices of the underlying instruments.

The Fund values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Fund may withdraw up to 25% of its investment daily, although the Manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.

In the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Investments”). When determining the price for Fair Value Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement, which include the market approach, income approach and/or in the case of recent investments, the cost approach, as appropriate. The market approach generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to present value and is adjusted for liquidity as appropriate. These factors include but are not limited to: (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates. Due to the inherent uncertainty of valuations of such investments, the fair values may differ from the values that would have been used had an active market existed. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches for investments where an active market does not exist, including regular due diligence of the Fund’s pricing vendors, regular reviews of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.

Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Fund’s net assets. If events (e.g., a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Investments and be valued at their fair value, as determined in good faith by the Global Valuation Committee, or its delegate, using a pricing service and/or policies approved by the Board. Each business day, the Fund uses a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and OTC options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of business on the NYSE, which follows the close of the local markets.

Foreign Currency: The Fund’s books and records are maintained in U.S. dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the Fund’s investments denominated in that currency will lose value because that currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value.

The Fund does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated in the Statement of Operations from the effects of changes in market prices of those investments, but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for federal income tax purposes.

Segregation and Collateralization: In cases where the Fund enters into certain investments (e.g., financial futures contracts, forward foreign currency exchange contracts, options written and swaps) that would be “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid securities having a market value at least equal to the amount of the Fund’s future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    41


Notes to Financial Statements (continued)     

 

agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Distributions: Distributions paid by the Fund are recorded on the ex-dividend dates. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.

Recent Accounting Standard: In June 2014, the Financial Accounting Standards Board issued guidance to improve the financial reporting of reverse repurchase agreements and other similar transactions. The guidance will require expanded disclosure for entities that enter into reverse repurchase agreements and similar transactions accounted for as secured borrowings. It is effective for financial statements with fiscal years beginning on or after December 15, 2014 and for interim periods beginning after March 15, 2015. Management is evaluating the impact, if any, of this guidance on the Fund’s financial statement disclosures.

Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.

The Fund has an arrangement with the custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.

3. Securities and Other Investments:

Asset-Backed and Mortgage-Backed Securities: The Fund may invest in asset-backed securities. Asset-backed securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in an underlying pool of assets, or as debt instruments, which are also known as collateralized obligations, and are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security subject to such a prepayment feature will have the effect of shortening the maturity of the security. In addition, the Fund may subsequently have to reinvest the proceeds at lower interest rates. If the Fund has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.

The Fund may purchase certain mortgage pass-through securities. There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow from the U.S. Treasury.

Collateralized Debt Obligations: The Fund may invest in collateralized debt obligations (“CDOs”), which include collateralized bond obligations (“CBOs”) and collateralized loan obligations (“CLOs”). CBOs and CLOs are types of asset-backed securities. A CDO is an entity that is backed by a diversified pool of debt securities (CBOs) or syndicated bank loans (CLOs). The cash flows of the CDO can be split into multiple segments, called “tranches,” which will vary in risk profile and yield. The riskiest segment is the subordinated or “equity” tranche. This tranche bears the greatest risk of defaults from the underlying assets in the CDO and serves to protect the other, more senior, tranches from default in all but the most severe circumstances. Since it is shielded from defaults by the more junior tranches, a “senior” tranche will typically have higher credit ratings and lower yields than

 

42    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

their underlying securities, and often receive investment grade ratings from one or more of the nationally recognized rating agencies. Despite the protection from the more junior tranches, senior tranches can experience substantial losses due to actual defaults, increased sensitivity to future defaults and the disappearance of one or more protecting tranches as a result of changes in the credit profile of the underlying pool of assets.

Multiple Class Pass-Through Securities: The Fund may invest in multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”) and commercial mortgage-backed securities. These multiple class securities may be issued by Ginnie Mae, U.S. Government agencies or instrumentalities or by trusts formed by private originators of, or investors in, mortgage loans. In general, CMOs are debt obligations of a legal entity that are collateralized by, and multiple class pass-through securities represent direct ownership interests in, a pool of residential or commercial mortgage loans or mortgage pass-through securities (the “Mortgage Assets”), the payments on which are used to make payments on the CMOs or multiple pass-through securities. Classes of CMOs include interest only (“IOs”), principal only (“POs”), planned amortization classes and targeted amortization classes. IOs and POs are stripped mortgage-backed securities representing interests in a pool of mortgages, the cash flow from which has been separated into interest and principal components. IOs receive the interest portion of the cash flow while POs receive the principal portion. IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the principal is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slower than anticipated, the life of the PO is lengthened and the yield to maturity is reduced. If the underlying Mortgage Assets experience greater than anticipated prepayments of principal, the Fund may not fully recoup its initial investment in IOs.

Forward Commitments and When-Issued Delayed Delivery Securities: The Fund may purchase securities on a when-issued basis and may purchase or sell securities on a forward commitment basis. Settlement of such transactions normally occurs within a month or more after the purchase or sale commitment is made. The Fund may purchase securities under such conditions with the intention of actually acquiring them, but may enter into a separate agreement to sell the securities before the settlement date. Since the value of securities purchased may fluctuate prior to settlement, the Fund may be required to pay more at settlement than the security is worth. In addition, the Fund is not entitled to any of the interest earned prior to settlement. When purchasing a security on a delayed delivery basis, the Fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations. In the event of default by the counterparty, the Fund’s maximum amount of loss is the unrealized appreciation of unsettled when-issued transactions, which is shown in the Schedule of Investments.

TBA Commitments: The Fund may enter into TBA commitments. TBA commitments are forward agreements for the purchase or sale of mortgage-backed securities for a fixed price, with payment and delivery on an agreed upon future settlement date. The specific securities to be delivered are not identified at the trade date. However, delivered securities must meet specified terms, including issuer, rate and mortgage terms. When entering into TBA commitments, the Fund may take possession of or deliver the underlying mortgage-backed securities but can extend the settlement or roll the transaction. TBA commitments involve a risk of loss if the value of the security to be purchased or sold declines or increases, respectively, prior to settlement date.

In order to better define contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, TBA commitments may be entered into by the Fund under Master Securities Forward Transaction Agreements (each, an “MSFTA”). An MSFTA typically contains, among other things, collateral posting terms and netting provisions in the event of default and/or termination event. The collateral requirements are typically calculated by netting the mark to market amount for each transaction under such agreement and comparing that amount to the value of the collateral currently pledged by the Fund and the counterparty. Cash collateral that has been pledged to cover the obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral for TBA commitments or cash received as collateral for TBA commitments, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Typically, the Fund is permitted to sell, repledge or use the collateral it receives; however, the counterparty is not permitted to do so. To the extent amounts due to the Fund are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty non-performance.

Securities Lending: The Fund may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Fund collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.

The market value of securities on loan and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of March 31, 2015, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    43


Notes to Financial Statements (continued)     

 

Securities lending transactions are entered into by the Fund under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Fund can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.

As of March 31, 2015, the following table is a summary of the Fund’s securities lending agreements by counterparty, which are subject to offset under an MSLA:

 

Counterparty    Securities Loaned
at Value
     Cash Collateral
Received1
    Net Amount

Deutsche Bank Securities, Inc.

   $ 32,478       $ (32,478  

Merrill Lynch, Pierce, Fenner & Smith, Inc.

     154,513         (154,513  

Morgan Stanley

     48,967         (48,967  

UBS Securities LLC

     75,276         (75,276  

Total

   $ 311,234       $ (311,234  
  

 

 

 

  1   

Collateral with a value of $344,954 has been received in conjunction with securities lending agreements for the Fund. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes.

The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of borrower default. The Fund could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.

4. Derivative Financial Instruments:

The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to economically manage its exposure to certain risks such as credit risk, equity risk, interest rate risk or foreign currency exchange rate risk. These contracts may be transacted on an exchange or OTC.

Financial Futures Contracts: The Fund invests in long and/or short positions in financial futures contracts and options on financial futures contracts to gain exposure to, or economically hedge against, changes in interest rates (interest rate risk), changes in the value of equity securities (equity risk) or foreign currencies (foreign currency exchange rate risk). Financial futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, financial futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date.

Upon entering into a financial futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited, if any, is recorded on the Statement of Assets and Liabilities as cash pledged for financial futures contracts. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin. Variation margin is recorded by the Fund as unrealized appreciation or depreciation and, if applicable, as a receivable or payable for variation margin in the Statement of Assets and Liabilities.

When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest or foreign currency exchange rates and the underlying assets.

Forward Foreign Currency Exchange Contracts: The Fund enters into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Fund, help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the

 

44    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies.

Options: The Fund purchases and writes call and put options to increase or decrease its exposure to underlying instruments (including equity risk and interest rate risk) and/or in the case of options written, to generate gains from options premiums. A call option gives the purchaser (holder) of the option the right (but not the obligation) to buy, and obligates the seller (writer) to sell (when the option is exercised) the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying instrument at the exercise or strike price at any time or at a specified time during the option period. When the Fund purchases (writes) an option, an amount equal to the premium paid (received) by the Fund is reflected as an asset (liability). The amount of the asset (liability) is subsequently marked-to-market to reflect the current market value of the option purchased (written). When an instrument is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the instrument acquired or deducted from (or added to) the proceeds of the instrument sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premiums received or paid). When the Fund writes a call option, such option is “covered,” meaning that the Fund holds the underlying instrument subject to being called by the option counterparty. When the Fund writes a put option, such option is covered by cash in an amount sufficient to cover the obligation.

Swaptions are similar to options on securities except that instead of selling or purchasing the right to buy or sell a security, the writer or purchaser of the swaptions is granting or buying the right to enter into a previously agreed upon interest rate or credit default swap agreement (interest rate risk and/or credit risk) at any time before the expiration of the option.

The Fund also purchases or sells listed or OTC foreign currency options, foreign currency futures and related options on foreign currency futures as a short or long hedge against possible variations in foreign exchange rates or to gain exposure to foreign currencies (foreign currency exchange rate risk). When foreign currency is purchased or sold through an exercise of a foreign currency option, the related premium paid (or received) is added to (or deducted from) the basis of the foreign currency acquired or deducted from (or added to) the proceeds of the foreign currency sold (receipts from the foreign currency purchased). Such transactions may be effected with respect to hedges on non-U.S. dollar denominated instruments owned by the Fund but not yet delivered, or committed or anticipated to be purchased by the Fund.

In purchasing and writing options, the Fund bears the risk of an unfavorable change in the value of the underlying instrument or the risk that the Fund may not be able to enter into a closing transaction due to an illiquid market. Exercise of a written option could result in the Fund purchasing or selling a security when it otherwise would not, or at a price different from the current market value.

For the six months ended March 31, 2015, transactions in options written were as follows:

 

     Calls          Puts  
 

 

 

     

 

 

 
    Contracts     Premiums
Received
        Contracts     Premiums
Received
 
 

 

 

     

 

 

 

Outstanding options, beginning of period

    8      $ 3,270          48      $ 17,323   

Options written

    294        321,226          487        282,095   

Options expired

                    (40     (10,569

Options closed

    (189     (174,222       (274     (172,134
 

 

 

     

 

 

 

Outstanding options, end of period

    113      $ 150,274          221      $ 116,715   
 

 

 

     

 

 

 

Swaps: The Fund enters into swap agreements in which the Fund and a counterparty agree either to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are privately negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation).

For OTC swaps, any upfront premiums paid are recorded as assets and any upfront fees received are recorded as liabilities and are shown as swap premiums paid and swap premiums received, respectively, in the Statement of Assets and Liabilities and amortized over the term of the OTC swap. Payments received or made by the Fund for OTC swaps are recorded in the Statement of Operations as realized gains or losses, respectively. When an OTC swap is terminated, the Fund will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract, if any. Generally, the basis of the contract is the premium received or paid.

In a centrally cleared swap, immediately following execution of the swap agreement, the swap agreement is novated to a central counterparty (the “CCP”) and the Fund’s counterparty on the swap agreement becomes the CCP. The Fund is required to interface with the CCP through a broker. Upon entering into a centrally cleared swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited is recorded on the Statement of Assets and Liabilities as cash pledged for centrally cleared swaps. The daily change in valuation of centrally cleared swaps is recorded as a receivable or payable for variation margin in the Statement of Assets and Liabilities. Payments received from (paid to) the counterparty, including at termination, are recorded as realized gain (loss) in the Statement of Operations.

 

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    45


Notes to Financial Statements (continued)     

 

Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.

 

Ÿ  

Credit default swaps — The Fund enters into credit default swaps to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which it is not otherwise exposed (credit risk). The Fund may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps on single-name issuers are agreements in which the protection buyer pays fixed periodic payments to the seller in consideration for a guarantee from the protection seller to make a specific payment should a negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on traded indexes are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a write-down, principal or interest shortfall or default of all or individual underlying securities included in the index occur. As a buyer, if an underlying credit event occurs, the Fund will either (i) receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the index, or (ii) receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Fund will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index.

 

Ÿ  

Total return swaps — The Fund enters into total return swaps to obtain exposure to a security or market without owning such security or investing directly in that market or to transfer the risk/return of one market (e.g., fixed income) to another market (e.g., equity or commodity prices) (equity risk, commodity price risk and/or interest rate risk). Total return swaps are agreements in which there is an exchange of cash flows whereby one party commits to make payments based on the total return (coupons plus capital gains/losses) of an underlying instrument in exchange for fixed or floating rate interest payments. To the extent the total return of the instrument or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty.

 

Ÿ  

Interest rate swaps — The Fund enters into interest rate swaps to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate risk by economically hedging the value of the fixed rate bonds which may decrease when interest rates rise (interest rate risk). Interest rate swaps are agreements in which one party pays a stream of interest payments, either fixed or floating, for another party’s stream of interest payments, either fixed or floating, on the same notional amount for a specified period of time. In more complex swaps, the notional principal amount may decline (or amortize) over time.

 

Ÿ  

Forward interest rate swaps — The Fund may enter into forward interest rate swaps and forward total return swaps. In a forward swap, the Fund and the counterparty agree to make either periodic net payments beginning on a specified future effective date or a net payment at termination, unless terminated earlier.

The following is a summary of the Fund’s derivative financial instruments categorized by risk exposure:

 

Fair Values of Derivative Financial Instruments as of March 31, 2015  
           Value  
     Statement of Assets and Liabilities Location   Derivative
Assets
     Derivative
Liabilities
 
   Net unrealized appreciation/depreciation1 ;     
  

Investments at value — unaffiliated2 ;

    

Interest rate contracts

  

Options written at value

  $ 436,889       $ 2,129,725   

Foreign currency exchange contracts

   Unrealized appreciation/depreciation on forward foreign currency exchange contacts;     
   Net unrealized appreciation/depreciation1     6,093,685         2,218,261   

Credit contracts

   Net unrealized appreciation/depreciation1     14,634           
   Net unrealized appreciation/depreciation1     

Equity contracts

   Net unrealized depreciation on OTC swaps     1,000,214         778,159   

Total

     $ 7,545,422       $ 5,126,145   
    

 

 

 

 

  1   

Includes cumulative appreciation/depreciation on financial futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities.

 

  2   

Includes options purchased at value as reported in the Schedule of Investments.

 

 

46    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

 

 

The Effect of Derivative Financial Instruments in the Statement of  Operations

Six Months Ended March 31, 2015

        
 
Net Realized Gain (Loss)
from
 
 
     

 

Net Change in Unrealized

Appreciation/Depreciation on

 

 

Interest rate contracts:

        

Financial futures contracts

     $ (5,145,211 )     $ (1,273,775 )

Swaps

       (314,762 )       (252,968 )

Options1

       (46,283 )       (17,367 )

Foreign currency exchange contracts:

        

Financial futures contracts

       4,369,748         (478,842 )

Foreign currency transactions/translations

       27,922,698         (1,703,670 )

Credit contracts:

        

Swaps

       (45,077 )       (11,090 )

Equity contracts:

        

Financial futures contracts

       14,011,012         (1,541,779 )

Swaps

       504,887         1,259,358  
    

 

 

     

 

 

 

Total

     $ 41,257,012       $ (4,020,133 )
    

 

 

     

 

 

 

 

  1   

Options purchased are included in the net realized gain (loss) from investments and net change in unrealized appreciation/depreciation on investments.

For the six months ended March 31, 2015, the average quarterly balances of outstanding derivative financial instruments were as follows:

 

Financial futures contracts:

        

Average notional value of contracts - long

   $ 130,553,640   

Average notional value of contracts - short

   $ 475,062,496   

Forward foreign currency exchange contracts:

  

Average amounts purchased - in USD

   $ 417,957,273   

Average amounts sold - in USD

   $ 157,760,388   

Options:

  

Average notional value of option contracts purchased

   $ 27,544   

Average notional value of option contracts written

   $ 145,966   

Credit default swaps:

  

Average notional value - sell protection

   $ 1,980,603   

Interest rate swaps:

  

Average notional value - pays fixed rate

   $ 10,843,649   

Average notional value - receives fixed rate

   $ 1,433,913   

Total return swaps:

  

Average notional amount

   $ 34,566,004   

Counterparty Credit Risk: A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.

The Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain less the value of any collateral held by the Fund. For OTC options purchased, the Fund bears the risk of loss of the amount of the premiums paid plus the positive change in market values net of any collateral held by the Fund should the counterparty fail to perform under the contracts. Options written by the Fund do not typically give rise to counterparty credit risk, as options written generally obligate the Fund, and not the counterparty, to perform.

With exchange-traded purchased options and futures and centrally cleared swaps, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange-traded futures and centrally cleared swaps with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.

In order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    47


Notes to Financial Statements (continued)     

 

held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. Bankruptcy or insolvency laws of a particular jurisdiction may restrict or prohibit the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements, which would cause the Fund to accelerate payment of any net liability owed to the counterparty.

Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.

Cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Generally, the amount of collateral due from or to a party has to exceed a minimum transfer amount threshold (typically either $250,000 or $500,000) before a transfer is required, which is determined at the close of business of the Fund. Any additional required collateral is delivered to/pledged by the Fund on the next business day. Typically, the Fund and counterparties are not permitted to sell, re-pledge or use the collateral they receive. To the extent amounts due to the Fund from its counterparties are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance. Likewise, to the extent the Fund has delivered collateral to a counterparty and stands ready to perform under the terms of its agreement with such counterparty, the Fund bears the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral.

For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Statement of Assets and Liabilities.

As of March 31, 2015, the Fund’s derivative assets and liabilities (by type) are as follows:

 

      Assets     Liabilities  

Derivative Financial Instruments:

    

Financial futures contracts

   $ 1,038,405      $ 646,926   

Forward foreign currency exchange contracts

     5,978,260        1,799,231   

Options1

     55,087        291,931   

Swaps-Centrally cleared

     4,614          

Swaps-OTC

            23,793   
  

 

 

 

Total derivative assets and liabilities in the Statement of Assets and Liabilities

   $ 7,076,366      $ 2,761,881   

Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”)

     (1,098,106     (938,857
  

 

 

 

Total derivative assets and liabilities subject to an MNA

   $ 5,978,260      $ 1,823,024   
  

 

 

 

 

  1   

Includes options purchased at value which are included in Investments at value — unaffiliated in the Statement of Assets and Liabilities and reported in the Schedule of Investments.

As of March 31, 2015, the following tables present the Fund’s derivative assets and/or liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateral received and pledged by the Fund:

 

Counterparty    Derivative Assets
Subject to an MNA  by
Counterparty
     Derivatives Available
for Offset1
    Non-cash
Collateral
Received
   Cash
Collateral
Received
  

Net Amount of

Derivative Assets2

 

Bank of America N.A.

   $ 3,977       $ (3,977             

Barclays Bank PLC

     23,582         (23,582             

BNP Paribas S.A.

     8,419         (6,936         $ 1,483   

Citibank N.A.

     1,928,883         (38,724           1,890,159   

Credit Suisse International

     59,040         (59,040             

Deutsche Bank AG

     961,525         (163,386           798,139   

Goldman Sachs International

     127,175         (78,477           48,698   

HSBC Bank PLC

     52,430         (52,314           116   

JPMorgan Chase Bank N.A.

     914,722         (141,630           773,092   

Morgan Stanley & Co. International PLC

     833,455         (63,839           769,616   

Royal Bank of Canada

     345                      345   

State Street Bank and Trust Co.

     14,731         (14,731             

UBS AG

     1,022,419         (113,424           908,995   

Westpac Banking Corp.

     27,557         (17,165           10,392   
  

 

 

 
   $ 5,978,260       $ (777,225         $ 5,201,035   
  

 

 

 

 

48    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

Counterparty    Derivative Liabilities
Subject to an MNA  by
Counterparty
     Derivatives Available
for Offset1
    Non-cash
Collateral
Pledged
   Cash
Collateral
Pledged
     Net Amount of
Derivative Liabiities3
 

Bank of America N.A.

   $ 15,041       $ (3,977              $ 11,064   

Barclays Bank PLC

     65,413         (23,582                41,831   

BNP Paribas S.A.

     6,936         (6,936                  

Citibank N.A.

     38,724         (38,724                  

Credit Suisse International

     233,769         (59,040                174,729   

Deutsche Bank AG

     163,386         (163,386                  

Goldman Sachs International

     78,477         (78,477                  

HSBC Bank PLC

     52,314         (52,314                  

JPMorgan Chase Bank N.A.

     141,630         (141,630                  

Morgan Stanley & Co. International PLC

     63,839         (63,839                  

Royal Bank of Scotland PLC

     2,702                           2,702   

Standard Chartered Bank

     810,035                           810,035   

State Street Bank and Trust Co.

     20,169         (14,731                5,438   

UBS AG

     113,424         (113,424                  

Westpac Banking Corp.

     17,165         (17,165                  
  

 

 

 
   $ 1,823,024       $ (777,225              $ 1,045,799   
  

 

 

 

 

  1   

The amount of derivatives available for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA.

 

  2  

Net amount represents the net amount receivable from the counterparty in the event of default.

 

  3  

Net amount represents the net amount payable due to the counterparty in the event of default.

5. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.

The Trust, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:

 

Average Daily Net Assets    Investment Advisory Fee  

First $1 Billion

     0.550

$1 Billion - $2 Billion

     0.500

$2 Billion - $3 Billion

     0.475

Greater than $3 Billion

     0.450

The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. This amount is shown as fees waived by the Manager in the Statement of Operations. For the six months ended March 31, 2015, BlackRock waived $115,467. In addition, the Manager has contractually agreed to waive the management fee on assets estimated to be attributed to the Fund’s investments in other equity and fixed-income mutual funds managed by the Manager or its affiliates, if any.

The Manager entered into a sub-advisory agreement with BlackRock International Limited (“BIL”), BlackRock Asset Management North Asia Limited (“BNA”) and BlackRock (Singapore) Limited (“BSL”), each an affiliate of the Manager. The Manager pays BIL, BNA and BSL, for services they provide, a monthly fee that is a percentage of the investment advisory fees paid by the Fund to the Manager.

The Trust, on behalf of the Fund, entered into a Distribution Agreement and a Distribution and Service Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution and Service Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing service and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the relevant share class of the Fund as follows:

 

      Service     Investor A     Investor B     Investor C  

Service Fee

     0.25     0.25     0.25     0.25

Distribution Fee

                   0.75     0.75

 

    

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    49


Notes to Financial Statements (continued)     

 

Pursuant to sub-agreements with BRIL, broker-dealers and BRIL provide shareholder servicing and distribution services to the Fund. The ongoing service and/or distribution fee compensates BRIL and each broker-dealer for providing shareholder servicing and/or distribution related services to Service, Investor A, Investor B and Investor C shareholders.

For the six months ended March 31, 2015, the following table shows the class specific service and distribution fees borne directly by each class of the Fund:

 

Service     Investor A     Investor B     Investor C     Total  
$ 2,057      $ 424,021      $ 30,414      $ 360,853      $ 817,345   

Pursuant to written agreements, certain financial intermediaries, some of which may be affiliates, provide the Fund with sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to sub-accounts they service. For these services, these entities receive an asset-based fee or an annual fee per shareholder account, which will vary depending on share class and/or net assets. For the six months ended March 31, 2015, the Fund paid the following amounts to affiliates of BlackRock in return for these services, which are included in transfer agent — class specific in the Statement of Operations:

 

Institutional   Service   Investor A   Total
$119,535   $1,343   $4,904   $125,782

The Manager maintains a call center, which is responsible for providing certain shareholder services to the Fund, such as responding to shareholder inquiries and processing transactions based upon instructions from shareholders with respect to the subscription and redemption of Fund shares. For the six months ended March 31, 2015, the Fund reimbursed the Manager the following amounts for costs incurred in running the call center, which are included in transfer agent — class specific in the Statement of Operations:

 

Institutional   Service   Investor A   Investor B   Investor C   Total
$1,044   $74   $52,589   $3,080   $2,291   $59,078

For the six months ended March 31, 2015, the following table shows the class specific transfer agent fees borne directly by each class of the Fund:

 

Institutional   Service   Investor A   Investor B   Investor C   Total
$194,574   $1,893   $328,183   $18,163   $44,849   $587,662

Effective January 1, 2015, the Trust, on behalf of the Fund, entered into an Administration Agreement with the Manager, an indirect, wholly owned subsidiary of BlackRock, to provide administrative services. For these services, the Manager receives an administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of the Fund. The administration fee, which is shown as administration in the Statement of Operations, is paid at the annual rates below.

 

Average Daily Net Assets    Administration Fee  

First $500 Million

     0.0425

$500 Million - $1 Billion

     0.0400

$1 Billion - $2 Billion

     0.0375

$2 Billion - $4 Billion

     0.0350

$4 Billion - $13 Billion

     0.0325

Greater than $13 Billion

     0.0300

In addition, the Manager charges each of the share classes an administration fee, which is shown as administration — class specific in the Statement of Operations, at an annual rate of 0.02% of the average daily net assets of each respective class.

Prior to January 1, 2015, BNY Mellon Investment Servicing (US) Inc. (“BNYMIS”) and the Manager acted as co-administrators for the Fund. For these services, the co-administrators received an administration fee computed daily and payable monthly to each administrator pursuant to separate fee arrangements, based on a percentage of the average daily net assets of the Fund. The combined administration fee, which is shown as administration in the Statement of Operations, was paid at the annual rates below. In addition, each of the share classes was charged an administration fee, which is shown as administration — class specific in the Statement of Operations, based on the following percentages of average daily net assets of each respective class:

 

Average Daily Net Assets    Administration Fee     Administration Fee —
Class Specific
 

First $500 Million

     0.075     0.025

$500 Million - $1 Billion

     0.065     0.015

Greater than $1 Billion

     0.055     0.005

 

50    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

For the six months ended March 31, 2015, the Fund paid $244,348 to the Manager in return for these services, which is included in administration and administration — class specific in the Statement of Operations.

For the six months ended March 31, 2015, the following table shows the class specific administration fees borne directly by each class of the Fund:

 

Institutional     Service     Investor A     Investor B     Investor C     Total  
$ 36,407      $ 185      $ 38,227      $ 691      $ 8,136      $ 83,646   

BNYMIS and the Manager may have, at their discretion, voluntarily waived all or any portion of their administration fees for the Fund or a share class, which are included in administration fees waived — class specific in the Statement of Operations.

The Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of the Fund’s business. The expense limitations as a percentage of average daily net assets are as follows:

 

Institutional     Service     Investor A     Investor B     Investor C  
  0.89     1.17     1.37     2.14     2.14

The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to February 1, 2016 unless approved by the Board, including a majority of the independent Trustees.

Class specific expense waivers or reimbursements are as follows:

 

      Service      Investor B      Total  

Administration Fees Waived

   $ 4       $ 689       $ 693   

Transfer Agent Fees Waived

           $ 1,983       $ 1,983   

Transfer Agent Fees Reimbursed

           $ 1,109       $ 1,109   

If during the Fund’s fiscal year the operating expenses of a share class, that at any time during the prior two fiscal years received a waiver or reimbursement from the Manager, are less than the expense limit for that share class, the Manager is entitled to be reimbursed by such share class up to the lesser of (a) the amount of fees waived or expenses reimbursed during those prior two fiscal years under the agreement and (b) the amount by which the expense limit for that share class exceeds the operating expenses of the share class for the current fiscal year, provided that: (1) the Fund has more than $50 million in assets for the fiscal year and (2) the Manager or an affiliate continues to serve as the Fund’s investment advisor or administrator. In the event the expense limit for a share class is changed subsequent to a fiscal year in which the Manager becomes entitled to reimbursement for fees waived or reimbursed, the amount available to reimburse the Manager shall be calculated by reference to the expense limit for that share class in effect at the time the Manager became entitled to receive such reimbursement, rather than the subsequently changed expense limit for that share class.

For the six months ended March 31, 2015, the Manager recouped waivers and/or reimbursements previously recorded $3,940 and $159 for Institutional Shares and Service Shares, respectively.

On March 31, 2015, the Fund level and class specific waivers and/or reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:

 

Expires September 30,    Service      Investor B  

2015

   $ 398           

2016

   $ 136       $ 523   

2017

   $ 4       $ 3,781   

For the six months ended March 31, 2015, affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of the Fund’s Investor A Shares of $8,176.

For the six months ended March 31, 2015, affiliates received CDSCs as follows:

 

Investor A     Investor B     Investor C     Total  
$ 125      $ 236      $ 1,369      $ 1,730   

 

    

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    51


Notes to Financial Statements (continued)     

 

The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the private investment company to an annual rate of 0.04%. The investment advisor to the private investment company will not charge any advisory fees with respect to shares purchased by the Fund.

Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. The Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent. BIM may lend securities only when the difference between the borrower rebate rate and the risk free rate exceeds a certain level (such securities, the “specials only securities”).

Pursuant to such agreement, the Fund retains 80% of securities lending income. In addition, commencing the business day following the date that the aggregate securities lending income earned across certain funds in the Equity-Liquidity Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of the calendar year securities lending income in an amount equal to 85% of securities lending income. The share of securities lending income earned by the Fund is shown as securities lending — affiliated — net in the Statement of Operations. For the six months ended March 31, 2015, the Fund paid BIM $1,228 for securities lending agent services.

Certain officers and/or trustees of the Trust are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Trust’s Chief Compliance Officer, which is included in officer and trustees in the Statement of Operations.

6. Purchases and Sales:

For the six months ended March 31, 2015, purchases and sales of investments, including paydowns, TBA transactions and excluding short-term securities were as follows:

 

      Purchases      Sales  

Non-U.S. Government Securities

   $ 564,485,761       $ 391,955,557   

U.S. Government Securities

   $ 4,179,738       $ 242,453   

7. Income Tax Information:

It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required.

The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns remains open for each of the four years ended September 30, 2014. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.

Management has analyzed tax laws and regulations and their application to the Fund as of March 31, 2015, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.

As of March 31, 2015, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:

 

Tax cost

   $ 756,831,941   
  

 

 

 

Gross unrealized appreciation

   $ 19,410,254   

Gross unrealized depreciation

     (23,585,142
  

 

 

 

Net unrealized depreciation

   $ (4,174,888
  

 

 

 

8. Borrowings:

The Trust, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), was a party to a 364-day, $1.1 billion credit agreement with a group of lenders, under which the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for a certain individual fund, the Participating Funds, including the Fund, could borrow up to an aggregate commitment amount of $650 million, subject to asset coverage and other limitations as specified in the agreement. Effective November 25, 2014, the credit agreement was amended to an aggregate commitment amount of $2.1 billion, of which the Participating Funds, including the Fund, can borrow up to $1.6 billion at any time outstanding, subject to asset coverage and other limitations as specified in the agreement. The agreement terminates on April 23, 2015, unless otherwise extended to November 24, 2015 or renewed for a period of 364 days from April 23, 2015. The amended agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in

 

52    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Notes to Financial Statements (continued)     

 

effect from time to time plus 0.80% per annum on amounts borrowed. Participating Funds paid administration, legal and arrangement fees, which are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended March 31, 2015, the Fund did not borrow under the credit agreement.

9. Principal Risks:

In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.

10. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

 

     Six Months Ended
March 31, 2015
         Year Ended
September 30, 2014
 
      Shares     Amount           Shares     Amount  
Institutional                                   

Shares sold

     1,237,824      $ 18,676,785           18,459,670      $ 291,296,269   

Shares issued in reinvestment of distributions

     1,215,917        17,582,178           1,325,140        20,157,670   

Shares redeemed

     (3,508,650     (53,023,039        (5,967,622     (92,271,562
  

 

 

      

 

 

 

Net increase (decrease)

     (1,054,909   $ (16,764,076        13,817,188      $ 219,182,377   
  

 

 

      

 

 

 
           

Service

                                     

Shares sold

     543      $ 8,235           3,606      $ 57,541   

Shares issued in reinvestment of distributions

     7,737        111,490           10,118        153,456   

Shares redeemed

     (5,819     (88,615        (14,985     (235,818
  

 

 

      

 

 

 

Net increase (decrease)

     2,461      $ 31,110           (1,261   $ (24,821
  

 

 

      

 

 

 
           

Investor A

                                     

Shares sold and automatic conversion of shares

     753,376      $ 11,300,718           996,006      $ 15,419,000   

Shares issued in reinvestment of distributions

     1,637,182        23,575,411           2,177,841        33,005,225   

Shares redeemed

     (2,032,925     (30,495,939        (4,075,561     (63,161,360
  

 

 

      

 

 

 

Net increase (decrease)

     357,633      $ 4,380,190           (901,714   $ (14,737,135
  

 

 

      

 

 

 
           

Investor B

                                     

Shares sold

     1,939      $ 32,216           5,115      $ 78,672   

Shares issued in reinvestment of distributions

     26,047        369,876           65,575        980,348   

Shares redeemed and automatic conversion of shares

     (107,527     (1,578,886        (428,394     (6,529,169
  

 

 

      

 

 

 

Net decrease

     (79,541   $ (1,176,794        (357,704   $ (5,470,149
  

 

 

      

 

 

 

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    53


Notes to Financial Statements (concluded)     

 

     Six Months Ended
March 31, 2015
         Year Ended
September 30, 2014
 
      Shares     Amount           Shares     Amount  

Investor C

                                     

Shares sold

     174,903      $ 2,557,967           271,370      $ 4,093,112   

Shares issued in reinvestment of distributions

     332,476        4,681,259           468,294        6,958,846   

Shares redeemed

     (549,465     (8,004,210        (1,042,063     (15,808,816
  

 

 

      

 

 

 

Net decrease

     (42,086   $ (764,984        (302,399   $ (4,756,858
  

 

 

      

 

 

 

Total Net Increase (Decrease)

     (816,442   $ (14,294,554        12,254,110      $ 194,193,414   
  

 

 

      

 

 

 

11. Subsequent Events:

Management’s evaluation of the impact of all subsequent events on the Fund’s financial statements was completed through the date the financial statements were issued and the following item was noted:

Effective April 23, 2015, the 364-day, $2.1 billion credit agreement to which the Fund is a party, was further amended to expire on April 21, 2016, unless otherwise extended or renewed.

 

54    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Officers and Trustees     

 

Rodney D. Johnson, Chair of the Board and Trustee

David O. Beim, Trustee

Collette Chilton, Trustee

Frank J. Fabozzi, Trustee

Dr. Matina S. Horner, Trustee

Herbert I. London, Trustee

Ian A. MacKinnon, Trustee

Cynthia A. Montgomery, Trustee

Barbara G. Novick, Trustee

Joseph P. Platt, Trustee

Robert C. Robb, Jr., Trustee

Toby Rosenblatt, Trustee

Mark Stalnecker, Trustee

Kenneth L. Urish, Trustee

Frederick W. Winter, Trustee

John M. Perlowski, President and Chief Executive Officer

Jennifer McGovern, Vice President

Neal Andrews, Chief Financial Officer

Jay Fife, Treasurer

Charles Park, Chief Compliance Officer

Fernanda Piedra, Anti-Money Laundering Compliance Officer

Benjamin Archibald, Secretary

 

Effective December 31, 2014, Paul L. Audet and Henry Gabbay resigned as Trustees of the Trust and Ronald W. Forbes resigned as a Trustee of the Trust and Co-Chair of the Board. Effective January 1, 2015, Collette Chilton, Barbara G. Novick and Mark Stalnecker were appointed to serve as Trustees of the Trust.

Effective March 1, 2015, Charles Park resigned as Anti-Money Laundering Compliance Officer of the Trust and Fernanda Piedra became Anti-Money Laundering Compliance Officer of the Trust.

 

       

Investment Advisor and

Administrator

BlackRock Advisors, LLC

Wilmington, DE 19809

 

Accounting Agent and

Transfer Agent

BNY Mellon Investment

Servicing (US) Inc.

Wilmington, DE 19809

 

Independent Registered

Public Accounting Firm

Deloitte & Touche LLP

Philadelphia, PA 19103

 

Address of the Trust

100 Bellevue Parkway

Wilmington, DE 19809

     

Sub-Advisors

BlackRock International Limited

Edinburgh, EH3 8BL

United Kingdom

 

BlackRock Asset

Management North Asia Limited

Hong Kong

 

BlackRock (Singapore) Limited

079912 Singapore

 

Custodian

The Bank of New York Mellon

New York, NY 10286

 

Distributor

BlackRock Investments, LLC

New York, NY 10022

 

Legal Counsel

Sidley Austin LLP

New York, NY 10019

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    55


Additional Information     

 

General Information

Householding

The Fund will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please call the Fund at (800) 441-7762.

Availability of Quarterly Schedule of Investments

The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Fund’s Forms N-Q may also be obtained upon request and without charge by calling (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available upon request and without charge (1) by calling (800) 441-7762; (2) at http://www.blackrock.com; and (3) on the SEC’s website at http://www.sec.gov.

Availability of Proxy Voting Record

Information about how the Fund voted proxies relating to securities held in the Fund’s portfolio during the most recent 12-month period ended June 30 is available upon request and without charge (1) at http://www.blackrock.com or by calling (800) 441-7762 and (2) on the SEC’s website at http:// www.sec.gov.

 

Shareholder Privileges

Account Information

Call us at (800) 441-7762 from 8:00 AM to 6:00 PM EST on any business day to get information about your account balances, recent transactions and share prices. You can also reach us on the Web at http://www.blackrock.com/funds.

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 funds.

Systematic Withdrawal Plans

Investor Class shareholders can establish a systematic withdrawal plan and receive periodic payments of $50 or more from their BlackRock funds, as long as their account balance is at least $10,000.

Retirement Plans

Shareholders may make investments in conjunction with Traditional, Rollover, Roth, Coverdell, Simple IRAs, SEP IRAs and 403(b) Plans.

 

56    BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015     


Additional Information (concluded)     

 

BlackRock Privacy Principles

BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, “Clients”) and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why in certain cases we share such information with select parties.

If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different privacy-related rights beyond what is set forth below, then BlackRock will comply with those specific laws, rules or regulations.

BlackRock obtains or verifies personal non-public information from and about you from different sources, including the following: (i) information we receive from you or, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions with us, our affiliates, or others; (iii) information we receive from a consumer reporting agency; and (iv) from visits to our websites.

BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose.

We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information.

 

     BLACKROCK MANAGED VOLATILITY PORTFOLIO    MARCH 31, 2015    57


 

 

 

 

This report is intended for current holders. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless preceded or accompanied by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.

 

 

LOGO

 

MV-3/15-SAR

   LOGO

 


Item 2 – Code of Ethics – Not Applicable to this semi-annual report
Item 3 – Audit Committee Financial Expert – Not Applicable to this semi-annual report
Item 4 – Principal Accountant Fees and Services – Not Applicable to this semi-annual report
Item 5 – Audit Committee of Listed Registrants – Not Applicable
Item 6 – Investments
(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this Form.
(b) Not Applicable due to no such divestments during the semi-annual period covered since the previous
Form N-CSR filing.
Item 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – Not Applicable
Item 8 – Portfolio Managers of Closed-End Management Investment Companies – Not Applicable
Item 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers – Not Applicable
Item 10 – Submission of Matters to a Vote of Security Holders –There have been no material changes to these procedures.
Item 11 – Controls and Procedures
(a) – The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing of this report based on the evaluation of these controls and procedures required by
Rule 30a-3(b) under the 1940 Act and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended.
(b) – There were no changes in the registrant’s internal control over financial reporting (as defined in
Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12 – Exhibits attached hereto
(a)(1) – Code of Ethics – Not Applicable to this semi-annual report
(a)(2) – Certifications – Attached hereto
(a)(3) – Not Applicable
(b) – Certifications – Attached hereto

 

2


Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BlackRock Funds

 

By:    /s/ John M. Perlowski                
John M. Perlowski
Chief Executive Officer (principal executive officer) of
BlackRock Funds
Date: June 2, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By:    /s/ John M. Perlowski                
John M. Perlowski
Chief Executive Officer (principal executive officer) of
BlackRock Funds
Date: June 2, 2015
By:    /s/ Neal J. Andrews                
Neal J. Andrews
Chief Financial Officer (principal financial officer) of
BlackRock Funds

Date: June 2, 2015

 

3