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 China Fund

BlackRock Energy & Resources Portfolio

BlackRock Flexible Equity Portfolio

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

BlackRock World Gold Fund

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 52^nd

Street, New York, NY 10055

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

Date of fiscal year end: 09/30/2012

Date of reporting period: 09/30/2012

Item 1 – Report to Stockholders

         September 30, 2012            

Annual Report

  BlackRock Funds^SM

u BlackRock All-Cap Energy & Resources Portfolio

u BlackRock China Fund

u BlackRock Energy & Resources Portfolio

u BlackRock World Gold Fund

        Not  FDIC Insured § No Bank Guarantee § May Lose Value         

Table of Contents

	Page
Dear Shareholder		3
Annual Report:
Fund Summaries		4
About Fund Performance		12
Disclosure of Expenses		13
Derivative Financial Instruments		13
Financial Statements:
Schedules of Investments		14
Statements of Assets and Liabilities		24
Statements of Operations		26
Statements of Changes in Net Assets		27
Financial Highlights		29
Notes to Financial Statements		36
Report of Independent Registered Public Accounting Firm		48
Important Tax Information		48
Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement		49
Officers and Trustees		53
Additional Information		56
A World-Class Mutual Fund Family		58

2     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Dear Shareholder

Late in the summer of 2011, financial markets were upended by sovereign debt turmoil in the United States and Europe as well as growing concerns about the future of the global economy. Investor confidence had crumbled. However, the fourth quarter of 2011 brought improving economic data and more concerted efforts among European leaders toward stemming the region’s debt crisis, gradually drawing investors back to the markets. Improving sentiment carried over into early 2012 as investors felt some relief from the world’s financial woes. Volatility abated and risk assets (including stocks, commodities and high yield bonds) moved boldly higher through the first two months of 2012, while climbing Treasury yields pressured higher-quality fixed income assets.

Markets reversed course in the spring when Europe’s debt problems boiled over once again. High levels of volatility returned as political instability in Greece threatened the country’s membership in the eurozone. Spain faced severe deficit issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian government debt rose to levels deemed unsustainable. European leaders conferred and debated vehemently over the need for fiscal integration among the 17 nations comprising the euro currency bloc as a means to resolve the crisis for the long term.

Alongside the drama in Europe, investors were discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key powerhouse for global growth, became particularly worrisome. In the United States, disappointing jobs reports dealt a crushing blow to investor sentiment. Risk assets sold off in the second quarter as investors again retreated to safe haven assets.

Despite ongoing concerns about the health of the global economy and the debt crisis in Europe, most asset classes enjoyed a robust summer rally powered mainly by expectations for policy stimulus from central banks in Europe and the United States. Although global economic data continued to be mixed, the spate of downside surprises seen in the second quarter had receded and, outside of Europe, the risk of recession largely subsided. Additionally, in response to growing debt pressures, the European Central Bank allayed investors’ fears by stating its conviction to hold the eurozone together. Early in September, the European Central Bank announced a plan to purchase sovereign debt in the eurozone’s most troubled nations. Later that month, the US Federal Reserve announced its long-awaited - and surprisingly aggressive – stimulus program, committing to purchase $40 billion of agency mortgage-backed securities per month until the US economy exhibits enough strength to sustain real growth and improving labor market conditions. These central bank actions boosted risk assets globally as investors increased their risk appetites in their search for higher returns.

All asset classes performed well for the 12-month period ended September 30, 2012, with particularly strong returns from US stocks and high yield bonds. For the six-month period ended September 30, 2012, fixed income investments outperformed equities. US Treasury bonds posted exceptional gains by historical standards and outperformed investment-grade corporate bonds and tax-exempt municipals. High yield bonds also generated solid returns. US stocks finished the six-month period with modest gains, while international and emerging market stocks lagged other asset classes amid ongoing uncertainty. Near-zero short term interest rates continued to keep yields on money market securities near their all-time lows.

The financial world is more uncertain than ever, but there are new avenues of opportunity – new ways to invest and new markets in which to invest. We believe it’s our responsibility to help investors adapt to today’s new world of investing and build the portfolios these times require. We encourage you to visit www.blackrock.com/newworld for more information.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“The financial world is more uncertain than ever, but there are new avenues of opportunity.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of September 30, 2012

	6-month	12-month
US large cap equities   (S&P 500® Index)	3.43%	30.20%
US small cap equities   (Russell 2000® Index)	1.60	31.91
International equities   (MSCI Europe,   Australasia,   Far East Index)	(0.70)	13.75
Emerging market   equities (MSCI   Emerging   Markets Index)	(1.84)	16.93
3-month Treasury   bill (BofA Merrill Lynch   3-Month US Treasury   Bill Index)	0.06	0.07
US Treasury securities   (BofA Merrill Lynch   10- Year US Treasury   Index)	6.78	5.66
US investment grade   bonds (Barclays US   Aggregate Bond Index)	3.68	5.16
Tax-exempt municipal   bonds (S&P Municipal   Bond Index)	4.50	8.84
US high yield bonds   (Barclays US Corporate   High Yield 2% Issuer   Capped Index)	6.40	19.35

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 ofSeptember 30, 2012   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?

• For the 12-month period ended September 30, 2012, the Fund underperformed its custom benchmark, which is a blend of 70% Wilshire 5000 Modified Energy Cap Weighted Index and 30% MSCI All-Country World Energy Index. The Fund also underperformed the broad-market S&P 500^® Index. The following discussion of relative performance pertains to the Fund’s custom blended benchmark.

What factors influenced performance?

• The largest driver of relative underperformance was the Fund’s exposure to coal & consumable fuels. Coal producers have lagged since the early part of the 12-month period. Pricing remained depressed for thermal and metallurgical coal, which negatively impacted both relative and absolute performance. In particular, CONSOL Energy, Inc., Alpha Natural Resources, Inc. and Peabody Energy Corp. all posted losses. The Fund’s overweight allocation to gold detracted from relative returns as holdings in gold miners failed to keep pace with gold spot market prices. As indicated by the Market Vectors Gold Miners ETF Index, these stocks finished the 12-month period down 3%, while spot market prices rose approximately 10%.

• The Fund’s underweight exposures to storage & transportation names and refiners hampered relative returns, as these lower-risk profile groups held up more favorably during a period of heightened volatility within the broader energy sector.

• Stock selection in oil & gas equipment & services detracted from relative results. The Fund’s underweight position in strong-performer National Oilwell Varco, Inc. detracted, particularly as the stock gained momentum later in the reporting period. Overweighting Key Energy Services, Inc. also hampered performance, as this name tailed off steadily after lowering forecasts in late June.

• The Fund got a modest boost from its overweight allocation to silver and stock selection in integrated oil & gas.

Describe recent portfolio activity.

• During the 12-month period, positioning in the portfolio remained relatively unchanged.

Describe portfolio positioning at period end.

• At period end, the Fund remains positioned to take advantage of a pro-growth environment with rising inflation. The Fund continues to favor producers of oil, natural gas, coal and precious metals, while it is modestly underweight in oil & gas equipment & services and oil & gas drilling and substantially underweight in midstream companies (such as storage and transportation) and downstream companies (such as refiners), which are closer to the end product and distribution after production.

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
Silver Wheaton Corp.		6	%
Whiting Petroleum Corp.		4
EOG Resources, Inc.		4
Occidental Petroleum Corp.		4
Core Laboratories NV		4
Chevron Corp.		3
Goldcorp, Inc.		3
Apache Corp.		3
CONSOL Energy, Inc.		3
Crescent Point Energy Corp.		3

Industry Allocation	Percent of Long-Term Investments
Oil, Gas & Consumable Fuels		74	%
Energy Equipment & Services		14
Metals & Mining		10
Chemicals		2

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 Fund management. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

4     BLACKROCK FUNDS     SEPTEMBER 30, 2012

BlackRock All-Cap Energy & Resources Portfolio

  Total Return Based on a $10,000 Investment

¹  Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees. 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  This unmanaged index covers 500 industrial, utility, transportation and financial companies of the US markets (mostly New York Stock Exchange (“NYSE”) issues) representing about 75% of NYSE market capitalization and 30% of NYSE issues.

⁴  The Wilshire 5000 Modified Energy Cap Weighted Index is a customized index comprised of the energy sector constituents of the Wilshire 5000 (Full Cap) Index which have been market capitalization weighted and the six largest securities and all securities that have a percentage market value below 0.01% have been removed.

⁵  The MSCI All-Country World Energy Index is comprised of the energy sector constituents of the MSCI All-Country World Index, a free float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and emerging markets.

⁶  Commencement of operations.

  Performance Summary for the Period Ended September 30, 2012

				Average Annual Total Returns7
				1 Year						5 Years						Since Inception8
	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		(5.26	)%		11.29	%		N/A			(2.67	)%		N/A			7.52	%		N/A
Service		(5.38	)		10.93			N/A			(3.03	)		N/A			7.11			N/A
Investor A		(5.38	)		10.84			5.02	%		(3.05	)		(4.09	)%		7.09			6.34	%
Investor B		(5.76	)		9.96			5.46			(3.79	)		(4.11	)		6.29			6.29
Investor C		(5.68	)		10.03			9.03			(3.75	)		(3.75	)		6.33			6.33
S&P 500® Index		3.43			30.20			N/A			1.05			N/A			4.47			N/A
70% Wilshire 5000 Modified Energy Cap Weighted Index / 30%
MSCI All-Country World Energy Index		(0.95	)		22.37			N/A			0.86			N/A			9.48			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 12 for a detailed description of share classes, including any related sales charges and fees.

⁸ The Fund commenced operations on February 16, 2005.

     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						Hypothetical10
	Beginning Account Value April 1, 2012		Ending Account Value September 30, 2012		Expenses Paid During the Period9		Beginning Account Value April 1, 2012		Ending Account Value September 30, 2012		Expenses Paid During the Period9		Annualized Expense Ratio
Institutional		$1,000.00		$947.40		$  4.63		$1,000.00		$1,020.25		$  4.80		0.95%
Service		$1,000.00		$946.20		$  6.37		$1,000.00		$1,018.45		$  6.61		1.31%
Investor A		$1,000.00		$946.20		$  6.57		$1,000.00		$1,018.25		$  6.81		1.35%
Investor B		$1,000.00		$942.40		$10.20		$1,000.00		$1,014.50		$10.58		2.10%
Investor C		$1,000.00		$943.20		$10.10		$1,000.00		$1,014.60		$10.48		2.08%

⁹ 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 183/366 (to reflect the one-half year period shown).

¹⁰  Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.
See “Disclosure of Expenses” on page 13 for further information on how expenses were calculated.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 5

  Fund Summary as ofSeptember 30, 2012   BlackRock China Fund

  Investment Objective

BlackRock China Fund’s (the “Fund”) investment objective is to seek to maximize total return. Total return means the combination of capital appreciation and investment income.

  Portfolio Management Commentary

How did the Fund perform?

• For the 12-month period ended September 30, 2012, the Fund posted a positive double-digit return, but underperformed its benchmark, the MSCI China 10/40 Index, and the MSCI China Index. The following discussion of relative performance pertains to the MSCI China 10/40 Index.

What factors influenced performance?

• The Fund’s long-standing overweight exposure to electric train engine manufacturer ZhuZhou CSR Times Electric Co. Ltd. relative to the benchmark index was the best overall contributor to positive performance as the stock benefited from increased infrastructure spending on further railway development. Stock selection in consumer staples strongly aided returns. In particular, the Fund’s overweight exposure to strong performer Uni-President China Holdings Ltd. contributed to the overall performance of the broader sector. Within financials, property stocks were also among the strongest contributors, with Shimao Property Holdings Ltd. exhibiting particularly strong performance as earnings expectations and sales guidance improved during the period.

• The largest overall detractor from relative performance was a lack of ownership in internet company Tencent. Although the company performed strongly during the reporting period, the Fund has avoided holding the stock on valuation grounds. Also detracting from relative returns was stock selection in the consumer discretionary, materials and information technology (“IT”) sectors. Within consumer discretionary, clothing company Ports Design Ltd. was the largest relative detractor, followed by GOME Electrical Appliances Holding Ltd. Ports Design Ltd. declined on continued earnings pressure and higher-than-expected inventory provisions. GOME Electrical Appliances Holding Ltd. declined on disappointing earnings and higher-than-expected costs of integrating its e-commerce platform into its distribution network, combined with intensifying online competition. Within materials, tobacco flavoring company Huabao International Holdings Ltd. was the largest detractor as the stock fell following allegations of fraud, which the company has since refuted.

Describe recent portfolio activity.

• During the 12-month period, the Fund reduced its exposure to the consumer staples sector, exiting a position in Want Want China Holdings Ltd., but

increasing holdings in Uni-President China Holdings Ltd. The Fund increased its allocation to energy, but still remains underweight. The Fund reduced its relative exposure to financials, going further underweight. Relative exposure to banks was reduced, but exposure to property was increased. Chinese broker Haitong Securities Co. Ltd. was added to the portfolio, as the portfolio management team believes the company will be a key beneficiary of the ongoing financial market reform in China.

• The Fund increased its overweight in health care by adding a position in drug distributor Sinopharm Group Co., which may be a leader in a segment which is likely to consolidate over time. The Fund increased its overweight in industrials, further adding to its long-term overweight ZhuZhou CSR Times Electric Co. Ltd. The Fund remains underweight in IT, but added a position in enterprise resource planning software developer Kingdee International Software Group Co. Ltd. Overweight exposure to materials was maintained, but exposure to telecommunication services was decreased. The Fund reduced its exposure to China Mobile Ltd. while increasing its exposure to China Unicom Hong Kong Ltd.

Describe portfolio positioning at period end.

• Economic activity and inventory de-stocking continued to weaken during the 12-month period and corporate earnings have continued to be revised down. However, the portfolio management team believes the bottoming of this process is near. China’s policy response to the slowing economic data has been relatively reactive and arguably not significant enough to support gross domestic product (“GDP”) growth. This is in large part due to the upcoming once-in-a-decade political transition resulting in an effective policy vacuum. However, a date of November 8, 2012 has been set for the formal transfer of China’s leadership and policy decisions are expected to become more responsive following the transition. With policy becoming more accommodative and nominal GDP stabilizing, the portfolio management team believes this environment should be more supportive of Chinese equities. As of period end, the Fund remains positioned toward long-term structural growth themes in health care, industrials and consumer discretionary.

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
CNOOC Ltd.		8	%
China Construction Bank Corp., H Shares		8
Industrial & Commercial Bank of China, H Shares		6
China Mobile Ltd.		6
China Unicom Hong Kong Ltd.		4
Bank of China Ltd., H Shares		4
China Petroleum & Chemical Corp., H Shares		4
ZhuZhou CSR Times Electric Co. Ltd., H Shares		3
Agricultural Bank of China Ltd., H Shares		3
China Pacific Insurance Group Co. Ltd., H Shares		3

Sector Allocation	Percent of Long-Term Investments
Financials		38	%
Energy		15
Industrials		10
Telecommunication Services		10
Materials		8
Health Care		6
Consumer Discretionary		6
Utilities		3
Information Technology		3
Consumer Staples		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 Fund management. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.

6     BLACKROCK FUNDS     SEPTEMBER 30, 2012

BlackRock China Fund

  Total Return Based on a $10,000 Investment

¹  Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees. Institutional Shares do not have a sales charge.

²  The Fund seeks to achieve its objective by investing at least 80% of its total assets in equity securities of companies domiciled, or exercising the predominant part of their economic activity, in China, including its special administrative regions such as Hong Kong, or in instruments with similar economic characteristics.

³  A free float-adjusted market capitalization index that is designed to measure equity market performance in China, taking into consideration the concentration constraints of the European Union’s UCITS III regulations.

⁴  An unmanaged free float-adjusted market capitalization index designed to measure equity market performance of China.

⁵  Commencement of operations.

  Performance Summary for the Period Ended September 30, 2012

				Average Annual Total Returns6
				1 Year						Since Inception7
	6-Month Total Returns			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge
Institutional		(4.53	)%		14.82	%		N/A			(15.11	)%		N/A
Investor A		(4.66	)		14.64			8.65	%		(15.29	)		(18.42	)%
Investor C		(4.81	)		13.95			12.95			(15.82	)		(15.82	)
MSCI China 10/40 Index		(1.15	)		17.83			N/A			(10.87	)		N/A
MSCI China Index		(1.06	)		17.56			N/A			(10.90	)		N/A

⁶  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 12 for a detailed description of share classes, including any related sales charges and fees.

⁷  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									Hypothetical9
	Beginning Account Value April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period8			Beginning Account Value April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period8			Annualized Expense Ratio
Institutional		$	1,000.00		$	954.70		$	8.06		$	1,000.00		$	1,016.75		$	8.32		1.65	%
Investor A		$	1,000.00		$	953.40		$	9.28		$	1,000.00		$	1,015.50		$	9.57		1.90	%
Investor C		$	1,000.00		$	951.90		$	12.93		$	1,000.00		$	1,011.75		$	13.33		2.65	%

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 183/366 (to reflect the one-half year period shown).

⁹  Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.
See “Disclosure of Expenses” on page 13 for further information on how expenses were calculated.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 7

  Fund Summary as of September 30, 2012   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 12-month period ended September 30, 2012, the Fund underperformed its benchmark, the Wilshire 5000 Modified Energy Equal Weighted Index and the broad-market S&P 500^® Index. The following discussion of relative performance pertains to the Wilshire 5000 Modified Energy Equal Weighted Index.

What factors influenced performance?

Ÿ The largest driver of relative underperformance was the Fund’s sizable exposure to coal & consumable fuels. Coal producers have lagged since the early part of the 12-month period. Pricing remained depressed for thermal and metallurgical coal, which negatively impacted both relative and absolute performance. In particular, CONSOL Energy, Inc., Alpha Natural Resources, Inc. and Peabody Energy Corp. all posted losses.

Ÿ The Fund’s underweight exposures to storage & transportation names and refiners hampered relative returns, as these lower-risk profile groups held up more favorably during a period of heightened volatility within the broader energy sector. However, stock selection in this space partially offset the negative impact, as Cheniere Energy, Inc., the Fund’s only

significant holding in the group, posted strong returns as it continues to develop its potential to export natural gas from the United States.

Ÿ Stock selection was additive in oil & gas exploration & production, led by Energy XXI Bermuda Ltd., Plains Exploration & Production Co. and a lack of exposure to weak performer within the benchmark index, APCO Oil & Gas International, Inc.

Describe recent portfolio activity.

Ÿ During the 12-month period, positioning in the portfolio remained relatively unchanged.

Describe portfolio positioning at period end.

Ÿ At period end, the Fund remains positioned to take advantage of a pro-growth environment with rising inflation. The Fund continues to favor producers of oil, natural gas, coal and precious metals, while it is modestly underweight in oil & gas equipment & services and oil & gas drilling and substantially underweight in midstream companies (such as storage and transportation) and downstream companies (such as refiners), which are closer to the end product and distribution after production.

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
Plains Exploration & Production Co.		6	%
EQT Corp.		5
CONSOL Energy, Inc.		5
Range Resources Corp.		5
Energy XXI Bermuda Ltd.		5
Pioneer Natural Resources Co.		4
Chesapeake Energy Corp.		3
Clayton Williams Energy, Inc.		3
Southwestern Energy Co.		3
Rosetta Resources, Inc.		3

Industry Allocation	Percent of Long-Term Investments
Oil, Gas & Consumable Fuels		84	%
Energy Equipment & Services		8
Metals & Mining		8

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 Fund management. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

8     BLACKROCK FUNDS     SEPTEMBER 30, 2012

BlackRock Energy & Resources Portfolio

  Total Return Based on a $10,000 Investment

¹  Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees. 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  This unmanaged index covers 500 industrial, utility, transportation and financial companies of the US markets (mostly NYSE issues) representing about 75% of NYSE market capitalization and 30% of NYSE issues.

⁴  The Wilshire 5000 Modified Energy Equal Weighted Index is a customized index comprised of the energy sector constituents of the Wilshire 5000 (Full Cap) Index which have been equally weighted and the six largest securities and all securities that have a percentage market value below 0.01% have been removed.

  Performance Summary for the Period Ended September 30, 2012

				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		(11.67	)%		7.76	%		N/A			(1.81	)%		N/A			16.49	%		N/A
Investor A		(11.80	)		7.41			1.76	%		(2.14	)		(3.19	)%		16.13			15.50	%
Investor B		(12.14	)		6.63			2.13			(2.88	)		(3.07	)		15.46			15.46
Investor C		(12.16	)		6.57			5.57			(2.85	)		(2.85	)		15.30			15.30
S&P 500® Index		3.43			30.20			N/A			1.05			N/A			8.01			N/A
Wilshire 5000 Modified Energy Equal Weighted Index		(2.17	)		22.12			N/A			4.19			N/A			18.73			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 12 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 April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period6			Beginning Account Value April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period6			Annualized Expense Ratio
Institutional		$	1,000.00		$	883.30		$	4.71		$	1,000.00		$	1,020.00		$	5.05		1.00	%
Investor A		$	1,000.00		$	882.00		$	6.21		$	1,000.00		$	1,018.40		$	6.66		1.32	%
Investor B		$	1,000.00		$	878.60		$	9.82		$	1,000.00		$	1,014.55		$	10.53		2.09	%
Investor C		$	1,000.00		$	878.40		$	9.81		$	1,000.00		$	1,014.55		$	10.53		2.09	%

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 183/366 (to reflect the one-half year period shown).

⁷  Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.
See “Disclosure of Expenses” on page 13 for further information on how expenses were calculated.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 9

  Fund Summary as of September 30, 2012   BlackRock World Gold Fund

  Investment Objective

BlackRock World Gold Fund’s (the “Fund”) investment objective is to seek to maximize total return. Total return means the combination of capital appreciation and investment income.

  Portfolio Management Commentary

How did the Fund perform?

• For the 12-month period ended September 30, 2012, the Fund outperformed its benchmark, the FTSE Gold Mines Index.

What factors influenced performance?

• The Fund’s exposure to Fresnillo Plc, a silver/gold producer operating in Mexico, was the strongest contributor to performance. As a low-cost silver producer, it was able to benefit from improving margins, as the price of silver rose by 13.8% over the 12-month period. Additionally, the company continued to deliver on its growth projects and paid a substantial dividend.

• The Fund’s overweight position in Randgold Resources Ltd. strongly benefited returns. The stock suffered early in 2012 as Mali, a country in which some of the company’s assets are located, underwent a military coup. The Fund saw this as a temporary issue and the stock price weakness provided an opportunity to add to its existing position. The stock’s share price subsequently recovered strongly as the market refocused on the company’s operational delivery and progress at its development project.

• While limited, the Fund’s exposure to platinum detracted from performance. Much of the negative performance came in the second half of the reporting period, during a time when a rise in the price of platinum was underpinned by supply disruptions in South Africa (where approximately 75% of global supply originates). These supply disruptions arose as a result of conflict between workers and mining companies. Initially, these were concentrated at Lonmin’s Marikana platinum mine and then subsequently at the locations of other platinum operators in South Africa such as Impala Platinum Holdings Ltd., AngloGold Ashanti Ltd. and Aquarius Platinum Ltd., as well as at the locations of gold producers such as Harmony Gold Mining Co. Ltd. and European Goldfields Ltd. The Fund’s positions outside the benchmark index in Impala Platinum Holdings Ltd. and Aquarius Platinum Ltd.

weighed on performance. An underweight in Osisko Mining Corp., a North American developer, detracted from results as the stock’s share price rose due to the company introducing a strategy to overcome the challenges it faced in bringing on new production.

• The Fund does not currently trade derivatives. As part of the operating model, the Fund transacts foreign exchange to repatriate foreign currencies back to base currency (USD). The Fund also uses foreign exchange transactions to cover our purchases and sales of equity in foreign currencies which did not have a material impact on performance.

Describe recent portfolio activity.

• The Fund continued to reduce its exposure to smaller-capitalization exploration names that may be subject to a degree of financing risk. The Fund added to its position in Eldorado Gold Corp., a mid-tier gold producer listed in Canada. The company has a comparatively low-cost, high-quality asset base with an attractive growth profile. The stock had suffered, disproportionately in the view of the Fund’s investment team, after the company’s acquisition of European Goldfields Ltd. toward the end of 2011. During the 12-month period, a position was initiated in gold royalty name Franco-Nevada Corp. Gold royalty companies receive a percentage of gold revenues in exchange for providing financing to mining projects. They offer an attractive business model in the current environment of high gold prices and financing challenges for many smaller and mid-tier gold mining companies.

Describe portfolio positioning at period end.

• At period end, the Fund had 81% of its portfolio invested in gold companies, 13% in silver companies and 1% in platinum names, with the remaining assets allocated to other metals and minerals and cash. The Fund also had 2.0% invested in SPDR Gold Trust and 0.7% invested in ETFS Physical Platinum. The balance was held across positions in copper, diversified mining companies and cash.

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
Newcrest Mining Ltd.		10	%
Eldorado Gold Corp.		7
Goldcorp, Inc.		7
Fresnillo Plc.		6
Yamana Gold, Inc.		6
Randgold Resources Ltd. - ADR.		6
Kinross Gold Corp.		4
New Gold, Inc.		4
Industrias Penoles SAB de CV		3
IAMGOLD Corp.		3

Geographic Allocation	Percent of Long-Term Investments
Canada		50	%
Australia		15
Mexico		10
Jersey, Channel Islands		7
United States		6
South Africa		5
Peru		4
United Kingdom		3

10     BLACKROCK FUNDS     SEPTEMBER 30, 2012

BlackRock World Gold Fund

  Total Return Based on a $10,000 Investment

¹  Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees. 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 gold-related companies.

³  An index designed to reflect the performance of the worldwide market in the shares of companies whose principal activity is the mining of gold.

⁴  Commencement of operations.

  Performance Summary for the Period Ended September 30, 2012

	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		5.27	%		(1.11	)%		N/A			5.17	%		N/A
Investor A		5.09			(1.35	)		(6.57	)%		4.92			2.56	%
Investor C		4.67			(2.09	)		(3.07	)		4.12			4.12
FTSE Gold Mines Index		5.14			(7.11	)		N/A			1.38			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 12 for a detailed description of share classes, including any related sales charges and fees.

⁶  The Fund commenced operations on May 26, 2010.

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 April 1, 2012		Ending Account Value September 30, 2012		Expenses Paid During the Period7		Beginning Account Value April 1, 2012		Ending Account Value September 30, 2012		Expenses Paid During the Period7		Annualized Expense Ratio
Institutional		$1,000.00		$1,052.70		$  6.36		$1,000.00		$1,018.80		$  6.26		1.24	%
Investor A		$1,000.00		$1,050.90		$  7.64		$1,000.00		$1,017.55		$  7.52		1.49	%
Investor C		$1,000.00		$1,046.70		$11.62		$1,000.00		$1,013.65		$11.43		2.27	%

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 183/366 (to reflect the one-half year period shown).

⁸  Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.

See “Disclosure of Expenses” on page 13 for further information on how expenses were calculated.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 11

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 eligible investors.

• Service Shares are not subject to any sales charge (front-end load) or deferred sales charge. These shares are subject to a service fee of 0.25% per year (but no distribution fee).

• 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).

• Investor B Shares are subject to a maximum contingent deferred sales charge (“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, dividend reinvestment by existing shareholders or for purchase by certain qualified employee benefit 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.

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 dividends and 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.

Performance for the BlackRock Energy & Resources Portfolio for the periods prior to January 28, 2005 is based on performance of a certain former State Street Research mutual fund that reorganized with BlackRock Energy & Resources Portfolio on that date.

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, a Fund’s performance would have been lower. The Manager is under no obligation to waive or reimburse or to continue waiving or reimbursing its fees after the applicable termination date. See Note 3 of the Notes to Financial Statements for additional information on waivers and reimbursements. Dividends 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.

12     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Disclosure of Expenses

Shareholders of these Funds may incur the following charges: (a) expenses related to transactions, including sales charges and exchange fees; and (b) operating expenses, including advisory 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 April 1, 2012 and held through September 30, 2012) 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 example with the 5% hypothetical examples that appear in other funds’ shareholder reports.

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 or exchange fees, 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, including foreign currency exchange contracts, as specified in Note 2 of the Notes to Financial Statements, which may constitute forms of economic leverage. Such 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 hedge market and/or foreign currency exchange rate risks. Derivative financial instruments 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 require a Fund to sell or purchase portfolio investments at inopportune times or for distressed values, may limit the amount of appreciation a Fund can realize on an investment, may result in lower dividends paid to shareholders or may cause a Fund to hold an investment that it might otherwise sell. The Funds’ investments in these instruments are discussed in detail in the Notes to Financial Statements.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 13

    Schedule of Investments September 30, 2012   BlackRock All-Cap Energy & Resources Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Chemicals – 1.6%
Potash Corp. of Saskatchewan, Inc.		187,300	$	8,132,566
Energy Equipment & Services – 14.3%
Atwood Oceanics, Inc. (a)		67,300		3,058,785
Basic Energy Services, Inc. (a)		132,000		1,481,040
Calfrac Well Services Ltd.		38,500		926,569
Core Laboratories NV		150,700		18,307,036
Forum Energy Technologies, Inc. (a)(b)		163,700		3,981,184
Halliburton Co.		159,800		5,383,662
Key Energy Services, Inc. (a)		433,700		3,035,900
National Oilwell Varco, Inc.		104,700		8,387,517
Patterson-UTI Energy, Inc.		348,333		5,517,595
Schlumberger Ltd.		107,441		7,771,208
Seadrill Ltd.		233,700		9,180,806
Technip SA		58,400		6,488,920
				73,520,222
Metals & Mining – 10.5%
Eldorado Gold Corp.		500,120		7,625,673
Goldcorp, Inc.		379,152		17,384,119
Silver Wheaton Corp.		738,624		29,330,759
				54,340,551
Oil, Gas & Consumable Fuels – 73.7%
Alpha Natural Resources, Inc. (a)(b)		858,919		5,643,098
Anadarko Petroleum Corp.		104,000		7,271,680
Angle Energy, Inc. (a)		422,800		1,698,769
Apache Corp.		184,630		15,964,956
Bill Barrett Corp. (a)(b)		190,200		4,711,254
Bonanza Creek Energy, Inc. (a)		266,100		6,269,316
Cenovus Energy, Inc.		266,460		9,286,131
Cheniere Energy, Inc. (a)		400,900		6,233,995
Chesapeake Energy Corp.		419,200		7,910,304
Chevron Corp.		155,300		18,101,768
Cobalt International Energy, Inc. (a)		107,300		2,389,571
Concho Resources, Inc. (a)(b)		108,600		10,289,850
CONSOL Energy, Inc.		506,030		15,206,202
Continental Resources, Inc. (a)		113,200		8,705,080
Crescent Point Energy Corp.		324,870		14,384,692
Crew Energy, Inc. (a)		315,500		2,323,487
DeeThree Exploration Ltd. (a)		386,453		2,209,201
Denbury Resources, Inc. (a)		747,890		12,085,902
Energy XXI Bermuda Ltd.		298,900		10,446,555
EOG Resources, Inc.		199,970		22,406,640
EQT Corp.		112,210		6,620,390
Exxon Mobil Corp.		96,500		8,824,925
Gasco Energy, Inc. (a)		1,104,600		160,167
Guide Exploration Ltd. (a)		567,794		976,067
Hess Corp.		111,670		5,998,912
James River Coal Co. (a)(b)		356,800		1,027,584
Kodiak Oil & Gas Corp. (a)(b)		616,900		5,774,184
Noble Energy, Inc.		152,400		14,129,004
Occidental Petroleum Corp.		225,650		19,419,439
Patriot Coal Corp. (a)(b)		323,516		37,851

Common Stocks	Shares		Value
Oil, Gas & Consumable Fuels (concluded)
Peabody Energy Corp.		358,590	$	7,992,971
PetroChina Co. Ltd. - ADR		26,790		3,460,196
Pioneer Natural Resources Co.		80,200		8,372,880
Plains Exploration & Production Co. (a)		356,910		13,373,418
Range Resources Corp.		183,800		12,842,106
Rex Energy Corp. (a)(b)		307,600		4,106,460
Rosetta Resources, Inc. (a)(b)		167,300		8,013,670
Royal Dutch Shell Plc - ADR		135,600		9,411,996
Southwestern Energy Co. (a)		121,800		4,236,204
Statoil ASA		309,722		7,992,868
Statoil ASA - ADR		130,340		3,361,469
Suncor Energy, Inc.		300,780		9,880,623
Total SA - ADR		157,200		7,875,720
Valero Energy Corp.		286,200		9,066,816
Whiting Petroleum Corp. (a)		485,960		23,024,785
				379,519,156
Total Long-Term Investments (Cost – $430,463,892) – 100.1%				515,512,495
Short-Term Securities	Beneficial Interest (000)
BlackRock Liquidity Series, LLC Money Market Series, 0.29% (c)(d)(e)	$	17,312		17,312,472
Total Short-Term Securities (Cost – $17,312,472) – 3.3%				17,312,472
Total Investments (Cost – $447,776,364) – 103.4%				532,824,967
Liabilities in Excess of Other Assets – (3.4)%				(17,641,613	)
Net Assets – 100.0%			$	515,183,354

(a) Non-income producing security.

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

(c) 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.

Portfolio Abbreviations

To simplify the listings of portfolio holdings in the Schedules of Investments, the names and descriptions of many of the securities have been abbreviated according to the following list:

ADR	American Depositary Receipts	NOK	Norwegian Krone
CAD	Canadian Dollar	USD	US Dollar
EUR	Euro

See Notes to Financial Statements.

14     BLACKROCK FUNDS     SEPTEMBER 30, 2012

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

(d) Investments in issuers considered to be an affiliate of the Fund during the year ended September 30, 2012, 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, 2011			Net Activity				Beneficial Interest Held at September 30, 2012			Income
BlackRock Liquidity Funds, TempFund, Institutional Class			35,736,782			(35,736,782	)			–		$	9,399
BlackRock Liquidity Series, LLC Money Market Series		$	7,413,123		$	9,899,349			$	17,312,472		$	172,067

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

• 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 Fund management. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

• Foreign currency exchange contracts as of September 30, 2012 were as follows:

Currency Purchased	Currency Sold			Counterparty	Settlement Date	Unrealized Appreciation
CAD    106,000		USD	107,795	Royal Bank of Scotland Group Plc	10/01/12		$	28
USD      21,863		EUR	17,000	Royal Bank of Scotland Group Plc	10/01/12			17
USD      60,635		NOK	346,000	Royal Bank of Scotland Group Plc	10/01/12			239
USD      72,377		CAD	71,000	Citigroup, Inc.	10/02/12			157
Total							$	441

• 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 as follows:

• Level 1 - unadjusted price quotations in active markets/exchanges for identical assets and 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)

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 level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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. 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. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements.

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy as of September 30, 2012:

	Level 1	Level 2	Level 3	Total
Assets:
Investments:
Long-Term Investments:
Common Stocks:
Chemicals	$  8,132,566	–	–	$  8,132,566
Energy Equipment & Services	57,850,496	$15,669,726	–	73,520,222
Metals & Mining	54,340,551	–	–	54,340,551
Oil, Gas & Consumable Fuels	371,526,288	7,992,868	–	379,519,156
Short-Term Securities	–	17,312,472	–	17,312,472
Total	$491,849,901	$40,975,066	–	$532,824,967

	Level 1			Level 2	Level 3	Total
Derivative Financial Instruments1
Assets:
Foreign currency exchange contracts		$	441	–	–		$	441

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

Certain of the Fund’s assets and liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of September 30, 2012, such assets and liabilities are categorized within the disclosure hierarchy as follows:

	Level 1		Level 2			Level 3	Total
Assets:
Foreign currency at value	$	1,311		–		–	$	1,311
Liabilities:
Bank overdraft		–	$	(2,178,264	)	–		(2,178,264	)
Collateral on securities loaned at value		–		(17,312,472	)	–		(17,312,472	)
Total	$	1,311	$	(19,490,736	)	–	$	(19,489,425	)

There were no transfers between levels during the year ended September 30, 2012.

See Notes to Financial Statements.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 15

    Schedule of Investments September 30,  2012   BlackRock China Fund (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Aerospace & Defense – 0.5%
AviChina Industry & Technology Co. Ltd., H Shares		36,000	$	13,628
Automobiles – 1.0%
Dongfeng Motor Group Co. Ltd., H Shares		24,000		27,889
Capital Markets – 2.1%
Haitong Securities Co. Ltd., H Shares (a)		46,000		56,963
Chemicals – 2.1%
Huabao International Holdings Ltd.		99,000		56,435
Commercial Banks – 21.9%
Agricultural Bank of China Ltd., H Shares		209,000		80,862
Bank of China Ltd., H Shares		253,000		95,768
China CITIC Bank Corp. Ltd., H Shares		84,200		39,701
China Construction Bank Corp., H Shares		274,000		188,975
China Minsheng Banking Corp. Ltd., H Shares		49,500		38,852
Industrial & Commercial Bank of China, H Shares		266,000		156,084
				600,242
Construction & Engineering – 1.3%
China Communications Construction Co. Ltd., H Shares		46,000		37,071
Construction Materials – 1.0%
China Shanshui Cement Group Ltd.		32,000		20,660
TCC International Holdings Ltd.		28,000		6,900
				27,560
Diversified Telecommunication Services – 3.8%
China Unicom Hong Kong Ltd.		63,327		103,198
Electrical Equipment – 3.5%
Xinjiang Goldwind Science & Technology Co. Ltd., H Shares		37,010		12,565
ZhuZhou CSR Times Electric Co. Ltd., H Shares		33,000		84,411
				96,976
Food Products – 1.3%
Uni-President China Holdings Ltd.		30,000		34,492
Health Care Equipment & Supplies – 0.9%
Mindray Medical International Ltd. - ADR		780		26,216
Health Care Providers & Services – 2.2%
Sinopharm Group Co. Ltd., H Shares		19,200		61,288
Hotels, Restaurants & Leisure – 0.8%
REXLot Holdings Ltd.		300,000		22,746
Independent Power Producers & Energy Traders – 3.1%
China Resources Power Holdings Co. Ltd.		26,000		56,864
Datang International Power Generation Co. Ltd., H Shares		86,000		28,773
				85,637
Insurance – 5.4%
China Life Insurance Co. Ltd., H Shares		17,000		48,935
China Pacific Insurance Group Co. Ltd., H Shares		26,400		79,360
New China Life Insurance Co. Ltd., H Shares		6,512		20,749
				149,044

Common Stocks	Shares		Value
Life Sciences Tools & Services – 1.9%
WuXi PharmaTech Cayman, Inc. - ADR (a)		3,505	$	52,330
Machinery – 0.7%
China Rongsheng Heavy Industries Group Holdings Ltd.		43,500		5,725
CSR Corp. Ltd., H Shares		18,860		12,392
				18,117
Marine – 1.1%
China Shipping Container Lines Co. Ltd., H Shares (a)		81,000		16,364
China Shipping Development Co. Ltd., H Shares		32,000		13,222
				29,586
Metals & Mining – 2.4%
Angang Steel Co. Ltd., H Shares (a)		42,000		21,495
Shougang Fushan Resources Group Ltd.		76,000		20,458
Zijin Mining Group Co. Ltd., H Shares		60,000		24,041
				65,994
Oil, Gas & Consumable Fuels – 14.0%
China Coal Energy Co., Ltd., H Shares		45,000		40,816
China Petroleum & Chemical Corp., H Shares		102,000		94,614
CNOOC Ltd.		103,000		209,125
PetroChina Co. Ltd., H Shares		30,000		38,785
				383,340
Paper & Forest Products – 1.0%
Lee & Man Paper Manufacturing Ltd.		61,000		26,601
Real Estate Management & Development – 5.7%
China Vanke Co. Ltd., B Shares		20,100		25,191
Franshion Properties China Ltd.		96,000		29,200
Poly Property Group Co. Ltd. (a)		54,000		28,746
Shenzhen Investment Ltd.		106,000		24,500
Shimao Property Holdings Ltd.		16,500		28,199
Shui On Land Ltd.		54,500		20,496
				156,332
Semiconductors & Semiconductor Equipment – 0.4%
Trina Solar Ltd. - ADR (a)		2,550		11,679
Software – 2.5%
Kingdee International Software Group Co. Ltd. (a)		142,000		29,152
Kingsoft Corp. Ltd.		26,000		16,343
Shanda Games Ltd. - ADR		5,800		21,982
				67,477
Specialty Retail – 0.9%
Esprit Holdings Ltd.		3,144		4,819
GOME Electrical Appliances Holding Ltd.		196,000		20,569
				25,388
Textiles, Apparel & Luxury Goods – 1.0%
Peak Sport Products Co. Ltd.		58,000		10,189
Ports Design Ltd.		22,500		17,307
				27,496

See Notes to Financial Statements.

16     BLACKROCK FUNDS     SEPTEMBER 30, 2012

    Schedule of Investments (continued)   BlackRock China Fund (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Transportation Infrastructure – 1.8%
Beijing Capital International Airport Co. Ltd., H Shares		74,000	$	49,425
Wireless Telecommunication Services – 5.4%
China Mobile Ltd.		13,284		147,265
Total Common Stocks – 89.7%				2,460,415
Participation Notes (a)
Automobiles – 1.3%
Citigroup Global Markets Holding (SAIC Motor Corp. Ltd.), due 1/20/15		13,300		28,653
Deutsche Bank AG (BYD Co. Ltd.), due 11/10/16		3,500		6,103
				34,756
Diversified Financial Services – 0.1%
Morgan Stanley Capital Services, Inc. (Evergrande Real Estate Group Ltd.), due 11/08/12		11,000		4,355
Insurance – 0.4%
Citibank, N.A. (China Life Insurance Co. Ltd.),due 1/20/15		3,400		10,197
Machinery – 0.6%
Morgan Stanley Capital Services, Inc. (Zoomlion Heavy Industry Science and Technology Co. Ltd.), due 10/22/12		13,600		15,452
Metals & Mining – 0.9%
Citibank, N.A. (Baoshan Iron & Steel Co. Ltd.), due 1/20/15		28,700		20,858
UBS AG (Baoshan Iron & Steel Co. Ltd.), due 6/18/13		6,487		4,714
				25,572
Total Participation Notes – 3.3%				90,332
Total Long-Term Investments (Cost – $3,103,421) – 93.0%				2,550,747
Short-Term Securities
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.15% (b)(c)		172,872		172,872
Total Short-Term Securities (Cost – $172,872) – 6.3%				172,872
Total Investments (Cost – $3,276,293) – 99.3%				2,723,619
Other Assets Less Liabilities – 0.7%				19,472
Net Assets – 100.0%			$	2,743,091

(a) Non-income producing security.

(b) Investments in issuers considered to be an affiliate of the Fund during the year ended September 30, 2012, 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, 2011		Net Activity		Shares Held at September 30, 2012		Income
BlackRock Liquidity Funds, TempFund, Institutional Class		77,730		95,142		172,872		$	84

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

— 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 Fund management. 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 as follows:

— Level 1 - unadjusted price quotations in active markets/exchanges for identical assets and 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)

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 level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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. 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. For information about the Fund’s policy regarding valuation of investments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements.

See Notes to Financial Statements.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 17

  Schedule of Investments (concluded)   BlackRock China Fund

The following table summarizes the Fund’s investments categorized in the disclosure hierarchy as of September 30, 2012:

	Level 1	Level 2	Level 3	Total
Assets:
Investments:
Long-Term Investments:
Common Stocks:
Aerospace & Defense	–	$13,628	–	$	13,628
Automobiles	–	27,889	–		27,889
Capital Markets	–	56,963	–		56,963
Chemicals	–	56,435	–		56,435
Commercial Banks	–	600,242	–		600,242
Construction & Engineering	–	37,071	–		37,071
Construction Materials	–	27,560	–		27,560
Diversified Telecommunication Services	–	103,198	–		103,198
Electrical Equipment	–	96,976	–		96,976
Food Products	–	34,492	–		34,492
Health Care Equipment & Supplies	$26,216	–	–		26,216
Health Care Providers & Services	–	61,288	–		61,288
Hotels, Restaurants & Leisure	–	22,746	–		22,746
Independent Power Producers & Energy Traders	–	85,637	–		85,637
Insurance	–	149,044	–		149,044
Life Sciences Tools & Services	52,330	–	–		52,330
Machinery	–	18,117	–		18,117
Marine	–	29,586	–		29,586
Metals & Mining	–	65,994	–		65,994
Oil, Gas & Consumable Fuels	–	383,340	–		383,340
Paper & Forest Products	–	26,601	–		26,601
Real Estate Management & Development	–	156,332	–		156,332
Semiconductors & Semiconductor Equipment	11,679	–	–		11,679
Software	21,982	45,495	–		67,477
Specialty Retail	–	25,388	–		25,388
Textiles, Apparel & Luxury Goods	–	27,496	–		27,496
Transportation Infrastructure	–	49,425	–		49,425
Wireless Telecommunication Services	–	147,265	–		147,265
Participation Notes:
Automobiles	–	34,756	–		34,756
Diversified Financial Services	–	4,355	–		4,355
Insurance	–	10,197	–		10,197
Machinery	–	15,452	–		15,452
Metals & Mining	–	25,572	–		25,572
Short-Term Securities	172,872	–	–		172,872
Total	$285,079	$2,438,540	–	$	2,723,619

Certain of the Fund’s assets are held at carrying amount, which approximates fair value for financial statement purposes. As of September 30, 2012, such assets are categorized within the disclosure hierarchy as follows:

	Level 1		Level 2	Level 3	Total
Assets:
Cash	$	3,600	–	–	$	3,600
Foreign currency at value		7,970	–	–		7,970
Total	$	11,570	–	–	$	11,570

Prior to March 31, 2012, only significant transfers between Level 1 and Level 2 were required to be disclosed. There were no significant transfers from the beginning of the period to March 31, 2012. For the interim period April 1, 2012 through September 30, 2012, all transfers between Level 1 and Level 2 are required to be disclosed. Certain securities are fair valued utilizing an external pricing service to reflect any significant market movements between the time the Fund values such securities and the earlier closing of foreign markets. Such fair valuations are categorized as Level 2 on the disclosure hierarchy. As of March 31, 2012, there were securities with a value of $46,529 that were not systematically fair valued, but were valued using systematic fair values as of September 30, 2012, due to significant market movements. Therefore, these securities were transferred from Level 1 to Level 2 during the period.

See Notes to Financial Statements.

18     BLACKROCK FUNDS     SEPTEMBER 30, 2012

    Schedule of Investments September 30,  2012   BlackRock Energy & Resources Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Capital Markets – 0.1%
Treasure Island Royalty Trust (a)		565,922		$	616,855
Commercial Services & Supplies – 0.0%
Republic Resources, Inc. (a)		28,750			–
Diversified Financial Services – 0.0%
Sprott Resource Lending Corp.		53,600			75,785
Electrical Equipment – 0.0%
ITM Power Plc (a)		460,500			263,984
Electronic Equipment, Instruments & Components – 0.0%
Opsens, Inc. (a)		1,907,200			484,996
Energy Equipment & Services – 8.3%
Basic Energy Services, Inc. (a)		980,700			11,003,454
Diamond Offshore Drilling, Inc.		129,200			8,502,652
Essential Energy Services Trust (a)		810,969			2,004,531
Gasfrac Energy Services, Inc. (a)		185,700			372,118
Geokinetics, Inc. (a)		911,233			337,156
Halliburton Co.		365,226			12,304,464
Lufkin Industries, Inc.		98,368			5,294,166
McDermott International, Inc. (a)		613,700			7,499,414
Parker Drilling Co. (a)		776,000			3,282,480
Poseidon Concepts Corp.		37,481			557,011
Schlumberger Ltd.		68,000			4,918,440
Strad Energy Services Ltd.		212,300			984,730
Transocean Ltd.		95,000			4,264,550
Wavefront Technology Solutions, Inc. (a)		622,300			348,149
Western Energy Services Corp.		518,760			4,221,422
Western Energy Services Corp. (Acquired 2/25/10, cost $3,752,521) (a)(b)		1,000,000			8,137,524
Xtreme Drilling and Coil Services Corp. (a)		462,700			480,067
					74,512,328
Machinery – 0.0%
Railpower Technologies Corp. (a)		360,600			–
Metals & Mining – 7.4%
Alexco Resource Corp. (a)		848,383			3,698,921
Archipelago Resources Plc (a)		1,970,300			1,908,990
Baja Mining Corp. (a)		3,204,600			309,670
Balmoral Resources Ltd. (a)		1,315,500			1,338,114
Banro Corp. (a)		876,700			4,075,393
Brigus Gold Corp. (a)		1,200,000			1,184,010
Crosshair Energy Corp. (a)		122,700			17,473
Dalradian Resources, Inc. (a)		877,600			1,151,565
Eastmain Resources, Inc. (a)		3,244,400			3,366,176
Eldorado Gold Corp.		147,865			2,254,599
Eurasian Minerals, Inc. (a)		350,700			770,534
Explor Resources, Inc. (a)		876,700			133,766
Freeport-McMoRan Copper & Gold, Inc.		526,200			20,826,996
Goldcorp, Inc.		4,200			192,847
Golden Predator Corp. (a)		1,753,800			713,580
Helio Resource Corp. (a)		2,630,300			227,419
Imperial Metals Corp. (a)		106,124			1,348,275
Kilo Goldmines Ltd. (a)		4,213,600			535,754
Kinross Gold Corp.		97,175			992,157
Lake Shore Gold Corp. (a)		1,135,202			1,143,170
MAG Silver Corp. (a)		873,000			10,691,608
Minaurum Gold, Inc. (a)		1,753,800			249,753
Nevsun Resources Ltd.		486,700			2,282,257
Oromin Explorations Ltd. (a)		1,622,200			1,138,560
Paramount Gold and Silver Corp. (a)		192,637			513,385
Pilot Gold, Inc. (a)		876,700			1,516,011

Common Stocks	Shares		Value
Metals & Mining (concluded)
Probe Mines Ltd. (a)		114,800		$	144,799
Renaissance Gold, Inc. (a)		657,500			528,354
Romarco Minerals, Inc. (a)		195,900			213,216
Sunridge Gold Corp. (a)		5,546,459			1,241,197
Virginia Mines, Inc. (a)		189,850			2,037,349
West Kirkland Mining, Inc. (a)		438,400			138,240
					66,884,138
Oil, Gas & Consumable Fuels – 84.4%
Alpha Natural Resources, Inc. (a)		3,115,889			20,471,391
Americas Petrogas, Inc. (a)		4,333,500			8,154,791
Angle Energy, Inc. (a)		1,320,500			5,305,640
Antares Energy Ltd. (Acquired 6/14/10, cost $5,189,100) (a)(b)		10,000,000			5,030,910
Arch Coal, Inc.		1,603,600			10,150,788
Arsenal Energy, Inc. (a)		2,255,100			1,146,933
Atlas Energy LP		2			69
ATP Oil & Gas Corp. (a)		235,700			32,055
Aurora Oil & Gas Ltd. (a)		1,007,000			3,728,492
Baytex Energy Corp.		148,848			7,073,726
Bellatrix Exploration Ltd. (a)		912,632			3,703,999
Bonanza Creek Energy, Inc. (a)		92,100			2,169,876
BPZ Resources, Inc. (a)		657,400			1,880,164
Cabot Oil & Gas Corp.		205,500			9,226,950
Carrizo Oil & Gas, Inc. (a)		307,400			7,688,074
Cequence Energy Ltd. (a)		51,000			91,822
Cheniere Energy, Inc. (a)		1,005,600			15,637,080
Chesapeake Energy Corp.		1,580,600			29,825,922
Clayton Williams Energy, Inc. (a)		526,561			27,323,250
Coastal Energy Co. (a)		1,143,100			21,255,079
Cobalt International Energy, Inc. (a)		647,287			14,415,082
Comstock Resources, Inc. (a)		178,000			3,271,640
CONSOL Energy, Inc.		1,512,500			45,450,625
Crew Energy, Inc. (a)		1,765,437			13,001,489
Crew Energy, Inc. (Acquired 6/24/98 through 10/09/98, cost $183,115) (a)(b)		191,300			1,408,821
Crocotta Energy, Inc. (a)		1,913,500			5,566,687
DeeThree Exploration Ltd. (a)		876,800			5,012,324
Delphi Energy Corp. (a)		837,700			1,056,605
Denbury Resources, Inc. (a)		74,900			1,210,384
Endeavour International Corp. (a)		294,032			2,843,289
Energy XXI Bermuda Ltd.		1,246,080			43,550,496
EOG Resources, Inc.		94,000			10,532,700
EQT Corp.		808,700			47,713,300
Fairborne Energy Ltd. (a)		625,158			852,112
Far East Energy Corp. (a)		15,783,200			2,091,274
Forest Oil Corp. (a)		87,800			741,910
FX Energy, Inc. (a)		349,400			2,606,524
Gastar Exploration Ltd. (a)		594,360			986,638
Goodrich Petroleum Corp. (a)		259,200			3,276,288
Gran Tierra Energy, Inc. (a)		1,054,949			5,451,267
Greenfields Petroleum Corp. (Acquired 11/03/10, cost $926,522) (a)(b)		110,000			531,482
Guide Exploration Ltd. (a)		878,198			1,509,668
Guide Exploration Ltd. (Acquired 2/09/04, cost $346,401) (a)(b)		173,600			298,427
Gulfport Energy Corp. (a)		77,500			2,422,650
Ithaca Energy, Inc. (a)		235,300			466,723
James River Coal Co. (a)		260,900			751,392
Kodiak Oil & Gas Corp. (a)		1,137,100			10,643,256
Lone Pine Resources, Inc. (a)		53,848			84,003

See Notes to Financial Statements.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 19

    Schedule of Investments (continued)   BlackRock Energy & Resources Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Oil, Gas & Consumable Fuels (concluded)
Longview Energy Co. (Acquired 8/13/04, cost $1,281,000) (a)(b)		85,400	$	1,358,296
Lynden Energy Corp. (a)		175,758		123,358
Magnum Hunter Resources Corp. (a)		2,259,200		10,030,848
Manitok Energy, Inc. (a)		1,750,900		3,597,618
Matador Resources Co. (Acquired 10/14/03 through 4/13/06, cost $2,957,155) (a)(b)		513,393		5,334,153
McMoRan Exploration Co. (a)		446,000		5,240,500
Niko Resources Ltd.		265,500		3,667,470
Novus Energy, Inc. (a)		3,000,800		2,625,051
NuVista Energy Ltd. (a)		716,800		3,295,632
Pace Oil and Gas Ltd. (a)(c)		2,333,649		6,717,757
Pace Oil and Gas Ltd. (Acquired 12/09/09, cost $531,005) (a)(b)(c)		57,740		166,213
Painted Pony Petroleum Ltd. (a)		1,025,900		11,280,622
Palliser Oil & Gas Corp. (a)		1,731,000		1,144,492
Pan Orient Energy Corp.		840,900		2,420,656
Patriot Coal Corp. (a)		418,746		48,993
PDC Energy, Inc. (a)		339,300		10,732,059
Peabody Energy Corp.		916,636		20,431,816
Penn Virginia Corp.		1,410,100		8,742,620
Penn West Petroleum Ltd.		134,333		1,911,625
Peyto Exploration & Development Corp.		3,171		78,122
Pinecrest Energy, Inc. (a)		621,400		1,055,577
Pioneer Energy Services Corp. (a)		876,700		6,829,493
Pioneer Natural Resources Co.		309,200		32,280,480
Plains Exploration & Production Co. (a)		1,452,325		54,418,618
PRD Energy, Inc. (a)		868,500		441,715
Range Resources Corp.		628,600		43,920,282
Rex Energy Corp. (a)		488,000		6,514,800
Rosetta Resources, Inc. (a)		507,700		24,318,830
Scorpio Tankers, Inc.		771,100		4,626,600
Ship Finance International Ltd.		27		424
Sonde Resources Corp. (a)		1,092,560		829,253
Sonde Resources Corp. (Acquired 1/15/10, cost $3,034,134) (a)(b)		1,200,000		915,472
Southwestern Energy Co. (a)		724,200		25,187,676
Stone Energy Corp. (a)		23,674		594,691
Swift Energy Co. (a)		393,600		8,218,368
Touchstone Exploration, Inc. (a)		1,889,100		384,315
Tourmaline Oil Corp. (a)		57,420		1,792,513
Trilogy Energy Corp.		838,522		21,869,295
Trioil Resources Ltd., Class A (a)		710,283		1,806,233
Uranium One, Inc. (a)		881,765		2,107,769
Valero Energy Corp.		313,500		9,931,680
Vero Energy, Inc.		80,142		206,245
Yangarra Resources Ltd. (a)		2,019,200		667,521
Yoho Resources, Inc. (a)		1,912,496		3,287,680
ZaZa Energy Corp. (a)		637,157		1,892,356
				760,689,854
Total Common Stocks – 100.2%				903,527,940
Warrants (d)
Oil, Gas & Consumable Fuels – 0.0%
Magnum Hunter Resources Corp. (Issued/Exercisable 8/29/11, 1 Share for 1 Warrant, Expires 10/14/13, Strike Price USD 10.50) (a)		60,050		–

	Value
Total Investments (Cost – $ 910,124,330) – 100.2%	$	903,527,940
Liabilities in Excess of Other Assets – (0.2)%		(1,913,718	)
Net Assets – 100.0%	$	901,614,222

(a) Non-income producing security.

(b) Restricted security as to resale. As of report date, the Fund held 2.6% of its net assets, with a current value of $23,181,298 and an original cost of $18,200,953, in these securities.

(c) Investments in issuers (whereby the Fund held 5% or more of the companies’ outstanding securities) that were considered to be an affiliate during the year ended September 30, 2012, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affil- iate	Shares Held at Septe- mber 30, 2011	Shares Purch- ased	Shares Sold	Shares Held at Septe- mber 30, 2012	Value at Septem- ber 30, 2012	Rea- lized Loss
Far East Ene- rgy Corp.1	18,000,000	–	2,216,800	15,783,200	$2,091,274	$   (355,979)
Geoki-netics, Inc.1	739,033	300,000	127,800	911,233	$   337,156	$   (530,287)
Pace Oil and Gas Ltd.	2,718,070	–	326,681	2,391,389	$6,883,970	$(4,711,214)
Sun-ridge Gold Corp.1	4,325,559	2,000,000	779,100	5,546,459	$1,241,197	$(1,649,431)
Yoho Reso-urces, Inc.1	2,146,300	–	233,804	1,912,496	$3,287,680	$   (545,220)

  ¹ No longer an affiliated company as of report date.

(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, if any.

• Investments in issuers considered to be an affiliate of the Fund during the year ended September 30, 2012, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares Held at Septe- mber 30, 2011		Net Activity			Shares Held at Septe- mber 30, 2012	Income
BlackRock Liquidity Funds, TempFund, Institutional Class		232,783		(232,783	)	–	$	4,797

• 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 Fund management. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

• Foreign currency exchange contracts as of September 30, 2012 were as follows:

Currency Purchased	Currency Sold		Counterparty		Settlement Date		Unrealized Appreciation
USD 1,414,868	CAD	1,386,000		Citigroup, Inc.		10/01/12		$  5,041
USD 575,959	CAD	565,000		Citigroup, Inc.		10/02/12		1,247
Total								$  6,288

See Notes to Financial Statements.

20     BLACKROCK FUNDS     SEPTEMBER 30, 2012

    Schedule of Investments (concluded)   BlackRock Energy & Resources Portfolio

• 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 as follows:

• Level 1 - unadjusted price quotations in active markets/exchanges for identical assets and 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)

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 level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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. 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. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements.

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy as of September 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Long-Term Investments:
Common Stocks:
Capital Markets	$	616,855		–		–	$	616,855
Diversified Financial Services		75,785		–		–		75,785
Electrical Equipment		263,984		–		–		263,984
Electronic Equipment, Instruments & Components		484,996		–		–		484,996
Energy Equipment & Services		74,512,328		–		–		74,512,328
Metals & Mining		66,884,138		–		–		66,884,138
Oil, Gas & Consumable Fuels		750,569,401	$	8,762,157	$	1,358,296		760,689,854
Total	$	893,407,487	$	8,762,157	$	1,358,296	$	903,527,940

	Level 1		Level 2	Level 3	Total
Derivative Financial Instruments1
Assets:
Foreign currency exchange contracts	$	6,288	–	–	$	6,288

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

Certain of the Fund’s assets and liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of September 30, 2012, such assets and liabilities are categorized within the disclosure hierarchy as follows:

	Level 1		Level 2			Level 3	Total
Assets:
Foreign currency at value	$	925		–		–	$	925
Liabilities:
Bank overdraft		–	$	(9,465,539	)	–		(9,465,539	)
Total	$	925	$	(9,465,539	)	–	$	(9,464,614	)

There were no transfers between levels during the year ended
September 30, 2012.

Certain of the Fund’s investments are categorized as Level 3 and were valued utilizing transaction prices or third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in the unobservable inputs could result in a significantly lower or higher value in such Level 3 investments.

See Notes to Financial Statements.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 21

  Consolidated Schedule of Investments September 30, 2012   BlackRock World Gold Fund (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Australia – 14.2%
Aquarius Platinum Ltd.		17,370	$	11,755
Beadell Resources Ltd. (a)		57,000		57,858
Dampier Gold Ltd. (a)		21,520		3,139
Evolution Mining Ltd. (a)		36,270		72,597
Indochine Mining Ltd. (a)		151,560		23,485
Integra Mining Ltd. (a)		190,000		110,958
Medusa Mining Ltd.		7,820		48,762
Newcrest Mining Ltd.		35,800		1,076,188
Northern Star Resources Ltd.		40,000		49,227
Papillon Resources Ltd. (a)		36,000		64,674
Silver Lake Resources Ltd. (a)		29,000		108,663
				1,627,306
Canada – 48.0%
Agnico-Eagle Mines Ltd.		4,900		254,196
Alamos Gold, Inc.		16,300		316,848
Aurcana Corp. (a)		24,000		29,051
B2Gold Corp. (a)		23,500		94,182
Banro Corp. (a)		29,000		134,808
Barrick Gold Corp.		7,500		313,200
Belo Sun Mining Corp. (a)		58,000		79,056
Centerra Gold, Inc.		10,900		136,486
Detour Gold Corp. (a)		6,000		167,409
Eldorado Gold Corp.		51,383		783,472
Franco-Nevada Corp.		4,800		282,942
Goldcorp, Inc.		17,000		780,572
IAMGOLD Corp.		21,000		333,018
Kinross Gold Corp.		44,000		450,249
New Gold, Inc. (a)		36,400		446,160
Osisko Mining Corp. (a)		6,340		62,813
Romarco Minerals, Inc. (a)		103,000		112,105
SEMAFO, Inc.		17,000		77,642
Yamana Gold, Inc.		34,500		659,048
				5,513,257
China – 0.0%
Real Gold Mining Ltd.		13,000		3,713
Hong Kong – 0.1%
G-Resources Group Ltd. (a)		327,000		14,058
Jersey, Channel Islands – 6.4%
Minera IRL Ltd. (a)		57,900		51,828
Minera IRL Ltd. (a)		42,960		33,992
Randgold Resources Ltd. - ADR		5,300		651,900
				737,720
Mexico – 9.3%
Fresnillo Plc		24,000		720,365
Industrias Penoles SAB de CV		6,950		342,863
				1,063,228
Peru – 4.4%
Cia de Minas Buenaventura SA - ADR		7,600		296,096
Volcan Cia Minera SAA, Class B		183,198		205,276
				501,372
Russia – 0.3%
Polymetal International Plc		1,740		30,538

Common Stocks	Shares		Value
South Africa – 4.8%
AngloGold Ashanti Ltd.		4,695	$	163,662
Gold Fields Ltd.		9,180		116,009
Harmony Gold Mining Co. Ltd.		23,110		190,897
Impala Platinum Holdings Ltd.		4,690		78,339
				548,907
United Kingdom – 3.0%
Archipelago Resources Plc (a)		27,980		27,109
Hochschild Mining Plc		9,510		74,774
Hummingbird Resources Plc (a)		25,000		48,848
Patagonia Gold Plc (a)		68,930		33,393
Petropavlovsk Plc		8,855		58,607
Rio Tinto Plc		1,620		75,750
Stratex International Plc (a)		400,000		32,296
				350,777
United States – 3.4%
Freeport-McMoRan Copper & Gold, Inc.		3,150		124,677
Gold Resource Corp.		1,280		27,456
Newmont Mining Corp.		4,280		239,723
				391,856
Total Common Stocks – 93.9%				10,782,732
Investment Companies
Jersey, Channel Islands – 0.7%
ETFS Physical Platinum (a)		500		80,750
United States – 2.0%
SPDR Gold Trust (a)		1,350		232,227
Total Investment Companies – 2.7%				312,977
Warrants (b)
Canada – 0.0%
Kinross Gold Corp. (Issued/Exercisable 10/28/10, 1 Share for 1 Warrant, Expires 9/17/14, Strike Price USD 21.30) (a)		757		539
Total Long-Term Investments (Cost – $10,622,461) – 96.6%				11,096,248
Short-Term Securities
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.15% (c)(d)		430,646		430,646
Total Short-Term Securities
(Cost – $430,646) – 3.7%				430,646
Total Investments (Cost – $11,053,107) – 100.3%				11,526,894
Liabilities in Excess of Other Assets – (0.3)%				(35,770	)
Net Assets – 100.0%			$	11,491,124

See Notes to Financial Statements.

22     BLACKROCK FUNDS     SEPTEMBER 30, 2012

  Consolidated Schedule of Investments (concluded)   BlackRock World Gold Fund

(a) Non-income producing security.

(b) 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, if any.

(c) Investments in issuers considered to be an affiliate of the Fund during the year ended September 30, 2012, 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, 2011		Net Activity		Shares Held at September 30, 2012		Income
BlackRock Liquidity Funds, TempFund, Institutional Class		156,211		274,435		430,646	$	182

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

• 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 as follows:

• Level 1 - unadjusted price quotations in active markets/exchanges for identical assets and 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)

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 level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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. 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. For information about the Fund’s policy regarding valuation of investments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements.

The following table summarizes the Fund’s investments categorized in the disclosure hierarchy as of September 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Long-Term Investments:
Common Stocks:
Australia		–	$	1,627,306		–	$	1,627,306
Canada	$	5,513,257		–		–		5,513,257
China		–		–	$	3,713		3,713
Hong Kong		–		14,058		–		14,058
Jersey, Channel Islands		685,892		51,828		–		737,720
Mexico		342,863		720,365		–		1,063,228
Peru		501,372		–		–		501,372
Russia		–		30,538		–		30,538
South Africa		–		548,907		–		548,907
United Kingdom		141,646		209,131		–		350,777
United States		391,856		–		–		391,856
Investment Companies		312,977		–		–		312,977
Warrants		539		–		–		539
Short-Term Securities		430,646		–		–		430,646
Total	$	8,321,048	$	3,202,133	$	3,713	$	11,526,894

Certain of the Fund’s assets are held at carrying amount, which approximates fair value for financial statement purposes. As of September 30, 2012, such assets are categorized within the disclosure hierarchy as follows:

	Level 1		Level 2	Level 3	Total
Assets:
Cash	$	661	–	–	$	661
Foreign currency at value		3,181	–	–		3,181
Total	$	3,842	–	–	$	3,842

There were no transfers between levels during the year ended September 30, 2012.

Certain of the Fund’s investments are categorized as Level 3 and were valued utilizing transaction prices or third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in the unobservable inputs could result in a significantly lower or higher value in such Level 3 investments.

See Notes to Financial Statements.

23     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Statements of Assets and Liabilities

September 30, 2012	BlackRock All-Cap Energy & Resources Portfolio			BlackRock China Fund			BlackRock Energy & Resources Portfolio			BlackRock World Gold Fund1
Assets
Investments at value – unaffiliated2,3	$	515,512,495		$	2,550,747		$	896,643,970		$	11,096,248
Investments at value – affiliated4		17,312,472			172,872			6,883,970			430,646
Cash		–			3,600			–			661
Foreign currency at value5		1,311			7,970			925			3,181
Investments sold receivable		2,887,638			–			9,399,609			–
Unrealized appreciation on foreign currency exchange contracts		441			–			6,288			–
Capital shares sold receivable		344,682			10,000			1,030,974			4,677
Dividends receivable – unaffiliated		443,902			5,529			254,169			9,481
Dividends receivable – affiliated		117			15			26			45
Securities lending income receivable – affiliated		26,287			–			–			–
Receivable from Manager		137			60,254			–			7,019
Prepaid expenses		31,588			12,961			43,254			16,049
Total assets		536,561,070			2,823,948			914,263,185			11,568,007
Liabilities
Bank overdraft		2,178,264			–			9,465,539			–
Collateral on securities loaned at value		17,312,472			–			–			–
Investments purchased payable		109,114			1,717			–			–
Capital shares redeemed payable		920,878			–			1,579,430			–
Investment advisory fees payable		324,642			–			564,881			–
Transfer agent fees payable		216,629			292			481,169			5,223
Service and distribution fees payable		113,624			80			228,656			3,192
Custodian fees payable		73,703			16,344			123,120			20,646
Other affiliates payable		45,677			–			90,583			–
Professional fees payable		38,907			53,516			48,653			43,169
Administration fees payable		14,411			5,777			56,610			2,926
Officer’s and Trustees’ fees payable		5,611			587			8,654			639
Other accrued expenses payable		23,784			2,544			1,668			1,088
Total liabilities		21,377,716			80,857			12,648,963			76,883
Net Assets	$	515,183,354		$	2,743,091		$	901,614,222		$	11,491,124
Net Assets Consist of
Paid-in capital	$	573,099,006		$	3,417,745		$	997,965,646		$	11,832,335
Undistributed (accumulated) net investment income (loss)		49,619			40,481			(23,587,945	)		(73,659	)
Accumulated net realized loss		(143,014,859	)		(162,509	)		(66,177,463	)		(741,307	)
Net unrealized appreciation/depreciation		85,049,588			(552,626	)		(6,586,016	)		473,755
Net Assets	$	515,183,354		$	2,743,091		$	901,614,222		$	11,491,124
1 Consolidated Statement of Assets and Liabilities.
2 Investments at cost – unaffiliated	$	430,463,892		$	3,103,421		$	891,123,189		$	10,622,461
3 Securities loaned at value	$	16,534,432			–			–			–
4 Investments at cost – affiliated	$	17,312,472		$	172,872		$	19,001,141		$	430,646
5 Foreign currency at cost	$	1,292		$	7,923		$	913		$	3,181

See Notes to Financial Statements.

24     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Statements of Assets and Liabilities (concluded)

September 30, 2012	BlackRock All-Cap Energy & Resources Portfolio		BlackRock China Fund		BlackRock Energy & Resources Portfolio		BlackRock World  Gold Fund1
Net Asset Value
Institutional
Net assets	$	272,778,834	$	2,355,338	$	222,033,798	$	4,072,468
Shares outstanding2		20,184,506		302,178		6,754,149		370,520
Net asset value	$	13.51	$	7.79	$	32.87	$	10.99
Service
Net assets	$	3,827,728		–		–		–
Shares outstanding2		289,998		–		–		–
Net asset value	$	13.20		–		–		–
Investor A
Net assets	$	137,765,305	$	359,706	$	539,084,834	$	4,361,214
Shares outstanding2		10,445,580		46,299		18,835,222		398,144
Net asset value	$	13.19	$	7.77	$	28.62	$	10.95
Investor B
Net assets	$	15,162,405		–	$	7,686,835		–
Shares outstanding2		1,204,052		–		364,847		–
Net asset value	$	12.59		–	$	21.07		–
Investor C
Net assets	$	85,649,082	$	28,047	$	132,808,755	$	3,057,442
Shares outstanding2		6,788,769		3,634		6,359,255		283,928
Net asset value	$	12.62	$	7.72	$	20.88	$	10.77

¹  Consolidated Statement of Assets and Liabilities.

²  Unlimited number of shares authorized, $0.001 par value.

See Notes to Financial Statements.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 25

Statements of Operations

Year Ended September 30, 2012	BlackRock All-Cap Energy & Resources Portfolio			BlackRock China Fund			BlackRock Energy & Resources Portfolio			BlackRock World  Gold Fund1
Investment Income
Dividends – unaffiliated	$	9,245,384		$	89,691		$	6,491,182		$	134,045
Dividends – affiliated		9,399			84			4,797			182
Foreign taxes withheld		(714,879	)		(6,468	)		(190,724	)		(9,232	)
Securities lending – affiliated		172,067			–			–			–
Total income		8,711,971			83,307			6,305,255			124,995
Expenses
Investment advisory		5,120,268			25,565			8,322,002			76,996
Service and distribution – class specific		1,638,662			718			3,303,381			36,521
Transfer agent – class specific		790,049			1,080			1,943,109			21,268
Administration		500,136			23,746			781,503			18,358
Administration – class specific		170,974			638			265,769			2,566
Registration		78,428			23,132			116,546			35,092
Custodian		70,869			19,168			118,808			23,797
Printing		65,789			15,566			96,460			7,009
Professional		62,671			115,675			71,702			58,261
Officer and Trustees		19,967			2,839			30,459			3,059
Offering		–			93,020			–			–
Miscellaneous		36,578			15,247			45,470			10,076
Recoupment of past waived fees – class specific		7,421			–			106,211			–
Total expenses		8,561,812			336,394			15,201,420			293,003
Less fees waived by Manager		(7,304	)		(25,565	)		(3,502	)		(75,238	)
Less administration fees waived		–			(1,917	)		–			(4,917	)
Less administration fees waived – class specific		(30,927	)		(607	)		(9,816	)		(2,560	)
Less transfer agent fees waived – class specific		(5,543	)		(123	)		(2,647	)		(1,809	)
Less transfer agent fees reimbursed – class specific		(14,673	)		(838	)		(20,553	)		(18,428	)
Less expenses reimbursed by Manager		–			(264,464	)		–			(25,086	)
Less fees paid indirectly		(198	)		–			(448	)		(12	)
Total expenses after fees waived, reimbursed and paid indirectly		8,503,167			42,880			15,164,454			164,953
Net investment income (loss)		208,804			40,427			(8,859,199	)		(39,958	)
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments – unaffiliated		(38,109,874	)		(141,339	)		(42,956,556	)		(540,615	)
Investments – affiliated		–			–			(7,792,131	)		–
Foreign currency transactions		(113,783	)		54			(3,423	)		(5,374	)
		(38,223,657	)		(141,285	)		(50,752,110	)		(545,989	)
Net change in unrealized appreciation/depreciation on:
Investments – unaffiliated		101,123,180			407,650			139,758,421			573,835
Investments – affiliated		–			–			2,500,876			–
Foreign currency translations		3,426			(59	)		17,101			294
		101,126,606			407,591			142,276,398			574,129
Total realized and unrealized gain		62,902,949			266,306			91,524,288			28,140
Net Increase (Decrease) in Net Assets Resulting from Operations	$	63,111,753		$	306,733		$	82,665,089		$	(11,818	)

¹  Consolidated Statement of Operations.

See Notes to Financial Statements.

26     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Statements of Changes in Net Assets

	BlackRock All-Cap Energy & Resources Portfolio						BlackRock China Fund
							Year Ended			Period April 29, 20111 to
	Year Ended September 30,						September 30, 2012			September 30, 2011
Increase (Decrease) in Net Assets:	2012			2011
Operations
Net investment income (loss)	$	208,804		$	(2,702,610	)	$	40,427		$	38,392
Net realized gain (loss)		(38,223,657	)		47,587,036			(141,285	)		(21,267	)
Net change in unrealized appreciation/depreciation		101,126,606			(148,099,558	)		407,591			(960,217	)
Net increase (decrease) in net assets resulting from operations		63,111,753			(103,215,132	)		306,733			(943,092	)
Dividends to Shareholders From
Net investment income:
Institutional		–			(3,839,400	)		(36,656	)		–
Service		–			(26,046	)		–			–
Investor A		–			(1,129,552	)		(1,275	)		–
Investor C		–			–			(364	)		–
Decrease in net assets resulting from dividends to shareholders		–			(4,994,998	)		(38,295	)		–
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share transactions		(258,335,389	)		43,265,442			356,594			3,061,151
Redemption Fees
Redemption fees		–			11,916			–			–
Net Assets
Total increase (decrease) in net assets		(195,223,636	)		(64,932,772	)		625,032			2,118,059
Beginning of period		710,406,990			775,339,762			2,118,059			–
End of period	$	515,183,354		$	710,406,990		$	2,743,091		$	2,118,059
Undistributed (accumulated) net investment income (loss)	$	49,619		$	(45,402	)	$	40,481		$	38,295

¹ Commencement of operations.

See Notes to Financial Statements.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 27

Statements of Changes in Net Assets (concluded)

	BlackRock Energy & Resources Portfolio						BlackRock World Gold Fund1
	Year Ended September 30,						Year Ended September 30,
Increase (Decrease) in Net Assets:	2012			2011			2012			2011
Operations
Net investment loss	$	(8,859,199	)	$	(8,481,928	)	$	(39,958	)	$	(30,854	)
Net realized gain (loss)		(50,752,110	)		183,610,918			(545,989	)		(119,194	)
Net change in unrealized appreciation/depreciation		142,276,398			(346,757,344	)		574,129			(740,821	)
Net increase (decrease) in net assets resulting from operations		82,665,089			(171,628,354	)		(11,818	)		(890,869	)
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(358,563	)		(4,255,273	)		(6,994	)		(54,178	)
Investor A		(291,121	)		(7,643,972	)		–			(17,212	)
Investor B		(171,849	)		(108,168	)		–			–
Investor C		(211,831	)		(1,292,699	)		–			(5,391	)
Tax return of capital:
Institutional		(6,600,181	)		–			–			(14,591	)
Investor A		(5,894,323	)		–			–			(4,882	)
Investor B		(4,038,547	)		–			–			–
Investor C		(4,747,110	)		–			–			(1,788	)
Net realized gain:
Institutional		(6,605,013	)		–			–			(48,469	)
Investor A		(15,831,909	)		–			–			(16,216	)
Investor B		(545,981	)		–			–			–
Investor C		(5,160,871	)		–			–			(5,939	)
Decrease in net assets resulting from dividends and distributions to shareholders		(50,457,299	)		(13,300,112	)		(6,994	)		(168,666	)
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share transactions		(231,662,545	)		198,994,525			1,109,386			6,780,995
Redemption Fees
Redemption fees		–			85,902			–			218
Net Assets
Total increase (decrease) in net assets		(199,454,755	)		14,151,961			1,090,574			5,721,678
Beginning of year		1,101,068,977			1,086,917,016			10,400,550			4,678,872
End of year	$	901,614,222		$	1,101,068,977		$	11,491,124		$	10,400,550
Accumulated net investment loss	$	(23,587,945	)	$	(15,133,630	)	$	(73,659	)	$	(63,443	)

¹  Consolidated Statements of Changes in Net Assets.

See Notes to Financial Statements.

28     BLACKROCK FUNDS     SEPTEMBER 30, 2012

    Financial Highlights   BlackRock All-Cap Energy & Resources Portfolio

	Institutional														Service
	Year Ended September 30,														Year Ended September 30,
	2012		2011			2010			2009			2008			2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	12.14	$	13.76		$	12.46		$	16.20		$	19.40		$	11.90		$	13.49		$	12.24		$	16.01		$	19.19
Net investment income (loss)1		0.05		0.01			0.02			0.02			0.24			0.00	2		(0.05)			(0.03)			(0.03)			0.12
Net realized and unrealized gain (loss)		1.32		(1.51)	3		1.38	3		(2.14)	3		(2.90)	3		1.30			(1.47)	3		1.35	3		(2.12)	3		(2.83)	3
Net increase (decrease) from investment operations		1.37		(1.50)			1.40			(2.12)			(2.66)			1.30			(1.52)			1.32			(2.15)			(2.71)
Dividends and distributions from:
Net investment income		–		(0.12)			(0.10)			–			(0.23)			–			(0.07)			(0.07)			–			(0.16)
Net realized gain		–		–			–			(1.62)			(0.31)			–			–			–			(1.62)			(0.31)
Total dividends and distributions		–		(0.12)			(0.10)			(1.62)			(0.54)			–			(0.07)			(0.07)			(1.62)			(0.47)
Net asset value, end of year	$	13.51	$	12.14		$	13.76		$	12.46		$	16.20		$	13.20		$	11.90		$	13.49		$	12.24		$	16.01
Total Investment Return4
Based on net asset value		11.29%		(11.10)%	5		11.32%	5		(7.53)%	5		(14.25)%	5		10.93%			(11.36)%	5		10.79%	5		(7.85)%	5		(14.59)%	5
Ratios to Average Net Assets
Total expenses		0.95%		0.93%			0.94%			0.98%			0.89%			1.29%			1.27%			1.34%			1.54%			1.25%
Total expenses excluding recoupment of past waived fees		0.95%		0.91%			0.93%			0.97%			0.89%			1.29%			1.24%			1.27%			1.47%			1.25%
Total expenses after fees waived, reimbursed and paid indirectly		0.94%		0.93%			0.93%			0.93%			0.89%			1.29%			1.26%			1.34%			1.35%			1.25%
Net investment income (loss)		0.34%		0.03%			0.16%			0.17%			1.14%			0.00%			(0.30)%			(0.25)%			(0.26)%			0.56%
Supplemental Data
Net assets, end of year (000)	$	272,779	$	400,269		$	420,071		$	328,434		$	510,804		$	3,828		$	4,816		$	4,231		$	3,426		$	4,836
Portfolio turnover		19%		22%			38%			22%			38%			19%			22%			38%			22%			38%

¹  Based on average shares outstanding.

²  Less than $0.01 per share.

³  Includes redemption fees, which are less than $0.01 per share.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

See Notes to Financial Statements.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 29

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

	Investor A														Investor B
	Year Ended September 30,														Year Ended September 30,
	2012		2011			2010			2009			2008			2012		2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	11.90	$	13.50		$	12.24		$	16.01		$	19.18		$	11.45	$	13.03		$	11.84		$	15.68		$	18.82
Net investment income (loss)1		(0.01)		(0.06)			(0.03)			(0.02)			0.17			(0.11)		(0.18)			(0.13)			(0.09)			0.01
Net realized and unrealized gain (loss)		1.30		(1.47)	2		1.35	2		(2.13)	2		(2.87)	2		1.25		(1.40)	2		1.32	2		(2.13)	2		(2.81)	2
Net increase (decrease) from investment operations		1.29		(1.53)			1.32			(2.15)			(2.70)			1.14		(1.58)			1.19			(2.22)			(2.80)
Dividends and distributions from:
Net investment income		–		(0.07)			(0.06)			–			(0.16)			–		–			–			–			(0.03)
Net realized gain		–		–			–			(1.62)			(0.31)			–		–			–			(1.62)			(0.31)
Total dividends and distributions		–		(0.07)			(0.06)			(1.62)			(0.47)			–		–			–			(1.62)			(0.34)
Net asset value, end of year	$	13.19	$	11.90		$	13.50		$	12.24		$	16.01		$	12.59	$	11.45		$	13.03		$	11.84		$	15.68
Total Investment Return3
Based on net asset value		10.84%		(11.46)%	4		10.84%	4		(7.85)%	4		(14.55)%	4		9.96%		(12.13)%	4		10.05%	4		(8.56)%	4		(15.23)%	4
Ratios to Average Net Assets
Total expenses		1.35%		1.35%			1.34%			1.48%			1.27%			2.20%		2.11%			2.17%			2.35%			2.09%
Total expenses excluding recoupment of past waived fees		1.35%		1.28%			1.32%			1.45%			1.27%			2.19%		2.09%			2.16%			2.33%			2.09%
Total expenses after fees waived, reimbursed and paid indirectly		1.34%		1.34%			1.34%			1.34%			1.26%			2.10%		2.10%			2.10%			2.06%			2.04%
Net investment income (loss)		(0.09)%		(0.38)%			(0.25)%			(0.25)%			0.81%			(0.83)%		(1.15)%			(1.03)%			(0.95)%			0.06%
Supplemental Data
Net assets, end of year (000)	$	137,765	$	187,017		$	207,523		$	178,364		$	267,422		$	15,162	$	18,872		$	27,113		$	30,873		$	42,399
Portfolio turnover		19%		22%			38%			22%			38%			19%		22%			38%			22%			38%

¹  Based on average shares outstanding.

²  Includes redemption fees, which are less than $0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

See Notes to Financial Statements.

30     BLACKROCK FUNDS         SEPTEMBER 30, 2012

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

	Investor C
	Year Ended September 30,
	2012		2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	11.47	$	13.04		$	11.85		$	15.69		$	18.84
Net investment income (loss)1		(0.10)		(0.17)			(0.13)			(0.09)			0.02
Net realized and unrealized gain (loss)		1.25		(1.40)	2		1.32	2		(2.13)	2		(2.82)	2
Net increase (decrease) from investment operations		1.15		(1.57)			1.19			(2.22)			(2.80)
Dividends and distributions from:
Net investment income		–		–			–			–			(0.04)
Net realized gain		–		–			–			(1.62)			(0.31)
Total dividends and distributions		–		–			–			(1.62)			(0.35)
Net asset value, end of year	$	12.62	$	11.47		$	13.04		$	11.85		$	15.69
Total Investment Return3
Based on net asset value		10.03%		(12.04)%	4		10.04%	4		(8.54)%	4		(15.21)%	4
Ratios to Average Net Assets
Total expenses		2.08%		2.05%			2.08%			2.23%			2.02%
Total expenses excluding recoupment of past waived fees		2.08%		2.03%			2.08%			2.21%			2.02%
Total expenses after fees waived, reimbursed and paid indirectly		2.07%		2.04%			2.08%			2.05%			2.01%
Net investment income (loss)		(0.79)%		(1.08)%			(1.00)%			(0.95)%			0.08%
Supplemental Data
Net assets, end of year (000)	$	85,649	$	99,433		$	116,401		$	113,347		$	153,512
Portfolio turnover		19%		22%			38%			22%			38%

¹  Based on average shares outstanding.

²  Includes redemption fees, which are less than $0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

See Notes to Financial Statements.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 31

  Financial Highlights   BlackRock China Fund

	Institutional					Investor A					Investor C
	Year Ended September 30, 2012		Period April 29, 20111 to September 30, 2011			Year Ended September 30, 2012		Period April 29, 20111 to September 30, 2011			Year Ended September 30, 2012		Period April 29, 20111 to September 30, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	6.90	$	10.00		$	6.89	$	10.00		$	6.87	$	10.00
Net investment income2		0.12		0.13			0.18		0.09			0.05		0.09
Net realized and unrealized gain (loss)		0.89		(3.23)			0.82		(3.20)			0.90		(3.22)
Net increase (decrease) from investment operations		1.01		(3.10)			1.00		(3.11)			0.95		(3.13)
Dividends from net investment income		(0.12)		–			(0.12)		–			(0.10)		–
Net asset value, end of period	$	7.79	$	6.90		$	7.77	$	6.89		$	7.72	$	6.87
Total Investment Return
Based on net asset value		14.82%		(31.00)%	3		14.64%		(31.10)%	3		13.95%		(31.30)%	3
Ratios to Average Net Assets
Total expenses		13.05%		9.67%	4,5		14.41%		12.18%	4,5		14.94%		11.73%	4,5
Total expenses after fees waived and reimbursed		1.65%		1.65%	5		1.90%		1.90%	5		2.65%		2.65%	5
Net investment income		1.55%		3.39%	5		2.24%		2.47%	5		0.60%		2.30%	5
Supplemental Data
Net assets, end of period (000)	$	2,355	$	2,049		$	360	$	51		$	28	$	19
Portfolio turnover		40%		14%			40%		14%			40%		14%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Aggregate total investment return.

⁴  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses for Institutional, Investor A and Investor C would have been 13.81%, 18.86% and 16.54%, respectively.

⁵  Annualized.

See Notes to Financial Statements.

32     BLACKROCK FUNDS     SEPTEMBER 30, 2012

  Financial Highlights   BlackRock Energy & Resources Portfolio

	Institutional														Investor A
	Year Ended September 30,														Year Ended September 30,
	2012		2011			2010			2009			2008			2012		2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	31.70	$	34.98		$	32.61		$	51.31		$	63.42		$	27.73	$	30.63		$	28.67		$	47.29		$	59.02
Net investment income (loss)1		(0.16)		(0.08)			0.05			(0.07)			(0.13)			(0.24)		(0.20)			(0.12)			(0.13)			(0.32)
Net realized and unrealized gain (loss)		2.79		(2.68)			2.31			(9.60)			(2.78)			2.46		(2.34)			2.08			(9.46)			(2.29)
Net increase (decrease) from investment operations		2.63		(2.76)			2.36			(9.67)			(2.91)			2.22		(2.54)			1.96			(9.59)			(2.61)
Dividends and distributions from:
Net investment income		(0.25)		(0.52)			–			–			(2.01)			(0.17)		(0.36)			–			–			(1.92)
Tax return of capital		(0.47)		–			–			–			–			(0.42)		–			–			–			–
Net realized gain		(0.74)		–			–			(9.04)			(7.22)			(0.74)		–			–			(9.04)			(7.22)
Total dividends and distributions		(1.46)		(0.52)			–			(9.04)			(9.23)			(1.33)		(0.36)			–			(9.04)			(9.14)
Redemption fees added to paid-in capital		–		0.00	2		0.01			0.01			0.03			–		0.00	2		0.00	2		0.01			0.02
Net asset value, end of year	$	32.87	$	31.70		$	34.98		$	32.61		$	51.31		$	28.62	$	27.73		$	30.63		$	28.67		$	47.29
Total Investment Return3
Based on net asset value		7.76%		(8.28)%			7.27%	4,5		(7.64)%	6,7		(6.77)%	5		7.41%		(8.61)%			6.84%	8,9		(8.20)%	5,10		(6.78)%	7
Ratios to Average Net Assets
Total expenses		0.99%		0.93%			0.97%			1.00%			0.92%			1.34%		1.28%			1.35%			1.40%			1.25%
Total expenses excluding recoupment of past waived fees		0.99%		0.93%			0.97%			0.98%			0.92%			1.33%		1.26%			1.31%			1.38%			1.25%
Total expenses after fees waived, reimbursed and paid indirectly		0.99%		0.92%			0.97%			0.99%			0.92%			1.34%		1.27%			1.35%			1.31%			1.25%
Net investment income (loss)		(0.44)%		(0.18)%			0.13%			(0.25)%			(0.18)%			(0.77)%		(0.52)%			(0.39)%			(0.55)%			(0.49)%
Supplemental Data
Net assets, end of year (000)	$	222,034	$	306,403		$	274,009		$	134,187		$	82,147		$	539,085	$	632,030		$	644,786		$	636,437		$	689,646
Portfolio turnover		15%		40%			16%			25%			32%			15%		40%			16%			25%			32%

¹  Based on average shares outstanding.

²  Less than $0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  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%.

⁵  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%.

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 (7.66)%.

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 0.02%.

⁸  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%.

⁹  Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

¹⁰  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 (8.23)%.

See Notes to Financial Statements.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 33

Financial Highlights (concluded) BlackRock Energy & Resources Portfolio

	Investor B															Investor C
	Year Ended September 30,															Year Ended September 30,
	2012			2011			2010			2009			2008			2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	20.65		$	22.86		$	21.56		$	39.68		$	50.87		$	20.55		$	22.81		$	21.51		$	39.61		$	50.84
Net investment loss1		(0.36	)		(0.38	)		(0.27	)		(0.22	)		(0.67	)		(0.34	)		(0.37	)		(0.24	)		(0.22	)		(0.66	)
Net realized and unrealized gain (loss)		1.87			(1.73	)		1.57			(8.87	)		(1.81	)		1.84			(1.69	)		1.54			(8.85	)		(1.79	)
Net increase (decrease) from investment operations		1.51			(2.11	)		1.30			(9.09	)		(2.48	)		1.50			(2.06	)		1.30			(9.07	)		(2.45	)
Dividends and distributions from:
Net investment income		(0.06	)		(0.10	)		–			–			(1.51	)		(0.09	)		(0.20	)		–			–			(1.58	)
Tax return of capital		(0.29	)		–			–			–			–			(0.34	)		–			–			–			–
Net realized gain		(0.74	)		–			–			(9.04	)		(7.22	)		(0.74	)		–			–			(9.04	)		(7.22	)
Total dividends and distributions		(1.09	)		(0.10	)		–			(9.04	)		(8.73	)		(1.17	)		(0.20	)		–			(9.04	)		(8.80	)
Redemption fees added to paid-in capital		–			0.00	2		0.00	2		0.01			0.02			–			0.00	2		0.00	2		0.01			0.02
Net asset value, end of year	$	21.07		$	20.65		$	22.86		$	21.56		$	39.68		$	20.88		$	20.55		$	22.81		$	21.51		$	39.61
Total Investment Return3
Based on net asset value		6.63%			(9.33)%			6.03%	4,5		(8.74)%	6,7		(7.63)%	8		6.57%			(9.25)%			6.04%	5,9		(8.68)%	7,10		(7.57)%	8
Ratios to Average Net Assets
Total expenses		2.16%			2.07%			2.10%			2.25%			2.01%			2.07%			2.04%			2.06%			2.16%			1.96%
Total expenses excluding recoupment of past waived fees		2.16%			2.03%			2.10%			2.23%			2.01%			2.07%			1.99%			2.05%			2.16%			1.96%
Total expenses after fees waived, reimbursed and paid indirectly		2.10%			2.07%			2.09%			2.05%			2.00%			2.07%			2.03%			2.05%			2.05%			1.96%
Net investment loss		(1.56)%			(1.31)%			(1.17)%			(1.28)%			(1.24)%			(1.50)%			(1.29)%			(1.07)%			(1.29)%			(1.21)%
Supplemental Data
Net assets, end of year (000)	$	7,687		$	16,450		$	25,633		$	34,218		$	57,174		$	132,808		$	146,186		$	142,490		$	129,556		$	151,409
Portfolio turnover		15%			40%			16%			25%			32%			15%			40%			16%			25%			32%

¹ Based on average shares outstanding.

²  Less than $0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  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%.

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 (8.77)%.

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 0.04%.

⁸  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 0.02%.

⁹  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%.

¹⁰  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 (8.71)%.

See Notes to Financial Statements.

34     BLACKROCK FUNDS     SEPTEMBER 30, 2012

  Financial Highlights   BlackRock World Gold Fund

	Institutional									Investor A									Investor C
	Year Ended September 30,						Period May 26, 20101 to September  30, 2010			Year Ended September 30,						Period May 26, 20101 to September  30, 2010			Year Ended September 30,						Period May 26, 20101 to September 30, 2010
	20122			20112						20122			20112						20122			20112
Per Share Operating Performance
Net asset value, beginning of period	$	11.13		$	12.07			$      10.00		$	11.10		$	12.05			$      10.00		$	11.00		$	12.02			$      10.00
Net investment income (loss)3		(0.00	)4		(0.02	)		(0.01	)		(0.03	)		(0.04	)		0.00	5		(0.11	)		(0.13	)		(0.04	)
Net realized and unrealized gain (loss)		(0.12	)		(0.63	)6		2.08	6		(0.12	)		(0.62	)6		2.05	6		(0.12	)		(0.62	)6		2.06	6
Net increase (decrease) from investment operations		(0.12	)		(0.65	)		2.07			(0.15	)		(0.66	)		2.05			(0.23	)		(0.75	)		2.02
Dividends and distributions from:
Net investment income		(0.02	)		(0.13	)		–			–			(0.13	)		–			–			(0.11	)		–
Tax return of capital		–			(0.04	)		–			–			(0.04	)		–			–			(0.04	)		–
Net realized gain		–			(0.12	)		–			–			(0.12	)		–			–			(0.12	)		–
Total dividends and distributions		(0.02	)		(0.29	)		–			–			(0.29	)		–			–			(0.27	)		–
Net asset value, end of Period	$	10.99		$	11.13			$      12.07		$	10.95		$	11.10			$      12.05		$	10.77		$	11.00			$      12.02
Total Investment Return7
Based on net asset value		(1.11)%			(5.69)%	8		20.70%	8,9		(1.35)%			(5.83)%	8		20.50%	8,9		(2.09)%			(6.57)%	8		20.20%	8,9
Ratios to Average Net Assets
Total expenses		2.35%			4.05%			5.79%	10,11		2.86%			4.45%			7.16%	10,11		3.56%			5.14%			7.37%	10,11
Total expenses after fees waived and reimbursed		1.24%			1.24%			1.24%	11		1.49%			1.49%			1.49%	11		2.27%			2.27%			2.27%	11
Net investment income (loss)		(0.03)%			(0.15)%			(0.39)%	11		(0.27)%			(0.36)%			0.07%	11		(1.05)%			(1.05)%			(1.15)%	11
Supplemental Data
Net assets, end of period (000)	$	4,073		$	4,432			$      3,974		$	4,361		$	3,242			$          572		$	3,057		$	2,726			$          132
Portfolio turnover		23%			29%			1%			23%			29%			1%			23%			29%			1%

¹  Commencement of operations.

² Consolidated Financial Highlights.

³  Based on average shares outstanding.

⁴  Less than $(0.01) per share.

⁵  Less than $0.01 per share.

⁶  Includes redemption fees, which are less than $0.01 per share.

⁷  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁸  Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

⁹  Aggregate total investment return.

¹⁰ Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses for Institutional, Investor A and Investor C would have been 6.17%, 8.00% and 7.94%, respectively.

¹¹ Annualized.

See Notes to Financial Statements.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 35

Notes to Financial Statements

1. Organization and Significant Accounting Policies:

BlackRock Funds^SM (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. BlackRock All-Cap Energy & Resources Portfolio (“All-Cap Energy & Resources”), BlackRock China Fund (“China Fund”), BlackRock Energy & Resources Portfolio (“Energy & Resources”) and BlackRock World Gold Fund (“World Gold”) (collectively, the “Funds” or individually, a “Fund”) are each a series of the Trust. The Funds are classified as non-diversified. The Funds’ financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US 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 offers multiple classes of shares. Institutional Shares are sold without a sales charge and only to certain eligible investors. Service Shares are sold without a sales charge. Investor A Shares are generally sold with a front-end sales charge. Investor B and Investor C Shares may be subject to a CDSC. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Service, Investor A, Investor B and Investor C Shares bear certain expenses related to the shareholder servicing of such shares, and Investor B and Investor C Shares also bear certain expenses related to the distribution of such shares. Investor B Shares automatically convert to Investor A Shares after approximately eight years. Investor B Shares are only available through exchanges, dividend reinvestment by existing shareholders or for purchase by certain qualified employee benefit plans. 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).

The following is a summary of significant accounting policies followed by the Funds:

Basis of Consolidation: The accompanying consolidated financial statements of World Gold include the accounts of BlackRock Cayman World Gold Fund 1, Ltd. (the “Subsidiary”), a wholly owned subsidiary of World Gold, which primarily invests in commodity-related instruments. The Subsidiary enables World Gold to hold these commodity-related instruments and still satisfy Regulated Investment Company (“RIC”) tax requirements. World Gold may invest up to 25% of its total assets in the Subsidiary. Intercompany accounts and transactions have been eliminated. The Subsidiary is subject to the same investment policies and restrictions that apply to World Gold.

Valuation: US 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 fair value 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 or the NASDAQ Global Market System (“NASDAQ”) are valued at the last reported sale price that day or the NASDAQ official closing price, if applicable. For equity investments traded on more than one exchange, the last reported sale 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 are valued at the last available bid price. If no bid price is available, the prior day’s price will be used, unless it is determined that such prior day’s price no longer reflects the fair value of the security. Investments in open-end registered investment companies are valued at NAV each business day.

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 in the Money Market Series to withdraw more than 25% on any one day.

Securities and other assets and liabilities denominated in foreign currencies are translated into US dollars using exchange rates determined as of the close of business on the New York Stock Exchange (“NYSE”). 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.

In the event that 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 Assets”). When determining the price for Fair Value Assets, the Global Valuation Committee, or its delegate, seeks to determine the price that each Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the investment advisor and/or sub-advisor deems relevant consistent with the principles of fair value measurement which include the market approach, income approach and/or cost approach, as appropriate. A market approach generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to

36     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

present value and 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 Trust’s pricing vendors, a regular review 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 Assets 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 (for example, a company announcement, market volatility or a natural disaster) occur during such periods that are expected to affect the value of such instruments materially, those instruments may be Fair Value Assets and valued at their fair value, as determined in good faith by the Global Valuation Committee 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: The Funds’ books and records are maintained in US dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective date of such transactions. Generally, when the US dollar rises in value against a foreign currency, the Funds’ investments denominated in that currency will lose value because that currency is worth fewer US dollars; the opposite effect occurs if the US dollar falls in relative value.

The Funds do 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 on the Statements of Opera-

tions 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 Funds report realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are treated as ordinary income for federal income tax purposes.

Participation Notes: China Fund may invest in participation notes (“P-Notes”). P-Notes are promissory notes issued by banks or broker-dealers that are designed to offer the Fund 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 the Fund 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, the Fund 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 the Fund 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. The Fund 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 the Fund since the P-Note generally is dependent on the liquidity in the local trading market for the underlying security.

Segregation and Collateralization: In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”) require that each Fund either deliver collateral or segregate assets in connection with certain investments (e.g., foreign currency exchange contracts), each Fund will, consistent with SEC rules and/or certain interpretive letters issued by the SEC, segregate collateral or designate on its books and records cash or liquid securities having a market value at least equal to the amount that would otherwise be required to be physically segregated. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, a Fund engaging in such transactions may have requirements to deliver/ deposit securities to/with an exchange or broker-dealer as collateral for certain investments.

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 dates. 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

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 37

Notes to Financial Statements (continued)

rates may be imposed on capital gains, dividends and interest. Income and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Dividends and Distributions: Dividends and distributions paid by the Funds are recorded on the ex-dividend dates. The portion of distributions that exceeds a Fund’s current and accumulated earnings and profits, which are measured on a tax basis, will constitute a nontaxable return of capital. Distributions in excess of a Fund’s taxable income and net capital gains, but not in excess of a Fund’s earnings and profits, will be taxable to shareholders as ordinary income and will not constitute a non-taxable return of capital. Capital losses carried forward from years beginning before 2011 do not reduce earnings and profits, even if such carried forward losses offset current year realized gains. The character and timing of dividends and distributions are determined in accordance with federal income tax regulations, which may differ from US GAAP.

Securities Lending: The Funds may lend securities to approved borrowers, such as banks, brokers and other financial institutions. The borrower pledges cash, securities issued or guaranteed by the US government or irrevocable letters of credit issued by a bank as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Funds and any additional required collateral is delivered to the Funds on the next business day. Securities lending income, as disclosed in the Statements of Operations, represents the income earned from the investment of the cash collateral, net of rebates paid to, or fees paid by, borrowers and less the fees paid to the securities lending agent. During the term of the loan, the Funds earn dividend or interest income on the securities loaned but do not receive dividend or interest income on the securities received as collateral. 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. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Funds could experience delays and costs in gaining access to the collateral. The Funds also 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. During the year ended September 30, 2012, any securities on loan were collateralized by cash.

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

The Funds file US 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’ US federal tax returns remains open for each of the four years ended September 30, 2012. The statute of limitations on World Gold’s US federal

tax returns remain open for the period ended September 30, 2010, and the years ended September 30, 2011 and September 30, 2012. The statute of limitations on China Fund’s US federal tax returns remain open for the period ended September 30, 2011 and the year ended September 30, 2012. 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 does not believe there are any uncertain tax positions that require recognition of a tax liability.

China has adopted certain revisions to its tax laws and regulations that may result in holdings of the China Fund located in China being subject to withholding taxes on dividends and other income which may include taxes on capital gains. During the year ended September 30, 2012, the China Fund invested in certain Chinese securities (A-shares) available only to local Chinese investors and Qualified Foreign Institutional Investors (“QFIIs”) through P-Notes. The China Fund gained access to the A-share market through various unaffiliated QFIIs. There is uncertainty under the current Chinese tax law whether or not capital gains realized on the China Fund’s investments in A-shares will be subject to tax. If such tax is imposed, the China Fund’s NAV and/or return could be adversely impacted.

Recent Accounting Standard: In December 2011, the Financial Accounting Standards Board issued guidance that will expand current disclosure requirements on the offsetting of certain assets and liabilities. The new disclosures will be required for investments and derivative financial instruments subject to master netting or similar agreements which are eligible for offset in the Statements of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial statements. The guidance is effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Funds’ financial statement disclosures.

Organization and Offering Costs: Upon commencement of operations, organization costs associated with the establishment of China Fund were expensed by China Fund and reimbursed by the Manager. Offering costs are amortized over a 12-month period beginning with the commencement of operations.

Other: Expenses directly related to a Fund or its classes are charged to that Fund or class. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Funds and other shared expenses pro rated 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 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 Statements of Operations.

38     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.

2. 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 hedge, or protect, their exposure to certain risks such as foreign currency exchange rate risk. These contracts may be transacted on an exchange or OTC.

Losses may arise if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument or if the counterparty does not perform under the contract. The Funds’ maximum risk of loss from counterparty credit risk on OTC derivatives is generally the aggregate unrealized gain netted against any collateral pledged by/posted to the counterparty.

The Funds may mitigate counterparty risk by procuring collateral and through netting provisions included within an International Swaps and Derivatives Association, Inc. master agreement (“ISDA Master Agreement”) implemented between a Fund and each of its respective counterparties. An ISDA Master Agreement allows each Fund to offset with each separate counterparty certain derivative financial instrument’s payables and/or receivables with collateral held. The amount of collateral moved to/from applicable counterparties is generally based upon minimum transfer amounts of up to $500,000. To the extent amounts due to the Funds from their counterparties are not fully collateralized contractually or otherwise, the Funds bear the risk of loss from counterparty non-performance. See Note 1 “Segregation and Collateralization” for information with respect to collateral practices. In addition, the Funds manage counterparty risk by entering into agreements only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties.

Certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Funds’ net assets decline by a stated percentage or the Funds fail to meet the terms of their ISDA Master Agreements, which would cause the Funds to accelerate payment of any net liability owed to the counterparty.

Foreign Currency Exchange Contracts: The Funds enter into foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to foreign currencies (foreign currency exchange rate risk). A 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. 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 foreign currency exchange contracts involves the risk that the value of a foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies and the risk that the counterparty to the contract does not perform its obligations under the agreement.

Derivative Financial Instruments Categorized by Risk Exposure:

Fair Values of Derivative Financial Instruments as  of
September 30, 2012

	Asset Derivatives
	Statements of Assets and Liabilities Location	All-Cap Energy & Resources		Energy & Resources
Foreign currency exchange contracts	Unrealized appreciation on foreign currency exchange contracts	$	441	$	6,288

The Effect of Derivative Financial Instruments in  the Statements of
Operations Year Ended September 30, 2012

Net Realized Gain (Loss) From
	All-Cap Energy & Resources	China Fund	Energy & Resources	World Gold
Foreign currency exchange contracts:
Foreign currency transactions	$31,178	$(15)	$45,083	$(50)

Net Change in Unrealized Appreciation/Depreciation on

	All-Cap Energy & Resources	Energy & Resources	World Gold
Foreign currency exchange contracts:
Foreign currency translations	$441	$6,101	$2,505

For the year ended September 30, 2012, the average quarterly balances of outstanding derivative financial instruments were as follows:

	All-Cap Energy & Resources		China Fund		Energy & Resources		World Gold
Foreign currency exchange contracts:
Average number of contracts - US dollars purchased		2		1		1		1
Average number of contracts - US dollars sold		1		1		1		1
Average US dollar amounts purchased	$	997,157	$	47	$	740,436	$	18,899
Average US dollar amounts sold	$	26,949	$	10	$	7,105	$	12,394	1

¹  Average contract amount shown due to limited activity.

3. Investment Advisory Agreement and Other Transactions with Affiliates:

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

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 and administration services. The Manager is responsible for the management of each Fund’s portfolio and provides the necessary personnel,

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 39

Notes to Financial Statements (continued)

facilities, equipment and certain other services necessary to the operations of each Fund. For such services, each Fund except China Fund 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%

For such services, China Fund paid the Manager a monthly fee at an annual rate of 1.00% of its average daily net assets from October 1, 2011 through May 31, 2012.

Effective June 1, 2012, China Fund 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
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 Manager in the Statements of Operations. For the year ended September 30, 2012, the amounts waived were as follows:

All-Cap Energy & Resources	$7,304
China Fund	$     44
Energy & Resources	$3,502
World Gold	$   109

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, World Gold pays the Manager based on World Gold’s net assets which include the assets of the Subsidiary.

The Manager entered into a sub-advisory agreement with BlackRock International Limited (“BIL”), an affiliate of the Manager, to serve as sub-advisor for World Gold. The Manager pays BIL, for services it provides, a monthly fee that is a percentage of the investment advisory fees paid by World Gold to the Manager.

The Trust, on behalf of the Funds, entered into a Distribution Agreement and 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 Funds pay 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 shares 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%

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 year ended September 30, 2012, the following table shows the class specific service and distribution fees borne directly by each class of each Fund:

	All-Cap Energy & Resources		China Fund		Energy & Resources		World Gold
Service	$	12,348		–		–		–
Investor A		441,537	$	417	$	1,607,590	$	8,639
Investor B		180,813		–		133,940		–
Investor C		1,003,964		301		1,561,851		27,882
Total	$	1,638,662	$	718	$	3,303,381	$	36,521

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 annual fee per shareholder account, which will vary depending on share class and/or net assets. For the year ended September 30, 2012, the Funds paid the following to the affiliates in return for these services, which are included in transfer agent – class specific in the Statements of Operations:

All-Cap Energy & Resources	$	747
Energy & Resources	$	7,418

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 year ended September 30, 2012, 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

40     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

the Statements of Operations:

	All-Cap Energy & Resources		China Fund		Energy & Resources		World Gold
Institutional		$  4,128		$  39		$  3,379	$	303
Service		524		–		–		–
Investor A		13,291		62		37,864		953
Investor B		2,454		–		1,970		–
Investor C		3,035		27		6,985		557
Total		$23,432		$128		$50,198	$	1,813

For the year ended September 30, 2012, the following table shows the class specific transfer agent fees borne directly by each class of each Fund:

	All-Cap Energy & Resources		China Fund		Energy & Resources		World Gold
Institutional		$193,016		$   276		$   337,197	$	2,920
Service		7,006		–		–		–
Investor A		357,389		572		1,276,800		10,788
Investor B		52,920		–		37,750		–
Investor C		179,718		232		291,362		7,560
Total		$790,049		$1,080		$1,943,109	$	21,268

BNY Mellon Investment Servicing (US) Inc. (“BNYMIS”) and the Manager act as co-administrators for the Funds. For these services, the co-administrators receive a combined administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of each Fund. The combined administration fee is paid at the following annual rates: 0.075% of the first $500 million, 0.065% of the next $500 million and 0.055% of the average daily net assets in excess of $1 billion. In addition, each of the share classes is charged an administration fee based on the following percentages of average daily net assets of each respective class: 0.025% of the first $500 million, 0.015% of the next $500 million and 0.005% of the average daily net assets in excess of $1 billion. In addition, 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. For the year ended September 30, 2012, the Funds paid the following to the Manager in return for these services, which are included in administration, administration – class specific, administration fees waived and administration fees waived – class specific in the Statements of Operations:

All-Cap Energy & Resources	$	449,141
Energy & Resources	$	732,639

For the year ended September 30, 2012, the following table shows the administration – class specific borne directly by each class of each Fund:

	All-Cap Energy & Resources		China Fund		Energy & Resources		World Gold
Institutional		$  95,721		$589		$  76,555	$	1,006
Service		1,237		–		–		–
Investor A		44,324		42		146,730		864
Investor B		4,533		–		3,356		–
Investor C		25,159		7		39,128		696
Total		$170,974		$638		$265,769	$	2,566

The Manager contractually agreed to waive and/or reimburse fees or expenses, excluding interest expense, dividend 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, in order to limit expenses. The expense limitations as a percentage of average daily net assets are as follows:

	All-Cap Energy & Resources			China Fund			Energy & Resources			World Gold
BlackRock		0.92	%1		N/A			N/A			N/A
Institutional		0.96	%		1.65	%		1.07	%		1.24	%
Service		1.38	%		N/A			1.38	%1		N/A
Investor A		1.38	%		1.90	%		1.38	%		1.49	%
Investor B		2.10	%		N/A			2.10	%		N/A
Investor C		2.10	%		2.65	%		2.10	%		2.27	%
Class R		1.83	%1		N/A			1.94	%1		N/A

¹  There were no shares outstanding as of September 30, 2012.

The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to February 1, 2013 unless approved by the Board, including a majority of the Independent Trustees.

These amounts are included in fees waived by 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 Manager, respectively, in the Statements of Operations. For the year ended September 30, 2012, the Manager waived investment advisory fees and reimbursed expenses of $291,902 and $105,120 for China Fund and World Gold, respectively, which are included in fees waived by Manager and shown

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 41

Notes to Financial Statements (continued)

as administration fees waived and expenses reimbursed by Manager. Class specific expense waivers or reimbursements are as follows:

Administration Fees Waived
	All-Cap Energy & Resources		China Fund		Energy & Resources		World Gold
Institutional		$13,628		$558		$   628		$   999
Service		20		–				–
Investor A		10,354		42		2,291		864
Investor B		4,277		–		3,090		–
Investor C		2,648		7		3,807		697
Total		$30,927		$607		$9,816		$2,560
Transfer Agent Fees Waived
	All-Cap Energy & Resources		China Fund		Energy & Resources		World Gold
Institutional		$   231		$  34		$   116		$   299
Investor A		2,874		62		875		953
Investor B		2,438		–		1,500		–
Investor C		–		27		156		557
Total		$5,543		$123		$2,647		$1,809
Transfer Agent Fees Reimbursed
	All-Cap Energy & Resources		China Fund		Energy & Resources		World Gold
Institutional		$     779		$148		$  2,522		$  2,534
Investor A		3,543		489		12,038		9,745
Investor B		10,291		–		4,100		–
Investor C		60		201		1,893		6,149
Total		$14,673		$838		$20,553		$18,428

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 year ended September 30, 2012, the Manager recouped the following waivers previously recorded by the Funds:

	All-Cap Energy & Resources		Energy & Resources
Institutional		–		$  11,869
Service		$     25		–
Investor A		6,500		81,875
Investor B		896		357
Investor C		–		12,110
Total		$7,421		$106,211

On September 30, 2012, the amounts subject to possible future recoupment under the expense limitation agreement are as follows:

	Expiring September 30,
	2013		2014
All-Cap Energy & Resources	$	1,561	$	51,143
China Fund	$	139,204	$	293,470
Energy & Resources		–	$	33,016
World Gold	$	253,275	$	127,929

The following waivers previously recorded by the Funds, which were subject to recoupment by the Manager, expired on September 30, 2012:

All-Cap Energy & Resources	$	13,463
World Gold	$	61,160

For the year ended September 30, 2012, affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of each Fund’s Investor A Shares as follows:

All-Cap Energy & Resources	$	17,105
China Fund	$	691
Energy & Resources	$	65,591
World Gold	$	5,505

For the year ended September 30, 2012, affiliates received CDSCs as follows:

	Investor A		Investor B		Investor C
All-Cap Energy & Resources		$  5,135		$18,872		$11,156
China Fund		–		–		$       60
Energy & Resources		$11,466		$14,937		$32,277
World Gold		$     485		–		$  1,893

The Funds received an exemptive order from the SEC permitting them, among other things, to pay an affiliated securities lending agent a fee based on a share of the income derived from the securities lending activities and have retained BlackRock Investment Management, LLC (“BIM”) as the securities lending agent. BIM may, on behalf of the Funds, invest cash collateral received by a Fund for such loans, among other things, in a private investment company managed by the Manager or in registered money market funds advised by the Manager or its affiliates. As securities lending agent, BIM is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BIM does not receive any fees for

42     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

managing the cash collateral. The market value of securities on loan and the value of the related collateral, if applicable, are shown in the Statements of Assets and Liabilities as securities loaned at value and collateral on securities loaned at value, respectively. The cash collateral invested by BIM is disclosed in the Schedules of Investments, if any. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of rebates paid to, or fees paid by, borrowers of securities. The Funds retain 65% of securities lending income and pay a fee to BIM equal to 35% of such income. The share of income earned by the Funds is shown as securities lending – affiliated in the Statements of Operations. For the year ended September 30, 2012, BIM received $95,879 in securities lending agent fees related to securities lending activities for the Funds.

During the year ended September 30, 2012, Energy & Resources received reimbursements of $7,869 from an affiliate, which is included in capital share transactions on the Statements of Changes in Net Assets, relating to processing errors.

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.

4. Investments:

Purchases and sales of investments, excluding short-term securities, for the year ended September 30, 2012, were as follows:

	Purchases		Sales
All-Cap Energy & Resources	$	128,279,539	$	345,844,209
China Fund	$	1,228,765	$	952,070
Energy & Resources	$	169,813,678	$	437,366,638
World Gold	$	2,877,174	$	2,282,495

5. Income Tax Information:

US GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of September 30, 2012 attributable to foreign currency transactions, the sale of stock of passive foreign investment companies, the reclassifications of distributions and non-deductible expenses were reclassified to the following accounts:

	All-Cap Energy & Resources			China Fund			Energy & Resources			World Gold
Paid-in capital		–			–			$      43,575			–
Undistributed (accumulated) net investment income (loss)		$(113,783	)		$ 54			$ 1,438,248			$ 36,736
Accumulated net realized loss		$ 113,783			$(54	)		$(1,481,823	)		$(36,736	)

The tax character of distributions paid during the fiscal years ended September 30, 2012 and September 30, 2011 was as follows:

	All-Cap Energy & Resources		China Fund		Energy & Resources		World Gold
Ordinary income
9/30/12		–	$	38,295	$	11,572,448	$	6,994
9/30/11	$	4,994,998		–	$	13,300,112	$	147,405
Long-term capital gain
9/30/12		–		–		17,604,690		–
Tax return of capital
9/30/12		–				21,280,161		–
9/30/11		–		–		–		21,261
Total
9/30/12		–	$	38,295	$	50,457,299	$	6,994
9/30/11	$	4,994,998		–	$	13,300,112	$	168,666

As of September 30, 2012, the tax components of accumulated net losses were as follows:

	All-Cap Energy & Resources			China Fund			Energy & Resources			World Gold
Undistributed ordinary income	$	50,060		$	40,481			–		$	103,136
Capital loss carryforwards		(104,547,557	)		(29,499	)		–			(14,009	)
Net unrealized gains (losses)1		83,003,539			(562,713	)	$	(22,374,074	)		115,661
Qualified late-year losses2		(36,421,694	)		(122,923	)		(73,977,350	)		(545,999	)
Total	$	(57,915,652	)	$	(674,654	)	$	(96,351,424	)	$	(341,211	)

¹  The difference between book-basis and tax-basis net unrealized losses was attributable primarily to the tax deferral of losses on wash sales, the realization for tax purposes of unrealized gains/losses on certain foreign currency contracts, the realization for tax purposes of unrealized gain on investments in passive foreign investment companies, the timing and recognition of partnership income and the difference between the book and tax treatment of certain security lending transactions.

²  The Funds have elected to defer certain qualified late-year losses and recognize such losses in the year ending September 30, 2013.

As of September 30, 2012, 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		China Fund		World Gold
2018	$	101,763,569		–		–
No expiration date3		2,783,988	$	29,499	$	14,009
Total	$	104,547,557	$	29,499	$	14,009

³  Must be utilized prior to losses subject to expiration.

As of September 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 43

Notes to Financial Statements (continued)

were as follows:

	All-Cap Energy & Resources	China Fund			Energy & Resources			World Gold
Tax cost	$449,821,971	$	3,286,380		$	925,905,969		$	11,411,200
Gross unrealized appreciation	$158,099,115	$	104,923		$	253,270,322		$	1,233,202
Gross unrealized depreciation	(75,096,119)		(667,684	)		(275,648,351	)		(1,117,508	)
Net unrealized appreciation (depreciation)	$  83,002,996	$	(562,761	)	$	(22,378,029	)	$	115,694

6. Borrowings:

The Trust, on behalf of the Funds, along with certain other funds managed by the Manager and its affiliates, is a party to a $500 million credit agreement with a group of lenders, which expires in November 2012 and was subsequently renewed until November 2013. The Funds may borrow under the credit agreement to fund shareholder redemptions. Effective November 2010 to November 2011, the credit agreement had the following terms: a commitment fee of 0.08% per annum based on the Funds’ pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month London Interbank Offered Rate (“LIBOR”) plus 1.00% per annum or (b) the Fed Funds rate plus 1.00% per annum on amounts borrowed. In addition, the Funds paid administration and arrangement fees which were allocated to the Funds based on their net assets as of October 31, 2010. The credit agreement, which expired in November 2011, was renewed until November 2012. Effective November 2011 to November 2012, the credit agreement has the following terms: a commitment fee of 0.065% per annum based on the Funds’ pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 0.80% per annum or (b) the Fed Funds rate plus 0.80% per annum on amounts borrowed. In addition, the Funds paid administration and arrangement fees which were allocated to the Funds based on their net assets as of October 31, 2011. The Funds did not borrow under the credit agreement during the year ended September 30, 2012.

7. Concentration, Market and Credit Risk:

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 September 30, 2012, 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 the energy 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 September 30, 2012, China Fund invested a significant portion of its assets in securities in the financial sector. Changes in economic conditions affecting the financial sector would have a greater impact on China Fund and could affect the value, income and/or liquidity of positions in such securities.

As of September 30, 2012, World Gold invested a significant portion of its assets in securities in the materials sector. Changes in economic conditions affecting the materials sector would have a greater impact on World Gold and could affect the value, income and/or liquidity of positions in such securities.

China Fund invests a substantial amount of its assets in issuers located in a single country or a limited number of countries. When the 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 U.S. 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.

As of September 30, 2012, the Funds listed below had the following geographic allocations:

Geographic Allocations	All-Cap Energy & Resources			Energy & Resources
United States		68	%		69	%
Canada		17			21
Netherlands		5			5
Bermuda		4			–
France		3			–
Norway		2			–
China		1			–
United Kingdom		–			3
Australia		–			1
Monaco		–			1

44     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

8. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

	Year Ended September 30, 2012						Year Ended September 30, 2011
All-Cap Energy & Resources	Shares			Amount			Shares			Amount
Institutional
Shares sold		6,021,802		$	83,251,404			11,764,153		$	196,149,612
Shares issued in reinvestment of dividends		–			–			236,670			3,753,576
Shares redeemed		(18,802,388	)		(242,281,654	)		(9,569,807	)		(155,160,649	)
Net increase (decrease)		(12,780,586	)	$	(159,030,250	)		2,431,016		$	44,742,539
Service
Shares sold		107,092		$	1,381,337			233,545		$	3,751,758
Shares issued in reinvestment of dividends		–			–			1,559			24,303
Shares redeemed		(221,743	)		(2,873,058	)		(144,086	)		(2,329,320	)
Net increase (decrease)		(114,651	)	$	(1,491,721	)		91,018		$	1,446,741
Investor A
Shares sold and automatic conversion of shares		1,973,148		$	26,338,644			7,235,798		$	116,893,102
Shares issued in reinvestment of dividends		–			–			68,620			1,070,479
Shares redeemed		(7,240,590	)		(95,126,674	)		(6,968,976	)		(111,272,616	)
Net increase (decrease)		(5,267,442	)	$	(68,788,030	)		335,442		$	6,690,965
Investor B
Shares sold		11,986		$	162,367			51,499		$	813,829
Shares redeemed and automatic conversion of shares		(456,318	)		(5,851,269	)		(484,707	)		(7,428,635	)
Net decrease		(444,332	)	$	(5,688,902	)		(433,208	)	$	(6,614,806	)
Investor C
Shares sold		489,037		$	6,267,104			1,743,965		$	27,386,669
Shares redeemed		(2,371,287	)		(29,603,590	)		(2,001,029	)		(30,386,666	)
Net decrease		(1,882,250	)	$	(23,336,486	)		(257,064	)	$	(2,999,997	)
Total Net Increase (Decrease)		(20,489,261	)	$	(258,335,389	)		2,167,204		$	43,265,442
							Period April 29, 20111  to September 30, 2011
China Fund							Shares			Amount
Institutional
Shares sold		7,111		$	56,492			297,943		$	2,978,100
Shares issued in reinvestment of dividends		59			425			–			–
Shares redeemed		(2,135	)		(16,076	)		(800	)		(7,351	)
Net increase		5,035		$	40,841			297,143		$	2,970,749

¹ Commencement of operations.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 45

Notes to Financial Statements (continued)

	Year Ended September 30, 2012						Period April 29, 20111 to September 30, 2011
China (concluded)	Shares			Amount			Shares			Amount
Investor A
Shares sold		49,821			$396,058			7,911			$69,004
Shares issued in reinvestment of dividends		89			642			–			–
Shares redeemed		(10,947	)		(87,891	)		(575	)		(3,963	)
Net increase		38,963			$308,809			7,336			$65,041
Investor C
Shares sold		2,158			$  16,980			2,727			$     25,361
Shares issued in reinvestment of dividends		23			163			–			–
Shares redeemed		(1,274	)		(10,199	)		–			–
Net increase		907			$    6,944			2,727			$     25,361
Total Net Increase		44,905			$356,594			307,206			$3,061,151
1 Commencement of operations.
							Year Ended September 30, 2011
Energy & Resources							Shares			Amount
Institutional
Shares sold		3,727,042			$  130,938,030			7,170,242			$  330,432,080
Shares issued in reinvestment of dividends and distributions		310,297			11,564,803			84,123			3,587,025
Shares redeemed		(6,948,143	)		(230,519,659	)		(5,422,553	)		(234,438,204	)
Net increase (decrease)		(2,910,804	)		$   (88,016,826	)		1,831,812			$    99,580,901
Investor A
Shares sold and automatic conversion of shares		4,955,288			$ 153,944,975			12,876,717			$  509,593,830
Shares issued in reinvestment of dividends and distributions		850,674			27,672,619			197,658			7,392,389
Shares redeemed		(9,761,088	)		(299,587,019	)		(11,335,505	)		(436,454,466	)
Net increase (decrease)		(3,955,126	)		$(117,969,425	)		1,738,870			$    80,531,753
Investor B
Shares sold		7,431			$      174,873			26,094			$      771,312
Shares issued in reinvestment of dividends and distributions		32,306			778,304			3,677			103,069
Shares redeemed and automatic conversion of shares		(471,455	)		(10,887,816	)		(354,576	)		(10,074,825	)
Net decrease		(431,718	)		$  (9,934,639	)		(324,805	)		$  (9,200,444	)
Investor C
Shares sold		987,159			$   22,563,689			2,552,890			$  75,921,530
Shares issued in reinvestment of dividends and distributions		325,305			7,768,854			43,559			1,214,416
Shares redeemed		(2,068,360	)		(46,074,198	)		(1,727,294	)		(49,053,631	)
Net increase (decrease)		(755,896	)		$  (15,741,655	)		869,155			$  28,082,315
Total Net Increase (Decrease)		(8,053,544	)		$(231,662,545	)		4,115,032			$198,994,525

46     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Notes to Financial Statements (concluded)

	Year Ended September 30, 2012					Year Ended September 30, 2011
World Gold		Shares		Amount			Shares		Amount
Institutional
Shares sold		71,385		$     766,827			181,768		$  2,270,406
Shares issued in reinvestment of dividends and distributions		159		1,794			1,892		24,354
Shares redeemed		(99,325	)	(1,028,979	)		(114,738	)	(1,416,911	)
Net increase (decrease)		(27,781	)	$    (260,358	)		68,922		$     877,849
Investor A
Shares sold		289,517		$  3,002,707			470,161		$  5,767,358
Shares issued in reinvestment of dividends and distributions		–		–			2,868		36,880
Shares redeemed		(183,509	)	(1,968,590	)		(228,392	)	(2,864,351	)
Net increase		106,008		$  1,034,117			244,637		$  2,939,887
Investor C
Shares sold		141,587		$  1,492,993			274,614		$  3,410,785
Shares issued in reinvestment of dividends and distributions		–		–			964		12,364
Shares redeemed		(105,463	)	(1,157,366	)		(38,767	)	(459,890	)
Net increase		36,124		$     335,627			236,811		$  2,963,259
Total Net Increase		114,351		$  1,109,386			550,370		$  6,780,995

Prior to April 1, 2011, there was a 2% redemption fee on shares redeemed or exchanged that have been held 30 days or less. The redemption fees were collected and retained by the Funds for the benefit of the remaining shareholders. The redemption fees were recorded as a credit to paid-in capital. Effective April 1, 2011, the redemption fee was terminated and is no longer charged by the Funds.

At September 30, 2012, 296,000 Institutional Shares, 2,000 Investor A Shares and 2,000 Investor C Shares of China Fund were owned by affiliates.

At September 30, 2012, 296,000 Institutional Shares, 2,000 Investor A Shares and 2,000 Investor C Shares of World Gold were owned by affiliates.

9. Subsequent Events:

Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in the financial statements.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 47

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of BlackRock Funds and Shareholders of BlackRock All-Cap Energy & Resources Portfolio, BlackRock Energy & Resources Portfolio, BlackRock China Fund and BlackRock World Gold Fund:

We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of the BlackRock All-Cap Energy & Resources Portfolio, BlackRock Energy & Resources Portfolio and BlackRock China Fund, as of September 30, 2012, the related statements of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the periods presented. We have also audited the consolidated statement of assets and liabilities, including the consolidated schedule of investments, of the BlackRock World Gold Fund (collectively with the BlackRock All-Cap Energy & Resources Portfolio, BlackRock Energy & Resources Portfolio and BlackRock China Fund, the “Funds”), each a series of BlackRock Funds, as of September 30, 2012, the related consolidated statement of operations for the year then ended, the consolidated statements of changes in net assets and financial highlights for each of the two years in the period then ended, and the financial highlights for the period April 29, 2011 (commencement of operations) through September 30, 2011. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assur-

ance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2012, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds as of September 30, 2012, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Philadelphia, Pennsylvania

November 21, 2012

Important Tax Information (Unaudited)

The following information is provided with respect to the ordinary income distributions paid by the Funds during the taxable year ended September 30, 2012:

	Payable Date	Qualified Dividend Income for Individuals1	Dividends Qualifying for the Dividends Received Deduction for Corporations1	Foreign Source Income	Foreign Taxes Paid Per Share3		Qualified Short-Term Gains for Non-US Residents4
BlackRock China Fund	12/20/11	76.92%2	–	99.30%2		$0.014529		–
BlackRock Energy & Resources Portfolio	12/13/11	5.72%	4.30%	–		–		$0.275956
BlackRock World Gold Fund	12/13/11	100.00%	48.68%	–		–		–

¹ The Funds hereby designate the percentage indicated above or the maximum allowable by law.

²  Expressed as a percentage of the cash distribution grossed-up for foreign taxes.

³  The foreign taxes paid represent taxes incurred by the Fund on income received by the Fund from foreign sources. Foreign taxes paid may be included in taxable income with an offsetting deduction from gross income or may be taken as a credit for taxes paid to foreign governments. You should consult your tax advisor regarding the appropriate treatment of foreign taxes paid.

⁴ Represents the portion of the taxable ordinary income dividends eligible for exemption from US withholding tax for nonresident aliens and foreign corporations.

Additionally, BlackRock Energy & Resources Portfolio distributed long-term capital gains of $0.462352 per share to shareholders of record on December 9, 2011.

48     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement

The Board of Trustees (the “Board,” and the members of which are referred to as “Board Members”) of BlackRock FundsSM (the “Trust”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Trust’s investment advisory agreement (the “Advisory Agreement”) with BlackRock Advisors, LLC (the “Manager”), the Trust’s investment advisor, on behalf of BlackRock All-Cap Energy & Resources Portfolio (“All-Cap Energy & Resources Portfolio”), BlackRock China Fund (“China Fund”), BlackRock Energy & Resources Portfolio (“Energy & Resources Portfolio”) and BlackRock World Gold Fund (“World Gold Fund,” each a “Fund,” and together with All-Cap Energy & Resources Portfolio, China Fund and Energy & Resources Portfolio, the “Funds”), each a series of the Trust. The Board also considered the approval of the sub-advisory agreement (the “Sub-Advisory Agreement”) between the Manager and BlackRock International Limited (the “Sub-Advisor”) with respect to World Gold Fund. The Advisory Agreement and the Sub-Advisory Agreement are referred to herein as the “Agreements.”

Activities and Composition of the Board

The Board consists of fourteen individuals, twelve of whom are not “interested persons” of the Trust as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of each Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are each Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreements

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreements on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreements. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Funds by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by BlackRock to the Funds and their shareholders. Among the matters the Board considered were:

(a) investment performance for one-, three- and five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against a Fund’s peers and/or benchmark, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Funds for services, such as marketing and distribution, call center and fund accounting; (c) Fund operating expenses and how BlackRock allocates expenses to the Funds; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of each Fund’s investment objective, policies and restrictions; (e) the Trust’s compliance with its Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) the use of brokerage commissions and execution quality of portfolio transactions; (j) BlackRock’s implementation of the Trust’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

Board Considerations in Approving the Agreements

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreements. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on Fund fees and expenses and the investment performance of each Fund as compared with a peer group of funds as determined by Lipper and, with respect to All-Cap Energy & Resources Portfolio and Energy and Resources Portfolio, a customized peer group selected by BlackRock

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 49

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement (continued)

(collectively, “Peers”); (b) information on the profitability of the Agreements to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of potential economies of scale; (e) a summary of aggregate amounts paid by each Fund to BlackRock; (f) sales and redemption data regarding each Fund’s shares; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board, including all the Independent Board Members, unanimously approved the continuation of the Advisory Agreement between the Manager and the Trust with respect to each Fund and the Sub-Advisory Agreement between the Manager and the Sub-Advisor with respect to World Gold Fund, each for a one-year term ending June 30, 2013. In approving the continuation of the Agreements, the Board considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of each Fund and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Funds; (d) economies of scale; (e) fall out benefits to BlackRock as a result of its relationship with the Funds; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Fund shares and securities lending, services related to the valuation and pricing of Fund portfolio holdings, direct and indirect benefits to BlackRock and its affiliates from their relationship with the Funds and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of each Fund. Throughout the year, the Board compared each Fund performance

to the performance of a comparable group of mutual funds and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by each Fund’s portfolio management team discussing Fund performance and the Fund’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and each Fund’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to each Fund’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Funds. BlackRock and its affiliates provide the Funds with certain administrative, shareholder and other services (in addition to any such services provided to the Funds by third parties) and officers and other personnel as are necessary for the operations of the Fund. In particular, BlackRock and its affiliates provide the Funds with the following administrative services, including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions necessary for the operation of the Funds, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of each Fund and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of each Fund. In preparation for the April 17, 2012 meeting, the Board worked with its independent legal counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of each Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the investment performance of each Fund as compared to funds in the Fund’s applicable Lipper category

50     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement (continued)

and, with respect to All-Cap Energy & Resources Portfolio and Energy & Resources Portfolio, the customized peer group selected by BlackRock. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Fund management to discuss, the performance of each Fund throughout the year.

The Board noted that, in general, each of All-Cap Energy & Resources Portfolio and Energy & Resources Portfolio performed better than its Peers in that each Fund’s performance was at or above the median of its Customized Lipper Peer Group in the three- and five-year periods reported, although performance for the one-year period reported was below the median. The Board and BlackRock reviewed and discussed the reasons for each Fund’s underperformance during the one-year period and will monitor closely each Fund’s performance in the coming year. Based on its discussions with BlackRock and the Board’s review of each Fund’s investment performance compared to its Lipper Peer Group, the methodology used by Lipper to select peer funds, and other relevant information provided by BlackRock, the Board noted that the investment performance of each Fund as compared to its Customized Lipper Peer Group provided a more meaningful comparison of the Fund’s relative performance.

The Board noted that, in general, China Fund performed better than its Peers in that the Fund’s performance was at or above the median of its Lipper Performance Universe in the since-inception period reported.

The Board noted that World Gold Fund performed below the median of its Lipper Performance Universe in the one-year period but at or above the median in the since-inception period reported. The Board and BlackRock reviewed and discussed the reasons for the Fund’s underperformance during the one-year period and will monitor closely the Fund’ performance in the coming year.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Funds: The Board, including the Independent Board Members, reviewed each Fund’s contractual management fee rate compared with the other funds in its Lipper category. It also compared each Fund’s total expense ratio, as well as actual management fee rate, to those of other funds in its Lipper category. The Board considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided the Funds. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Funds. The Board reviewed BlackRock’s profitability with respect to the Funds and other funds the

Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by the Manager and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management and the relative product mix.

In addition, the Board considered the cost of the services provided to the Funds by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Funds and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of each Fund. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreements and to continue to provide the high quality of services that is expected by the Board.

The Board noted that the contractual management fee ratio (a combination of the advisory fee and the administration fee, if any) of each of China Fund and World Gold Fund was lower than or equal to the median contractual management fee ratio paid by the Fund’s Peers, in each case before taking into account any expense reimbursements or fee waivers.

The Board noted that Energy & Resources Portfolio’s contractual management fee ratio (a combination of the advisory fee and the administration fee, if any) was above the median contractual management fee ratio paid by the Fund’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted, however, that the Fund’s contractual management fee ratio was reasonable relative to the median contractual management fee ratio paid by the Fund’s Peers.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 51

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement (concluded)

The Board noted that All-Cap Energy & Resources Portfolio’s contractual management fee ratio (a combination of the advisory fee and the administration fee, if any) was above the median contractual management fee ratio paid by the Fund’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted, however, that the Fund’s actual total expense ratio, after giving effect to any expense reimbursement or fee waivers by BlackRock, was reasonable relative to the median actual total expense ratio paid by the Fund’s Peers, after giving effect to any expense reimbursement or fee waivers.

The Board also noted that each Fund has an advisory fee arrangement (in the case of China Fund, effective June 1, 2012) that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that with respect to each of the Funds, BlackRock has contractually agreed to waive fees and/or reimburse expenses in order to limit, to a specified amount, the Fund’s total operating expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis, as applicable.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of each Fund increase, as well as the existence of expense caps. The Board also considered the extent to which each Fund benefits from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Fund to participate in these economies of scale, for example through the use of revised breakpoints in the advisory fee based upon the asset level of the Fund. In its consideration, the Board Members took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Funds, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Funds, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s

overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

In connection with its consideration of the Agreements, the Board also received information regarding BlackRock’s brokerage and soft dollar practices. The Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.

The Board noted the competitive nature of the open-end fund marketplace, and that shareholders are able to redeem their Fund shares if they believe that a Fund’s fees and expenses are too high or if they are dissatisfied with the performance of a Fund.

Conclusion

The Board, including all the Independent Board Members, unanimously approved the continuation of the Advisory Agreement between the Manager and the Trust with respect to each Fund and the Sub-Advisory Agreement between the Manager and the Sub-Advisor with respect to World Gold Fund, each for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board, including the Independent Board Members, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of each Fund and its shareholders. In arriving at its decision to approve the Agreements, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Funds reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

52     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Officers and Trustees

Name, Address, and Year of Birth	Position(s) Held with Trust	Length of Time Served as a Trustee2	Principal Occupation(s) During Past 5 Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1
Ronald W. Forbes 55 East 52nd Street New York, NY 10055 1940	Co-Chairman of the Board and Trustee	Since 2007	Professor Emeritus of Finance, School of Business, State University of New York at Albany since 2000.	33 RICs consisting of 102 Portfolios	None
Rodney D. Johnson 55 East 52nd Street New York, NY 10055 1941	Co-Chairman of the Board and Trustee	Since 2007	President, Fairmount Capital Advisors, Inc. since 1987; Member of the Archdiocesan Investment Committee of the Archdiocese of Philadelphia since 2004; Director, The Committee of Seventy (civic) since 2006; Director, Fox Chase Cancer Center from 2004 to 2011.	33 RICs consisting of 102 Portfolios	None
David O. Beim 55 East 52nd Street New York, NY 10055 1940	Trustee	Since 2007	Professor of Professional Practice at the Columbia University Graduate School of Business since 1991; Trustee, Phillips Exeter Academy since 2002; Chairman, Wave Hill, Inc. (public garden and cultural center) from 1990 to 2006.	33 RICs consisting of 102 Portfolios	None
Dr. Matina S. Horner 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2004	Executive Vice President of Teachers Insurance and Annuity Association and College Retirement Equities Fund from 1989 to 2003.	33 RICs consisting of 102 Portfolios	NSTAR (electric and gas utility)
Herbert I. London 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2007	Professor Emeritus, New York University since 2005; John M. Olin Professor of Humanities, New York University from 1993 to 2005 and Professor thereof from 1980 to 2005; President Emeritus, Hudson Institute (policy research organization) since 2011, President thereof from 1997 to 2011 and Trustee since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director, InnoCentive, Inc. (strategic solutions company) since 2005; Director, Cerego, LLC (software development and design) since 2005; Director Cybersettle (dispute resolution technology) since 2009.	33 RICs consisting of 102 Portfolios	AIMS Worldwide, Inc. (marketing)
Ian A. MacKinnon 55 East 52nd Street New York, NY 10055 1948	Trustee	Since 2012	Director, Kennett Capital, Inc. (investments) since 2006; Director, Free Library of Philadelphia from 1999 to 2008.	33 RICs consisting of 102 Portfolios	None
Cynthia A. Montgomery 55 East 52nd Street New York, NY 10055 1952	Trustee	Since 2007	Professor, Harvard Business School since 1989; Director, McLean Hospital since 2005; Director, Harvard Business School Publishing from 2005 to 2010.	33 RICs consisting of 102 Portfolios	Newell Rubbermaid, Inc. (manufacturing)
Joseph P. Platt 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2007	Director, The West Penn Allegheny Health System (a not-for-profit health system) since 2008; Director, Jones and Brown (Canadian insurance broker) since 1998; General Partner, Thorn Partners, LP (private investments) since 1998; Director, WQED Multi-Media (public broadcasting not-for-profit) since 2001; Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008.	33 RICs consisting of 102 Portfolios	Greenlight Capital Re, Ltd. (reinsurance company)
Robert C. Robb, Jr. 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2007	Partner, Lewis, Eckert, Robb and Company (management and financial consulting firm) since 1981.	33 RICs consisting of 102 Portfolios	None
Toby Rosenblatt 55 East 52nd Street New York, NY 10055 1938	Trustee	Since 2005	President, Founders Investments Ltd. (private investments) since 1999; Director, Forward Management, LLC since 2007; Director, College Access Foundation of California (philanthropic foundation) since 2009; Director, A.P. Pharma, Inc. (specialty pharmaceuticals) from 1983 to 2011; Director, The James Irvine Foundation (philanthropic foundation) from 1998 to 2008.	33 RICs consisting of 102 Portfolios	None

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 53

Officers and Trustees (continued)

Name, Address, and Year of Birth	Position(s) Held with Trust	Length of Time Served as a Trustee2	Principal Occupation(s) During Past 5 Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1 (concluded)
Kenneth L. Urish 55 East 52nd Street New York, NY 10055 1951	Trustee	Since 2007	Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Chairman Elect of the Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants and Committee Member thereof since 2007; Member of External Advisory Board, The Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Institute from 2001 to 2010; President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter-Tel from 2006 to 2007.	33 RICs consisting of 102 Portfolios	None
Frederick W. Winter 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2007	Professor and Dean Emeritus of the Joseph M. Katz School of Business, University of Pittsburgh since 2005 and Dean thereof from 1997 to 2005; Director, Alkon Corporation (pneumatics) since 1992; Director, Tippman Sports (recreation) since 2005; Director, Indotronix International (IT services) from 2004 to 2008.	33 RICs consisting of 102 Portfolios	None
	1      Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved one-year extensions in terms of Trustees who turn 72 prior to December 31, 2013. 2       Date shown is the earliest date a person has served for the Trust covered by this annual report. Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. (“BlackRock”) in September 2006, the various legacy MLIM and legacy BlackRock fund boards were realigned and consolidated into three new Fund boards in 2007. As a result, although the chart shows certain Trustees as joining the Trust’s board in 2007, each Trustee first became a member of the board of other legacy MLIM or legacy BlackRock Funds as follows: David O. Beim, 1998; Ronald W. Forbes, 1977; Dr. Matina S. Horner, 2004; Rodney D. Johnson, 1995; Herbert I. London, 1987; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Robert C. Robb, Jr., 1998; Toby Rosenblatt, 2005; Kenneth L. Urish, 1999; and Frederick W. Winter, 1999.
Interested Trustees3
Paul L. Audet 55 East 52nd Street New York, NY 10055 1953	Trustee	Since 2011	Senior Managing Director of BlackRock, and Head of U.S. Mutual Funds since 2011; Chair of the U.S. Mutual Funds Committee reporting to the Global Executive Committee since 2011; Head of BlackRock’s Real Estate business from 2008 to 2011; Member of BlackRock’s Global Operating and Corporate Risk Management Committees and of the BlackRock Alternative Investors Executive Committee and Investment Committee for the Private Equity Fund of Funds business since 2008; Head of BlackRock’s Global Cash Management business from 2005 to 2010; Acting Chief Financial Officer of BlackRock from 2007 to 2008; Chief Financial Officer of BlackRock from 1998 to 2005.	160 RICs consisting of 278 Portfolios	None
Henry Gabbay 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2007	Consultant, BlackRock from 2007 to 2008; Managing Director, BlackRock from 1989 to 2007; Chief Administrative Officer, BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of certain closed-end funds in the BlackRock fund complex from 1989 to 2006.	160 RICs consisting of 278 Portfolios	None
	3    Mr. Audet is an “interested person,” as defined in the 1940 Act, of the Trust based on his positions with BlackRock and its affiliates. Mr. Gabbay is an “interested person” of the Trust based on his former positions with BlackRock and its affiliates as well as his ownership of BlackRock and The PNC Financial Services Group, Inc. securities. Mr. Audet and Mr. Gabbay are also Directors of the BlackRock registered closed-end funds and Directors of other BlackRock registered open-end funds. Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved one-year extensions in terms of Trustees who turn 72 prior to December 31, 2013.

54     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Officers and Trustees (continued)

Name, Address, and Year of Birth	Position(s) Held with Trust	Length of Time Served	Principal Occupation(s) During Past 5 Years
Trust Officers1
John M. Perlowski 55 East 52nd Street New York, NY 10055 1964	President and Chief Executive Officer	Since 2010	Managing Director of BlackRock since 2009; Global Head of BlackRock Fund Administration since 2009; Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from 2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family Resource Network (charitable foundation) since 2009.
Richard Hoerner, CFA 55 East 52nd Street New York, NY 10055 1958	Vice President	Since 2009	Managing Director of BlackRock since 2000; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2002; Member of the Cash Management Group Executive Committee since 2005.
Brendan Kyne 55 East 52nd Street New York, NY 10055 1977	Vice President	Since 2009	Managing Director of BlackRock since 2010; Director of BlackRock from 2008 to 2009; Head of Product Development and Management for BlackRock’s U.S. Retail Group since 2009 and Co-head thereof from 2007 to 2009; Vice President of BlackRock from 2005 to 2008.
Simon Mendelson 55 East 52nd Street New York, NY 10055 1964	Vice President	Since 2009	Managing Director of BlackRock since 2005; Co-head of the Global Cash and Securities Lending Group since 2010; Chief Operating Officer and Head of the Global Client Group for BlackRock’s Global Cash Management Business from 2007 to 2010; Head of BlackRock’s Strategy and Development Group from 2005 to 2007; Partner of McKinsey & Co. from 1997 to 2005.
Christopher Stavrakos, CFA 55 East 52nd Street New York, NY 10055 1959	Vice President	Since 2009	Managing Director of BlackRock since 2006; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2006; Senior Vice President, CIO, and Director of Liability Management for the Securities Lending Group at Mellon Bank from 1999 to 2006.
Neal Andrews 55 East 52nd Street New York, NY 10055 1966	Chief Financial Officer	Since 2007	Managing Director of BlackRock since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006.
Jay Fife 55 East 52nd Street New York, NY 10055 1970	Treasurer	Since 2007	Managing Director of BlackRock since 2007; Director of BlackRock in 2006; Assistant Treasurer of the MLIM and Fund Asset Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.
Brian Kindelan 55 East 52nd Street New York, NY 10055 1959	Chief Compliance Officer and Anti-Money Laundering Officer	Since 2007	Chief Compliance Officer of the BlackRock-advised funds since 2007; Managing Director and Senior Counsel of BlackRock since 2005.
Benjamin Archibald 55 East 52nd Street New York, NY 10055 1975	Secretary	Since 2012	Director of BlackRock since 2010; Assistant Secretary to the funds from 2010 to 2012; General Counsel and Chief Operating Officer of Uhuru Capital Management from 2009 to 2010; Executive Director and Counsel of Goldman Sachs Asset Management from 2005 to 2009.
	1  Officers of the Trust serve at the pleasure of the Board of Trustees.
	Further information about the Trust’s Officers and Trustees is available in the Trust’s Statement of Additional Information, which can be obtained without charge by calling 1-800-441-7762.

Effective May 15, 2012, Ian A. MacKinnon became a Trustee of the Trust.

Effective May 16, 2012, Ira P. Shapiro resigned as Secretary of the Trust and Benjamin Archibald became Secretary of the Trust.

    BLACKROCK FUNDS     SEPTEMBER 30, 2012 55

Officers and Trustees (concluded)

Investment Advisor and Co-Administrator BlackRock Advisors, LLC Wilmington, DE 19809	Accounting Agent, Co-Administrator 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	Sub-Advisor –World Gold Fund BlackRock International Limited Edinburgh, Scotland EH3 8JB

Additional Information

General Information

Electronic Delivery

Electronic copies of most financial reports and prospectuses are available on the Funds’ website or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Funds’ electronic delivery program.

To enroll:

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 http://www.blackrock.com/ edelivery

2) Select “eDelivery” under the “More Information” section

3) Log into your account

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 (1) without charge, upon request, 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.

56     BLACKROCK FUNDS     SEPTEMBER 30, 2012

Additional Information (concluded)

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 Plan

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 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     SEPTEMBER 30, 2012 57

A World-Class 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.

Equity Funds
BlackRock ACWI ex-US Index Fund	BlackRock Global Dividend Income Portfolio	BlackRock Mid-Cap Growth Equity Portfolio
BlackRock All-Cap Energy & Resources Portfolio	BlackRock Global Opportunities Portfolio	BlackRock Mid-Cap Value Opportunities Fund
BlackRock Balanced Capital Fund†	BlackRock Global SmallCap Fund	BlackRock Natural Resources Trust
BlackRock Basic Value Fund	BlackRock Health Sciences Opportunities Portfolio	BlackRock Pacific Fund
BlackRock Capital Appreciation Fund	BlackRock Index Equity Portfolio	BlackRock Real Estate Securities Fund
BlackRock China Fund	BlackRock India Fund	BlackRock Russell 1000 Index Fund
BlackRock Commodity Strategies Fund	BlackRock International Fund	BlackRock Science & Technology Opportunities Portfolio
BlackRock Emerging Markets Fund	BlackRock International Index Fund
BlackRock Emerging Markets Long/Short Equity Fund	BlackRock International Opportunities Portfolio	BlackRock Small Cap Growth Equity Portfolio
	BlackRock Large Cap Core Fund	BlackRock Small Cap Growth Fund II
BlackRock Energy & Resources Portfolio	BlackRock Large Cap Core Plus Fund	BlackRock Small Cap Index Fund
BlackRock Equity Dividend Fund	BlackRock Large Cap Growth Fund	BlackRock S&P 500 Index Fund
BlackRock EuroFund	BlackRock Large Cap Value Fund	BlackRock S&P 500 Stock Fund
BlackRock Flexible Equity Fund	BlackRock Latin America Fund	BlackRock U.S. Opportunities Portfolio
BlackRock Focus Growth Fund	BlackRock Long-Horizon Equity Fund	BlackRock Value Opportunities Fund
BlackRock Global Allocation Fund†	BlackRock Managed Volatility Portfolio†	BlackRock World Gold Fund
Taxable Fixed Income Funds
BlackRock Bond Index Fund	BlackRock High Yield Bond Portfolio	BlackRock Strategic Income
BlackRock Core Bond Portfolio	BlackRock Inflation Protected Bond Portfolio	Opportunities Portfolio
BlackRock CoreAlpha Bond Fund	BlackRock International Bond Portfolio	BlackRock Total Return Fund
BlackRock Emerging Market Local Debt Portfolio	BlackRock Long Duration Bond Portfolio	BlackRock US Government Bond Portfolio
BlackRock Floating Rate Income Portfolio	BlackRock Low Duration Bond Portfolio	BlackRock US Mortgage Portfolio
BlackRock Global Long/Short Credit Fund	BlackRock Multi-Asset Income Portfolio†	BlackRock World Income Fund
BlackRock GNMA Portfolio	BlackRock Secured Credit Portfolio
Municipal Fixed Income Funds
BlackRock California Municipal Bond Fund	BlackRock National Municipal Fund	BlackRock Pennsylvania Municipal Bond Fund
BlackRock High Yield Municipal Fund	BlackRock New Jersey Municipal Bond Fund	BlackRock Short-Term Municipal Fund
BlackRock Intermediate Municipal Fund	BlackRock New York Municipal Bond Fund

Target Risk & Target Date Funds†
BlackRock Prepared Portfolios	LifePath Active Portfolios		LifePath Portfolios		LifePath Index Portfolios
Conservative Prepared Portfolio	2015	2035	Retirement	2040	Retirement	2040
Moderate Prepared Portfolio	2020	2040	2020	2045	2020	2045
Growth Prepared Portfolio	2025	2045	2025	2050	2025	2050
Aggressive Growth Prepared Portfolio	2030	2050	2030	2055	2030	2055
			2035		2035

    † Mixed asset fund.

BlackRock mutual funds are currently distributed by BlackRock Investments, LLC. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling (800) 441-7762 or from your financial advisor. The prospectus should be read carefully before investing.

58     BLACKROCK FUNDS     SEPTEMBER 30, 2012

[THIS PAGE INTENTIONALLY LEFT BLANK.]

This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of a Fund unless accompanied or preceded by that 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.

Investment in foreign securities involves special risks including fluctuating foreign exchange rates, foreign government regulations, differing degrees of liquidity and the possibility of substantial volatility due to adverse political, economic or other developments.

Eq-Allcap-9 / 12-AR

September 30, 2012

Annual Report

BlackRock Funds^SM

„ BlackRock Flexible Equity Fund

„ BlackRock Mid-Cap Growth Equity Portfolio

„ BlackRock Small Cap Growth Equity Portfolio

    Not FDIC Insured  ¡ No Bank Guarantee ¡ May Lose Value    

Table of Contents

	Page
Dear Shareholder		3
Annual Report:
Fund Summaries		4
About Fund Performance		10
Disclosure of Expenses		10
Derivative Financial Instruments		11
Financial Statements:
Schedules of Investments		12
Statements of Assets and Liabilities		23
Statements of Operations		25
Statements of Changes in Net Assets		26
Financial Highlights		27
Notes to Financial Statements		36
Report of Independent Registered Public Accounting Firm		49
Important Tax Information		49
Disclosure of Investment Advisory Agreement		50
Officers and Trustees		54
Additional Information		57
A World-Class Mutual Fund Family		59

 2   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Dear Shareholder

Late in the summer of 2011, financial markets were upended by sovereign debt turmoil in the United States and Europe as well as growing concerns about the future of the global economy. Investor confidence had crumbled. However, the fourth quarter of 2011 brought improving economic data and more concerted efforts among European leaders toward stemming the region’s debt crisis, gradually drawing investors back to the markets. Improving sentiment carried over into early 2012 as investors felt some relief from the world’s financial woes. Volatility abated and risk assets (including stocks, commodities and high yield bonds) moved boldly higher through the first two months of 2012, while climbing Treasury yields pressured higher-quality fixed income assets.

Markets reversed course in the spring when Europe’s debt problems boiled over once again. High levels of volatility returned as political instability in Greece threatened the country’s membership in the eurozone. Spain faced severe deficit issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian government debt rose to levels deemed unsustainable. European leaders conferred and debated vehemently over the need for fiscal integration among the 17 nations comprising the euro currency bloc as a means to resolve the crisis for the long term.

Alongside the drama in Europe, investors were discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key powerhouse for global growth, became particularly worrisome. In the United States, disappointing jobs reports dealt a crushing blow to investor sentiment. Risk assets sold off in the second quarter as investors again retreated to safe haven assets.

Despite ongoing concerns about the health of the global economy and the debt crisis in Europe, most asset classes enjoyed a robust summer rally powered mainly by expectations for policy stimulus from central banks in Europe and the United States. Although global economic data continued to be mixed, the spate of downside surprises seen in the second quarter had receded and, outside of Europe, the risk of recession largely subsided. Additionally, in response to growing debt pressures, the European Central Bank allayed investors’ fears by stating its conviction to hold the eurozone together. Early in September, the European Central Bank announced a plan to purchase sovereign debt in the eurozone’s most troubled nations. Later that month, the US Federal Reserve announced its long-awaited - and surprisingly aggressive - stimulus program, committing to purchase $40 billion of agency mortgage-backed securities per month until the US economy exhibits enough strength to sustain real growth and improving labor market conditions. These central bank actions boosted risk assets globally as investors increased their risk appetites in their search for higher returns.

All asset classes performed well for the 12-month period ended September 30, 2012, with particularly strong returns from US stocks and high yield bonds. For the six-month period ended September 30, 2012, fixed income investments outperformed equities. US Treasury bonds posted exceptional gains by historical standards and outperformed investment-grade corporate bonds and tax-exempt municipals. High yield bonds also generated solid returns. US stocks finished the six-month period with modest gains, while international and emerging market stocks lagged other asset classes amid ongoing uncertainty. Near-zero short term interest rates continued to keep yields on money market securities near their all-time lows.

The financial world is more uncertain than ever, but there are new avenues of opportunity - new ways to invest and new markets in which to invest. We believe it’s our responsibility to help investors adapt to today’s new world of investing and build the portfolios these times require. We encourage you to visit www.blackrock.com/newworld for more information.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“The financial world is more uncertain than ever, but there are new avenues of opportunity.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of September 30, 2012

	6-month	12-month
US large cap equities (S&P 500® Index)	3.43%	30.20%
US small cap equities (Russell 2000® Index)	1.60	31.91
International equities (MSCI Europe, Australasia, Far East Index)	(0.70)	13.75
Emerging market equities (MSCI Emerging Markets Index)	(1.84)	16.93
3-month Treasury bill (BofA Merrill Lynch 3-Month US Treasury Bill Index)	0.06	0.07
US Treasury securities (BofA Merrill Lynch 10- Year US Treasury Index)	6.78	5.66
US investment grade bonds (Barclays US Aggregate Bond Index)	3.68	5.16
Tax-exempt municipal bonds (S&P Municipal Bond Index)	4.50	8.84
US high yield bonds (Barclays US Corporate High Yield 2% Issuer Capped Index)	6.40	19.35

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 September 30, 2012   BlackRock Flexible Equity Fund

Investment Objective

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

On July 31, 2012, the Fund changed its investment objective from “long-term capital appreciation” (the “mid-cap value equity strategy”) to “to achieve long-term total return” (the “flexible equity strategy”) and changed the name of the Fund from “BlackRock Mid-Cap Value Equity Portfolio” to “BlackRock Flexible Equity Fund”. In addition, the Fund changed its performance benchmark from the Russell Midcap^® Value Index to the S&P 500^® Index. The benchmark change reflects the Fund’s new investment guidelines.

Portfolio Management Commentary

How did the Fund perform?

• For the 12-month period ended September 30, 2012, the Fund generated a positive double-digit return. For the first ten months of the period through July 31, 2012, under the mid-cap value equity strategy, the Fund underperformed the Russell Midcap^® Value Index. For the two months following the change to the flexible equity strategy, the Fund outperformed the S&P 500^® Index. The following discussion of relative performance regarding the mid-cap value equity strategy pertains to the Russell Midcap^® Value Index, while the discussion of relative performance regarding the flexible equity strategy pertains to the S&P 500^® Index.

What factors influenced performance?

• For the first ten months of the period through July 31, 2012, under the mid-cap value strategy, the Fund benefited from stock selection in several sectors. The Fund’s sole holding in telecommunication services (“telecom”), CenturyLink, Inc., was a stand-out performer for the sector. In information technology (“IT”), holdings in computers & peripherals and communications equipment delivered strong performance, overshadowing weakness among the Fund’s software holdings. The largest individual contributor in IT was disk drive maker Seagate Technology Plc, which surged nearly 200% over the ten months. Driving positive results in the consumer discretionary sector were the Fund’s investments in hotels, restaurants & leisure, including hotel and resort operator Ryman Hospitality Properties, Inc., and auto components, where auto parts manufacturer Dana Holding Corp. was a notable contributor. Detracting from performance relative to the Russell Midcap^® Value Index were the Fund’s sector overweights in telecom, health care and IT, and underweight in energy. Stock selection in financials hurt relative performance as the Fund’s thrifts & mortgage finance holdings, including People’s United Financial, Inc. and Capitol Federal Financial, Inc., appreciated but lagged the sharp rise in the broader sector. An underweight to real estate investment trusts (“REITs”) also hindered returns. In the industrials sector, a large position in Towers Watson & Co. caused a drag on relative returns, as did holdings in Timken Co. and Jacobs Engineering Group, Inc.

• For the two months following the strategy change through the end of the reporting period, under the flexible equity strategy, stock selection had a positive impact on performance. Notable individual contributors included energy company Phillips 66 and in IT, Google, Inc. Also boosting returns was the Fund’s exposure to gold, both outright and through shares of mining companies, particularly Agnico-Eagle Mines Ltd. and Osisko Mining Corp. Relative to the S&P 500^® Index, the Fund’s allocation to cash created a slight drag on returns as equity markets generally advanced over the two-month period. Equity holdings that notably detracted from performance included telecom company Vodafone Group Plc, REIT name Annaly Capital Management, Inc. and Timken Co.

Describe recent portfolio activity.

• As discussed above, the Fund changed its name, strategy and benchmark during the reporting period. Following the strategy transition, the Fund added exposure to the health care sector by building positions in UnitedHealth Group, Inc. and HCA Holdings, Inc., while trimming investments in pharmaceuticals. The Fund also initiated a position in Japan Airlines Co. Ltd. to take advantage of the company’s restructuring efforts, and increased exposure to gold.

Describe portfolio positioning at period end.

• The Fund was fully transitioned to the flexible equity strategy by the end of the period. The Fund’s positioning at period end reflected a conservative stance in light of macroeconomic risks stemming from the US presidential election alongside the fiscal cliff (i.e., the expiration of tax cuts coupled with automatic spending cuts at the turn of the year), the ongoing debt crisis in Europe and slowing growth in emerging markets. The Fund holds companies that are currently trading at a discount to their deemed intrinsic value and offer a compelling risk/ return profile. The Fund also maintained exposure to gold for the purpose of dampening volatility and diversifying returns.

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
Google, Inc., Class A		7	%
Phillips 66		6
SPDR Gold Trust		6
Annaly Capital Management, Inc.		5
Osisko Mining Corp.		5
Berkshire Hathaway, Inc., Class B		5
Suncor Energy, Inc.		5
Vodafone Group Plc - ADR		5
CF Industries Holdings, Inc.		5
Apple, Inc.		4

Sector Allocation	Percent of Long-Term Investments
Information Technology		19	%
Energy		17
Consumer Discretionary		13
Materials		13
Health Care		12
Investment Companies		10
Financials		10
Telecommunication Services		5
Industrials		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 Fund management. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.

 4   BLACKROCK FUNDS   SEPTEMBER 30, 2012

BlackRock Flexible Equity Fund

  Total Return Based on a $10,000 Investment

¹  Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees. Institutional Shares do not have a sales charge.

²  The Fund normally invests 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 primarily invests in securities issued by North American companies.

³  This unmanaged index covers 500 industrial, utility, transportation and financial companies of the US markets (mostly New York Stock Exchange (“NYSE”) issues) representing about 75% of NYSE market capitalization and 30% of NYSE issues. The Fund now uses this index as its benchmark rather than the Russell Midcap^® Value Index because Fund management believes it is more representative of the industry standard benchmark for funds with similar strategies.

⁴  An index that consists of the bottom 800 securities of the Russell 1000^® Index with less-than-average growth orientation as ranked by total market capitalization. Securities in this index generally have low price-to-book and price-to-earnings ratios, higher dividend yields and lower forecasted growth values.

  Performance Summary for the Period Ended September 30, 2012

				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		1.21	%		28.90	%		N/A			0.68	%		N/A			10.25	%		N/A
Service		1.07			28.58			N/A			0.39			N/A			9.93			N/A
Investor A		1.00			28.54			21.75	%		0.38			(0.70	)%		9.92			9.33	%
Investor B		0.64			27.62			23.12			(0.38	)		(0.73	)		9.29			9.29
Investor C		0.65			27.60			26.60			(0.39	)		(0.39	)		9.12			9.12
Class R		0.89			28.13			N/A			0.31			N/A			9.98			N/A
S&P 500® Index		3.43			30.20			N/A			1.05			N/A			8.01			N/A
Russell Midcap® Value Index		2.35			29.28			N/A			1.73			N/A			10.96			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.

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 April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period6			Beginning Account Value April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period6			Annualized Expense Ratio
Institutional		$	1,000.00		$	1,012.10		$	4.88		$	1,000.00		$	1,020.15		$	4.90		0.97	%
Service		$	1,000.00		$	1,010.70		$	6.48		$	1,000.00		$	1,018.55		$	6.51		1.29	%
Investor A		$	1,000.00		$	1,010.00		$	6.48		$	1,000.00		$	1,018.55		$	6.51		1.29	%
Investor B		$	1,000.00		$	1,006.40		$	10.33		$	1,000.00		$	1,014.70		$	10.38		2.06	%
Investor C		$	1,000.00		$	1,006.50		$	10.33		$	1,000.00		$	1,014.70		$	10.38		2.06	%
Class R		$	1,000.00		$	1,008.90		$	8.29		$	1,000.00		$	1,016.75		$	8.32		1.65	%

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 183/366 (to reflect the one-half year period shown).

⁷  Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.

See “Disclosure of Expenses” on page 10 for further information on how expenses were calculated.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 5 

  Fund Summary as of September 30, 2012   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 12-month period ended September 30, 2012, the Fund generated positive double-digit returns, but underperformed its benchmark, the Russell Midcap^® Growth Index.

What factors influenced performance?

• Stock selection within the health care and materials sectors was the most significant contributor to absolute returns for the 12-month period. Holdings within pharmaceuticals performed notably well. ViroPharma, Inc. did particularly well given the strong growth profile of its product offerings. Jazz Pharmaceuticals Plc continued to perform strongly given the continued demand for the company’s narcolepsy drug. Within materials, chemicals provider Ashland, Inc. jumped more than 60% on strong overall financial results during the period. Other notable contributors within the sector included Rockwood Holdings, Inc. and LyondellBasell Industries NV.

• Weak stock selection within the information technology (“IT”), consumer discretionary and energy sectors held back the Fund’s performance. Within IT, software holdings were the most notable detractors. In particular, Check Point Software Technologies Ltd. finished down close to 6% on disappointing financial results. Additionally, holdings TiVo, Inc. and NetApp, Inc. underperformed both the overall broad market and the

industry’s returns during the 12-month period. Within consumer discretionary, specialty retail names disappointed. Express, Inc. was the largest detractor within the space as the stock finished down more than 18% on lower-than-expected sales and profitability. Video gaming retailer GameStop Corp.’s stock also slid down a little more than 6%. The Fund’s energy holdings also relatively underperformed, notably drilling service companies. The Fund’s holding in Superior Energy Services, Inc. sunk more than 16% on disappointing profitability and demand for its equipment and services offerings.

Describe recent portfolio activity.

• The Fund increased its overall weighting in the consumer staples sector during the 12-month period, while it reduced its overall weighting in energy.

Describe portfolio positioning at period end.

• At period end, the Fund’s largest overweight relative to the Russell Midcap^® Growth Index was in the health care sector, while its most substantial underweight was in industrials. In general, sector allocations are a function of our bottom-up stock selection process, and therefore a result of where we are finding individual opportunities in the mid-cap growth universe.

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
Hologic, Inc.		2	%
ViroPharma, Inc.		2
Intuit, Inc.		2
Jazz Pharmaceuticals Plc		2
Dollar General Corp.		2
Teradata Corp.		2
Boston Scientific Corp.		2
Whole Foods Market, Inc.		2
Cubist Pharmaceuticals, Inc.		2
Analog Devices, Inc.		2

Sector Allocation	Percent of Long-Term Investments
Information Technology		22	%
Consumer Discretionary		22
Health Care		21
Industrials		9
Financials		8
Materials		7
Consumer Staples		6
Energy		5

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 Fund management. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.

 6   BLACKROCK FUNDS   SEPTEMBER 30, 2012

BlackRock Mid-Cap Growth Equity Portfolio

  Total Return Based on a $10,000 Investment

¹  Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees. 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 US mid-capitalization companies, which Fund management believes have above-average earnings growth potential.

³  An 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. Securities in this index 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 September 30, 2012

				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		(4.23	)%		22.34	%		N/A			0.12	%		N/A			8.54	%		N/A
Service		(4.49	)		21.74			N/A			(0.23	)		N/A			8.18			N/A
Investor A		(4.40	)		21.97			15.59	%		(0.27	)		(1.35	)%		8.07			7.49	%
Investor B		(4.70	)		21.06			16.56			(1.05	)		(1.44	)		7.42			7.42
Investor C		(4.78	)		20.92			19.92			(1.03	)		(1.03	)		7.26			7.26
Class R		(4.50	)		21.62			N/A			(0.37	)		N/A			7.98			N/A
Russell Midcap® Growth Index		(0.56	)		26.69			N/A			2.54			N/A			11.11			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 April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period5			Beginning Account Value April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the  Period5			Annualized Expense Ratio
Institutional		$	1,000.00		$	957.70		$	5.04		$	1,000.00		$	1,019.85		$	5.20		1.03	%
Service		$	1,000.00		$	955.10		$	7.72		$	1,000.00		$	1,017.10		$	7.97		1.58	%
Investor A		$	1,000.00		$	956.00		$	6.80		$	1,000.00		$	1,018.05		$	7.01		1.39	%
Investor B		$	1,000.00		$	953.00		$	10.55		$	1,000.00		$	1,014.20		$	10.88		2.16	%
Investor C		$	1,000.00		$	952.20		$	10.54		$	1,000.00		$	1,014.20		$	10.88		2.16	%
Class R		$	1,000.00		$	955.00		$	8.06		$	1,000.00		$	1,016.75		$	8.32		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 183/366 (to reflect the one-half year period shown).

⁶  Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.

See “Disclosure of Expenses” on page 10 for further information on how expenses were calculated.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 7 

  Fund Summary as of September 30, 2012   BlackRock Small Cap Growth Equity Portfolio

  Investment Objective

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

  Portfolio Management Commentary

How did the Fund perform?

• For the 12-month period ended September 30, 2012, the Fund outperformed its benchmark, the Russell 2000^® Growth Index.

What factors influenced performance?

• Positive stock selection within the health care and consumer staples sectors led to the relative outperformance during the 12-month period. Stock selection within health care was the most notable contributor to relative returns, as the total return of the sector within the portfolio was more than 80% for the period. The Fund’s holdings in biotechnology and pharmaceuticals led the upside in performance. Biotechnology company Inhibitex, Inc. was acquired at a significant premium by Bristol-Myers Squibb Co., resulting in triple digit returns and was later sold off during the period. High-conviction pharmaceutical holding ViroPharma, Inc. also significantly outperformed given the strong growth profile of its product offerings. Additionally, Jazz Pharmaceuticals Plc continued to outperform given the continued demand for the company’s narcolepsy drug. Within consumer staples, organic food company, The Hain Celestial Group, Inc., rose more than 40% on strong financial results and food products holding, Annie’s, Inc., slightly outperformed the broader sector.

• Stock selection within the consumer discretionary, financials and materials sectors was the largest overall detractor from relative returns.

Despite positive fundamentals, retail coffee holding Caribou Coffee Co., Inc. underperformed the overall market, rising just more than 16% during the period. Holdings within specialty retail also held back returns, finishing up approximately 44% compared to the approximately 49% return of retail stocks within the benchmark index. Within financials, higher-conviction holding DFC Global Corp. fell approximately 20%. In materials, holdings underperformed on a relative basis, with a return of approximately 8%.

Describe recent portfolio activity.

• The Fund increased its overall weighting in the health care sector during the 12-month period, while it reduced its overall weighting in consumer discretionary.

Describe portfolio positioning at period end.

• At period end, the Fund’s largest overweight relative to the Russell 2000^® Growth Index was in the health care sector, while its most substantial underweight was in consumer discretionary. In general, sector allocations are a function of our bottom-up stock selection process, and therefore a result of where we are finding individual opportunities in the small-cap growth universe.

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
TiVo, Inc.		4	%
ViroPharma, Inc.		4
ExlService Holdings, Inc.		4
Jazz Pharmaceuticals Plc		3
Warner Chilcott Plc, Class A		3
Hologic, Inc.		3
Epocrates, Inc.		2
Gentium SpA - ADR		2
Cbeyond, Inc.		2
Allscripts Healthcare Solutions, Inc.		2

Sector Allocation	Percent of Long-Term Investments
Health Care		29	%
Information Technology		27
Industrials		14
Consumer Discretionary		10
Energy		7
Materials		4
Consumer Staples		4
Telecommunication Services		3
Financials		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 Fund management. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.

 8   BLACKROCK FUNDS   SEPTEMBER 30, 2012

BlackRock Small Cap Growth Equity Portfolio

  Total Return Based on a $10,000 Investment

¹  Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees. Institutional Shares do not have a sales charge.

²  The Fund normally invests at least 80% of its net assets in the equity securities issued by US small capitalization companies (market capitalizations between approximately $76.4 million and $3.1 billion as of June 30, 2011), which Fund management believes offer superior prospects for growth.

³  An index that contains those securities with greater-than-average growth orientations, generally having higher price-to-value ratios and higher forecasted growth values.

  Performance Summary for the Period Ended September 30, 2012

				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		(1.66	)%		36.16	%		N/A			2.90	%		N/A			11.76	%		N/A
Service		(1.81	)		35.72			N/A			2.62			N/A			11.48			N/A
Investor A		(1.83	)		35.73			28.64	%		2.50			1.39	%		11.35			10.75	%
Investor B		(2.33	)		34.46			29.96			1.59			1.21			10.61			10.61
Investor C		(2.24	)		34.63			33.63			1.59			1.59			10.42			10.42
Russell 2000® Growth Index		0.71			31.18			N/A			2.96			N/A			10.55			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 April 1, 2012	Ending Account Value September 30, 2012	Expenses Paid During the Period5	Beginning Account Value April 1, 2012	Ending Account Value September 30, 2012	Expenses Paid During the  Period5	Annualized Expense Ratio
Institutional	$1,000.00	$983.40	$  4.07	$1,000.00	$1,020.90	$  4.14	0.82%
Service	$1,000.00	$981.90	$  5.70	$1,000.00	$1,019.25	$  5.81	1.15%
Investor A	$1,000.00	$981.70	$  5.90	$1,000.00	$1,019.05	$  6.01	1.19%
Investor B	$1,000.00	$976.70	$10.62	$1,000.00	$1,014.25	$10.83	2.15%
Investor C	$1,000.00	$977.60	$  9.99	$1,000.00	$1,014.90	$10.18	2.02%

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 183/366 (to reflect the one-half year period shown).

⁶ Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.

See “Disclosure of Expenses” on page 10 for further information on how expenses were calculated.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 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 eligible investors.

— Service Shares are not subject to any sales charge (front-end load) or deferred sales charge. These shares are subject to a service fee of 0.25% per year (but no distribution fee).

— Investor A Shares are subject to a maximum initial sales charge (frontend load) of 5.25% and a service fee of 0.25% per year (but no distribution fee).

— Investor B Shares are subject to a maximum contingent deferred sales charge (“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, dividend reinvestment by existing shareholders or for purchase by certain qualified employee benefit 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.

— 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 retirement and other similar plans. Prior to October 2, 2006, the performance results of Class R Shares 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, the performance

results of BlackRock Flexible Equity Fund Class R shares 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 dividends and 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.

Performance for BlackRock Flexible Equity Fund for the periods prior to January 31, 2005 is based on performance of a certain former State Street Research mutual fund that reorganized with BlackRock Flexible Equity Fund on that date.

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, a Fund’s performance would have been lower. The Manager is under no obligation to waive or reimburse or to continue waiving or reimbursing its fees after the applicable termination date. See Note 3 of the Notes to Financial Statements for additional information on waivers and reimbursements. Dividends 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.

Disclosure of Expenses

Shareholders of these Funds may incur the following charges: (a) expenses related to transactions, including sales charges and exchange fees; and (b) operating expenses, including advisory 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 April 1, 2012 and held through September 30, 2012) 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 other funds’ shareholder reports.

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 or exchange fees, 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.

 10   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Derivative Financial Instruments

The Funds may invest in various derivative financial instruments, including financial futures contracts, foreign currency exchange contracts and options, as specified in Note 2 of the Notes to Financial Statements, which may constitute forms of economic leverage. Such 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 hedge market, equity and/or foreign currency exchange rate risks. Derivative financial instruments 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 require a Fund to sell or purchase portfolio investments at inopportune times or for distressed values, may limit the amount of appreciation a Fund can realize on an investment, may result in lower dividends paid to shareholders or may cause a Fund to hold an investment that it might otherwise sell. The Funds’ investments in these instruments are discussed in detail in the Notes to Financial Statements.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 11 

  Consolidated Schedule of Investments September 30, 2012   BlackRock Flexible Equity Fund (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Airlines – 1.0%
Japan Airlines Co. Ltd. (a)		198,100	$	9,265,313
Automobiles – 3.2%
Bayerische Motoren Werke AG		391,500		28,708,558
Capital Markets – 0.0%
Freedom Pay, Inc. (a)		43,051		–
Chemicals – 4.5%
CF Industries Holdings, Inc.		180,500		40,114,320
Communications Equipment – 0.7%
QUALCOMM, Inc.		106,200		6,636,438
Computers & Peripherals – 4.5%
Apple, Inc.		56,300		37,566,738
Fusion-io, Inc. (a)		84,800		2,566,896
				40,133,634
Health Care Equipment & Supplies – 0.8%
Baxter International, Inc.		113,600		6,845,536
Health Care Providers & Services – 7.9%
Express Scripts Holding Co. (a)		393,800		24,679,446
HCA Holdings, Inc.		448,900		14,925,925
UnitedHealth Group, Inc.		555,300		30,769,173
				70,374,544
Insurance – 4.7%
Berkshire Hathaway, Inc., Class B (a)		479,000		42,247,800
Internet Software & Services – 6.9%
Active Network, Inc. (a)		37,400		468,622
Google, Inc., Class A (a)		80,600		60,812,700
				61,281,322
IT Services – 6.3%
International Business Machines Corp.		115,300		23,918,985
Visa, Inc., Class A		242,600		32,576,328
				56,495,313
Media – 7.6%
Comcast Corp., Class A		844,900		30,222,073
DIRECTV (a)		321,800		16,881,628
Liberty Global, Inc., Class A (a)		342,200		20,788,650
				67,892,351
Metals & Mining – 7.9%
Agnico-Eagle Mines Ltd.		511,800		26,552,184
Osisko Mining Corp. (a)		4,344,900		43,046,817
Romarco Minerals, Inc. (a)		659,400		717,687
				70,316,688
Oil, Gas & Consumable Fuels – 16.6%
EQT Corp.		157,570		9,296,630
HollyFrontier Corp. (b)		714,000		29,466,780
Occidental Petroleum Corp.		203,300		17,495,998
Phillips 66 (b)		1,101,600		51,081,192
Suncor Energy, Inc.		1,238,100		40,671,585
				148,012,185

Common Stocks	Shares		Value
Pharmaceuticals – 3.0%
Abbott Laboratories		91,000	$	6,238,960
Merck & Co., Inc.		227,600		10,264,760
Pfizer, Inc.		417,500		10,374,875
				26,878,595
Real Estate Investment Trusts (REITs) – 4.9%
Annaly Capital Management, Inc.		2,612,700		43,997,868
Semiconductors & Semiconductor Equipment – 0.2%
Mellanox Technologies Ltd. (a)		15,000		1,522,950
Specialty Retail – 2.4%
Bed Bath & Beyond, Inc. (a)(b)		340,100		21,426,300
Wireless Telecommunication Services – 4.5%
Vodafone Group Plc - ADR		1,415,900		40,346,071
Total Common Stocks – 87.6%				782,495,786
Investment Companies
iShares Gold Trust (a)(c)		1,589,200		27,445,484
SPDR Gold Trust (a)		283,200		48,716,064
Sprott Physical Gold Trust (a)		960,500		14,599,600
Total Investment Companies – 10.2%				90,761,148
Total Long-Term Investments
(Cost – $810,100,032) – 97.8%				873,256,934
Short-Term Securities
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.15% (c)(d)		24,089,179		24,089,179
Total Short-Term Securities
(Cost – $24,089,179) – 2.7%				24,089,179
Options Purchased		Contracts
Exchange-Traded Put Options – 0.0%
Consumer Staples Select Sector SPDR Fund, Strike Price USD 35, Expires 12/22/12		7,575		412,837
Total Options Purchased
(Cost – $728,928) – 0.0%				412,837
Total Investments Before Options Written
(Cost – $834,918,139) – 100.5%				897,758,950

Portfolio Abbreviations

To simplify the listings of portfolio holdings in the Schedules of Investments, the names and descriptions of many of the securities have been abbreviated according to the following list:

ADR	American Depositary Receipts	SPDR	Standard & Poor’s Depositary Receipts
CAD	Canadian Dollar	USD	US Dollar
EUR	Euro
JPY	Japanese Yen

See Notes to Financial Statements.
12	BLACKROCK FUNDS	SEPTEMBER 30, 2012

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

Options Written	Contracts		Value
Exchange-Traded Call Options – (0.0)%
Bed Bath & Beyond, Inc., Strike Price USD 65,
Expires 11/17/12		1,000	$	(137,500	)
Bed Bath & Beyond, Inc., Strike Price USD
67.50, Expires 10/20/12		1,120		(19,040	)
HollyFrontier Corp., Strike Price USD 43,
Expires 10/20/12		1,500		(82,500	)
Phillips 66, Strike Price USD 48, Expires
11/17/12		1,000		(135,000	)
Total Options Written
(Premiums Received – $595,443) – (0.0)%				(374,040	)

	Value
Total Investments Net of Options Written – 100.5%	$	897,384,910
Liabilities in Excess of Other Assets – (0.5)%		(4,264,822	)
Net Assets – 100.0%	$	893,120,088

(a) Non-income producing security.

(b) All or a portion of security has been pledged/segregated as collateral in connection with outstanding options written.

(c) Investments in issuers considered to be an affiliate of the Fund during the year ended September 30, 2012, 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, 2011

Shares Purchased

Beneficial Interest Sold

Shares Held at September 30, 2012

Value at September 30, 2012

Income

Realized Gain

BlackRock Liquidity Funds, TempFund, Institutional Class

13,687,713

10,401,466

1

–

24,089,179

$24,089,179

$24,539

$180

BlackRock Liquidity Series, LLC Money Market Series

$73,910,690

–

$(73,910,690)2

–

–

$99,728

–

iShares Gold Trust

–

1,589,200

–

1,589,200

$27,445,484

–

–

¹ Represents net shares purchased.

² Represents net beneficial interest sold.

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

• 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 Fund management. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

• Foreign currency exchange contracts as of September 30, 2012 were as follows:

Currency Purchased	Currency Sold	Counterparty	Settle- ment Date	Unrealized Appreciation (Depre- ciation)
CAD         113,000	USD        115,361	Citigroup, Inc.	10/02/12	$	(429	)
JPY   714,279,000	USD     9,203,500	Citigroup, Inc.	10/03/12		(50,770	)
USD    28,421,398	EUR   22,600,000	Citigroup, Inc.	10/17/12		(626,399	)
USD      9,204,425	JPY  714,279,000	Citigroup, Inc.	10/17/12		50,221
Total				$	(627,377	)

•  Financial futures contracts sold as of September 30, 2012 were as follows:
Contracts	Issue	Exchange	Expiration		Notional Value		Unrealized Appreciation
124	E-Mini Russell 2000® Futures	Intercon- tinental Ex change		December 2012	$	10,346,560		$242,022
290	E-Mini S&P 500® Futures	Chicago Mercantile		December 2012	$	20,795,900		273,934
Total								$515,956

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	13

  Consolidated Schedule of Investments (concluded)   BlackRock Flexible Equity Fund

• 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 as follows:

• Level 1 - unadjusted price quotations in active markets/exchanges for identical assets and 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)

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 level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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. 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. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements.

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy as of September 30, 2012:

	Level 1			Level 2			Level 3		Total
Assets:
Investments:
Long-Term Investments:
Common Stocks1		$	753,787,228		$	28,708,558		–		$	782,495,786
Investment Companies			90,761,148			–		–			90,761,148
Short-Term Securities			24,089,179			–		–			24,089,179
Total		$	868,637,555		$	28,708,558		–		$	897,346,113

¹ See above Schedule of Investments for values in each industry excluding Level 2, Automobiles, within the table.

	Level 1			Level 2			Level 3	Total
Derivative Financial Instruments2
Assets:
Equity contracts	$	928,793			–		–	$	928,793
Foreign currency exchange contracts		–		$	50,221		–		50,221
Liabilities:
Equity contracts		(374,040	)		–		–		(374,040	)
Foreign currency exchange contracts		(51,199	)		(626,399	)	–		(677,598	)
Total	$	503,554		$	(576,178	)	–	$	(72,624	)

2	Derivative financial instruments are financial futures contracts, foreign currency exchange contracts and options. Financial futures contracts and foreign currency exchange contracts are valued at the unrealized appreciation/depreciation on the instrument and options are shown at value.
Certain of the Fund’s assets are held at carrying amount, which approximates fair value for financial statement purposes. As of September 30, 2012, such assets are categorized within the disclosure hierarchy as follows:

	Level 1			Level 2		Level 3		Total
Assets:
Cash		$	524,115		–		–		$	524,115
Cash pledged as collateral for options written			2,111,000		–		–			2,111,000
Foreign currency at value			130		–		–			130
Total		$	2,635,245		–		–		$	2,635,245

There were no transfers between levels during the year ended September 30, 2012.

See Notes to Financial Statements.
14	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Schedule of Investments September 30, 2012   BlackRock Mid-Cap Growth Equity Portfolio

(Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Aerospace & Defense – 2.4%
BE Aerospace, Inc. (a)		73,000	$3,073,300
TransDigm Group, Inc. (a)		27,800	3,943,986
			7,017,286
Airlines – 0.6%
United Continental Holdings, Inc. (a)		87,600	1,708,200
Automobiles – 1.0%
Harley-Davidson, Inc.		68,300	2,893,871
Biotechnology – 2.6%
Alkermes Plc (a)		75,200	1,560,400
BioMarin Pharmaceutical, Inc. (a)(b)		21,100	849,697
Cubist Pharmaceuticals, Inc. (a)(b)(c)		107,940	5,146,579
			7,556,676
Capital Markets – 2.1%
Affiliated Managers Group, Inc. (a)(b)		25,700	3,161,100
T. Rowe Price Group, Inc.		46,000	2,911,800
			6,072,900
Chemicals – 5.2%
Ashland, Inc.		62,400	4,467,840
CF Industries Holdings, Inc.		15,000	3,333,600
Ecolab, Inc.		33,600	2,177,616
LyondellBasell Industries NV, Class A		39,100	2,019,906
PPG Industries, Inc.		25,300	2,905,452
			14,904,414
Commercial Banks – 2.0%
First Republic Bank		119,900	4,131,754
SVB Financial Group (a)		26,100	1,578,006
			5,709,760
Communications Equipment – 1.3%
Ciena Corp. (a)(b)		161,500	2,196,400
F5 Networks, Inc. (a)(b)		14,700	1,539,090
			3,735,490
Computers & Peripherals – 0.7%
NetApp, Inc. (a)		62,800	2,064,864
Construction & Engineering – 0.7%
Quanta Services, Inc. (a)		86,700	2,141,490
Diversified Financial Services – 1.6%
IntercontinentalExchange, Inc. (a)		35,400	4,722,714
Electrical Equipment – 1.5%
AMETEK, Inc.		119,475	4,235,389
Energy Equipment & Services – 0.5%
Oceaneering International, Inc.		26,600	1,469,650
Food & Staples Retailing – 1.8%
Whole Foods Market, Inc.		53,100	5,171,940
Food Products – 3.6%
Flowers Foods, Inc.		35,098	708,278
Green Mountain Coffee Roasters, Inc. (a)		89,600	2,128,000
The Hain Celestial Group, Inc. (a)		54,800	3,452,400
The Hershey Co.		57,000	4,040,730
			10,329,408
Health Care Equipment & Supplies – 4.3%
Boston Scientific Corp. (a)		912,800	5,239,472
Haemonetics Corp. (a)(b)		10,000	802,000

Common Stocks	Shares		Value
Health Care Equipment & Supplies (concluded)
Hologic, Inc. (a)		318,000	$	6,436,320
				12,477,792
Health Care Providers & Services – 2.6%
AmerisourceBergen Corp.		76,700		2,969,057
Catamaran Corp. (a)		30,100		2,948,897
Humana, Inc.		23,500		1,648,525
				7,566,479
Health Care Technology – 1.0%
Allscripts Healthcare Solutions, Inc. (a)		223,000		2,771,890
Hotels, Restaurants & Leisure – 3.9%
Bloomin’ Brands, Inc. (a)		74,800		1,230,460
Brinker International, Inc.		105,800		3,734,740
Manchester United Plc (a)		53,200		677,236
Starwood Hotels & Resorts Worldwide, Inc.		56,000		3,245,760
Wynn Resorts Ltd.		21,100		2,435,784
				11,323,980
Household Products – 1.0%
Church & Dwight Co., Inc.		53,000		2,861,470
Internet Software & Services – 1.2%
Rackspace Hosting, Inc. (a)(b)		54,000		3,568,860
IT Services – 7.5%
Alliance Data Systems Corp. (a)(b)		34,900		4,954,055
Gartner, Inc. (a)(b)		87,200		4,019,048
Genpact Ltd.		173,400		2,892,312
MAXIMUS, Inc.		73,373		4,381,835
Teradata Corp. (a)		71,000		5,354,110
				21,601,360
Machinery – 1.0%
CNH Global NV (a)		72,500		2,810,825
Media – 3.0%
AMC Networks, Inc., Class A (a)(b)		49,600		2,158,592
CBS Corp., Class B		117,400		4,265,142
The McGraw-Hill Cos., Inc.		39,600		2,161,764
				8,585,498
Metals & Mining – 0.9%
Globe Specialty Metals, Inc.		176,400		2,684,808
Multiline Retail – 3.7%
Dollar General Corp. (a)(b)		108,300		5,581,782
Dollar Tree, Inc. (a)		14,900		719,297
Macy’s, Inc.		117,000		4,401,540
				10,702,619
Oil, Gas & Consumable Fuels – 4.0%
Cabot Oil & Gas Corp.		69,000		3,098,100
Plains Exploration & Production Co. (a)		116,700		4,372,749
Range Resources Corp.		39,700		2,773,839
SandRidge Energy, Inc. (a)(b)		201,400		1,403,758
				11,648,446
Paper & Forest Products – 1.3%
International Paper Co.		104,100		3,780,912
Pharmaceuticals – 9.8%
Elan Corp. Plc - ADR (a)		400,085		4,288,911
Endo Health Solutions, Inc. (a)		127,300		4,037,956

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	15

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

Common Stocks	Shares		Value
Pharmaceuticals (concluded)
Jazz Pharmaceuticals Plc (a)		101,761	$	5,801,395
Teva Pharmaceutical Industries Ltd. - ADR		93,200		3,859,412
ViroPharma, Inc. (a)(c)		195,771		5,916,200
Warner Chilcott Plc, Class A		322,600		4,355,100
				28,258,974
Professional Services – 2.8%
IHS, Inc., Class A (a)(b)		44,500		4,332,075
Robert Half International, Inc.		136,400		3,632,332
				7,964,407
Real Estate Investment Trusts (REITs) –1.9%
American Campus Communities, Inc.		63,500		2,786,380
DuPont Fabros Technology, Inc. (b)		109,700		2,769,925
				5,556,305
Semiconductors & Semiconductor Equipment – 4.6%
Analog Devices, Inc.		130,800		5,126,052
Avago Technologies Ltd.		112,000		3,904,880
Broadcom Corp., Class A (a)		126,100		4,360,538
				13,391,470
Software – 6.2%
Citrix Systems, Inc. (a)		26,800		2,052,076
Intuit, Inc.		99,200		5,840,896
QLIK Technologies, Inc. (a)(b)		94,400		2,115,504
Sourcefire, Inc. (a)(b)		60,500		2,966,315
TiVo, Inc. (a)		456,100		4,757,123
				17,731,914
Specialty Retail – 6.1%
Dick’s Sporting Goods, Inc.		68,700		3,562,095
GameStop Corp., Class A		137,466		2,886,786
The Gap, Inc.		61,000		2,182,580
Limited Brands, Inc.		84,100		4,142,766
TJX Cos., Inc.		106,200		4,756,698
				17,530,925
Textiles, Apparel & Luxury Goods – 3.6%
Fossil, Inc. (a)		25,200		2,134,440
Michael Kors Holdings Ltd. (a)		54,600		2,903,628
PVH Corp.		15,700		1,471,404
Wolverine World Wide, Inc.		89,921		3,989,795
				10,499,267
Total Common Stocks – 98.0%				283,052,253

Investment Companies (d) – 0.6%	Shares		Value
iShares Cohen & Steers Realty Majors Index Fund		21,100	$	1,642,635
Warrants (e)
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 – $243,584,050) – 98.6%				284,694,888
Short-Term Securities
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.15% (d)(f)		1,508,065		1,508,065
	Beneficial Interest (000)
BlackRock Liquidity Series, LLC Money Market Series, 0.29% (d)(f)(g)	$	34,117		34,116,584
Total Short-Term Securities (Cost – $35,624,649) – 12.3%				35,624,649
Total Investments Before Options Written (Cost – $279,208,699) – 110.9%				320,319,537
Options Written	Contracts
Exchange-Traded Call Options – (0.0)%
Cubist Pharmaceuticals, Inc., Strike Price USD 43, Expires 11/17/12		140		(75,600	)
ViroPharma, Inc., Strike Price USD 30, Expires 10/20/12		185		(24,050	)
Total Options Written (Premiums Received – $42,265) – (0.0)%				(99,650	)
Total Investments Net of Options Written – 110.9%				320,219,887
Liabilities in Excess of Other Assets – (10.9)%				(31,520,620	)
Net Assets – 100.0%			$	288,699,267

(a) Non-income producing security.

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

(c) All or a portion of security has been pledged/segregated as collateral in connection with outstanding options written.

See Notes to Financial Statements.
16	BLACKROCK FUNDS	SEPTEMBER 30, 2012

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

(d) Investments in issuers considered to be an affiliate of the Fund during the year ended September 30, 2012, 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, 2011		Shares/ Beneficial Interest Purchased			Shares Sold			Shares/ Beneficial Interest Held at September  30, 2012		Value at September 30, 2012		Income
BlackRock Liquidity Funds, TempFund, Institutional Class		9,900,843		–			8,392,778	1		1,508,065	$	1,508,065	$	5,750
BlackRock Liquidity Series, LLC Money Market Series	$	24,618,918	$	9,497,666	2		–		$	34,116,584	$	34,116,584	$	111,442
iShares Cohen & Steers Realty Majors Index Fund		–		21,100			–			21,100	$	1,642,635	$	23,530

¹  Represents net shares sold.

²  Represents net beneficial interest purchased.

(e) 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, if any.

(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 Fund management. 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 and derivative financial instruments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes as follows:

— Level 1 - unadjusted price quotations in active markets/exchanges for identical assets and 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)

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 level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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. 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. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	17

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

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy as of September 30, 2012:

	Level 1		Level 2		Level 3	Total
Assets:
Investments:
Long-Term Investments:
Common Stocks1	$	283,052,253		–	–	$	283,052,253
Investment Companies		1,642,635		–	–		1,642,635
Short-Term Securities		1,508,065	$	34,116,584	–		35,624,649
Total	$	286,202,953	$	34,116,584	–	$	320,319,537

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

	Level 1			Level 2	Level 3	Total
Derivative Financial Instruments2
Liabilities:
Equity contracts	$	(99,650	)	–	–	$	(99,650	)

² Derivative financial instruments are options written which are shown at value.

Certain of the Fund’s liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of September 30, 2012, collateral on securities loaned at value of $ 34,116,584 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the year ended September 30, 2012.

See Notes to Financial Statements.
18	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Schedule of Investments September 30, 2012   BlackRock Small Cap Growth Equity Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Aerospace & Defense – 3.0%
BE Aerospace, Inc. (a)		174,636	$	7,352,176
Orbital Sciences Corp. (a)		1,293,585		18,834,598
TransDigm Group, Inc. (a)		107,900		15,307,773
				41,494,547
Airlines – 0.8%
Alaska Air Group, Inc. (a)		35,960		1,260,758
US Airways Group, Inc. (a)		972,900		10,176,534
				11,437,292
Auto Components – 1.0%
Cooper Tire & Rubber Co.		69,659		1,336,060
Dana Holding Corp.		1,003,852		12,347,380
				13,683,440
Biotechnology – 6.5%
Acorda Therapeutics, Inc. (a)		432,510		11,076,581
Alkermes Plc (a)		546,900		11,348,175
BioMarin Pharmaceutical, Inc. (a)(b)		68,500		2,758,495
BioSpecifics Technologies Corp. (a)(c)		763,967		14,836,239
Cubist Pharmaceuticals, Inc. (a)(d)		218,996		10,441,729
Gentium SpA - ADR (a)(c)		3,168,551		31,463,711
Sunesis Pharmaceuticals, Inc. (a)		853,511		4,822,337
Threshold Pharmaceuticals, Inc. (a)		474,445		3,434,982
				90,182,249
Building Products – 1.0%
Trex Co., Inc. (a)(b)		413,794		14,118,651
Chemicals – 0.7%
Georgia Gulf Corp.		280,400		10,156,088
Commercial Banks – 0.6%
Capital Bank Financial Corp. (a)		211,800		3,812,400
National Bank Holdings Corp., Class A (a)		254,500		4,952,570
				8,764,970
Commercial Services & Supplies – 1.4%
ACCO Brands Corp. (a)		3,007,922		19,521,414
Communications Equipment – 2.0%
Ciena Corp. (a)(b)		1,134,300		15,426,480
Ixia (a)(b)		787,200		12,650,304
				28,076,784
Construction & Engineering – 0.7%
Quanta Services, Inc. (a)		411,000		10,151,700
Consumer Finance – 1.4%
DFC Global Corp. (a)(b)		1,113,817		19,101,962
Diversified Financial Services – 0.3%
Portfolio Recovery Associates, Inc. (a)		34,800		3,634,164
Diversified Telecommunication Services – 2.8%
Cbeyond, Inc. (a)(b)(c)		3,027,373		29,849,898
Cincinnati Bell, Inc. (a)(b)		665,896		3,795,607
InContact, Inc. (a)		893,349		5,824,635
				39,470,140
Electrical Equipment – 0.5%
A.O. Smith Corp.		127,700		7,347,858
Energy Equipment & Services – 1.5%
Dresser-Rand Group, Inc. (a)		64,000		3,527,040
Heckmann Corp. (a)(b)		836,100		3,511,620

Common Stocks	Shares		Value
Energy Equipment & Services (concluded)
Hornbeck Offshore Services, Inc. (a)(b)		389,908	$	14,290,128
				21,328,788
Food & Staples Retailing – 0.8%
United Natural Foods, Inc. (a)(b)		188,100		10,994,445
Food Products – 2.1%
Annie’s, Inc. (a)		355,900		15,958,556
The Hain Celestial Group, Inc. (a)		211,300		13,311,900
				29,270,456
Health Care Equipment & Supplies – 5.6%
ArthroCare Corp. (a)		677,343		21,945,913
GenMark Diagnostics, Inc. (a)		582,869		5,368,223
Haemonetics Corp. (a)(b)		180,200		14,452,040
Hologic, Inc. (a)		1,700,300		34,414,072
Volcano Corp. (a)		47,600		1,359,932
				77,540,180
Health Care Providers & Services – 0.1%
Metropolitan Health Networks, Inc. (a)		114,852		1,072,718
Health Care Technology – 4.4%
Allscripts Healthcare Solutions, Inc. (a)		2,302,800		28,623,804
Epocrates, Inc. (a)(c)		2,728,045		31,781,724
				60,405,528
Hotels, Restaurants & Leisure – 3.0%
Bloomin’ Brands, Inc. (a)		165,494		2,722,376
Brinker International, Inc.		388,697		13,721,004
Caribou Coffee Co., Inc. (a)(c)		1,864,201		25,595,480
				42,038,860
Internet Software & Services – 3.1%
DealerTrack Holdings, Inc. (a)(b)		607,769		16,926,367
NIC, Inc.		1,805,565		26,722,362
				43,648,729
IT Services – 7.6%
EPAM Systems, Inc. (a)		111,057		2,103,420
ExlService Holdings, Inc. (a)(b)(c)		1,618,510		47,746,045
Global Cash Access Holdings, Inc. (a)(b)		2,506,195		20,174,870
MAXIMUS, Inc.		218,393		13,042,430
WNS Holdings Ltd. - ADR (a)		1,421,901		14,560,266
Wright Express Corp. (a)(b)		105,300		7,341,516
				104,968,547
Leisure Equipment & Products – 0.8%
Brunswick Corp.		458,800		10,382,644
Machinery – 1.4%
Wabash National Corp. (a)(b)		2,726,116		19,437,207
Media – 1.7%
National CineMedia, Inc.		1,467,263		24,019,095
Metals & Mining – 1.3%
Globe Specialty Metals, Inc.		1,186,896		18,064,557
Oil, Gas & Consumable Fuels – 5.3%
Bonanza Creek Energy, Inc. (a)		664,000		15,643,840
Cheniere Energy, Inc. (a)		883,200		13,733,760
Energy XXI Bermuda Ltd.		533,148		18,633,523
Magnum Hunter Resources Corp. (a)(b)		1,775,731		7,884,246
McMoRan Exploration Co. (a)(b)		490,242		5,760,343

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	19

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

Common Stocks	Shares		Value
Oil, Gas & Consumable Fuels (concluded)
Oasis Petroleum, Inc. (a)		112,600	$	3,318,322
SandRidge Energy, Inc. (a)(b)		1,250,441		8,715,574
				73,689,608
Paper & Forest Products – 1.5%
KapStone Paper and Packaging Corp. (a)		738,963		16,545,382
Schweitzer-Mauduit International, Inc.		130,730		4,312,783
				20,858,165
Personal Products – 0.6%
Elizabeth Arden, Inc. (a)(b)		172,900		8,167,796
Pharmaceuticals – 11.8%
Auxilium Pharmaceuticals, Inc. (a)		79,157		1,936,180
Elan Corp. Plc - ADR (a)		2,249,740		24,117,213
Jazz Pharmaceuticals Plc (a)		738,504		42,102,112
Medicines Co. (a)(b)		255,424		6,592,493
ViroPharma, Inc. (a)(b)(d)		1,637,037		49,471,258
Warner Chilcott Plc, Class A		2,954,006		39,879,081
				164,098,337
Professional Services – 3.6%
The Corporate Executive Board Co.		144,325		7,740,150
CoStar Group, Inc. (a)(b)		326,593		26,630,393
On Assignment, Inc. (a)(b)		798,206		15,900,263
				50,270,806
Road & Rail – 0.2%
Avis Budget Group, Inc. (a)(b)		216,900		3,335,922
Semiconductors & Semiconductor Equipment – 2.3%
Microsemi Corp. (a)(b)		883,056		17,722,934
Semtech Corp. (a)(b)		538,957		13,554,768
				31,277,702
Software – 12.0%
Ellie Mae, Inc. (a)		340,568		9,273,667
Fortinet, Inc. (a)		485,011		11,708,166
Gateway Industries, Inc. (Acquired 2/11/11 through 12/27/11, cost $590,861) (a)(e)		1,317,638		1,317,638
MicroStrategy, Inc., Class A (a)(b)		85,811		11,504,680
PROS Holdings, Inc. (a)		919,690		17,538,488
QLIK Technologies, Inc. (a)(b)		942,600		21,123,666
Sourcefire, Inc. (a)(b)		373,400		18,307,802
TiVo, Inc. (a)		5,037,020		52,536,119
Tyler Technologies, Inc. (a)(b)		230,525		10,147,711
Ultimate Software Group, Inc. (a)(b)		137,624		14,051,410
				167,509,347
Specialty Retail – 1.4%
The Children’s Place Retail Stores, Inc. (a)(b)		206,601		12,396,060
Lumber Liquidators Holdings, Inc. (a)		135,180		6,850,922
				19,246,982
Textiles, Apparel & Luxury Goods – 2.4%
G-III Apparel Group Ltd. (a)(b)		460,089		16,517,195
Wolverine World Wide, Inc.		389,162		17,267,118
				33,784,313
Trading Companies & Distributors – 1.5%
Beacon Roofing Supply, Inc. (a)(b)		248,800		7,090,800

Common Stocks	Shares		Value
Trading Companies & Distributors (concluded)
United Rentals, Inc. (a)(b)		424,300	$	13,878,853
				20,969,653
Total Common Stocks – 98.7%				1,373,521,644
Warrants (f)
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 – $1,170,629,869) – 98.7%				1,373,521,644
Short-Term Securities
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.15% (g)(h)		10,896,648		10,896,648
	Beneficial Interest (000)
BlackRock Liquidity Series, LLC Money Market Series, 0.29% (g)(h)(i)	$	282,713		282,712,568
Total Short-Term Securities
(Cost – $293,609,216) – 21.1%				293,609,216
Total Investments Before Options Written
(Cost – $1,464,239,085) – 119.8%				1,667,130,860
Options Written	Contracts
Exchange-Traded Call Options – (0.0)%
Cubist Pharmaceuticals, Inc., Strike Price USD 43, Expires 11/17/12		1,193		(644,220	)
ViroPharma, Inc., Strike Price USD 30, Expires 10/20/12		1,405		(182,650	)
Total Options Written
(Premiums Received – $349,137) – (0.0)%				(826,870	)
Total Investments Net of Options Written – 119.8%				1,666,303,990
Liabilities in Excess of Other Assets – (19.8)%				(275,074,945	)
Net Assets – 100.0%			$	1,391,229,045

See Notes to Financial Statements.
20	BLACKROCK FUNDS	SEPTEMBER 30, 2012

Schedule of Investments (continued)   BlackRock Small Cap Growth Equity Portfolio

(a) Non-income producing security.

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

(c) Investments in issuers (whereby the Fund held 5% or more of the companies’ outstanding securities) that were considered to be an affiliate during the year ended September 30, 2012, 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, 2011		Shares Purchased		Shares Sold		Shares Held at September 30, 2012		Value at September 30, 2012			Income			Realized Gain (Loss)
BioSpecifics Technologies Corp.		666,887		97,080		–		763,967		$	14,836,239			–			–
Caribou Coffee Co., Inc.		1,249,470		752,151		137,420		1,864,201		$	25,595,480			–		$	(298,273	)
Cbeyond, Inc.		1,923,850		1,193,388		89,865		3,027,373		$	29,849,898			–		$	(887,316	)
Epocrates, Inc.		–		2,736,945		8,900		2,728,045		$	31,781,724			–		$	(31,638	)
ExlService Holdings, Inc.		1,463,120		411,160		255,770		1,618,510		$	47,746,045			–		$	511,362
Gentium SpA - ADR		1,930,876		1,271,375		33,700		3,168,551		$	31,463,711			–		$	(29,417	)
SonoSite, Inc.1		782,395		161,400		943,795		–			–			–		$	23,589,702
Summit Hotel Properties, Inc.1		1,532,482		127,199		1,659,681		–			–		$	310,903		$	(3,480,677	)

¹ No longer an affiliated company or held by the Fund as of report date.

(d) All or a portion of security has been pledged/segregated as collateral in connection with outstanding options written.

(e) Restricted security as to resale. As of report date the Fund held less than 0.1% of its net assets, with a current value of $1,317,638 and original cost of $590,861, in this security.

(f) 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, if any.

(g) Investments in issuers considered to be an affiliate of the Fund during the year ended September 30, 2012, 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, 2011			Shares/ Beneficial Interest Purchased				Shares Sold			Shares/ Beneficial Interest Held at September 30, 2012			Value at September 30, 2012			Income			Realized Gain (Loss)
BlackRock Liquidity Funds, TempFund, Institutional Class			20,809,320			–			9,912,672	1			10,896,648		$	10,896,648		$	21,522		$	371
BlackRock Liquidity Series, LLC Money Market Series		$	226,303,648		$	56,408,920	2		–			$	282,712,568		$	282,712,568		$	1,406,023			–
iShares Dow Jones U.S. Real Estate Index Fund			–			223,100			223,100				–			–			–		$	(479,982	)
iShares Russell 2000 Growth Index Fund			125,100			1,752,400			1,877,500				–			–		$	192,221		$	2,425,606

¹ Represents net shares sold.

² Represents net beneficial interest purchased.

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

(i) 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 Fund management. 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.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	21

Schedule of Investments (concluded)   BlackRock Small Cap Growth Equity Portfolio

— 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 as follows:

— Level 1 - unadjusted price quotations in active markets/exchanges for identical assets and 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)

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 level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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. 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. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements.

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy as of September 30, 2012:

	Level 1	Level 2	Level 3	Total
Assets:
Investments:
Long-Term Invest- ments1	$1,372,204,006	–	$1,317,638	$1,373,521,644
Short-Term Securities	10,896,648	$282,712,568	–	293,609,216
Total	$1,383,100,654	$282,712,568	$1,317,638	$1,667,130,860

¹ See above Schedule of Investments for values in each industry excluding Level 3, Software, within the table.

	Level 1			Level 2	Level 3	Total
Derivative Financial Instruments2
Liabilities:
Equity contracts	$	(826,870	)	–	–	$	(826,870	)

² Derivative financial instruments are options written which are shown at value.

Certain of the Fund’s liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of September 30, 2012, such liabilities are categorized within the disclosure hierarchy as follows:

	Level 1	Level 2		Level 3	Total
Liabilities:
Bank overdraft	–	$	226	–	$	226
Collateral on securities loaned at value	–		282,712,568	–		282,712,568
Total	–	$	282,712,794	–	$	282,712,794

Certain of the Fund’s investments are categorized as Level 3 and were valued utilizing transaction prices or third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in the unobservable inputs could result in a significantly lower or higher value in such Level 3 investments.

There were no transfers between levels during the year ended September 30, 2012.

See Notes to Financial Statements.
22	BLACKROCK FUNDS	SEPTEMBER 30, 2012

Statements of Assets and Liabilities

September 30, 2012	BlackRock Flexible Equity Fund1			BlackRock Mid-Cap Growth Equity Portfolio			BlackRock Small Cap Growth Equity Portfolio
Assets
Investments at value – unaffiliated2,3	$	846,224,287		$	283,052,253		$	1,192,248,547
Investments at value – affiliated4		51,534,663			37,267,284			474,882,313
Cash		524,115			–			–
Cash pledged as collateral for financial futures contracts		2,111,000			–			–
Foreign currency at value5		130			–			–
Variation margin receivable		178,592			–			–
Investments sold receivable		26,765,704			11,381,999			74,774,896
Unrealized appreciation on foreign currency exchange contracts		50,221			–			–
Capital shares sold receivable		262,326			63,744			1,313,381
Dividends receivable – unaffiliated		2,086,720			101,487			63,444
Dividends receivable – affiliated		5,410			518			2,037
Receivable from Manager		27,502			21,615			–
Securities lending income receivable – affiliated		–			5,108			61,741
Prepaid expenses		37,664			24,410			35,731
Total assets		929,808,334			331,918,418			1,743,382,090
Liabilities
Bank overdraft		–			–			226
Options written at value6		374,040			99,650			826,870
Collateral on securities loaned at value		–			34,116,584			282,712,568
Investments purchased payable		25,291,751			8,111,510			64,596,171
Unrealized depreciation on foreign currency exchange contracts		677,598			–			–
Capital shares redeemed payable		8,818,035			286,183			2,332,660
Investment advisory fees payable		591,695			191,348			604,601
Service and distribution fees payable		237,933			75,230			101,121
Other affiliates payable		47,572			11,052			133,096
Officer’s and Trustees’ fees payable		9,918			2,933			11,601
Other accrued expenses payable		639,704			324,661			834,131
Total liabilities		36,688,246			43,219,151			352,153,045
Net Assets	$	893,120,088		$	288,699,267		$	1,391,229,045
Net Assets Consist of
Paid-in capital	$	913,437,278		$	254,026,676		$	1,071,546,370
Undistributed (accumulated) net investment income (loss)		2,569,789			(327,704	)		613,862
Accumulated net realized gain (loss)		(85,865,896	)		(6,053,158	)		116,654,771
Net unrealized appreciation/depreciation		62,978,917			41,053,453			202,414,042
Net Assets	$	893,120,088		$	288,699,267		$	1,391,229,045
1 Consolidated Statement of Assets and Liabilities
2 Investments at cost – unaffiliated	$	785,809,720		$	241,926,527		$	1,032,813,214
3 Securities loaned at value		–		$	33,093,521		$	273,663,763
4 Investments at cost – affiliated	$	49,108,419		$	37,282,172		$	431,425,871
5 Foreign currency at cost	$	130			–			–
6 Premiums received	$	595,443		$	42,265		$	349,137

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	23

Statements of Assets and Liabilities (concluded)

September 30, 2012	BlackRock Flexible Equity Fund1		BlackRock Mid-Cap Growth Equity Portfolio		BlackRock Small Cap Growth Equity Portfolio
Net Asset Value
Institutional
Net assets	$	142,963,159	$	18,525,963	$	979,581,730
Shares outstanding2		11,405,362		1,364,054		36,726,938
Net asset value	$	12.53	$	13.58	$	26.67
Service
Net assets	$	673,560	$	1,865,465	$	29,281,270
Shares outstanding2		54,756		146,085		1,170,975
Net asset value	$	12.30	$	12.77	$	25.01
Investor A
Net assets	$	615,464,203	$	237,748,258	$	352,072,949
Shares outstanding2		50,691,435		19,206,179		14,568,743
Net asset value	$	12.14	$	12.38	$	24.17
Investor B
Net assets	$	17,465,184	$	5,122,587	$	1,506,111
Shares outstanding2		1,594,765		476,707		73,453
Net asset value	$	10.95	$	10.75	$	20.50
Investor C
Net assets	$	115,241,691	$	18,774,197	$	28,786,985
Shares outstanding2		10,567,197		1,746,124		1,404,551
Net asset value	$	10.91	$	10.75	$	20.50
Class R
Net assets	$	1,312,291	$	6,662,797		–
Shares outstanding2		105,346		540,916		–
Net asset value	$	12.46	$	12.32		–

¹ Consolidated Statement of Assets and Liabilities.

² Unlimited number of shares authorized, $0.001 par value.

See Notes to Financial Statements.
24	BLACKROCK FUNDS	SEPTEMBER 30, 2012

Statements of Operations

Year Ended September 30, 2012	BlackRock Flexible Equity Fund1			BlackRock Mid-Cap Growth Equity Portfolio			BlackRock Small Cap Growth Equity Portfolio
Investment Income
Dividends – unaffiliated	$	18,124,027		$	3,988,758		$	11,595,007
Foreign taxes withheld		(38,642	)		(56,473	)		(7,406	)
Securities lending – affiliated		99,728			111,442			1,406,023
Dividends – affiliated		24,539			29,280			524,646
Total income		18,209,652			4,073,007			13,518,270
Expenses
Investment advisory		7,733,388			2,452,132			7,401,462
Transfer agent – class specific		2,203,455			993,231			2,733,306
Service and distribution – class specific		3,052,468			921,180			1,184,418
Administration		678,152			229,887			909,161
Administration – class specific		228,192			76,663			292,907
Registration		76,906			66,854			79,058
Custodian		72,317			33,323			93,201
Professional		55,393			53,649			64,769
Printing		36,375			35,056			84,487
Officer and Trustees		29,315			11,592			41,332
Miscellaneous		38,353			21,646			39,119
Recoupment of past waived fees – class specific		3,254			656			–
Total expenses		14,207,568			4,895,869			12,923,220
Less fees waived by Manager		(15,905	)		(3,248	)		(11,098	)
Less administration fees waived – class specific		(227,143	)		(73,052	)		(3,856	)
Less transfer agent fees waived – class specific		(67,412	)		(79,484	)		(1,237	)
Less transfer agent fees reimbursed – class specific		(867,925	)		(331,662	)		(2,437	)
Less fees paid indirectly		(545	)		(542	)		(184	)
Total expenses after fees waived, reimbursed and paid indirectly		13,028,638			4,407,881			12,904,408
Net investment income (loss)		5,181,014			(334,874	)		613,862
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments – unaffiliated		72,154,466			18,506,914			109,703,580
Investments – affiliated		–			–			21,319,367
Capital gain distributions received from affiliated investment companies		180			–			371
Options written		476,743			(74,872	)		(270,621	)
Financial futures contracts		(1,844,813	)		–			–
Foreign currency transactions		(281,151	)		–			–
		70,505,425			18,432,042			130,752,697
Net change in unrealized appreciation/depreciation on:
Investments – unaffiliated		163,558,216			40,910,053			220,589,168
Investments – affiliated		2,426,244			(14,888	)		63,340,687
Options written		262,329			(57,385	)		(477,733	)
Financial futures contracts		515,956			–			–
Foreign currency translations		(599,253	)		–			–
		166,163,492			40,837,780			283,452,122
Total realized and unrealized gain		236,668,917			59,269,822			414,204,819
Net Increase in Net Assets Resulting from Operations	$	241,849,931		$	58,934,948		$	414,818,681

¹ Consolidated Statement of Operations.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	25

Statements of Changes in Net Assets

	BlackRock Flexible Equity Fund						BlackRock Mid-Cap Growth Equity Portfolio						BlackRock Small Cap Growth Equity Portfolio
	Year Ended September 30,						Year Ended September 30,						Year Ended September 30,
Increase (Decrease) in Net Assets:	20121			2011			2012			2011			2012			2011
Operations
Net investment income (loss)	$	5,,181,014		$	7,157,810		$	(334,874	) $		(2,024,414	)	$	613,862		$	(9,856,705	)
Net realized gain		70,505,425			193,447,017			18,432,042			25,183,896			130,752,697			163,582,740
Net change in unrealized appreciation/depreciation		166,163,492			(247,371,603	)		40,837,780			(23,853,188	)		283,452,122			(188,023,895	)
Net increase (decrease) in net assets resulting from operations		241,849,931			(46,766,776	)		58,934,948			(693,706	)		414,818,681			(34,297,860	)
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(1,662,860	)		(1,930,361	)		–			–			–			–
Service		(8,174	)		(3,730	)		–			–			–			–
Investor A		(3,726,374	)		(5,160,440	)		–			–			–			–
Investor B		–			(34,422	)		–			–			–			–
Investor C		–			(265,420	)		–			–			–			–
Class R		(2,690	)		(5,689	)		–			–			–			–
Net realized gain:
Institutional		–			–			–			–			(25,878,958	)		–
Service		–			–			–			–			(735,003	)		–
Investor A		–			–			–			–			(7,371,034	)		–
Investor B		–			–			–			–			(60,195	)		–
Investor C		–			–			–			–			(874,865	)		–
Decrease in net assets resulting from dividends and distributions to shareholders		(5,400,098	)		(7,400,062	)		–			–			(34,920,055	)		–
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share transactions		(267,769,413	)		(145,080,585	)		(52,658,613	)		52,938,926			(205,244,715	)		91,798,500
Redemption Fees
Redemption fees		–			–			–			–			–			29,171
Net Assets
Total increase (decrease) in net assets		(31,319,580	)		(199,247,423	)		6,276,335			52,245,220			174,653,911			57,529,811
Beginning of year		924,439,668			1,123,687,091			282,422,932			230,177,712			1,216,575,134			1,159,045,323
End of year	$	893,120,088		$	924,439,668		$	288,699,267		$	282,422,932		$	1,391,229,045		$	1,216,575,134
Undistributed (accumulated) net investment income (loss)	$	2,569,789		$	3,070,024		$	(327,704	)		–		$	613,862			–

¹  Consolidated Statement of Changes in Net Assets.

See Notes to Financial Statements.
26	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Financial Highlights   BlackRock Flexible Equity Fund

	Institutional															Service
	Year Ended September 30,															Year Ended September 30,
	20121			2011			2010			2009			2008			20121			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	9.81		$	10.53		$	9.34		$	9.94		$	14.35		$	9.63		$	10.33		$	9.17		$	9.78		$	14.14
Net investment income2		0.10			0.12			0.10			0.08			0.10			0.06			0.08			0.04			0.05			0.06
Net realized and unrealized gain (loss)		2.72			(0.74	)		1.16			(0.61	)		(2.77	)		2.68			(0.73	)		1.17			(0.60	)		(2.72	)
Net increase (decrease) from investment operations		2.82			(0.62	)		1.26			(0.53	)		(2.67	)		2.74			(0.65	)		1.21			(0.55	)		(2.66	)
Dividends and distributions from:
Net investment income		(0.10	)		(0.10	)		(0.07	)		(0.07	)		–			(0.07	)		(0.05	)		(0.05	)		(0.06	)		–
Tax return of capital		–			–			–			–			(0.02	)		–			–			–			–			(0.02	)
Net realized gain		–			–			–			–			(1.72	)		–			–			–			–			(1.68	)
Total dividends and distributions		(0.10	)		(0.10	)		(0.07	)		(0.07	)		(1.74	)		(0.07	)		(0.05	)		(0.05	)		(0.06	)		(1.70	)
Net asset value, end of year	$	12.53		$	9.81		$	10.53		$	9.34		$	9.94		$	12.30		$	9.63		$	10.33		$	9.17		$	9.78
Total Investment Return3
Based on net asset value		28.90%			(6.03)%4			13.56%			(5.09)%			(20.74)%			28.58%			(6.38)%4			13.20%			(5.36)%			(20.95)%
Ratios to Average Net Assets
Total expenses		1.13%			1.08%			1.13%			1.16%			1.10%			1.95%			1.49%			1.31%			1.32%			1.25%
Total expenses excluding recoupment of past waived fees		1.13%			1.08%			1.13%			1.16%			1.10%			1.95%			1.49%			1.31%			1.32%			1.25%
Total expenses after fees waived, reimbursed and paid indirectly		0.97%			0.97%			0.97%			0.95%			0.94%			1.29%			1.29%			1.27%			1.26%			1.23%
Net investment income		0.89%			0.98%			0.99%			1.00%			0.82%			0.56%			0.65%			0.37%			0.69%			0.54%
Supplemental Data
Net assets, end of year (000)	$	142,963		$	195,753		$	204,286		$	165,710		$	141,900		$	674		$	1,025		$	737		$	2,561		$	2,431
Portfolio turnover		156%			137%			123%			181%			117%			156%			137%			123%			181%			117%

¹  Consolidated Financial Highlights.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	27

  Financial Highlights (continued)   BlackRock Flexible Equity Fund

	Investor A															Investor B
	Year Ended September 30,															Year Ended September 30,
	20121			2011			2010			2009			2008			20121			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	9.50		$	10.21		$	9.06		$	9.66		$	14.00		$	8.58		$	9.25		$	8.23		$	8.84		$	12.92
Net investment income (loss)2		0.07			0.08			0.06			0.05			0.06			(0.02	)		(0.01	)		(0.02	)		(0.00	)3		(0.02	)
Net realized and unrealized gain (loss)		2.63			(0.72	)		1.13			(0.59	)		(2.70	)		2.39			(0.65	)		1.04			(0.56	)		(2.47	)
Net increase (decrease) from investment operations		2.70			(0.64	)		1.19			(0.54	)		(2.64	)		2.37			(0.66	)		1.02			(0.56	)		(2.49	)
Dividends and distributions from:
Net investment income		(0.06	)		(0.07	)		(0.04	)		(0.06	)		–			–			(0.01	)		–			(0.05	)		–
Tax return of capital		–			–			–			–			(0.02	)		–			–			–			–			(1.59	)
Net realized gain		–			–			–			–			(1.68	)		–			–			–			–			–
Total dividends and distributions		(0.06	)		(0.07	)		(0.04	)		(0.06	)		(1.70	)		–			(0.01	)		–			(0.05	)		(1.59	)
Net asset value, end of year	$	12.14		$	9.50		$	10.21		$	9.06		$	9.66		$	10.95		$	8.58		$	9.25		$	8.23		$	8.84
Total Investment Return4
Based on net asset value		28.54%			(6.33)%5			13.21%			(5.32)%			(21.04)%			27.62%			(7.17)%5			12.39%			(6.12)%			(21.53)%
Ratios to Average Net Assets
Total expenses		1.40%			1.37%			1.40%			1.51%			1.43%			2.31%			2.13%			2.22%			2.38%			2.24%
Total expenses excluding recoupment of past waived fees		1.40%			1.37%			1.40%			1.51%			1.43%			2.30%			2.12%			2.20%			2.38%			2.24%
Total expenses after fees waived, reimbursed and paid indirectly		1.29%			1.29%			1.29%			1.26%			1.25%			2.06%			2.06%			2.04%			2.02%			2.00%
Net investment income (loss)		0.60%			0.66%			0.61%			0.70%			0.53%			(0.19)%			(0.10)%			(0.24)%			(0.04)%			(0.21)%
Supplemental Data
Net assets, end of year (000)	$	615,464		$	587,989		$	726,666		$	395,763		$	470,265		$	17,465		$	26,233		$	42,239		$	41,196		$	67,656
Portfolio turnover		156%			137%			123%			181%			117%			156%			137%			123%			181%			117%

¹  Consolidated Financial Highlights.

²  Based on average shares outstanding.

³  Less than $(0.01) per share.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

See Notes to Financial Statements.
28	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Financial Highlights (concluded)   BlackRock Flexible Equity Fund

	Investor C															Class R
	Year Ended September 30,															Year Ended September 30,						Period July 30, 20101 to September 30, 2010
	20122			2011			2010			2009			2008			20122			2011
Per Share Operating Performance
Net asset value, beginning of period	$	8.55		$	9.22		$	8.20		$	8.81		$	12.90		$	9.75		$	10.51			$      10.24
Net investment income (loss)3		(0.02	)		(0.01	)		(0.01	)		(0.00	)4		(0.02	)		0.03			0.04			0.005
Net realized and unrealized gain (loss)		2.38			(0.64	)		1.03			(0.56	)		(2.47	)		2.71			(0.73	)		0.27
Net increase (decrease) from investment operations		2.36			(0.65	)		1.02			(0.56	)		(2.49	)		2.74			(0.69	)		0.27
Dividends and distributions from:
Net investment income		–			(0.02	)		–			(0.05	)		–			(0.03	)		(0.07	)		–
Net realized gain		–			–			–			–			(1.60	)		–			–			–
Total dividends and distributions		–			(0.02	)		–			(0.05	)		(1.60	)		(0.03	)		(0.07	)		–
Net asset value, end of period	$	10.91		$	8.55		$	9.22		$	8.20		$	8.81		$	12.46		$	9.75			$      10.51
Total Investment Return6
Based on net asset value		27.60%			(7.11)%7			12.44%			(6.14)%			(21.56)%			28.13%			(6.66)%7			13.17%8
Ratios to Average Net Assets
Total expenses		2.18%			2.16%			2.22%			2.39%			2.20%			1.78%			1.72%			2.21%9
Total expenses excluding recoupment of past waived fees		2.18%			2.16%			2.22%			2.39%			2.20%			1.78%			1.70%			2.21%9
Total expenses after fees waived, reimbursed and paid indirectly		2.06%			2.06%			2.06%			2.02%			2.00%			1.65%			1.65%			1.65%9
Net investment income (loss)		(0.18)%			(0.11)%			(0.17)%			(0.06)%			(0.22)%			0.25%			0.31%			0.08%9
Supplemental Data
Net assets, end of period (000)	$	115,242		$	112,520		$	148,923		$	92,141		$	118,186		$	1,312		$	920			$          838
Portfolio turnover		156%			137%			123%			181%			117%			156%			137%			123%

¹  Commencement of operations.

²  Consolidated Financial Highlights.

³  Based on average shares outstanding.

⁴  Less than $(0.01) per share.

⁵  Less than $ 0.01 per share.

⁶  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁷  Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

⁸  Aggregate total investment return.

⁹  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	29

  Financial Highlights     BlackRock Mid-Cap Growth Equity Portfolio

						Institutional															Service
	Year Ended September 30,														Year Ended September 30,
	2012		2011			2010			2009			2008			2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	11.10	$	11.18		$	10.27		$	10.33		$	13.49		$	10.49		$	10.60		$	9.78		$	9.87		$	12.92
Net investment income (loss)1		0.04		(0.05	)		(0.01	)		(0.04	)		(0.04	)		(0.01	)		(0.10	)		(0.05	)		(0.06	)		(0.07	)
Net realized and unrealized gain (loss)		2.44		(0.03	)		0.92			(0.02	)		(3.12	)		2.29			(0.01	)		0.87			(0.03	)		(2.98	)
Net increase (decrease) from investment operations		2.48		(0.08	)		0.91			(0.06	)		(3.16	)		2.28			(0.11	)		0.82			(0.09	)		(3.05	)
Net asset value, end of year	$	13.58	$	11.10		$	11.18		$	10.27		$	10.33		$	12.77		$	10.49		$	10.60		$	9.78		$	9.87
Total Investment Return2
Based on net asset value		22.34%		(0.72)%3			8.86%	4		(0.58)%5			(23.43	)%		21.74%			(1.04)%6			8.38%	7		(0.91)%8			(23.61)%
Ratios to Average Net Assets
Total expenses		1.11%		1.17%			1.15%			1.20%			1.07%			2.29%			1.87%			1.63%			1.65%			1.29%
Total expenses excluding recoupment of past waived fees		1.11%		1.17%			1.14%			1.20%			1.07%			2.29%			1.87%			1.62%			1.64%			1.29%
Total expenses after fees waived, reimbursed and paid indirectly		1.07%		1.17%			1.15%			1.18%			1.06%			1.58%			1.58%			1.58%			1.51%			1.28%
Net investment income (loss)		0.27%		(0.38)%			(0.09)%			(0.44)%			(0.33)%			(0.06%	)		(0.83)%			(0.52)%			(0.76)%			(0.56)%
Supplemental Data
Net assets, end of year (000)	$	18,526	$	19,348		$	24,421		$	25,572		$	26,468		$	1,865		$	714		$	330		$	360		$	459
Portfolio turnover		88%		131%			76%			53%			45%			88%			131%			76%			53%			45%

¹  Based on average shares outstanding.

²  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

³  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 (0.90)%.

⁴  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 8.47%.

⁵  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 (0.87)%.

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 (1.23)%.

⁷  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 7.98%.

⁸  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 (1.22)%.

See Notes to Financial Statements.
30	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Financial Highlights (continued)     BlackRock Mid-Cap Growth Equity Portfolio

	Investor A															Investor B
	Year Ended September 30,															Year Ended September 30,
	2012			2011			2010			2009			2008			2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	10.15		$	10.27		$	9.47		$	9.56		$	12.55		$	8.88		$	9.05		$	8.42		$	8.56		$	11.32
Net investment loss1		(0.01	)		(0.09	)		(0.05	)		(0.06	)		(0.10	)		(0.09	)		(0.16	)		(0.12	)		(0.10	)		(0.17	)
Net realized and unrealized gain (loss)		2.24			(0.03	)		0.85			(0.03	)		(2.89	)		1.96			(0.01	)		0.75			(0.04	)		(2.59	)
Net increase (decrease) from investment operations		2.23			(0.12	)		0.80			(0.09	)		(2.99	)		1.87			(0.17	)		0.63			(0.14	)		(2.76	)
Net asset value, end of year	$	12.38		$	10.15		$	10.27		$	9.47		$	9.56		$	10.75		$	8.88		$	9.05		$	8.42		$	8.56
Total Investment Return2
Based on net asset value		21.97%			(1.17)%3			8.45%4			(0.94)%5			(23.83)%			21.06%			(1.88)%6			7.48%7			(1.64)%8			(24.38)%
Ratios to Average Net Assets
Total expenses		1.55%			1.59%			1.58%			1.76%			1.53%			2.59%			2.43%			2.48%			2.73%			2.45%
Total expenses excluding recoupment of past waived fees		1.55%			1.56%			1.55%			1.72%			1.53%			2.59%			2.42%			2.47%			2.64%			2.45%
Total expenses after fees waived, reimbursed and paid indirectly		1.39%			1.58%			1.58%			1.59%			1.53%			2.16%			2.39%			2.38%			2.34%			2.31%
Net investment loss		(0.06)%			(0.79)%			(0.51)%			(0.85)%			(0.81)%			(0.88)%			(1.58)%			(1.36)%			(1.57)%			(1.58)%
Supplemental Data
Net assets, end of year (000)	$	237,748		$	232,924		$	180,501		$	181,159		$	195,980		$	5,123		$	7,596		$	8,209		$	11,978		$	19,565
Portfolio turnover		88%			131%			76%			53%			45%			88%			131%			76%			53%			45%

¹  Based on average shares outstanding.

²  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

³  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 (1.36)%.

⁴  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 8.03%.

⁵  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 (1.26)%.

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 (2.10)%.

⁷  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 7.01%.

⁸  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 (1.99)%.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	31

  Financial Highlights (concluded)     BlackRock Mid-Cap Growth Equity Portfolio

	Investor C																					Class R
	Year Ended September 30,															Year Ended September 30,
	2012			2011			2010			2009			2008			2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	8.89		$	9.05		$	8.41		$	8.56		$	11.32		$	10.13		$	10.25		$	9.46		$	9.56		$	12.55
Net investment loss1		(0.08	)		(0.16	)		(0.11	)		(0.11	)		(0.16	)		(0.03	)		(0.10	)		(0.04	)		(0.07	)		(0.10	)
Net realized and unrealized gain (loss)		1.94			(0.00	)2		0.75			(0.04	)		(2.60	)		2.22			(0.02	)		0.83			(0.03	)		(2.89	)
Net increase (decrease) from investment operations		1.86			(0.16	)		0.64			(0.15	)		(2.76	)		2.19			(0.12	)		0.79			(0.10	)		(2.99	)
Net asset value, end of year	$	10.75		$	8.89		$	9.05		$	8.41		$	8.56		$	12.32		$	10.13		$	10.25		$	9.46		$	9.56
Total Investment Return3
Based on net asset value		20.92%			(1.77)%4			7.61%5			(1.75)%6			(24.38)%			21.62%			(1.17)%7			8.35%8			(1.05)%9			(23.83)%
Ratios to Average Net Assets
Total expenses		2.31%			2.34%			2.33%			2.46%			2.25%			1.84%			1.91%			1.97%			2.04%			1.73%
Total expenses excluding recoupment of past waived fees		2.31%			2.31%			2.30%			2.44%			2.25%			1.84%			1.91%			1.97%			2.04%			1.73%
Total expenses after fees waived, reimbursed and paid indirectly		2.16%			2.33%			2.33%			2.34%			2.25%			1.65%			1.65%			1.65%			1.63%			1.58%
Net investment loss		(0.81)%			(1.54)%			(1.26)%			(1.59)%			(1.53)%			(0.28)%			(0.84)%			(0.44)%			(0.89)%			(0.82)%
Supplemental Data
Net assets, end of year (000)	$	18,774		$	16,615		$	12,578		$	12,418		$	13,964		$	6,663		$	5,227		$	4,138		$	2,323		$	723
Portfolio turnover		88%			131%			76%			53%			45%			88%			131%			76%			53%			45%

¹  Based on average shares outstanding.

²  Less than $(0.01) per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  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 (1.99)%.

⁵  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 7.13%.

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 (2.10)%.

⁷  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 (1.37)%.

⁸  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 7.93%.

⁹  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 (1.36)%.

See Notes to Financial Statements.
32	BLACKROCK FUNDS	SEPTEMBER 30, 2012

    Financial Highlights     BlackRock Small Cap Growth Equity Portfolio

	Institutional															Service
	Year Ended September 30,															Year Ended September 30,
	2012			2011			2010			2009			2008			2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	20.09		$	20.42		$	18.66		$	20.33		$	23.71		$	18.93		$	19.29		$	17.67		$	19.30		$	22.58
Net investment income (loss)1		0.04			(0.13	)		(0.12	)		(0.07	)		0.03			(0.04	)		(0.18	)		(0.16	)		(0.10	)		(0.03	)
Net realized and unrealized gain (loss)		7.14			(0.20	)2		1.88	2		(1.60	)2		(3.41	)2		6.72			(0.18	)2		1.78	2		(1.53	)2		(3.25	)2
Net increase (decrease) from investment operations		7.18			(0.33	)		1.76			(1.67	)		(3.38	)		6.68			(0.36	)		1.62			(1.63	)		(3.28	)
Distributions from net realized gain		(0.60	)		–			–			–			–			(0.60	)		–			–			–			–
Net asset value, end of year	$	26.67		$	20.09		$	20.42		$	18.66		$	20.33		$	25.01		$	18.93		$	19.29		$	17.67		$	19.30
Total Investment Return3
Based on net asset value		36.16%			(1.62)%	4,5		9.43%	5		(8.22)%	5,6		(14.26)%	5		35.72%			(1.87)%	4,5		9.17%	5		(8.45)%	5,7		(14.53)%	5
Ratios to Average Net Assets
Total expenses		0.82%			0.80%			0.83%			0.88%			0.77%			1.20%			1.07%			1.10%			1.15%			1.07%
Total expenses excluding recoupment of past waived fees		0.82%			0.80%			0.83%			0.88%			0.77%			1.20%			1.07%			1.10%			1.14%			1.07%
Total expenses after fees waived, reimbursed and paid indirectly		0.82%			0.80%			0.83%			0.88%			0.77%			1.17%			1.07%			1.10%			1.11%			1.07%
Net investment income (loss)		0.15%			(0.55)%			(0.59)%			(0.48)%			0.15%			(0.15)%			(0.81)%			(0.86)%			(0.70)%			(0.14)%
Supplemental Data
Net assets, end of year (000)	$	979,582		$	931,857		$	806,461		$	855,375		$	699,761		$	29,281		$	23,683		$	47,917		$	43,932		$	40,514
Portfolio turnover		147%			141%			128%			82%			81%			147%			141%			128%			82%			81%

¹  Based on average shares outstanding.

²  Includes redemption fees, which are less than $ 0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s 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 (8.26)%.

⁷  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 (8.50)%.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	33

  Financial Highlights (continued)   BlackRock Small Cap Growth Equity Portfolio

	Investor A														Investor B
	Year Ended September 30,														Year Ended September 30,
	2012		2011			2010			2009			2008			2012		2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	18.31	$	18.69		$	17.14		$	18.76		$	21.97		$	15.75	$	16.20		$	15.00		$	16.56		$	19.57
Net investment loss1		(0.04)		(0.21)			(0.18)			(0.13)			(0.05)			(0.21)		(0.32)			(0.30)			(0.21)			(0.21)
Net realized and unrealized gain (loss)		6.50		(0.17)	2		1.73	2		(1.49)	2		(3.16)	2		5.56		(0.13)	2		1.50	2		(1.35)	2		(2.80)	2
Net increase (decrease) from investment operations		6.46		(0.38)			1.55			(1.62)			(3.21)			5.35		(0.45)			1.20			(1.56)			(3.01)
Distributions from net realized gain		(0.60)		–			–			–			–			(0.60)		–			–			–			–
Net asset value, end of year	$	24.17	$	18.31		$	18.69		$	17.14		$	18.76		$	20.50	$	15.75		$	16.20		$	15.00		$	16.56
Total Investment Return3
Based on net asset value		35.73%		(2.03)%	4,5		9.04%	5		(8.64)%	5,6		(14.61)%	5		34.46%		(2.78)%	4,5		8.00%	5		(9.42)%	5,7		(15.38)%	5
Ratios to Average Net Assets
Total expenses		1.17%		1.18%			1.22%			1.33%			1.16%			2.07%		1.96%			2.19%			2.30%			2.08%
Total expenses excluding recoupment of past waived fees		1.17%		1.18%			1.22%			1.33%			1.16%			2.07%		1.96%			2.07%			2.20%			2.08%
Total expenses after fees waived, reimbursed and paid indirectly		1.17%		1.18%			1.22%			1.33%			1.16%			2.07%		1.96%			2.19%			2.20%			2.08%
Net investment loss		(0.18)%		(0.94)%			(0.98)%			(0.92)%			(0.22)%			(1.12)%		(1.72)%			(1.94)%			(1.72)%			(1.11)%
Supplemental Data
Net assets, end of year (000)	$	352,073	$	235,400		$	269,080		$	240,361		$	211,065		$	1,506	$	1,687		$	2,369		$	3,327		$	5,721
Portfolio turnover		147%		141%			128%			82%			81%			147%		141%			128%			82%			81%

¹  Based on average shares outstanding.

²  Includes redemption fees, which are less than $ 0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s 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 (8.69)%.

⁷  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 (9.48)%.

See Notes to Financial Statements.
34	BLACKROCK FUNDS	SEPTEMBER 30, 2012

Financial Highlights (concluded)   BlackRock Small Cap Growth Equity Portfolio

	Investor C
	Year Ended September 30,
	2012		2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	15.73	$	16.19		$	14.99		$	16.56		$	19.57
Net investment loss1		(0.19)		(0.35)			(0.30)			(0.22)			(0.21)
Net realized and unrealized gain (loss)		5.56		(0.11)	2		1.50	2		(1.35)	2		(2.80)	2
Net increase (decrease) from investment operations		5.37		(0.46)			1.20			(1.57)			(3.01)
Distributions from net realized gain		(0.60)		–			–			–			–
Net asset value, end of year	$	20.50	$	15.73		$	16.19		$	14.99		$	16.56
Total Investment Return3
Based on net asset value		34.63%		(2.84)%	4,5		8.01%	5		(9.48)%	5,6		(15.38)%	5
Ratios to Average Net Assets
Total expenses		1.99%		2.08%			2.19%			2.31%			2.08%
Total expenses excluding recoupment of past waived fees		1.99%		2.05%			2.13%			2.29%			2.08%
Total expenses after fees waived, reimbursed and paid indirectly		1.99%		2.07%			2.16%			2.22%			2.08%
Net investment loss		(0.99)%		(1.83)%			(1.92)%			(1.81)%			(1.14)%
Supplemental Data
Net assets, end of year (000)	$	28,787	$	23,947		$	33,219		$	25,915		$	24,405
Portfolio turnover		147%		141%			128%			82%			81%

¹  Based on average shares outstanding.

²  Includes redemption fees, which are less than $0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s 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 (9.54)%.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	35

Notes to Financial Statements

1. Organization and Significant Accounting Policies:

BlackRock Funds^SM (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. BlackRock Flexible Equity Fund (“Flexible Equity”), BlackRock Mid-Cap Growth Equity Portfolio (“Mid-Cap Growth Equity”) and BlackRock Small Cap Growth Equity Portfolio (“Small Cap Growth Equity”) (collectively, the “Funds” or individually, a “Fund”) are each a series of the Trust. The Funds are classified as diversified. The Funds’ financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US 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 offers multiple classes of shares. Institutional Shares are sold without a sales charge and only to certain eligible investors. Service Shares are sold without a sales charge. Investor A Shares are generally sold with a front-end sales charge. Investor B and Investor C Shares may be subject to a CDSC. Class R Shares are sold without a sales charge and only to certain retirement and other similar plans. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Service, Investor A, Investor B, Investor C and Class R Shares bear certain expenses related to the shareholder servicing of such shares, and Investor B, Investor C and Class R Shares also bear certain expenses related to the distribution of such shares. Investor B Shares automatically convert to Investor A Shares after approximately eight years. Investor B Shares are only available through exchanges, dividend reinvestment by existing shareholders or for purchase by certain qualified employee benefit plans. 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).

Reorganization: The Board of Trustees of the Trust (the “Board”) on behalf of Mid-Cap Growth Equity and the Board and shareholders of BlackRock Small/Mid-Cap Growth Portfolio (“Small/Mid-Cap Growth”), a series of the Trust, approved the reorganization of Small/Mid-Cap Growth into Mid-Cap Growth Equity pursuant to which Mid-Cap Growth Equity acquired substantially all of the assets and assumed certain stated liabilities of Small/ Mid-Cap Growth in exchange for an equal aggregate value of Mid-Cap Growth Equity shares.

Each shareholder of Small/Mid-Cap Growth received shares of Mid-Cap Growth Equity with the same class designation and an amount equal to the aggregate NAV of such shareholder’s Small/Mid-Cap Growth shares, as determined at the close of business on September 9, 2011.

The reorganization was accomplished by a tax-free exchange of shares of Mid-Cap Growth Equity in the following amounts and at the following conversion ratios:

	Small/Mid-Cap Growth Shares Prior to Reorganization	Conversion Ratio		Shares of Mid-Cap Growth Equity
Institutional	325,605		1.02754184	334,572
Investor A	6,985,641		1.04197646	7,278,873
Investor B	302,749		0.99544086	301,369
Investor C	784,243		0.99592366	781,046
Class R	216,432		1.02709786	222,297

Small/Mid-Cap Growth’s net assets and composition of net assets on September 9, 2011, the date of the reorganization, were as follows:

Net   Assets	Paid-in Capital	Accumulated Net Realized Loss	Net Unrealized Appreciation
$92,348,707	$99,897,827	$(8,980,281)	$1,431,161

For financial reporting purposes, assets received and shares issued by Mid-Cap Growth Equity were recorded at fair value. However, the cost basis of the investments received from Small/Mid-Cap Growth was carried forward to align ongoing reporting of Mid-Cap Growth Equity’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.

The net assets of Mid-Cap Growth Equity before the acquisition were $202,563,209. The aggregate net assets of Mid-Cap Growth Equity immediately after the acquisition amounted to $294,911,916. Small/ Mid-Cap Growth’s fair value and cost of investments prior to the reorganization were $93,085,931 and $91,654,770, respectively.

The purpose of the transaction was to combine two funds managed by the Manager, the investment advisor to both Small/Mid-Cap Growth and Mid-Cap Growth Equity, with the same or substantially similar (but not identical) investment objectives, investment policies, strategies, risks and restrictions. The reorganization was a tax-free event and was effective on September 12, 2011.

Assuming the acquisition had been completed on October 1, 2010, the beginning of the annual reporting period of Mid-Cap Growth Equity, the pro forma results of operations for the year ended September 30, 2011, were as follows:

• Net investment loss: $(3,404,549)

• Net realized and change in unrealized gain/loss on investments: $10,629,156*

• Net increase in net assets resulting from operations: $7,224,607*

*The amounts previously presented in the above disclosure of pro forma net realized and change in unrealized gain/loss on investments, as well as net increase in net assets resulting from operations, have been updated from $12,060,317 and $8,655,768, respectively, to correct the net unrealized appreciation from Small/Mid-Cap Growth in the pro forma results.

Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of Small/ Mid-Cap Growth that have been included in Mid-Cap Growth Equity’s Statement of Changes since September 12, 2011.

 36   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

Reorganization costs incurred by Mid-Cap Growth Equity in connection with the reorganization were expensed by Mid-Cap Growth Equity.

The following is a summary of significant accounting policies followed by the Funds:

Basis of Consolidation: The accompanying consolidated financial statements of Flexible Equity include the accounts of BlackRock Flexible Equity Fund Subsidiary, Ltd. (the “Subsidiary”), a wholly owned subsidiary of Flexible Equity, which primarily invests in commodity-related instruments. The Subsidiary enables Flexible Equity to hold these commodity-related instruments and still satisfy Regulated Investment Company (“RIC”) tax requirements. Flexible Equity may invest up to 20% of its total assets in the Subsidiary. Intercompany accounts and transactions have been eliminated. The Subsidiary is subject to the same investment policies and restrictions that apply to Flexible Equity.

Valuation: US 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 fair value 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 or the NASDAQ Global Market System (“NASDAQ”) are valued at the last reported sale price that day or the NASDAQ official closing price, if applicable. For equity investments traded on more than one exchange, the last reported sale 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 are valued at the last available bid price. If no bid price is available, the prior day’s price will be used, unless it is determined that such prior day’s price no longer reflects the fair value of the security. Financial futures contracts traded on exchanges are valued at their last sale price. Investments in open-end registered investment companies are valued at NAV each business day.

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 in the Money Market Series to withdraw more than 25% on any one day.

Securities and other assets and liabilities denominated in foreign currencies are translated into US dollars using exchange rates determined as of the close of business on the New York Stock Exchange (“NYSE”). 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.

In the event that 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 Assets”). When determining the price for Fair Value Assets, the Global Valuation Committee, or its delegate, seeks to determine the price that each Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the investment advisor deems relevant consistent with the principles of fair value measurement which include the market approach, income approach and/or cost approach, as appropriate. A market approach generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to present value and 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 Trust’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 37 

Notes to Financial Statements (continued)

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 Assets 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 (for example, a company announcement, market volatility or a natural disaster) occur during such periods that are expected to affect the value of such instruments materially, those instruments may be Fair Value Assets and valued at their fair value, as determined in good faith by the Global Valuation Committee 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: The Funds’ books and records are maintained in US dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective date of such transactions. Generally, when the US dollar rises in value against a foreign currency, the Funds’ investments denominated in that currency will lose value because that currency is worth fewer US dollars; the opposite effect occurs if the US dollar falls in relative value.

The Funds do 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 on 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. The Funds report realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are treated as ordinary income for federal income tax purposes.

Segregation and Collateralization: In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”) require that each Fund either deliver collateral or segregate assets in connection with certain investments (e.g., financial futures contracts, foreign currency exchange contracts and options written), each Fund will, consistent with SEC rules and/or certain interpretive letters issued by the SEC, segregate collateral or designate on its books and records cash or liquid securities having a market value at least equal to the amount that would otherwise be required to be physically segregated. Furthermore, based on requirements and agreements with

certain exchanges and third party broker-dealers, a Fund engaging in such transactions may have requirements to deliver/deposit securities to/with an exchange or broker-dealer as collateral for certain investments.

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 dates. 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 and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Dividends and Distributions: Dividends and distributions paid by the Funds are recorded on the ex-dividend dates. The portion of distributions that exceeds a Fund’s current and accumulated earnings and profits, which are measured on a tax basis, will constitute a nontaxable return of capital. Distributions in excess of a Fund’s taxable income and net capital gains, but not in excess of a Fund’s earnings and profits, will be taxable to shareholders as ordinary income and will not constitute a non-taxable return of capital. Capital losses carried forward from years beginning before 2011 do not reduce earnings and profits, even if such carried forward losses offset current year realized gains. The character and timing of dividends and distributions are determined in accordance with federal income tax regulations, which may differ from US GAAP.

Securities Lending: The Funds may lend securities to approved borrowers, such as banks, brokers and other financial institutions. The borrower pledges cash, securities issued or guaranteed by the US government or irrevocable letters of credit issued by a bank as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Funds and any additional required collateral is delivered to the Funds on the next business day. Securities lending income, as disclosed in the Statements of Operations, represents the income earned from the investment of the cash collateral, net of rebates paid to, or fees paid by, borrowers and less the fees paid to the securities lending agent. During the term of the loan, the Funds earn dividend or interest income on the securities loaned but do not receive dividend or interest income on the securities received as collateral. 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. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Funds could experience delays and costs in gaining access to the collateral. The

 38   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

Funds also 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. During the year ended September 30, 2012, any securities on loan were collateralized by cash.

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

Each Fund files US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Funds’ US federal tax returns remains open for each of the four years ended September 30, 2012. 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 does not believe there are any uncertain tax positions that require recognition of a tax liability.

Recent Accounting Standard: In December 2011, the Financial Accounting Standards Board issued guidance that will expand current disclosure requirements on the offsetting of certain assets and liabilities. The new disclosures will be required for investments and derivative financial instruments subject to master netting or similar agreements which are eligible for offset in the Statements of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial statements. The guidance is effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within those fiscal years. Management is evaluating the impact 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 class. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Funds and other shared expenses pro rated 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 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 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.

2. 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 hedge, or protect, their exposure to certain risks such as equity risk and foreign currency exchange rate risk. These contracts may be transacted on an exchange or OTC.

Losses may arise if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument or if the counterparty does not perform under the contract. The Funds’ maximum risk of loss from counterparty credit risk on OTC derivatives is generally the aggregate unrealized gain netted against any collateral pledged by/posted to the counterparty. For OTC options purchased, the Funds bear the risk of loss in the amount of the premiums paid plus the positive change in market values net of any collateral received on the options should the counterparty fail to perform under the contracts. Options written by the Funds do not give rise to counterparty credit risk, as options written obligate the Funds to perform and not the counterparty. Counterparty risk related to exchange-traded options is deemed to be minimal due to the protection against defaults provided by the exchange on which these contracts trade.

The Funds may mitigate counterparty risk by procuring collateral and through netting provisions included within an International Swaps and Derivatives Association, Inc. master agreement (“ISDA Master Agreement”) implemented between a Fund and each of its respective counterparties. An ISDA Master Agreement allows each Fund to offset with each separate counterparty certain derivative financial instrument’s payables and/or receivables with collateral held. The amount of collateral moved to/from applicable counterparties is generally based upon minimum transfer amounts of up to $500,000. To the extent amounts due to the Funds from their counterparties are not fully collateralized contractually or otherwise, the Funds bear the risk of loss from counterparty non-performance. See Note 1 “Segregation and Collateralization” for information with respect to collateral practices. In addition, the Funds manage counterparty risk by entering into agreements only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties.

Certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Funds’ net assets decline by a stated percentage or the Funds fail to meet the terms of their ISDA Master Agreements, which would cause the Funds to accelerate payment of any net liability owed to the counterparty.

Financial Futures Contracts: Flexible Equity purchases or sells financial futures contracts to gain exposure to, or economically hedge against, changes in the value of equity securities (equity risk). Financial futures contracts are agreements between Flexible Equity and 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. Pursuant to the contract, Flexible Equity 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 and are recorded by Flexible Equity as unrealized appreciation or depreciation. When the contract is closed, Flexible Equity records a realized gain or

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 39 

Notes to Financial Statements (continued)

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 and the underlying assets.

Foreign Currency Exchange Contracts: Flexible Equity enters into foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to foreign currencies (foreign currency exchange rate risk). A 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. 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 foreign currency exchange contracts involves the risk that the value of a foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies and the risk that a counterparty to the contract does not perform its obligations under the agreement.

Options: The 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 at a price different from the current market value.

Derivative Financial Instruments Categorized by Risk Exposure:

	Fair Values of Derivative Financial Instruments as of September 30, 2012
	Asset Derivatives
						Flexible Equity
	Statements of Assets and Liabilities Location					Value
Foreign currency exchange contracts	Unrealized appreciation on foreign currency exchange contracts					$	50,221
Equity contracts	Investments at value – unaffiliated1; Net unrealized appreciation/ depreciation2						928,793
Total						$	979,014
	Liability Derivatives
		Flexible Equity		Mid-Cap Growth Equity		Small Cap Growth Equity
	Statements of Assets and Liabilities Location			Value
Foreign currency exchange contracts	Unrealized depreciation on foreign currency exchange contracts	$	677,598		–		–
Equity contracts	Options written at value		374,040	$	99,650	$	826,870
Total		$	1,051,638	$	99,650	$	826,870

¹ Includes options purchased at value as reported in the Schedule of Investments.

² Includes cumulative appreciation/depreciation on financial futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities.

40   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

The Effect of Derivative Financial Instruments in the Statements of Operations Year Ended September 30, 2012
	Net Realized Gain (Loss) From
	Flexible Equity			Mid-Cap Growth Equity			Small Cap Growth Equity
Foreign currency exchange contracts:
Foreign currency transactions	$	213,459			–			–
Equity contracts:
Financial futures contracts		(1,844,813	)		–			–
Options3		326,098		$	(74,872	)	$	(270,621	)
Total	$	(1,305,256	)	$	(74,872	)	$	(270,621	)

	Net Change in Unrealized Appreciation/Depreciation on
	Flexible Equity			Mid-Cap Growth Equity			Small Cap Growth Equity
Foreign currency exchange contracts:
Foreign currency translations	$	(627,377	)		–			–
Equity contracts:
Financial futures contracts		515,956			–			–
Options3		(53,763	)	$	(57,385	)	$	(477,733	)
Total	$	(165,184	)	$	(57,385	)	$	(477,733	)

³ 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 year ended September 30, 2012, the average quarterly balances of outstanding derivative financial instruments were as follows:

	Flexible Equity		Mid-Cap Growth Equity		Small Cap Growth Equity
Financial futures contracts:
Average number of contracts sold		104		–		–
Average notional value of contracts sold	$	7,785,615		–		–
Foreign currency exchange contracts:
Average number of contracts - US dollars purchased		1		–		–
Average number of contracts - US dollars sold		1		–		–
Average US dollar amounts purchased	$	8,656,456		–		–
Average US dollar amounts sold	$	2,329,715		–		–
Options:
Average number of option contracts purchased		1		–		–
Average number of option contracts written		1		1		1
Average notional value of option contracts purchased	$	6,628,125		–		–
Average notional value of option contracts written	$	6,327,500	$	525,750	$	3,342,425

3. Investment Advisory Agreement and Other Transactions with Affiliates:

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

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 and administration services. The Manager is responsible for the management of each Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary 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	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 Manager in the Statements of Operations. For the year ended September 30, 2012, the amounts waived were as follows:

Flexible Equity	$	12,847
Mid-Cap Growth Equity	$	3,248
Small Cap Growth Equity	$	11,098

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 includes the assets of the Subsidiary.

The Trust, on behalf of the Funds, entered into a Distribution Agreement and 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 Funds pay 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 shares 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%

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 41 

Notes to Financial Statements (continued)

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.

For the year ended September 30, 2012, the following table shows the class specific service and distribution fees borne directly by each class of each Fund:

	Flexible Equity		Mid-Cap Growth Equity		Small Cap Growth Equity
Service	$	3,031	$	3,072	$	68,376
Investor A		1,601,075		631,823		822,141
Investor B		226,854		66,369		17,417
Investor C		1,215,772		188,932		276,484
Class R		5,736		30,984		–
Total	$	3,052,468	$	921,180	$	1,184,418

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 annual fee per shareholder account, which will vary depending on share class and/or net assets. For the year ended September 30, 2012, the Funds paid the following to the affiliates in return for these services, which are included in transfer agent – class specific in the Statements of Operations:

Flexible Equity	$	12,418
Mid-Cap Growth Equity	$	8,978
Small Cap Growth Equity	$	215,970

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 year ended September 30, 2012, 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:

	Flexible Equity		Mid-Cap Growth Equity		Small Cap Growth Equity
Institutional	$	2,391	$	1,004	$	5,577
Service		1,212		2,040		6,151
Investor A		52,222		66,724		19,399
Investor B		5,497		3,903		348
Investor C		5,706		5,890		1,245
Class R		46		150		–
Total	$	67,074	$	79,711	$	32,720

For the year ended September 30, 2012, the following table shows the class specific transfer agent fees borne directly by each class of each Fund:

	Flexible Equity		Mid-Cap Growth Equity		Small Cap Growth Equity
Institutional	$	368,953	$	28,155	$	1,674,354
Service		9,360		13,150		79,289
Investor A		1,425,395		824,030		878,935
Investor B		90,866		41,175		7,173
Investor C		304,862		63,932		93,555
Class R		4,019		22,789		–
Total	$	2,203,455	$	993,231	$	2,733,306

BNY Mellon Investment Servicing (US) Inc. (“BNYMIS”) and the Manager act as co-administrators for the Funds. For these services, the co-administrators receive a combined administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of each Fund. The combined administration fee is paid at the following annual rates: 0.075% of the first $500 million, 0.065% of the next $500 million and 0.055% of the average daily net assets in excess of $1 billion. In addition, each of the share classes is charged an administration fee based on the following percentages of average daily net assets of each respective class: 0.025% of the first $500 million, 0.015% of the next $500 million and 0.005% of the average daily net assets in excess of $1 billion. In addition, 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. For the year ended September 30, 2012, the Funds paid the following to the Manager in return for these services, which are included in administration, administration – class specific, administration fees waived and administration fees waived – class specific in the Statements of Operations:

Flexible Equity	$	483,535
Mid-Cap Growth Equity	$	158,694
Small Cap Growth Equity	$	940,273

For the year ended September 30, 2012, the following table shows the administration fees – class specific borne directly by each class of each Fund:

	Flexible Equity		Mid-Cap Growth Equity		Small Cap Growth Equity
Institutional	$	45,125	$	5,242	$	196,362
Service		303		307		6,851
Investor A		146,239		63,183		82,329
Investor B		5,783		1,659		437
Investor C		30,455		4,723		6,928
Class R		287		1,549		–
Total	$	228,192	$	76,663	$	292,907

 42   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

The Manager contractually or voluntarily agreed to waive and/or reimburse fees or expenses, excluding interest expense, dividend 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, in order to limit expenses. 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			Contractual			Contractual4			Voluntary2
Institutional		0.97	%		1.11	%3		1.02	%		–
Service		1.29	%		1.58	%4		1.29	%		1.18	%
Investor A		1.29	%		1.39	%3		1.50	%		–
Investor B		2.06	%		2.16	%3		2.28	%		–
Investor C		2.06	%		2.16	%3		2.28	%		–
Class R		1.65	%5		1.65	%4		1.72	%6		–

¹ The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to August 1, 2013, except for Class R Shares which is prior to August 1, 2022, unless approved by the Board, including a majority of the independent Trustees.

² The voluntary waiver or reimbursement 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, 2014 unless approved by the Board, including a majority of the independent Trustees.

⁴ The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement until February 1, 2013.

⁵ On August 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 September 30, 2012.

These amounts are included in fees waived by 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 year ended September 30, 2012, the Manager waived $ 3,058 of investment advisory fees for Flexible Equity, which are included in fees waived by Manager. Class specific expense waivers or reimbursements are as follows:

Administration Fees Waived
	Flexible Equity		Mid-Cap Growth Equity		Small Cap Growth Equity
Institutional	$	45,125	$	1,640		–
Service		303		307	$	3,856
Investor A		145,853		63,183		–
Investor B		5,430		1,659		–
Investor C		30,146		4,723		–
Class R		286		1,540		–
Total	$	227,143	$	73,052	$	3,856

Transfer Agent Fees Waived
	Flexible Equity		Mid-Cap Growth Equity		Small Cap Growth Equity
Institutional	$	2,391	$	781		–
Service		1,212		2,040	$	1,237
Investor A		52,079		66,723		–
Investor B		5,489		3,903		–
Investor C		6,196		5,890		–
Class R		45		147		–
Total	$	67,412	$	79,484	$	1,237

Transfer Agent Fees Reimbursed
	Flexible Equity		Mid-Cap Growth Equity		Small Cap Growth Equity
Institutional	$	239,281	$	6,359		–
Service		6,433		6,388	$	2,437
Investor A		470,163		267,910		–
Investor B		46,842		23,089		–
Investor C		104,119		17,855		–
Class R		1,087		10,061		–
Total	$	867,925	$	331,662	$	2,437

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 year ended September 30, 2012, the Manager recouped the following waivers previously recorded by the Funds:

	Flexible Equity		Mid-Cap Growth Equity
Institutional		–	$	656
Investor A	$	283		–
Investor B		2,372		–
Investor C		596		–
Class R		3
Total	$	3,254	$	656

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 43 

Notes to Financial Statements (continued)

On September 30, 2012, the amounts subject to possible future recoupment under the expense limitation agreement are as follows:

	Expiring September 30,
	2013		2014
Flexible Equity	$	1,061,191	$	1,165,538
Mid-Cap Growth Equity	$	46,944	$	484,198

The following waivers previously recorded by the Funds, which were subject to recoupment by the Manager, expired on September 30, 2012:

Flexible Equity	$	988,464
Mid-Cap Growth Equity	$	18,353

For the year ended September 30, 2012, affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of each Fund’s Investor A Shares as follows:

Flexible Equity	$	8,373
Mid-Cap Growth Equity	$	5,893
Small Cap Growth Equity	$	12,051

For the year ended September 30, 2012, affiliates received CDSCs as follows:

	Investor A		Investor B		Investor C
Flexible Equity	$	185	$	14,688	$	4,184
Mid-Cap Growth Equity		–	$	4,469	$	1,708
Small Cap Growth Equity	$	1,565	$	2,092	$	2,328

The Funds received an exemptive order from the SEC permitting them, among other things, to pay an affiliated securities lending agent a fee based on a share of the income derived from the securities lending activities and have retained BlackRock Investment Management, LLC (“BIM”) as the securities lending agent. BIM may, on behalf of the Funds, invest cash collateral received by a Fund for such loans, among other things, in a private investment company managed by the Manager or in registered money market funds advised by the Manager or its affiliates. As securities lending agent, BIM is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BIM does not receive any fees for managing the cash collateral. The market value of securities on loan and the value of the related collateral, if applicable, are shown in the Statements of Assets and Liabilities as securities loaned at value and collateral on securities loaned at value, respectively. The cash collateral invested by BIM is disclosed in the Schedules of Investments, if any. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of rebates paid to, or fees paid by, borrowers of securities. The Funds retain 65% of securities lending income and pay a fee to BIM equal to 35% of such income. The share of income earned by the Funds is shown as securities lending – affiliated in the Statements of Operations. For the year ended September 30, 2012, BIM received $857,818 in securities lending agent fees related to securities lending activities for the Funds.

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.

4. Investments:

Purchases and sales of investments, excluding short-term securities, for the year ended September 30, 2012, were as follows:

	Purchases		Sales
Flexible Equity	$	1,468,853,678	$	1,819,415,211
Mid-Cap Growth Equity	$	265,455,318	$	317,409,758
Small Cap Growth Equity	$	2,013,874,072	$	2,282,848,638

Transactions in options written for the year ended September 30, 2012, were as follows:

Flexible Equity
	Calls						Puts
	Contracts			Premiums Received			Contracts			Premiums Received
Outstanding options, beginning of year		–			–			1,750		$	55,574
Options written		12,725		$	1,008,999			1,000			62,977
Options expired		(5,605	)		(365,555	)		(2,250	)		(65,063	)
Options closed		(2,500	)		(48,001	)		(500	)		(53,488	)
Outstanding options, end of year		4,620		$	595,443			–			–

Mid-Cap Growth Equity
	Calls						Puts
	Contracts			Premiums Received			Contracts			Premiums Received
Outstanding options, beginning of year		–			–			–			–
Options written		3,990		$	469,332			555		$	43,832
Options expired		(1,330	)		(95,896	)		(555	)		(43,832	)
Options closed		(2,335	)		(331,171	)		–			–
Outstanding options, end of year		325		$	42,265			–			–

Small Cap Growth Equity
	Calls						Puts
	Contracts			Premiums Received			Contracts			Premiums Received
Outstanding options, beginning of year		–			–			–			–
Options written		21,429		$	2,348,247			2,360		$	186,383
Options expired		(8,194	)		(533,441	)		(2,360	)		(186,383	)
Options closed		(10,637	)		(1,465,669	)		–			–
Outstanding options, end of year		2,598		$	349,137			–			–

 44   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

5. Income Tax Information:

US GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of September 30, 2012 attributable to foreign currency transactions, a net operating loss and income recognized from pass-through entities were reclassified to the following accounts:

	Flexible Equity			Mid-Cap Growth Equity
Paid-in capital		–		$	(55,109	)
Undistributed (accumulated) net investment income (loss)	$	(281,151	)	$	7,170
Accumulated net realized gain (loss)	$	281,151		$	47,939

The tax character of distributions paid during the fiscal years ended September 30, 2012 and September 30, 2011 was as follows:

	Flexible Equity		Small Cap Growth Equity
Ordinary income
9/30/12	$	5,400,098		–
9/30/11		7,400,062		–
Long-term capital gain
9/30/12		–	$	34,920,055
Total
9/30/12	$	5,400,098	$	34,920,055
9/30/11	$	7,400,062		–

As of September 30, 2012, the tax components of accumulated net earnings (losses) were as follows:

	Flexible Equity			Mid-Cap Growth Equity			Small Cap Growth Equity
Undistributed ordinary income	$	2,225,453			–		$	59,403,269
Undistributed long-term capital gains		–			–			70,627,231
Capital loss carryforwards		(84,814,594	)	$	(3,533,810	)		–
Net unrealized gains1		62,271,951			38,534,105			189,652,175
Qualified late-year losses2		–			(327,704	)		–
Total	$	(20,317,190	)	$	34,672,591		$	319,682,675

¹  The differences between book-basis and tax-basis net unrealized gains are attributable primarily to the tax deferral of losses on wash sales, the tax deferral of losses on straddles, the realization for tax purposes of unrealized gains/ losses on certain futures and foreign exchange contracts, the realization for tax purposes of unrealized gains on investments in passive foreign investment companies and the investment in a wholly owned subsidiary.

²  The Fund has elected to defer certain qualified late-year losses and recognize such losses in the year ending September 30, 2013.

As of September 30, 2012, the Funds had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates:

Expires September 30,	Flexible Equity		Mid-Cap Growth Equity
2017		–	$	3,364,529
2018	$	84,814,594		169,281
Total	$	84,814,594	$	3,533,810

As of September 30, 2012, the funds listed below utilized the following amounts of their respective capital loss carryforward:

Flexible Equity	$	40,986,763
Mid-Cap Growth Equity	$	18,753,153

As of September 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

	Flexible Equity			Mid-Cap Growth Equity			Small Cap Growth Equity
Tax cost	$	835,646,963		$	281,506,301		$	1,476,057,528
Gross unrealized appreciation	$	65,096,791		$	48,012,331		$	234,818,045
Gross unrealized depreciation		(2,984,804	)		(9,199,095	)		(43,744,713	)
Net unrealized appreciation	$	62,111,987		$	38,813,236		$	191,073,332

6. Borrowings:

The Trust, on behalf of the Funds, along with certain other funds managed by the Manager and its affiliates, is a party to a $ 500 million credit agreement with a group of lenders, which expires in November 2012 and was subsequently renewed until November 2013. The Funds may borrow under the credit agreement to fund shareholder redemptions. Effective November 2010 to November 2011, the credit agreement had the following terms: a commitment fee of 0.08% per annum based on the Funds’ pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month London Interbank Offered Rate (“LIBOR”) plus 1.00% per annum or (b) the Fed Funds rate plus 1.00% per annum on amounts borrowed. In addition, the Funds paid administration and arrangement fees which were allocated to the Funds based on their net assets as of October 31, 2010. The credit agreement, which expired in November 2011, was renewed until November 2012. Effective November 2011 to November 2012, the credit agreement has the following terms: a commitment fee of 0.065% per annum based on the Funds’ pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 0.80% per annum or (b) the Fed Funds rate plus 0.80% per annum on amounts borrowed. In addition, the Funds paid administration and arrangement fees which were allocated to the Funds based on their net assets as of October 31, 2011. The Funds did not borrow under the credit agreement during the year ended September 30, 2012.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 45 

Notes to Financial Statements (continued)

7. Concentration, Market and Credit Risk:

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 September 30, 2012, Mid-Cap Growth Equity invested a significant portion of its assets in securities in the information technology, consumer discretionary and health care sectors. Changes in economic conditions affecting the information technology, consumer discretionary and health care sectors would have a greater impact on Mid-Cap Growth Equity and could affect the value, income and/or liquidity of positions in such securities.

As of September 30, 2012, Small Cap Growth Equity invested a significant portion of its assets in securities in the health care and information technology sectors. Changes in economic conditions affecting the health care and information technology sectors would have a greater impact on Small Cap Growth Equity and could affect the value, income and/or liquidity of positions in such securities.

8. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

	Year Ended September 30, 2012						Year Ended September 30, 2011
Flexible Equity		Shares			Amount			Shares			Amount
Institutional
Shares sold		3,731,617		$	43,003,310			6,509,862		$	77,245,215
Shares issued in reinvestment of dividends		137,628			1,496,015			128,801			1,469,614
Shares redeemed		(12,425,386	)		(143,027,218	)		(6,077,324	)		(72,257,371	)
Net increase (decrease)		(8,556,141	)	$	(98,527,893	)		561,339		$	6,457,458
Service
Shares sold		25,128		$	283,156		$	52,134		$	599,387
Shares issued in reinvestment of dividends		670			7,167			312			3,505
Shares redeemed		(77,438	)		(902,601	)		(17,365	)		(202,577	)
Net increase (decrease)		(51,640	)	$	(612,278	)		35,081		$	400,315
Investor A
Shares sold and automatic conversion of shares		5,688,063		$	64,366,809			8,354,777		$	95,689,822
Shares issued in reinvestment of dividends		341,640			3,604,318			448,160			4,965,604
Shares redeemed		(17,231,026	)		(195,319,007	)		(18,072,495	)		(206,259,093	)
Net decrease		(11,201,323	)	$	(127,347,880	)		(9,269,558	)	$	(105,603,667	)
Investor B
Shares sold		11,389		$	116,032			26,595		$	270,530
Shares issued in reinvestment of dividends		–			–			3,305			33,308
Shares redeemed and automatic conversion of shares		(1,472,614	)		(15,063,208	)		(1,542,686	)		(15,892,141	)
Net decrease		(1,461,225	)	$	(14,947,176	)		(1,512,786	)	$	(15,588,303	)

46   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

	Year Ended September 30, 2012						Year Ended September 30, 2011
Flexible Equity (concluded)		Shares			Amount			Shares			Amount
Investor C
Shares sold		589,178		$	6,007,610			1,304,791		$	13,523,538
Shares issued in reinvestment of dividends		–			–			25,130			252,303
Shares redeemed		(3,183,829	)		(32,459,585	)		(4,328,420	)		(44,713,990	)
Net decrease		(2,594,651	)	$	(26,451,975	)		(2,998,499	)	$	(30,938,149	)
Class R
Shares sold		32,938		$	379,797			41,377		$	503,720
Shares issued in reinvestment of dividends		207			2,690			499			5,689
Shares redeemed		(22,155	)		(264,698	)		(27,177	)		(317,648	)
Net increase		10,990		$	117,789			14,699		$	191,761
Total Net Decrease		(23,853,990	)	$	(267,769,413	)		(13,169,724	)	$	(145,080,585	)
Mid-Cap Growth Equity
Institutional
Shares issued in the reorganization1		–			–			334,572		$	3,832,627
Shares sold		327,408		$	4,337,692			168,193			2,166,903
Shares redeemed		(706,323	)		(9,219,532	)		(943,989	)		(11,724,048	)
Net decrease		(378,915	)	$	(4,881,840	)		(441,224	)	$	(5,724,518	)
Service
Shares sold		99,437		$	1,219,125			53,858		$	659,568
Shares redeemed		(21,433	)		(270,418	)		(16,917	)		(201,967	)
Net increase		78,004		$	948,707			36,941		$	457,601
Investor A
Shares issued in the reorganization1		–			–			7,278,873		$	76,262,939
Shares sold and automatic conversion of shares		1,630,591		$	19,744,816			821,451			9,555,528
Shares redeemed		(5,369,160	)		(63,675,315	)		(2,738,897	)		(31,713,217	)
Net increase (decrease)		(3,738,569	)	$	(43,930,499	)		5,361,427		$	54,105,250
Investor B
Shares issued in the reorganization1		–			–			301,369		$	2,763,072
Shares sold		6,933		$	73,402			4,104			42,022
Shares redeemed and automatic conversion of shares		(385,746	)		(4,009,480	)		(356,866	)		(3,666,901	)
Net decrease		(378,813	)	$	(3,936,078	)		(51,393	)	$	(861,807	)
Investor C
Shares issued in the reorganization1		–			–			781,046		$	7,166,019
Shares sold		260,985		$	2,700,519			143,308			1,461,945
Shares redeemed		(384,665	)		(4,022,564	)		(443,743	)		(4,626,917	)
Net increase (decrease)		(123,680	)	$	(1,322,045	)		480,611		$	4,001,047

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 47 

Notes to Financial Statements (concluded)

	Year Ended September 30, 2012						Year Ended September 30, 2011
Mid-Cap Growth Equity (concluded)		Shares			Amount			Shares			Amount
Class R
Shares issued in the reorganization1		–			–			222,297		$	2,324,050
Shares sold		231,657		$	2,894,192			197,272			2,255,026
Shares redeemed		(206,773	)		(2,431,050	)		(307,256	)		(3,617,723	)
Net increase		24,884		$	463,142			112,313		$	961,353
Total Net Increase (Decrease)		(4,517,089	)	$	(52,658,613	)		5,498,675		$	52,938,926
1 See Note 1 regarding the reorganization.
Small Cap Growth Equity
Institutional
Shares sold		10,380,832		$	255,861,999			18,551,956		$	439,584,953
Shares issued in reinvestment of distributions		1,043,023			24,469,310			–			–
Shares redeemed		(21,082,184	)		(515,675,445	)		(11,662,254	)		(278,499,643	)
Net increase (decrease)		(9,658,329	)	$	(235,344,136	)		6,889,702		$	161,085,310
Service
Shares sold		429,327		$	9,882,370			471,352		$	10,611,161
Shares issued in reinvestment of distributions		28,033			618,413			–			–
Shares redeemed		(537,530	)		(12,325,813	)		(1,704,268	)		(35,739,318	)
Net decrease		(80,170	)	$	(1,825,030	)		(1,232,916	)	$	(25,128,157	)
Investor A
Shares sold and automatic conversion of shares		8,081,405		$	177,169,628			3,960,009		$	86,832,105
Shares issued in reinvestment of distributions		338,833			7,223,937			–			–
Shares redeemed		(6,705,533	)		(149,679,475	)		(5,506,578	)		(120,110,671	)
Net increase (decrease)		1,714,705		$	34,714,090			(1,546,569	)	$	(33,278,566	)
Investor B
Shares sold		4,595		$	85,311			16,430		$	317,768
Shares issued in reinvestment of distributions		3,114			56,765			–			–
Shares redeemed and automatic conversion of shares		(41,356	)		(784,360	)		(55,590	)		(1,050,685	)
Net decrease		(33,647	)	$	(642,284	)		(39,160	)	$	(732,917	)
Investor C
Shares sold		269,675		$	5,203,324			367,663		$	6,971,644
Shares issued in reinvestment of distributions		45,987			837,427			–			–
Shares redeemed		(433,308	)		(8,188,106	)		(896,784	)		(17,118,814	)
Net decrease		(117,646	)	$	(2,147,355	)		(529,121	)	$	(10,147,170	)
Total Net Increase (Decrease)		(8,175,087	)	$	(205,244,715	)		3,541,936		$	91,798,500

Prior to April 1, 2011, there was a 2% redemption fee on shares of Small Cap Growth Equity redeemed or exchanged that have been held 30 days or less. The redemption fees were collected and retained by the Fund for the benefit of the remaining shareholders. The redemption fees were recorded as a credit to paid-in capital. Effective April 1, 2011, the redemption fee was terminated and is no longer charged by the Fund.

9. Subsequent Events:

Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in the financial statements.

 48   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of BlackRock Funds and Shareholders of BlackRock Mid-Cap Growth Equity Portfolio, BlackRock Flexible Equity Fund and BlackRock Small Cap Growth Equity Portfolio:

We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of the BlackRock Mid-Cap Growth Equity Portfolio and BlackRock Small Cap Growth Equity Portfolio as of September 30, 2012, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. We have also audited the consolidated statement of assets and liabilities, including the consolidated schedule of investments, of the BlackRock Flexible Equity Fund (formerly BlackRock Mid-Cap Value Equity Portfolio) (collectively with BlackRock Mid-Cap Growth Equity Portfolio and BlackRock Small Cap Growth Equity Portfolio, the “Funds”), each a series of BlackRock Funds, as of September 30, 2012, the related consolidated statements of operations and changes in net assets for the year then ended, the statement of changes in net assets for year ended September 30, 2011, the consolidated financial highlights for year ended September 30, 2012, and the financial highlights for each of the other periods presented. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are

free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2012, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds as of September 30, 2012, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Philadelphia, Pennsylvania

November 21, 2012

Important Tax Information (Unaudited)

The entire amount of the ordinary income distribution paid by BlackRock Flexible Equity Fund during the fiscal year ended September 30, 2012 qualifies for the dividends received deduction for corporations and consists entirely of qualified dividend income for individuals.

Additionally, BlackRock Small Cap Growth Equity Portfolio distributed long-term capital gains of $0.601768 per share to shareholders of record on December 5, 2011.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 49 

Disclosure of Investment Advisory Agreement

The Board of Trustees (the “Board,” and the members of which are referred to as “Board Members”) of BlackRock FundsSM (the “Trust”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Trust’s investment advisory agreement (the “Agreement”) with BlackRock Advisors, LLC (“BlackRock”), the Trust’s investment advisor, on behalf of BlackRock Mid-Cap Growth Equity Portfolio (“Mid-Cap Growth Equity Portfolio”), BlackRock Flexible Equity Fund (“Flexible Equity Fund”) and BlackRock Small Cap Growth Equity Portfolio (“Small Cap Growth Equity Portfolio,” each a “Fund,” and together with Mid-Cap Growth Equity Portfolio and Flexible Equity Fund, the “Funds”), each a series of the Trust.

Activities and Composition of the Board

The Board consists of fourteen individuals, twelve of whom are not “interested persons” of the Trust as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of each Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are each Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreement

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreement. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Funds by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Funds and their shareholders. Among the matters the Board considered were: (a) investment performance for one-, three- and five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against a Fund’s peers and/or benchmark, as applicable; (b) fees, including advisory,

administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Funds for services, such as marketing and distribution, call center and fund accounting; (c) Fund operating expenses and how BlackRock allocates expenses to the Funds; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of each Fund’s investment objective, policies and restrictions; (e) the Trust’s compliance with its Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) the use of brokerage commissions and execution quality of portfolio transactions; (j) BlackRock’s implementation of the Trust’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

Board Considerations in Approving the Agreement

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreement. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on Fund fees and expenses and the investment performance of each Fund as compared with a peer group of funds as determined by Lipper (collectively, “Peers”); (b) information on the profitability of the Agreement to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of potential economies of scale; (e) a

 50   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Disclosure of Investment Advisory Agreement

summary of aggregate amounts paid by each Fund to BlackRock; (f) sales and redemption data regarding each Fund’s shares; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Trust with respect to each Fund for a one-year term ending June 30, 2013. In approving the continuation of the Agreement, the Board considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of each Fund and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Funds; (d) economies of scale; (e) fall out benefits to BlackRock as a result of its relationship with the Funds; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Fund shares and securities lending, services related to the valuation and pricing of Fund portfolio holdings, direct and indirect benefits to BlackRock and its affiliates from their relationship with the Funds and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of each Fund. Throughout the year, the Board compared each Fund’s performance to the performance of a comparable group of mutual funds and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by each Fund’s portfolio management team discussing Fund performance and the Fund’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and each

Fund’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to each Fund’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Funds. BlackRock and its affiliates provide the Funds with certain administrative, shareholder and other services (in addition to any such services provided to the Funds by third parties) and officers and other personnel as are necessary for the operations of the Funds. In particular, BlackRock and its affiliates provide the Funds with the following administrative services, including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions necessary for the operation of the Funds, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of each Fund and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of each Fund. In preparation for the April 17, 2012 meeting, the Board worked with its independent counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of each Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the investment performance of each Fund as compared to funds in the Fund’s applicable Lipper category. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Fund management to discuss, the performance of each Fund throughout the year.

The Board noted that, in general, Small Cap Growth Equity Portfolio performed better than its Peers in that the Fund’s performance was at or above the median of its Lipper Performance Universe in two of the one-, three- and five-year periods reported.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 51 

Disclosure of Investment Advisory Agreement

The Board noted that Mid-Cap Growth Equity Portfolio performed below the median of its Lipper Performance Universe in the three- and five-year periods reported, but that the Fund performed at or above the median of its Lipper Performance Universe in the one-year period reported. The Board and BlackRock reviewed and discussed the reasons for the Fund’s underperformance during the three- and five-year periods reported compared with its Peers. The Board was informed that, among other things, the six-month period in the middle of 2010 detracted from performance. During 2010 a number of individual events in the second quarter affecting Fund holdings, combined with the fact that some high conviction names held by the Fund did not participate in the third quarter market rally, hindered performance.

The Board noted that Flexible Equity Fund performed below the median of its Lipper Performance Universe in each of the one-, three-, and five-year periods reported. The Board and BlackRock reviewed and discussed the reasons for the Fund’s underperformance during these periods compared with its Peers. The Board was informed that, among other things, underperformance, particularly in the third quarters of 2010 and 2011, had a significant negative impact on performance during the one-, three-and five year periods. During these periods in which stock prices experienced significant moves due to investor reaction to macro data and global events, the Fund’s focus on company fundamentals was not rewarded, as the overall portfolio positioning, particularly in financials and energy sectors, and underexposure to dividend yield negatively impacted relative returns.

The Board and BlackRock discussed BlackRock’s strategy for improving the performance of Mid-Cap Growth Equity Portfolio and Flexible Equity Fund and BlackRock’s commitment to providing the resources necessary to assist these Funds’ portfolio managers and to improve the performance of these Funds.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Funds: The Board, including the Independent Board Members, reviewed each Fund’s contractual management fee rate compared with the other funds in its Lipper category. It also compared each Fund’s total expense ratio, as well as actual management fee rate, to those of other funds in its Lipper category. The Board considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided the Funds. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Funds. The Board reviewed BlackRock’s profitability with respect to the Funds and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board

reviewed BlackRock’s profitability with respect to other fund complexes managed by BlackRock and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by BlackRock, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management and the relative product mix.

In addition, the Board considered the cost of the services provided to the Funds by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Funds and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of each Fund. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board.

The Board noted that Small Cap Growth Equity Portfolio’s contractual management fee ratio (a combination of the advisory fee and the administration fee, if any) was lower than or equal to the median contractual management fee ratio paid by the Fund’s Peers, in each case before taking into account any expense reimbursements or fee waivers.

The Board noted that the contractual management fee ratio (a combination of the advisory fee and the administration fee, if any) of each of Mid-Cap Growth Equity Portfolio and Flexible Equity Fund was above the median contractual management fee ratio paid by the Fund’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted, however, that each Fund’s actual total expense ratio, after giving effect to any expense reimbursement or fee waivers by BlackRock, was reasonable relative to the median actual total expense ratio paid by the Fund’s Peers, after giving effect to any expense reimbursements or fee waivers.

The Board also noted that each Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels.

 52   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Disclosure of Investment Advisory Agreement (concluded)

The Board also noted that with respect to each of Mid-Cap Growth Equity Portfolio and Flexible Equity Fund, BlackRock has contractually agreed to waive fees and/or reimburse expenses in order to limit, to a specified amount, the Fund’s total operating expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis, as applicable. The Board further noted that with respect to Small Cap Growth Equity Portfolio, BlackRock has contractually and/or voluntarily agreed to waive fees and/or reimburse expenses in order to limit, to a specified amount, the Fund’s total operating expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis, as applicable.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of each Fund increase, as well as the existence of expense caps. The Board also considered the extent to which each Fund benefits from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Fund to participate in these economies of scale, for example through the use of revised breakpoints in the advisory fee based upon the asset level of the Fund. In its consideration, the Board took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Funds, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Funds, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated

by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

In connection with its consideration of the Agreement, the Board also received information regarding BlackRock’s brokerage and soft dollar practices. The Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.

The Board noted the competitive nature of the open-end fund marketplace, and that shareholders are able to redeem their Fund shares if they believe that a Fund’s fees and expenses are too high or if they are dissatisfied with the performance of a Fund.

Conclusion

The Board, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Trust, with respect to each Fund, for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of each Fund and its shareholders. In arriving at its decision to approve the Agreement, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Funds reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 53 

Officers and Trustees

Name, Address, and Year of Birth	Position(s) Held with Trust	Length of Time Served as a Trustee2	Principal Occupation(s) During Past 5 Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1
Ronald W. Forbes 55 East 52nd Street New York, NY 10055 1940	Co-Chairman of the Board and Trustee	Since 2007	Professor Emeritus of Finance, School of Business, State University of New York at Albany since 2000.	33 RICs consisting of 102 Portfolios	None
Rodney D. Johnson 55 East 52nd Street New York, NY 10055 1941	Co-Chairman of the Board and Trustee	Since 2007	President, Fairmount Capital Advisors, Inc. since 1987; Member of the Archdiocesan Investment Committee of the Archdiocese of Philadelphia since 2004; Director, The Committee of Seventy (civic) since 2006; Director, Fox Chase Cancer Center from 2004 to 2011.	33 RICs consisting of 102 Portfolios	None
David O. Beim 55 East 52nd Street New York, NY 10055 1940	Trustee	Since 2007	Professor of Professional Practice at the Columbia University Graduate School of Business since 1991; Trustee, Phillips Exeter Academy since 2002; Chairman, Wave Hill, Inc. (public garden and cultural center) from 1990 to 2006.	33 RICs consisting of 102 Portfolios	None
Dr. Matina S. Horner 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2004	Executive Vice President of Teachers Insurance and Annuity Association and College Retirement Equities Fund from 1989 to 2003.	33 RICs consisting of 102 Portfolios	NSTAR (electric and gas utility)
Herbert I. London 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2007	Professor Emeritus, New York University since 2005; John M. Olin Professor of Humanities, New York University from 1993 to 2005 and Professor thereof from 1980 to 2005; President Emeritus, Hudson Institute (policy research organization) since 2011, President thereof from 1997 to 2011 and Trustee since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director, InnoCentive, Inc. (strategic solutions company) since 2005; Director, Cerego, LLC (software development and design) since 2005; Director Cybersettle (dispute resolution technology) since 2009.	33 RICs consisting of 102 Portfolios	AIMS Worldwide, Inc. (marketing)
Ian A. MacKinnon 55 East 52nd Street New York, NY 10055 1948	Trustee	Since 2012	Director, Kennett Capital, Inc. (investments) since 2006; Director, Free Library of Philadelphia from 1999 to 2008.	33 RICs consisting of 102 Portfolios	None
Cynthia A. Montgomery 55 East 52nd Street New York, NY 10055 1952	Trustee	Since 2007	Professor, Harvard Business School since 1989; Director, McLean Hospital since 2005; Director, Harvard Business School Publishing from 2005 to 2010.	33 RICs consisting of 102 Portfolios	Newell Rubbermaid, Inc. (manufacturing)
Joseph P. Platt 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2007	Director, The West Penn Allegheny Health System (a not-for-profit health system) since 2008; Director, Jones and Brown (Canadian insurance broker) since 1998; General Partner, Thorn Partners, LP (private investments) since 1998; Director, WQED Multi-Media (public broadcasting not-for-profit) since 2001; Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008.	33 RICs consisting of 102 Portfolios	Greenlight Capital Re, Ltd. (reinsurance company)
Robert C. Robb, Jr. 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2007	Partner, Lewis, Eckert, Robb and Company (management and financial consulting firm) since 1981.	33 RICs consisting of 102 Portfolios	None
Toby Rosenblatt 55 East 52nd Street New York, NY 10055 1938	Trustee	Since 2005	President, Founders Investments Ltd. (private investments) since 1999; Director, Forward Management, LLC since 2007; Director, College Access Foundation of California (philanthropic foundation) since 2009; Director, A.P. Pharma, Inc. (specialty pharmaceuticals) from 1983 to 2011; Director, The James Irvine Foundation (philanthropic foundation) from 1998 to 2008.	33 RICs consisting of 102 Portfolios	None

 54   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Officers and Trustees (continued)

Name, Address, and Year of Birth	Position(s) Held with Trust	Length of Time Served as a Trustee2	Principal Occupation(s) During Past 5 Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1 (concluded)
Kenneth L. Urish 55 East 52nd Street New York, NY 10055 1951	Trustee	Since 2007	Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Chairman Elect of the Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants and Committee Member thereof since 2007; Member of External Advisory Board, The Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Institute from 2001 to 2010; President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter-Tel from 2006 to 2007.	33 RICs consisting of 102 Portfolios	None
Frederick W. Winter 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2007	Professor and Dean Emeritus of the Joseph M. Katz School of Business, University of Pittsburgh since 2005 and Dean thereof from 1997 to 2005; Director, Alkon Corporation (pneumatics) since 1992; Director, Tippman Sports (recreation) since 2005; Director, Indotronix International (IT services) from 2004 to 2008.	33 RICs consisting of 102 Portfolios	None
	1     Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved one-year extensions in terms of Trustees who turn 72 prior to December 31, 2013.
	2     Date shown is the earliest date a person has served for the Trust covered by this annual report. Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. (“BlackRock”) in September 2006, the various legacy MLIM and legacy BlackRock fund boards were realigned and consolidated into three new Fund boards in 2007. As a result, although the chart shows certain Trustees as joining the Trust’s board in 2007, each Trustee first became a member of the board of other legacy MLIM or legacy BlackRock Funds as follows: David O. Beim, 1998; Ronald W. Forbes, 1977; Dr. Matina S. Horner, 2004; Rodney D. Johnson, 1995; Herbert I. London, 1987; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Robert C. Robb, Jr., 1998; Toby Rosenblatt, 2005; Kenneth L. Urish, 1999; and Frederick W. Winter, 1999.
Independent Trustees3
Paul L. Audet 55 East 52nd Street New York, NY 10055 1953	Trustee	Since 2011	Senior Managing Director of BlackRock, and Head of U.S. Mutual Funds since 2011; Chair of the U.S. Mutual Funds Committee reporting to the Global Executive Committee since 2011; Head of BlackRock’s Real Estate business from 2008 to 2011; Member of BlackRock’s Global Operating and Corporate Risk Management Committees and of the BlackRock Alternative Investors Executive Committee and Investment Committee for the Private Equity Fund of Funds business since 2008; Head of BlackRock’s Global Cash Management business from 2005 to 2010; Acting Chief Financial Officer of BlackRock from 2007 to 2008; Chief Financial Officer of BlackRock from 1998 to 2005.	160 RICs consisting of 278 Portfolios	None
Henry Gabbay 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2007	Consultant, BlackRock from 2007 to 2008; Managing Director, BlackRock from 1989 to 2007; Chief Administrative Officer, BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of certain closed-end funds in the BlackRock fund complex from 1989 to 2006.	160 RICs consisting of 278 Portfolios	None
	3     Mr. Audet is an “interested person,” as defined in the 1940 Act, of the Trust based on his positions with BlackRock and its affiliates. Mr. Gabbay is an “interested person” of the Trust based on his former positions with BlackRock and its affiliates as well as his ownership of BlackRock and The PNC Financial Services Group, Inc. securities. Mr. Audet and Mr. Gabbay are also Directors of the BlackRock registered closed-end funds and Directors of other BlackRock registered open-end funds. Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved one-year extensions in terms of Trustees who turn 72 prior to December 31, 2013.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 55 

Officers and Trustees (continued)

Name, Address, and Year of Birth	Position(s) Held with Trust	Length of Time Served	Principal Occupation(s) During Past 5 Years
Trust Officers1
John M. Perlowski 55 East 52nd Street New York, NY 10055 1964	President and Chief Executive Officer	Since 2010	Managing Director of BlackRock since 2009; Global Head of BlackRock Fund Administration since 2009; Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from 2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family Resource Network (charitable foundation) since 2009.
Richard Hoerner, CFA 55 East 52nd Street New York, NY 10055 1958	Vice President	Since 2009	Managing Director of BlackRock since 2000; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2002; Member of the Cash Management Group Executive Committee since 2005.
Brendan Kyne 55 East 52nd Street New York, NY 10055 1977	Vice President	Since 2009	Managing Director of BlackRock since 2010; Director of BlackRock from 2008 to 2009; Head of Product Development and Management for BlackRock’s U.S. Retail Group since 2009 and Co-head thereof from 2007 to 2009; Vice President of BlackRock from 2005 to 2008.
Simon Mendelson 55 East 52nd Street New York, NY 10055 1964	Vice President	Since 2009	Managing Director of BlackRock since 2005; Co-head of the Global Cash and Securities Lending Group since 2010; Chief Operating Officer and Head of the Global Client Group for BlackRock’s Global Cash Management Business from 2007 to 2010; Head of BlackRock’s Strategy and Development Group from 2005 to 2007; Partner of McKinsey & Co. from 1997 to 2005.
Christopher Stavrakos, CFA 55 East 52nd Street New York, NY 10055 1959	Vice President	Since 2009	Managing Director of BlackRock since 2006; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2006; Senior Vice President, CIO, and Director of Liability Management for the Securities Lending Group at Mellon Bank from 1999 to 2006.
Neal Andrews 55 East 52nd Street New York, NY 10055 1966	Chief Financial Officer	Since 2007	Managing Director of BlackRock since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006.
Jay Fife 55 East 52nd Street New York, NY 10055 1970	Treasurer	Since 2007	Managing Director of BlackRock since 2007; Director of BlackRock in 2006; Assistant Treasurer of the MLIM and Fund Asset Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.
Brian Kindelan 55 East 52nd Street New York, NY 10055 1959	Chief Compliance Officer and Anti-Money Laundering Officer	Since 2007	Chief Compliance Officer of the BlackRock-advised funds since 2007; Managing Director and Senior Counsel of BlackRock since 2005.
Benjamin Archibald 55 East 52nd Street New York, NY 10055 1975	Secretary	Since 2012	Director of BlackRock since 2010; Assistant Secretary to the funds from 2010 to 2012; General Counsel and Chief Operating Officer of Uhuru Capital Management from 2009 to 2010; Executive Director and Counsel of Goldman Sachs Asset Management from 2005 to 2009.

¹ Officers of the Trust serve at the pleasure of the Board of Trustees.

Further information about the Trust’s Officers and Trustees is available in the Trust’s Statement of Additional Information, which can be obtained without charge by calling 1-800-441-7762.

Effective May 15, 2012, Ian A. MacKinnon became a Trustee of the Trust.

Effective May 16, 2012, Ira P. Shapiro resigned as Secretary of the Trust and Benjamin Archibald became Secretary of the Trust.

 56   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Officers and Trustees (concluded)

Investment Advisor and Co-Administrator BlackRock Advisors, LLC Wilmington, DE 19809	Accounting Agent, Co-Administrator 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

Additional Information

General Information

Electronic Delivery

Electronic copies of most financial reports and prospectuses are available on the Funds’ website or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Funds’ electronic delivery program.

To enroll:

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 http://www.blackrock.com/ edelivery

2) Select “eDelivery” under the “More Information” section

3) Log into your account

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 (1) without charge, upon request, 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 FUNDS   SEPTEMBER 30, 2012 57 

Additional Information (concluded)

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 Plan

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 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.

 58   BLACKROCK FUNDS   SEPTEMBER 30, 2012

A World-Class 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.

Equity Funds
BlackRock ACWI ex-US Index Fund	BlackRock Global Dividend Income Portfolio	BlackRock Mid-Cap Growth Equity Portfolio
BlackRock All-Cap Energy & Resources Portfolio	BlackRock Global Opportunities Portfolio	BlackRock Mid Cap Value Opportunities Fund
BlackRock Balanced Capital Fund†	BlackRock Global SmallCap Fund	BlackRock Natural Resources Trust
BlackRock Basic Value Fund	BlackRock Health Sciences Opportunities Portfolio	BlackRock Pacific Fund
BlackRock Capital Appreciation Fund	BlackRock Index Equity Portfolio	BlackRock Real Estate Securities Fund
BlackRock China Fund	BlackRock India Fund	BlackRock Russell 1000 Index Fund
BlackRock Commodity Strategies Fund	BlackRock International Fund	BlackRock Science & Technology
BlackRock Emerging Markets Fund	BlackRock International Index Fund	Opportunities Portfolio
BlackRock Emerging Markets Long/Short	BlackRock International Opportunities Portfolio	BlackRock Small Cap Growth Equity Portfolio
Equity Fund	BlackRock Large Cap Core Fund	BlackRock Small Cap Growth Fund II
BlackRock Energy & Resources Portfolio	BlackRock Large Cap Core Plus Fund	BlackRock Small Cap Index Fund
BlackRock Equity Dividend Fund	BlackRock Large Cap Growth Fund	BlackRock S&P 500 Index Fund
BlackRock EuroFund	BlackRock Large Cap Value Fund	BlackRock S&P 500 Stock Fund
BlackRock Flexible Equity Fund	BlackRock Latin America Fund	BlackRock U.S. Opportunities Portfolio
BlackRock Focus Growth Fund	BlackRock Long-Horizon Equity Fund	BlackRock Value Opportunities Fund
BlackRock Global Allocation Fund†	BlackRock Managed Volatility Portfolio†	BlackRock World Gold Fund

Taxable Fixed Income Funds
BlackRock Bond Index Fund	BlackRock High Yield Bond Portfolio	BlackRock Strategic Income
BlackRock Core Bond Portfolio	BlackRock Inflation Protected Bond Portfolio	Opportunities Portfolio
BlackRock CoreAlpha Bond Fund	BlackRock International Bond Portfolio	BlackRock Total Return Fund
BlackRock Emerging Market Local Debt Portfolio	BlackRock Long Duration Bond Portfolio	BlackRock US Government Bond Portfolio
BlackRock Floating Rate Income Portfolio	BlackRock Low Duration Bond Portfolio	BlackRock US Mortgage Portfolio
BlackRock Global Long/Short Credit Fund	BlackRock Multi-Asset Income Portfolio†	BlackRock World Income Fund
BlackRock GNMA Portfolio	BlackRock Secured Credit Portfolio

Municipal Fixed Income Funds
BlackRock California Municipal Bond Fund	BlackRock National Municipal Fund	BlackRock Pennsylvania Municipal Bond Fund
BlackRock High Yield Municipal Fund	BlackRock New Jersey Municipal Bond Fund	BlackRock Short-Term Municipal Fund
BlackRock Intermediate Municipal Fund	BlackRock New York Municipal Bond Fund

Target Risk & Target Date Funds†
BlackRock Prepared Portfolios	LifePath Active Portfolios		Life Path Portfolios		LifePath Index Portfolios
Conservative Prepared Portfolio	2015	2035	Retirement	2040	Retirement	2040
Moderate Prepared Portfolio	2020	2040	2020	2045	2020	2045
Growth Prepared Portfolio	2025	2045	2025	2050	2025	2050
Aggressive Growth Prepared Portfolio	2030	2050	2030	2055	2030	2055
			2035		2035

† Mixed asset fund.

BlackRock mutual funds are currently distributed by BlackRock Investments, LLC. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling (800) 441-7762 or from your financial advisor. The prospectus should be read carefully before investing.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 59 

This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of a Fund unless accompanied or preceded by that 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.

Eq-Midcap-9/12-AR

September 30, 2012

Annual Report

BlackRock Funds^SM

u BlackRock Global Opportunities Portfolio

u BlackRock Health Sciences Opportunities Portfolio

u BlackRock International Opportunities Portfolio

u BlackRock Science & Technology Opportunities Portfolio

u BlackRock U.S. Opportunities Portfolio

        Not FDIC Insured   §  No Bank Guarantee  §  May Lose Value         

Table of Contents

	Page
Dear Shareholder		3
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		37
Statements of Operations		39
Statements of Changes in Net Assets		40
Financial Highlights		42
Notes to Financial Statements		57
Report of Independent Registered Public Accounting Firm		74
Important Tax Information		74
Disclosure of Investment Advisory Agreement and Sub-Advisory Agreements		75
Officers and Trustees		80
Additional Information		83
A World-Class Mutual Fund Family		85

 2   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Dear Shareholder

Late in the summer of 2011, financial markets were upended by sovereign debt turmoil in the United States and Europe as well as growing concerns about the future of the global economy. Investor confidence had crumbled. However, the fourth quarter of 2011 brought improving economic data and more concerted efforts among European leaders toward stemming the region’s debt crisis, gradually drawing investors back to the markets. Improving sentiment carried over into early 2012 as investors felt some relief from the world’s financial woes. Volatility abated and risk assets (including stocks, commodities and high yield bonds) moved boldly higher through the first two months of 2012, while climbing Treasury yields pressured higher-quality fixed income assets.

Markets reversed course in the spring when Europe’s debt problems boiled over once again. High levels of volatility returned as political instability in Greece threatened the country’s membership in the eurozone. Spain faced severe deficit issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian government debt rose to levels deemed unsustainable. European leaders conferred and debated vehemently over the need for fiscal integration among the 17 nations comprising the euro currency bloc as a means to resolve the crisis for the long term.

Alongside the drama in Europe, investors were discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key powerhouse for global growth, became particularly worrisome. In the United States, disappointing jobs reports dealt a crushing blow to investor sentiment. Risk assets sold off in the second quarter as investors again retreated to safe haven assets.

Despite ongoing concerns about the health of the global economy and the debt crisis in Europe, most asset classes enjoyed a robust summer rally powered mainly by expectations for policy stimulus from central banks in Europe and the United States. Although global economic data continued to be mixed, the spate of downside surprises seen in the second quarter had receded and, outside of Europe, the risk of recession largely subsided. Additionally, in response to growing debt pressures, the European Central Bank allayed investors’ fears by stating its conviction to hold the eurozone together. Early in September, the European Central Bank announced a plan to purchase sovereign debt in the eurozone’s most troubled nations. Later that month, the US Federal Reserve announced its long-awaited - and surprisingly aggressive – stimulus program, committing to purchase $40 billion of agency mortgage-backed securities per month until the US economy exhibits enough strength to sustain real growth and improving labor market conditions. These central bank actions boosted risk assets globally as investors increased their risk appetites in their search for higher returns.

All asset classes performed well for the 12-month period ended September 30, 2012, with particularly strong returns from US stocks and high yield bonds. For the six-month period ended September 30, 2012, fixed income investments outperformed equities. US Treasury bonds posted exceptional gains by historical standards and outperformed investment-grade corporate bonds and tax-exempt municipals. High yield bonds also generated solid returns. US stocks finished the six-month period with modest gains, while international and emerging market stocks lagged other asset classes amid ongoing uncertainty. Near-zero short term interest rates continued to keep yields on money market securities near their all-time lows.

The financial world is more uncertain than ever, but there are new avenues of opportunity – new ways to invest and new markets in which to invest. We believe it’s our responsibility to help investors adapt to today’s new world of investing and build the portfolios these times require. We encourage you to visit www.blackrock.com/newworld for more information.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“The financial world is more uncertain than ever, but there are new avenues of opportunity.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of September 30, 2012

	6-month			12-month
US large cap equities (S&P 500® Index)		3.43	%		30.20	%
US small cap equities (Russell 2000® Index)		1.60			31.91
International equities (MSCI Europe, Australasia, Far East Index)		(0.70	)		13.75
Emerging market equities (MSCI Emerging Markets Index)		(1.84	)		16.93
3-month Treasury bill (BofA Merrill Lynch 3-Month US Treasury Bill Index)		0.06			0.07
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		6.78			5.66
US investment grade bonds (Barclays US Aggregate Bond Index)		3.68			5.16
Tax-exempt municipal bonds (S&P Municipal Bond Index)		4.50			8.84
US high yield bonds (Barclays US Corporate High Yield 2% Issuer Capped Index)		6.40			19.35

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 September 30, 2012   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?

• For the 12-month period ended September 30, 2012, the Fund generated a positive double-digit return, but underperformed its benchmark, the MSCI All Country World Index (ACWI).

What factors influenced performance?

• The Fund benefited from stock selection in the consumer segments and materials. In consumer staples, the Fund’s positions in brewers and soft drinks delivered particularly strong returns, highlighted by holdings in Anheuser-Busch InBev NV and Grupo Modelo SAB de CV as both stocks rose on the announcement that Anheuser-Busch InBev NV would acquire Grupo Modelo SAB de CV. Within the consumer discretionary sector, holdings of cable & satellite names were strong performers. Additionally, the Fund’s holdings within household durables and other consumer-related areas benefited from the recovery in US housing. In materials, the Fund favored gold miners over industrial metals, as gold benefited from currency degradation resulting from monetary policy loosening by global central banks.

• Relative to the benchmark index, detracting from Fund performance was stock selection in financials, energy and information technology (“IT”). In financials, shares of Dongbu Insurance Co. Ltd., a South Korean property and casualty company, suffered as a result of unfavorable regulatory changes. The Fund’s holdings in diversified financials also hurt returns as macro risks in Europe and the politicization of financial markets during the period deterred hopes for an uptick in capital markets activity. Within energy, stock selection in the integrated oil & gas industry had a

negative impact. Shares of Repsol YPF SA hurt returns as the Argentinian government seized control of that company’s assets. In the IT sector, stock selection among software and semiconductor names hampered returns for the period.

Describe recent portfolio activity.

• During the 12-month period, the Fund took advantage of the broad market advance to reposition its investments. On the defensive side, the Fund increased exposure to the health care sector by adding to pharmaceutical names, and decreased its weighting in telecommunication services. Among cyclical stocks, the Fund favored higher-quality industrials and gold miners along with energy companies that benefit from deep-water energy development and liquefied natural gas infrastructure spending. As a result of this sector repositioning, the Fund’s most significant change from a regional perspective was increased exposure to developed Europe.

Describe portfolio positioning at period end.

• At period end, the Fund’s positioning reflected a positive, yet conservative, outlook for the world economy as well as expectations for continued market volatility. Investor demand for higher-quality equities remained strong despite recent historically high valuation spreads for these stocks. While Fund management anticipates a modest rate of economic expansion, the headwinds for global economic growth remain significant, and therefore, the Fund’s holdings were carefully diversified across defensive and cyclical exposures.

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	%
Svenska Cellulosa AB, B Shares		2
Exxon Mobil Corp.		2
Wells Fargo & Co.		2
Subsea 7 SA		1
British American Tobacco Plc		1
Amgen, Inc.		1
Statoil ASA		1
Roche Holding AG		1
Sanofi SA		1

Geographic Allocation	Percent of Long-Term Investments
United States		51	%
United Kingdom		10
Germany		5
Japan		4
France		4
Sweden		3
Ireland		3
Norway		2
Switzerland		2
Hong Kong		2
Australia		2
Netherlands		2
Canada		2
Other1		8

¹  Other includes a 1% or less investment in each of the following countries:

Mexico, Singapore, India, Belgium, Indonesia, Italy, South Korea, Thailand, Russia, China, Argentina, Taiwan and Brazil.

 4   BLACKROCK FUNDS   SEPTEMBER 30, 2012

BlackRock Global Opportunities Portfolio

  Total Return Based on a $10,000 Investment

¹  Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees. Institutional Shares do not have a sales charge.

²  Under normal market conditions, the Fund invests 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 emerging market debt.

³  This unmanaged market capitalization-weighted index is made up of equities from 45 countries, including the United States.

⁴  Commencement of operations.

  Performance Summary for the Period Ended September 30, 2012

				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		0.18	%		19.45	%		N/A			(2.06	)%		N/A			2.87	%		N/A
Investor A		0.09			19.16			12.94	%		(2.37	)		(3.42	)%		2.58			1.76	%
Investor B		(0.28	)		18.13			13.63			(3.11	)		(3.49	)		1.83			1.83
Investor C		(0.28	)		18.21			17.21			(3.14	)		(3.14	)		1.82			1.82
Class R		(0.09	)		18.72			N/A			(2.70	)		N/A			2.21			N/A
MSCI All Country World Index (ACWI)		0.89			20.98			N/A			(2.07	)		N/A			2.52			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 April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period7			Beginning Account Value April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period7			Annualized Expense Ratio
Institutional		$	1,000.00		$	1,001.80		$	5.30		$	1,000.00		$	1,019.70		$	5.35		1.06	%
Investor A		$	1,000.00		$	1,000.90		$	6.65		$	1,000.00		$	1,018.35		$	6.71		1.33	%
Investor B		$	1,000.00		$	997.20		$	10.88		$	1,000.00		$	1,014.10		$	10.98		2.18	%
Investor C		$	1,000.00		$	997.20		$	10.69		$	1,000.00		$	1,014.30		$	10.78		2.14	%
Class R		$	1,000.00		$	999.10		$	8.10		$	1,000.00		$	1,016.90		$	8.17		1.62	%

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 183/366 (to reflect the one-half year period shown).

⁸  Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.

See “Disclosure of Expenses” on page 15 for further information on how expenses were calculated.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 5 

Fund Summary as of September 30, 2012   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?

• For the 12-month period ended September 30, 2012, the Fund generated a double-digit positive return, but underperformed its benchmark, the Russell 3000^® Health Care Index, and 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?

• The key contributor to positive performance in the Fund was an overweight relative to the benchmark index and stock selection in biotechnology. The Fund held several names that experienced strong stock price appreciation driven primarily by clinical developments, such as favorable drug trial results, regulatory approvals (or the anticipation thereof) and the swift adoption of products introduced in the marketplace. In addition, a few biotechnology holdings were acquired at a premium during the period as larger entities, such as pharmaceutical firms, attempted to replenish their drug pipelines.

• Detracting from performance relative to the benchmark index was positioning in the health care providers & services industry, where overweight allocations to health care distributors and managed health care names hampered returns, as did weak stock selection in both of these segments. Also in this industry, an underweight to the strong-performing health care services segment hurt relative performance, particularly due to an underweight position in Express Scripts Holding Co., which appreciated leading up to the approval of its merger with Medco Health Solutions, Inc. during the period. Elsewhere in the Fund, stock selection in the

health care equipment & supplies industry detracted from relative performance. The Fund’s underweight to pharmaceuticals also hindered returns, especially during the second quarter of 2012, as investors preferred the stability of large-capitalization, high dividend-yielding companies amid a volatile and declining market.

Describe recent portfolio activity.

• During the 12-month period, the Fund significantly reduced its overweight to health care equipment & supplies, while adding to the bio-technology industry. The Fund also increased exposure to pharmaceuticals and slightly decreased its allocation to health care providers & services with a focus on minimizing holdings deemed vulnerable to potential federal government budget reductions and subsequent health care reimbursement cuts.

Describe portfolio positioning at period end.

• As of period end, the Fund continued to maintain a focus on innovative companies with products or services that address an unmet health care need or enhance current products or services. As such, the Fund continued to be most heavily weighted toward the biotechnology and pharmaceuticals industries. Given uncertainty around government policy developments, the Fund’s holdings at period end reflected an avoidance of companies with strong links to, or business mixes that are reliant on, government reimbursement and thus would be at risk in a budget-cutting scenario. This positioning is most evident within the Fund’s allocation to the health care providers & services industry, where companies are generally more vulnerable to federal budget cuts.

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
Amgen, Inc.		5	%
Celgene Corp.		4
Alexion Pharmaceuticals, Inc.		4
Eli Lilly & Co.		4
Abbott Laboratories		3
Johnson & Johnson		3
Merck & Co., Inc.		3
Pfizer, Inc.		3
Sanofi SA		3
Roche Holding AG		3

Industry Allocation	Percent of Long-Term Investments
Pharmaceuticals		31	%
Biotechnology		29
Health Care Providers & Services		18
Health Care Equipment & Supplies		13
Life Sciences Tools & Services		5
Other1		4

¹  Other includes a 1% or less investment in each of the following industries: Food & Staples Retailing, Health Care Technology, Industrial Conglomerates, Diversified Consumer Services and Chemicals.

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 Fund management. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 6   BLACKROCK FUNDS   SEPTEMBER 30, 2012

BlackRock Health Sciences Opportunities Portfolio

Total Return Based on a $10,000 Investment

¹  Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees. 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 companies in health sciences and related industries.

³  This unmanaged index covers 500 industrial, utility, transportation and financial companies of the US markets (mostly New York Stock Exchange (“NYSE”) issues) representing about 75% of NYSE market capitalization and 30% of NYSE issues.

⁴  An unmanaged index representative of companies involved in medical services or health care in the Russell 3000^® Index, which is comprised of the 3,000 largest US companies as determined by total market capitalization.

  Performance Summary for the Period Ended September 30, 2012

				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		7.32	%		27.06	%		N/A			7.90	%		N/A			16.20	%		N/A
Service		7.15			26.73			N/A			7.55			N/A			15.88			N/A
Investor A		7.13			26.68			20.04	%		7.56			6.40	%		15.84			15.22	%
Investor B		6.72			25.70			21.20			6.70			6.39			15.12			15.12
Investor C		6.78			25.80			24.80			6.79			6.79			15.02			15.02
Class R		6.94			26.17			N/A			7.07			N/A			15.29			N/A
S&P 500® Index		3.43			30.20			N/A			1.05			N/A			8.01			N/A
Russell 3000® Health Care Index		8.91			32.02			N/A			5.67			N/A			7.64			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 April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period6			Beginning Account Value April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period6			Annualized Expense Ratio
Institutional		$	1,000.00		$	1,073.20		$	5.08		$	1,000.00		$	1,020.10		$	4.95		0.98	%
Service		$	1,000.00		$	1,071.50		$	6.68		$	1,000.00		$	1,018.55		$	6.51		1.29	%
Investor A		$	1,000.00		$	1,071.30		$	6.68		$	1,000.00		$	1,018.55		$	6.51		1.29	%
Investor B		$	1,000.00		$	1,067.20		$	10.54		$	1,000.00		$	1,014.80		$	10.28		2.04	%
Investor C		$	1,000.00		$	1,067.80		$	10.34		$	1,000.00		$	1,015.00		$	10.08		2.00	%
Class R		$	1,000.00		$	1,069.40		$	8.74		$	1,000.00		$	1,016.55		$	8.52		1.69	%

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 183/366 (to reflect the one-half year period shown).

⁷  Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.

See “Disclosure of Expenses” on page 15 for further information on how expenses were calculated.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 7 

Fund Summary as of September 30, 2012   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?

• For the 12-month period ended September 30, 2012, the Fund outperformed its benchmark, the MSCI All Country World Index (ACWI) Ex-US.

What factors influenced performance?

• The Fund’s performance benefited from favorable stock selection in eight of the ten benchmark index sectors, particularly in materials, utilities, information technology (“IT”) and consumer discretionary. The largest contribution came from materials, where the Fund’s holdings in the diversified metals & mining and gold segments had a positive impact on returns. The Fund favored gold-related stocks in light of accelerated currency degradation policies in the United States and Europe, whereas industrial base metals fell out of favor due to China’s economic slowdown. Within utilities, an allocation to electric and independent power providers in the United Kingdom and Brazil lifted relative returns as these holdings benefited from lower commodity prices, a favorable regulatory environment and increased demand from investors seeking stable yields. In the IT sector, the Fund’s underweight relative to the benchmark index in hardware contributed positively to returns, as did the Fund’s selection among software stocks. The Fund’s positioning within IT reflects a long-term downside view for personal computers countered by a focus on the smartphone supply chains and software names that offer solutions for smaller-ticket devices. Lastly, within consumer discretionary, holdings of apparel names in Germany were significant contributors to relative performance during the period. The European Central Bank’s recent measures to increase liquidity in financial markets helped to diminish fears of a euro currency collapse and lifted consumer confidence.

• There were few detractors from performance during the reporting period. The Fund’s cash holdings dragged on relative returns as equity markets reacted positively to actions by central banks across the globe and favorable fiscal policy outcomes. The Fund’s underweight to the financials sector was a detractor as banks received a boost from central bank policy action and real estate stocks benefited from increased demand from investors seeking yield in a low interest rate environment.

Describe recent portfolio activity.

• During the 12-month period, the Fund took advantage of the broad market advance to reposition its investments. On the defensive side, the Fund increased exposure to the health care sector by adding to pharmaceutical names, and decreased its weighting in telecommunication services. Among cyclical stocks, the Fund favored higher-quality industrials and gold miners along with energy companies that benefit from deep-water energy development and liquefied natural gas infrastructure spending. As a result of this sector repositioning, the Fund’s most significant change from a regional perspective was increased exposure to developed Europe.

Describe portfolio positioning at period end.

• At period end, the Fund’s positioning reflected a positive, yet conservative, outlook for the world economy as well as expectations for continued market volatility. Investor demand for higher-quality equities remained strong despite recent historically high valuation spreads for these stocks. While Fund management anticipates a modest rate of economic expansion, the headwinds for global economic growth remain significant, and therefore, the Fund’s holdings were carefully diversified across defensive and cyclical exposures.

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
Roche Holding AG		3	%
Sanofi SA		3
Svenska Cellulosa AB, B Shares		2
Royal Dutch Shell Plc, A Shares		2
AIA Group Ltd.		2
Rexam Plc		2
Nestle SA		2
British American Tobacco Plc		2
Yamana Gold, Inc.		2
Samsung Electronics Co. Ltd.		2

Geographic Allocation	Percent of Long-Term Investments
United Kingdom		21	%
Japan		10
Switzerland		10
Germany		7
France		6
Canada		5
Sweden		5
Netherlands		4
Australia		4
Ireland		4
Hong Kong		3
Singapore		3
Mexico		2
China		2
South Korea		2
Brazil		2
Other1		10

¹  Other includes a 1% or less investment in each of the following countries: India, Italy, Jersey, Norway, Belgium, Indonesia, Spain, Israel, Taiwan, United States, South Africa, Argentina, Malaysia, Thailand, and Gibraltar.

 8   BLACKROCK FUNDS   SEPTEMBER 30, 2012

BlackRock International Opportunities Portfolio

Total Return Based on a $10,000 Investment

¹  Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees. 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  This market capitalization weighted index is designed to provide a broad measure of stock performance throughout the world, with the exception of US-based companies. The index includes both developed and emerging markets.

  Performance Summary for the Period Ended September 30, 2012

				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		0.95	%		18.08	%		N/A			(4.13	)%		N/A			12.64	%		N/A
Service		0.67			17.48			N/A			(4.50	)		N/A			12.26			N/A
Investor A		0.77			17.74			11.57	%		(4.40	)		(5.43	)%		12.27			11.67	%
Investor B		0.31			16.72			12.22			(5.16	)		(5.47	)		11.58			11.58
Investor C		0.38			16.83			15.83			(5.14	)		(5.14	)		11.42			11.42
MSCI All Country World Index (ACWI) Ex-US		(0.77	)		14.48			N/A			(4.12	)		N/A			9.84			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 April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period5			Beginning Account Value April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period5			Annualized Expense Ratio
Institutional		$	1,000.00		$	1,009.50		$	6.43		$	1,000.00		$	1,018.60		$	6.46		1.28	%
Service		$	1,000.00		$	1,006.70		$	9.03		$	1,000.00		$	1,016.00		$	9.07		1.80	%
Investor A		$	1,000.00		$	1,007.70		$	7.98		$	1,000.00		$	1,017.05		$	8.02		1.59	%
Investor B		$	1,000.00		$	1,003.10		$	12.37		$	1,000.00		$	1,012.65		$	12.43		2.47	%
Investor C		$	1,000.00		$	1,003.80		$	11.67		$	1,000.00		$	1,013.35		$	11.73		2.33	%

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 183/366 (to reflect the one-half year period shown).

⁶  Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.

See “Disclosure of Expenses” on page 15 for further information on how expenses were calculated.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 9 

  Fund Summary as of  September 30, 2012   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?

— For the 12-month period ended September 30, 2012, the Fund generated a positive double-digit return, but underperformed its benchmark, the NYSE Arca Tech 100 Index^SM.

What factors influenced performance?

— The largest contribution to the Fund’s performance resulted from stock selection within the internet software & services, software and information technology (“IT”) services industries. Google, Inc. (internet software & services) had the greatest positive impact on the Fund’s return as investors valued its strong cash flow metrics and leadership position in the growing mobile internet search business. Two of the Fund’s software holdings drove returns higher as the market reacted positively to Ariba, Inc.’s agreement to a takeover offer from SAP AG during the period. Like other software players, SAP AG is pushing more aggressively towards bolstering its capabilities to take advantage of what are likely to be multi-year trends in cloud-computing, software-as-a-service (“SaaS”) and business analytics. These same trends helped drive performance for best-in-class consulting firm Accenture Plc (IT services) and relationship management service firm Salesforce.com, Inc. (software), both of which were notable contributors to the Fund’s return for the period.

— Relative to the benchmark index, the Fund’s underperformance resulted from positioning in the computers & peripherals industry. An underweight to computer hardware stocks in the fourth quarter of 2011 had a negative impact on relative performance as this segment staged a sharp rebound despite anemic global growth conditions, with many of the

consumer-centric names like Apple, Inc. delivering particularly strong returns. Additionally, the Fund missed owning standout performers in the computer & peripherals space such as Seagate Technology Plc and Western Digital Corp. Dynamic industry pricing for hard disk drives pushed both of these stocks higher despite concerns about demand for personal computers trending downward. Elsewhere, the Fund’s positioning in semiconductors detracted from returns, as macro uncertainty translated into lower utilization rates for semiconductors overall, while at the same time, increased competition pressured profit margins.

Describe recent portfolio activity.

— During the 12-month period, the Fund increased exposure to the IT services industry by adding to holdings in data processing & outsourced services. The Fund also added exposure to communications equipment and semiconductor names. These purchases were offset by reduced holdings of IT consulting names in the IT services industry, systems software and computer hardware stocks.

Describe portfolio positioning at period end.

— The Fund’s positioning at the end of the period reflected a positive, yet conservative, outlook for the world economy as well as expectations for continued market volatility. Investor demand for higher-quality equities remained strong despite recent historically high valuation spreads for these stocks. While Fund management anticipates a modest rate of economic expansion, headwinds for global economic growth remain significant, and therefore, the Fund’s holdings were carefully diversified across IT companies with defensive and cyclical characteristics.

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	%
Cisco Systems, Inc.		5
Google, Inc., Class A		4
Amazon.com, Inc.		4
Visa, Inc., Class A		3
QUALCOMM, Inc.		3
Salesforce.com, Inc.		3
NetApp, Inc.		3
eBay, Inc.		3
ACI Worldwide, Inc.		2

Industry Allocation	Percent of Long-Term Investments
Software		20	%
Semiconductors & Semiconductor Equipment		18
Computers & Peripherals		15
IT Services		14
Communications Equipment		13
Internet Software & Services		9
Internet & Catalog Retail		7
Electronic Equipment, Instruments & Components		3
Other1		1

¹  Other includes a 1% or less investment in each of the following industries: Biotechnology, Pharmaceuticals and Diversified Consumer Services.

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 Fund management. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 10   BLACKROCK FUNDS   SEPTEMBER 30, 2012

BlackRock Science & Technology Opportunities Portfolio

  Total Return Based on a $10,000 Investment

¹  Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees. 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 US and non-US 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 technology. The Fund may invest up to 25% of its net assets in emerging market countries.

³  A price-weighted index comprised of not more than 100 individual stocks listed on the NYSE, AMEX or NASDAQ. The index is modeled to represent a broad spectrum of companies engaged principally in manufacturing products and/or providing services within technology fields.

  Performance Summary for the Period Ended September 30, 2012

				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		(6.27	)%		16.26	%		N/A			2.08	%		N/A			10.77	%		N/A
Service		(6.31	)		16.11			N/A			1.81			N/A			10.47			N/A
Investor A		(6.31	)		15.84			9.82	%		1.70			0.62	%		10.32			9.72	%
Investor B		(6.72	)		14.97			10.47			0.81			0.42			9.63			9.63
Investor C		(6.84	)		14.86			13.86			0.79			0.79			9.41			9.41
Class R		(6.53	)		15.54			N/A			1.38			N/A			9.96			N/A
NYSE Arca Tech 100 IndexSM		(0.73	)		30.18			N/A			6.56			N/A			13.55			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 April 1, 2012	Ending Account Value September 30, 2012	Expenses Paid During the Period5	Beginning Account Value April 1, 2012	Ending Account Value September 30, 2012	Expenses Paid During the Period5	Annualized Expense Ratio
Institutional	$1,000.00	$937.30	$  6.73	$1,000.00	$1,018.05	$  7.01		1.39	%
Service	$1,000.00	$936.90	$  7.60	$1,000.00	$1,017.15	$  7.92		1.57	%
Investor A	$1,000.00	$936.90	$  8.13	$1,000.00	$1,016.60	$  8.47		1.68	%
Investor B	$1,000.00	$932.80	$11.94	$1,000.00	$1,012.65	$12.43		2.47	%
Investor C	$1,000.00	$931.60	$12.41	$1,000.00	$1,012.15	$12.93		2.57	%
Class R	$1,000.00	$934.70	$  9.82	$1,000.00	$1,014.85	$10.23		2.03	%

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 183/366 (to reflect the one-half year period shown).

⁶  Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.

See “Disclosure of Expenses” on page 15 for further information on how expenses were calculated.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 11 

  Fund Summary as of  September 30, 2012   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?

— For the 12-month period ended September 30, 2012, the Fund generated a positive double-digit return, but underperformed its benchmark, the Russell Midcap^® Index.

What factors influenced performance?

— The largest positive contributor to performance was the Fund’s exposure to the recovery in the US housing market. An upturn in US home prices suggested significant positive effects for US jobs growth, durable goods purchases, consumer confidence and credit creation. During the period, the Fund benefited from its investments in homebuilders, household products and specialty chemicals companies involved in paints and coatings.

— Relative to the benchmark index, the Fund’s underperformance was largely attributable to stock selection in information technology (“IT”), and to a lesser degree, financials and health care. Within IT, the Fund’s semiconductor holdings were the largest drag on relative returns. Macroeconomic uncertainty has translated into lower utilization rates for semiconductors overall, while at the same time, increased competition has pressured profit margins. Elsewhere within the IT sector, software stocks struggled during the period, with inconsistent enterprise spending being most problematic as corporate officers remain reluctant to commit large sums of capital amid macroeconomic and public policy uncertainties. In financials, a sharp rebound in banking and consumer finance stocks was spurred by a slowly healing US economy and improving consumer

demand. Investments in higher-quality regional banks with excess capital and strong reserves led to strong absolute returns in the Fund. However, underexposure to dedicated mortgage lenders and servicers hurt relative performance. Lastly, in health care, stock selection within the equipment and pharmaceuticals segments hindered returns.

Describe recent portfolio activity.

— During the 12-month period, the Fund took advantage of the broad market advance to reposition its investments. In the defensive sectors, the Fund added to health care while reducing exposure to consumer staples and utilities. Among cyclical stocks, the Fund added to higher-quality industrials and increased exposure to positive trends in deep-water energy development and liquefied natural gas infrastructure spending. The Fund reduced its position in transportation stocks and closely monitored overall trends in consumer cyclical stocks.

Describe portfolio positioning at period end.

— At period end, the Fund’s positioning reflected a positive, yet conservative, outlook for the world economy as well as expectations for continued market volatility. Investor demand for higher-quality equities remained strong despite recent historically high valuation spreads for these stocks. While Fund management anticipates a modest rate of economic expansion, headwinds for global economic growth remain significant, and therefore, the Fund’s holdings were carefully diversified across defensive and cyclical exposures.

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
SBA Communications Corp., Class A		2	%
NetApp, Inc.		1
Liberty Global, Inc., Class A		1
Federal Realty Investment Trust		1
Ingersoll-Rand Plc		1
United Rentals, Inc.		1
Rayonier, Inc.		1
KeyCorp		1
Teradata Corp.		1
Rowan Cos. Plc, Class A		1

Sector Allocation	Percent of Long-Term Investments
Consumer Discretionary		20	%
Financials		19
Information Technology		14
Health Care		12
Industrials		11
Energy		7
Materials		6
Utilities		5
Consumer Staples		4
Telecommunication Services		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 Fund management. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.

 12   BLACKROCK FUNDS   SEPTEMBER 30, 2012

BlackRock U.S. Opportunities Portfolio

  Total Return Based on a $10,000 Investment

¹  Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees. 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 US emerging capitalization companies with relatively attractive earnings growth potential and valuation.

³  A market index that measures the performance of the mid-cap segment of the US 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 September 30, 2012

				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		(2.52	)%		20.40	%		N/A			2.33	%		N/A			12.27	%		N/A
Service		(2.77	)		19.80			N/A			1.86			N/A			11.82			N/A
Investor A		(2.72	)		19.82			13.52	%		1.83			0.74	%		11.76			11.16	%
Investor B		(3.12	)		18.87			14.37			1.05			0.69			11.10			11.10
Investor C		(3.09	)		18.94			17.94			1.08			1.08			10.94			10.94
Russell Midcap® Index		0.94			28.03			N/A			2.24			N/A			11.18			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 April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period5			Beginning Account Value April 1, 2012			Ending Account Value September 30, 2012			Expenses Paid During the Period5			Annualized Expense Ratio
Institutional		$	1,000.00		$	974.80		$	5.09		$	1,000.00		$	1,019.85		$	5.20		1.03	%
Service		$	1,000.00		$	972.30		$	7.45		$	1,000.00		$	1,017.45		$	7.62		1.51	%
Investor A		$	1,000.00		$	972.80		$	7.20		$	1,000.00		$	1,017.70		$	7.36		1.46	%
Investor B		$	1,000.00		$	968.80		$	11.22		$	1,000.00		$	1,013.60		$	11.48		2.28	%
Investor C		$	1,000.00		$	969.10		$	10.93		$	1,000.00		$	1,013.90		$	11.18		2.22	%

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 183/366 (to reflect the one-half year period shown).

⁶  Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.

See “Disclosure of Expenses” on page 15 for further information on how expenses were calculated.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 13 

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 eligible investors.

— Service Shares are not subject to any sales charge (front-end load) or deferred sales charge. These shares are subject to a service fee of 0.25% per year (but no distribution fee). Prior to January 28, 2005, the performance results of Service Shares of the BlackRock Health Sciences Opportunities Portfolio (“Health Sciences Opportunities”) are those of Investor A Shares restated to reflect Service Share fees.

— Investor A Shares are subject to a maximum initial sales charge (frontend load) of 5.25% and a service fee of 0.25% per year (but no distribution fee).

— Investor B Shares are subject to a maximum contingent deferred sales charge (“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, dividend reinvestments by existing shareholders or for purchase by certain qualified employee benefit 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.

— 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 retirement and other similar 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 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 dividends and 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.

Performance for Health Sciences Opportunities for the periods prior to January 28, 2005 is based on performance of a certain former State Street Research mutual fund that reorganized with Health Sciences Opportunities on that date.

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, a Fund’s performance would have been lower. The Manager is under no obligation to waive or reimburse or to continue waiving or reimbursing its fees after the applicable termination date. See Note 3 of the Notes to Financial Statements for additional information on waivers and reimbursements. Dividends 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.

 14   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Disclosure of Expenses

Shareholders of these Funds may incur the following charges: (a) expenses related to transactions, including sales charges and exchange fees; and (b) operating expenses, including advisory 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 April 1, 2012 and held through September 30, 2012) 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 example with the 5% hypothetical examples that appear in other funds’ shareholder reports.

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 or exchange fees, 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, including financial futures contracts, foreign currency exchange contracts and options, as specified in Note 2 of the Notes to Financial Statements, which may constitute forms of economic leverage. Such 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 hedge market, equity and/or foreign currency exchange rate risks. Derivative financial instruments 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 require a Fund to sell or purchase portfolio investments at inopportune times or for distressed values, may limit the amount of appreciation a Fund can realize on an investment, may result in lower dividends paid to shareholders or may cause a Fund to hold an investment that it might otherwise sell. The Funds’ investments in these instruments are discussed in detail in the Notes to Financial Statements.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 15 

  Schedule of Investments September 30, 2012   BlackRock Global Opportunities Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Argentina – 0.5%
Arcos Dorados Holdings, Inc.		104,200	$	1,607,806
Australia – 1.7%
Australia & New Zealand Banking Group Ltd.		51,700		1,321,226
BHP Billiton Ltd.		47,900		1,636,689
Newcrest Mining Ltd.		56,300		1,692,441
PanAust Ltd.		260,300		819,405
				5,469,761
Belgium – 0.9%
Anheuser-Busch InBev NV		35,478		3,035,095
Brazil – 0.4%
Banco Bradesco SA, Preference Shares		82,600		1,323,800
Canada – 1.6%
Saputo, Inc.		43,800		1,882,362
The Toronto-Dominion Bank		19,900		1,659,649
TransCanada Corp.		32,900		1,497,250
				5,039,261
China – 0.5%
China Construction Bank Corp., H Shares		2,346,800		1,618,565
France – 4.0%
Arkema SA		9,600		898,583
BNP Paribas SA		23,280		1,103,730
Danone SA		40,000		2,461,161
LVMH Moet Hennessy Louis Vuitton SA		10,300		1,546,217
Sanofi SA		45,800		3,919,403
Technip SA		28,600		3,177,793
				13,106,887
Germany – 4.6%
Allianz SE		18,700		2,230,227
Continental AG		11,300		1,108,242
Daimler AG		29,500		1,431,799
Deutsche Bank AG		63,700		2,523,121
Deutsche Lufthansa AG		141,300		1,917,593
GSW Immobilien AG		17,000		631,229
Merck KGaA		12,800		1,580,070
SAP AG - ADR		24,700		1,761,851
Volkswagen AG, Preference Shares		8,800		1,609,039
				14,793,171
Hong Kong – 2.0%
AIA Group Ltd.		901,500		3,340,447
BOC Hong Kong Holdings Ltd.		543,500		1,718,872
Wharf Holdings Ltd.		186,800		1,291,685
				6,351,004
India – 0.9%
ICICI Bank Ltd.		91,500		1,767,993
Jubilant Foodworks Ltd. (a)		50,316		1,306,175
				3,074,168

Common Stocks	Shares		Value
Indonesia – 0.8%
Bank Mandiri Tbk PT		1,806,000	$	1,541,078
Tower Bersama Infrastructure Tbk PT (a)		2,175,500		1,010,291
				2,551,369
Ireland – 2.6%
Accenture Plc, Class A		33,900		2,374,017
Experian Plc		168,400		2,803,990
Ingersoll-Rand Plc		70,400		3,155,328
				8,333,335
Italy – 0.7%
ENI SpA		65,100		1,427,218
Intesa Sanpaolo SpA		490,700		748,241
				2,175,459
Japan – 4.2%
Bridgestone Corp.		51,700		1,199,039
Hino Motors Ltd.		236,000		1,544,933
Honda Motor Co. Ltd.		55,300		1,709,066
ORIX Corp.		18,000		1,802,874
Softbank Corp.		54,800		2,215,648
Sumitomo Mitsui Financial Group, Inc.		48,900		1,523,635
Tokio Marine Holdings, Inc.		90,300		2,297,827
Yahoo Japan Corp.		3,810		1,449,520
				13,742,542
Mexico – 1.2%
Fomento Economico Mexicano SAB de CV - ADR		20,300		1,867,194
Fresnillo Plc		67,800		2,035,032
Grupo Financiero Santander Mexico SAB de CV, Class B - ADR (a)		7,400		101,380
				4,003,606
Netherlands – 1.6%
Royal Dutch Shell Plc, A Shares		109,800		3,801,760
Unilever NV		38,600		1,368,989
				5,170,749
Norway – 2.2%
Seadrill Ltd.		80,500		3,162,409
Statoil ASA		160,800		4,149,700
				7,312,109
Russia – 0.5%
Magnit OJSC - GDR		48,600		1,651,914
Singapore – 1.0%
Keppel Corp. Ltd.		363,000		3,356,222
South Korea – 0.6%
Samsung Electronics Co. Ltd.		1,525		1,837,775
Sweden – 2.9%
Electrolux AB, Series B		43,606		1,077,486

  Portfolio Abbreviations

To simplify the listings of portfolio holdings in the Schedules of Investments, the names and descriptions of many of the securities have been abbreviated according to the following list:

ADR	American Depositary Receipts	HKD	Hong Kong Dollar
AUD	Australian Dollar	JPY	Japanese Yen
BRL	Brazilian Real	KRW	South Korean Won
CAD	Canadian Dollar	MXN	Mexican Peso
CHF	Swiss Franc	NOK	Norwegian Krone
DKK	Danish Krone	SEK	Swedish Krona
EUR	Euro	SGD	Singapore Dollar
GBP	British Pound	USD	US Dollar
GDR	Global Depositary Receipts	ZAR	South African Rand

See Notes to Financial Statements.
16	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Schedule of Investments (continued)   BlackRock Global Opportunities Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Sweden (concluded)
Svenska Cellulosa AB, B Shares		371,538	$	6,907,583
Volvo AB, B Shares		108,400		1,522,961
				9,508,030
Switzerland – 2.2%
GAM Holding AG		121,100		1,580,421
Roche Holding AG		21,800		4,077,618
Xstrata Plc		96,600		1,498,559
				7,156,598
Taiwan – 0.5%
First Financial Holding Co. Ltd.		2,450,826		1,510,943
Thailand – 0.5%
Bangkok Bank Pcl		264,200		1,660,910
United Kingdom – 9.7%
Afren Plc (a)		1,124,300		2,554,606
Antofagasta Plc		67,936		1,389,432
APR Energy Plc		17,269		232,988
AstraZeneca Plc		28,000		1,336,864
Aveva Group Plc		24,400		776,362
Babcock International Group Plc		57,000		854,644
Barclays Plc		644,500		2,238,102
British American Tobacco Plc		83,000		4,264,837
Diageo Plc		88,100		2,480,741
HSBC Holdings Plc		233,383		2,168,078
Inmarsat Plc		165,900		1,583,944
National Grid Plc		207,900		2,293,323
Subsea 7 SA		200,809		4,638,565
Unilever Plc		42,600		1,555,413
Vodafone Group Plc - ADR		105,600		3,009,072
				31,376,971
United States – 51.0%
Abbott Laboratories		38,500		2,639,560
Air Products & Chemicals, Inc.		19,400		1,604,380
Amazon.com, Inc. (a)		7,400		1,881,968
American Electric Power Co., Inc.		49,600		2,179,424
Amgen, Inc.		49,300		4,156,976
Apple, Inc.		10,400		6,939,504
AT&T Inc.		86,700		3,268,590
Capital One Financial Corp.		6,800		387,668
Cardinal Health, Inc.		37,400		1,457,478
Celgene Corp. (a)		48,000		3,667,200
Cisco Systems, Inc.		133,914		2,556,418
Citigroup, Inc.		34,460		1,127,531
Comcast Corp., Class A		61,900		2,214,163
ConAgra Foods, Inc.		73,217		2,020,057
Costco Wholesale Corp.		29,700		2,973,713
Crown Holdings, Inc. (a)		49,300		1,811,775
CSX Corp.		115,600		2,398,700
DIRECTV (a)		33,700		1,767,902
Dominion Resources, Inc.		37,800		2,001,132
Eaton Corp.		59,400		2,807,244
eBay, Inc. (a)		68,900		3,335,449
Eli Lilly & Co.		77,700		3,683,757
EMC Corp. (a)		35,700		973,539
Express Scripts Holding Co. (a)		33,100		2,074,377
Exxon Mobil Corp.		75,400		6,895,330
F5 Networks, Inc. (a)		12,621		1,321,419
Federal Realty Investment Trust		14,500		1,526,850
FedEx Corp.		28,900		2,445,518
The Gap, Inc.		55,300		1,978,634

Common Stocks	Shares		Value
United States (concluded)
The Goldman Sachs Group, Inc.		18,400	$	2,091,712
Google, Inc., Class A (a)		5,000		3,772,500
The Hain Celestial Group, Inc. (a)		12,558		791,154
International Paper Co.		58,900		2,139,248
Intuit, Inc.		27,100		1,595,648
JPMorgan Chase & Co.		84,400		3,416,512
KeyCorp		316,300		2,764,462
Mondelez International, Inc.		63,500		2,625,725
Las Vegas Sands Corp.		35,700		1,655,409
Liberty Global, Inc., Class A (a)		34,600		2,101,950
Linear Technology Corp.		45,295		1,442,646
Lowe’s Cos., Inc.		72,800		2,201,472
Merck & Co., Inc.		71,800		3,238,180
MetLife, Inc.		53,400		1,840,164
Microsoft Corp.		52,900		1,575,362
Monsanto Co.		26,300		2,393,826
The NASDAQ OMX Group, Inc.		65,900		1,535,141
National Oilwell Varco, Inc.		39,900		3,196,389
NetApp, Inc. (a)		87,314		2,870,884
NII Holdings, Inc. (a)		20,500		160,925
NIKE, Inc., Class B		15,800		1,499,578
Owens Corning (a)		56,300		1,883,798
PartnerRe Ltd.		21,100		1,567,308
Perrigo Co.		11,300		1,312,721
PPL Corp.		70,400		2,045,120
Ralcorp Holdings, Inc. (a)		10,475		764,675
Reynolds American, Inc.		35,900		1,555,906
Riverbed Technology, Inc. (a)		73,608		1,712,858
Rockwell Automation, Inc.		25,600		1,780,480
Rowan Cos. Plc, Class A (a)		87,600		2,958,252
Schlumberger Ltd.		40,700		2,943,831
SPX Corp.		34,200		2,237,022
Teradata Corp. (a)		38,521		2,904,869
Time Warner, Inc.		78,200		3,544,806
United Rentals, Inc. (a)		76,325		2,496,591
Verizon Communications, Inc.		52,500		2,392,425
Vertex Pharmaceuticals, Inc. (a)		27,100		1,516,245
Visa, Inc., Class A		25,100		3,370,428
Wells Fargo & Co.		145,400		5,020,662
Weyerhaeuser Co.		35,314		923,108
Whirlpool Corp.		26,100		2,163,951
Xilinx, Inc.		48,600		1,623,726
				165,723,925
Total Long-Term Investments
(Cost – $288,801,664) – 99.3%				322,491,975
Short-Term Securities
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.15% (b)(c)		1,615,812		1,615,812
Total Short-Term Securities
(Cost – $1,615,812) – 0.5%				1,615,812
Total Investments (Cost – $290,417,476) – 99.8%				324,107,787
Other Assets Less Liabilities – 0.2%				749,301
Net Assets – 100.0%			$	324,857,088

(a) Non-income producing security.

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

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	17

Schedule of Investments (continued)   BlackRock Global Opportunities Portfolio

(c) Investments in issuers considered to be an affiliate of the Fund during the year ended September 30, 2012, 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, 2011		Net Activity			Shares Held at September 30, 2012		Income			Realized Gain
BlackRock Liquidity Funds, TempFund, Institutional Class		4,695,511		(3,079,699	)		1,615,812		$	5,582		$	199

— Foreign currency exchange contracts as of September 30, 2012 were as follows:

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
AUD	1,574,000	USD	1,640,108	UBS AG	10/02/12	$	(7,396	)
AUD	6,285,000	USD	6,511,159	Citigroup, Inc.	10/17/12		(3,765	)
AUD	176,000	USD	181,005	Citigroup, Inc.	10/17/12		1,223
AUD	6,592,000	USD	6,614,670	UBS AG	10/17/12		210,587
CAD	625,000	USD	622,024	BNP Paribas SA	10/17/12		13,459
CAD	477,000	USD	483,889	Citigroup, Inc.	10/17/12		1,112
CAD	1,745,000	USD	1,766,017	Citigroup, Inc.	10/17/12		8,250
CAD	717,000	USD	716,602	Citigroup, Inc.	10/17/12		12,424
CAD	5,673,000	USD	5,556,845	Citigroup, Inc.	10/17/12		211,302
CAD	570,000	USD	576,521	UBS AG	10/17/12		3,039
CHF	269,000	USD	281,675	Citigroup, Inc.	10/17/12		4,450
CHF	1,381,000	USD	1,462,219	Citigroup, Inc.	10/17/12		6,698
CHF	1,404,000	USD	1,437,567	UBS AG	10/17/12		55,814
CHF	6,340,000	USD	6,454,030	UBS AG	10/17/12		289,586
DKK	8,120,000	USD	1,334,812	UBS AG	10/17/12		65,351
EUR	363,000	USD	462,260	Citigroup, Inc.	10/17/12		4,304
EUR	107,000	USD	131,673	Citigroup, Inc.	10/17/12		5,854
EUR	2,550,000	USD	3,268,616	Citigroup, Inc.	10/17/12		8,901
EUR	1,098,000	USD	1,347,511	Citigroup, Inc.	10/17/12		63,750
EUR	1,732,000	USD	2,144,268	Citigroup, Inc.	10/17/12		81,873
EUR	1,443,000	USD	1,784,135	Deutsche Bank AG	10/17/12		70,554
EUR	468,000	USD	604,148	UBS AG	10/17/12		(2,627	)
EUR	3,000,000	USD	3,841,422	UBS AG	10/17/12		14,480
EUR	486,000	USD	600,287	UBS AG	10/17/12		24,369
GBP	315,000	USD	506,635	Citigroup, Inc.	10/17/12		1,998
GBP	1,029,000	USD	1,603,357	Citigroup, Inc.	10/17/12		58,175
GBP	6,549,000	USD	10,144,257	UBS AG	10/17/12		430,451
HKD	3,643,000	USD	469,890	Citigroup, Inc.	10/17/12		(69	)
HKD	414,000	USD	53,395	Citigroup, Inc.	10/17/12		(3	)
HKD	791,000	USD	101,991	Citigroup, Inc.	10/17/12		21
HKD	12,878,000	USD	1,660,750	Citigroup, Inc.	10/17/12		67
HKD	10,530,000	USD	1,357,783	Citigroup, Inc.	10/17/12		223
HKD	9,483,000	USD	1,222,684	Citigroup, Inc.	10/17/12		294
HKD	9,245,000	USD	1,192,041	UBS AG	10/17/12		244
JPY	12,835,000	USD	163,798	Citigroup, Inc.	10/17/12		695
JPY	15,687,000	USD	199,444	Citigroup, Inc.	10/17/12		1,600

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
JPY	72,761,000	USD	930,898	Citigroup, Inc.	10/17/12	$	1,608
JPY	63,621,000	USD	809,308	Citigroup, Inc.	10/17/12		6,059
JPY	12,549,000	USD	160,764	Deutsche Bank AG	10/17/12		64
JPY	76,084,000	USD	966,928	Deutsche Bank AG	10/17/12		8,165
JPY	107,000,000	USD	1,369,363	UBS AG	10/17/12		1,949
JPY	104,411,000	USD	1,329,704	UBS AG	10/17/12		8,428
JPY	395,310,000	USD	4,993,942	UBS AG	10/17/12		72,353
MXN	38,867,000	USD	2,868,330	UBS AG	10/17/12		144,794
SEK	5,227,000	USD	779,678	UBS AG	10/17/12		15,596
SGD	2,018,000	USD	1,591,202	UBS AG	10/17/12		53,150
USD	3,063,763	AUD	2,970,000	Citigroup, Inc.	10/17/12		(11,330	)
USD	3,774,758	AUD	3,622,000	Citigroup, Inc.	10/17/12		24,594
USD	1,637,912	AUD	1,574,000	UBS AG	10/17/12		8,216
USD	866,560	CAD	870,000	Goldman Sachs Group, Inc.	10/17/12		(18,032	)
USD	352,231	CHF	345,000	Citigroup, Inc.	10/17/12		(14,732	)
USD	1,424,098	CHF	1,404,000	Royal Bank of Scotland Group Plc	10/17/12		(69,283	)
USD	1,601,179	CHF	1,486,000	Royal Bank of Scotland Group Plc	10/17/12		20,578
USD	1,234,819	CHF	1,208,000	UBS AG	10/17/12		(50,084	)
USD	250,599	CHF	245,000	UBS AG	10/17/12		(9,998	)
USD	976,035	EUR	790,000	Citigroup, Inc.	10/17/12		(39,353	)
USD	939,973	EUR	720,000	Citigroup, Inc.	10/17/12		14,556
USD	1,242,526	EUR	945,000	Citigroup, Inc.	10/17/12		27,916
USD	20,737,081	EUR	16,994,000	UBS AG	10/17/12		(1,105,320	)
USD	1,725,144	EUR	1,404,000	UBS AG	10/17/12		(79,418	)
USD	851,089	EUR	695,000	UBS AG	10/17/12		(42,195	)
USD	742,801	EUR	605,000	UBS AG	10/17/12		(34,806	)
USD	456,943	EUR	373,000	UBS AG	10/17/12		(22,474	)
USD	2,669,299	EUR	2,060,000	UBS AG	10/17/12		21,579
USD	3,265,550	GBP	2,040,000	Citigroup, Inc.	10/17/12		(28,449	)
USD	978,331	GBP	620,000	Citigroup, Inc.	10/17/12		(22,787	)
USD	512,731	GBP	328,000	Citigroup, Inc.	10/17/12		(16,893	)
USD	395,451	GBP	252,000	Citigroup, Inc.	10/17/12		(11,455	)
USD	212,295	GBP	136,000	Citigroup, Inc.	10/17/12		(7,305	)
USD	212,623	GBP	136,000	Citigroup, Inc.	10/17/12		(6,977	)

See Notes to Financial Statements.
18	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Schedule of Investments (continued)   BlackRock Global Opportunities Portfolio

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
USD	104,796	GBP	67,000	Citigroup, Inc.	10/17/12	$	(3,389	)
USD	80,680	GBP	52,000	Citigroup, Inc.	10/17/12		(3,284	)
USD	38,853	GBP	25,000	Citigroup, Inc.	10/17/12		(1,515	)
USD	160,773	GBP	99,000	Citigroup, Inc.	10/17/12		917
USD	1,593,812	GBP	1,026,000	UBS AG	10/17/12		(62,876	)
USD	747,257	GBP	478,000	UBS AG	10/17/12		(24,572	)
USD	712,499	GBP	454,000	UBS AG	10/17/12		(20,578	)
USD	186,226	GBP	118,000	UBS AG	10/17/12		(4,309	)
USD	193,525	GBP	122,000	UBS AG	10/17/12		(3,469	)
USD	148,056	GBP	93,000	UBS AG	10/17/12		(2,112	)
USD	96,866	GBP	61,000	UBS AG	10/17/12		(1,631	)
USD	1,236,247	HKD	9,588,000	Royal Bank of Scotland Group Plc	10/17/12		(273	)
USD	270,266	HKD	2,096,000	UBS AG	10/17/12		(46	)
USD	270,298	JPY	21,122,000	Citigroup, Inc.	10/17/12		(402	)
USD	965,142	JPY	75,207,275	UBS AG	10/17/12		1,285
USD	518,184	NOK	3,027,000	Citigroup, Inc.	10/17/12		(9,810	)
USD	3,584,704	NOK	21,341,000	Credit Suisse Group AG	10/17/12		(137,765	)
USD	2,150,101	NOK	13,226,000	UBS AG	10/17/12		(156,885	)
USD	803,009	NOK	4,916,000	UBS AG	10/17/12		(54,479	)
USD	801,069	NOK	4,870,000	UBS AG	10/17/12		(48,396	)
USD	1,103,867	NOK	6,558,000	UBS AG	10/17/12		(40,032	)
USD	845,792	NOK	4,914,000	UBS AG	10/17/12		(11,347	)
USD	242,460	NOK	1,444,000	UBS AG	10/17/12		(9,414	)
USD	397,920	SEK	2,784,000	Citigroup, Inc.	10/17/12		(25,658	)
USD	204,829	SEK	1,448,000	Citigroup, Inc.	10/17/12		(15,480	)
USD	1,936,912	SEK	12,825,000	Citigroup, Inc.	10/17/12		(14,378	)
USD	76,059	SEK	528,000	Citigroup, Inc.	10/17/12		(4,275	)
USD	489,205	SEK	3,281,000	Credit Suisse Group AG	10/17/12		(9,990	)
USD	895,925	SEK	6,331,000	UBS AG	10/17/12		(67,320	)
USD	513,613	SEK	3,624,000	UBS AG	10/17/12		(37,769	)
USD	462,365	SEK	3,283,000	UBS AG	10/17/12		(37,135	)
USD	884,174	SEK	5,862,000	UBS AG	10/17/12		(7,714	)
USD	154,919	SEK	1,038,000	UBS AG	10/17/12		(3,010	)
USD	172,671	SEK	1,146,000	UBS AG	10/17/12		(1,690	)
USD	188,759	SGD	238,000	Deutsche Bank AG	10/17/12		(5,174	)
USD	1,002,680	SGD	1,256,000	UBS AG	10/17/12		(20,762	)
USD	684,541	SGD	863,000	UBS AG	10/17/12		(18,668	)
USD	641,078	SGD	794,000	UBS AG	10/17/12		(5,906	)
USD	83,504	SGD	104,000	UBS AG	10/17/12		(1,240	)

Total $ (394,549 ) 

— 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 as follows:

— Level 1 – unadjusted price quotations in active markets/exchanges for identical assets and 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)

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 level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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. 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. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	19

  Schedule of Investments (concluded)   BlackRock Global Opportunities Portfolio

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy as of September 30, 2012:

	Level 1			Level 2			Level 3		Total
Assets:
Investments:
Long-Term Investments:
Common Stocks:
Argentina	$	1,607,806			–			–	$	1,607,806
Australia		–		$	5,469,761			–		5,469,761
Belgium		–			3,035,095			–		3,035,095
Brazil		1,323,800			–			–		1,323,800
Canada		5,039,261			–			–		5,039,261
China		–			1,618,565			–		1,618,565
France		–			13,106,887			–		13,106,887
Germany		1,761,851			13,031,320			–		14,793,171
Hong Kong		–			6,351,004			–		6,351,004
India		–			3,074,168			–		3,074,168
Indonesia		–			2,551,369			–		2,551,369
Ireland		5,529,345			2,803,990			–		8,333,335
Italy		–			2,175,459			–		2,175,459
Japan		–			13,742,542			–		13,742,542
Mexico		1,968,574			2,035,032			–		4,003,606
Netherlands		–			5,170,749			–		5,170,749
Norway		–			7,312,109			–		7,312,109
Russia		–			1,651,914			–		1,651,914
Singapore		–			3,356,222			–		3,356,222
South Korea		–			1,837,775			–		1,837,775
Sweden		–			9,508,030			–		9,508,030
Switzerland		–			7,156,598			–		7,156,598
Taiwan		–			1,510,943			–		1,510,943
Thailand		–			1,660,910			–		1,660,910
United Kingdom		3,242,060			28,134,911			–		31,376,971
United States		165,723,925			–			–		165,723,925
Short-Term Securities		1,615,812			–			–		1,615,812
Total	$	187,812,434		$	136,295,353			–	$	324,107,787
	Level 1			Level 2			Level 3		Total
Derivative Financial Instruments1
Assets:
Foreign currency exchange contracts		–		$	2,082,955			–	$	2,082,955
Liabilities:
Foreign currency exchange contracts	$	(7,396	)		(2,470,108	)		–		(2,477,504	)
Total	$	(7,396	)	$	(387,153	)		–	$	(394,549	)

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

Certain of the Fund’s assets are held at carrying amount, which approximates fair value for financial statement purposes. As of September 30, 2012, such assets are categorized within the disclosure hierarchy as follows:

	Level 1		Level 2	Level 3	Total
Assets:
Cash	$	30,659	–	–	$	30,659
Foreign currency at value		539,637	–	–		539,637
Total	$	570,296	–	–	$	570,296

There were no transfers between levels during the year ended September 30, 2012.

See Notes to Financial Statements.
20	BLACKROCK FUNDS	SEPTEMBER 30, 2012

Schedule of Investments September 30, 2012   BlackRock Health Sciences Opportunities Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Biotechnology – 28.9%
3SBio, Inc. - ADR (a)		165,771	$	2,153,365
Achillion Pharmaceuticals, Inc. (a)		205,902		2,143,440
Acorda Therapeutics, Inc. (a)(b)		576,900		14,774,409
Actelion Ltd.		184,615		9,253,982
Alexion Pharmaceuticals, Inc. (a)		640,224		73,241,626
Alnylam Pharmaceuticals, Inc. (a)		217,861		4,093,608
Amgen, Inc.		1,031,010		86,934,763
ARIAD Pharmaceuticals, Inc. (a)		930,785		22,548,267
Biogen Idec, Inc. (a)		363,659		54,268,833
BioMarin Pharmaceutical, Inc. (a)		259,800		10,462,146
Celgene Corp. (a)		995,200		76,033,280
ChemoCentryx, Inc. (a)		145,639		1,693,782
CSL Ltd.		167,900		7,985,964
Cubist Pharmaceuticals, Inc. (a)(b)		376,900		17,970,592
Exelixis, Inc. (a)(b)		633,000		3,051,060
Genmab A/S (a)		320,446		4,013,883
Gilead Sciences, Inc. (a)		735,928		48,814,104
Incyte Corp. Ltd. (a)(b)		504,900		9,113,445
Infinity Pharmaceuticals, Inc. (a)		213,800		5,034,990
Medivation, Inc. (a)(b)		558,600		31,482,696
Momenta Pharmaceuticals, Inc. (a)(b)		354,100		5,159,237
Pharmacyclics, Inc. (a)		287,352		18,534,204
Protalix BioTherapeutics, Inc. (a)(b)		966,926		5,008,677
Seattle Genetics, Inc. (a)		662,700		17,859,765
Verastem, Inc. (a)		140,740		1,321,549
Vertex Pharmaceuticals, Inc. (a)(b)		553,470		30,966,647
				563,918,314
Chemicals – 0.5%
Sigma-Aldrich Corp.		130,400		9,384,888
Diversified Consumer Services – 0.6%
Service Corp. International		355,600		4,786,376
Stewart Enterprises, Inc., Class A		767,100		6,439,805
				11,226,181
Food & Staples Retailing – 0.8%
Brazil Pharma SA		890,700		5,369,024
CVS Caremark Corp.		218,600		10,584,612
				15,953,636
Health Care Equipment & Supplies – 13.3%
Align Technology, Inc. (a)(b)		465,433		17,207,058
ArthroCare Corp. (a)		363,400		11,774,160
Baxter International, Inc.		243,700		14,685,362
The Cooper Cos., Inc.		300,900		28,423,014
Covidien Plc		511,400		30,387,388
Cyberonics, Inc. (a)(b)		235,962		12,369,128
DENTSPLY International, Inc.		251,500		9,592,210
Edwards Lifesciences Corp. (a)(b)		138,900		14,913,693
Given Imaging Ltd.		217,669		3,171,437
Intuitive Surgical, Inc. (a)		20,100		9,962,163
Medtronic, Inc.		253,200		10,917,984
ResMed, Inc.		427,400		17,296,878
Sirona Dental Systems, Inc. (a)(b)		344,200		19,605,632
St. Jude Medical, Inc.		300,500		12,660,065
Stryker Corp.		366,200		20,382,692
Thoratec Corp. (a)		303,300		10,494,180
Zimmer Holdings, Inc.		216,200		14,619,444
				258,462,488
Health Care Providers & Services – 17.5%
Aetna, Inc.		417,423		16,529,951
AMERIGROUP Corp. (a)		73,200		6,692,676
AmerisourceBergen Corp.		242,200		9,375,562

Common Stocks	Shares		Value
Health Care Providers & Services (concluded)
Brookdale Senior Living, Inc. (a)		683,600	$	15,873,192
Capital Senior Living Corp. (a)(b)		518,587		7,503,954
Cardinal Health, Inc.		570,300		22,224,591
Catamaran Corp. (a)		292,000		28,607,240
CIGNA Corp.		265,000		12,500,050
Express Scripts Holding Co. (a)		864,947		54,206,228
HCA Holdings, Inc.		314,800		10,467,100
Henry Schein, Inc. (a)(b)		147,714		11,709,289
Humana, Inc.		177,434		12,446,995
Laboratory Corp. of America Holdings (a)(b)		111,800		10,338,146
McKesson Corp.		218,800		18,823,364
Quest Diagnostics, Inc.		266,951		16,932,702
Team Health Holdings, Inc. (a)		318,548		8,642,207
UnitedHealth Group, Inc.		668,782		37,057,211
Universal Health Services, Inc., Class B		350,000		16,005,500
VCA Antech, Inc. (a)(b)		679,213		13,400,872
WellPoint, Inc.		194,433		11,279,058
				340,615,888
Health Care Technology – 0.6%
Cerner Corp. (a)(b)		154,700		11,975,327
Industrial Conglomerates – 0.6%
Koninklijke Philips Electronics NV		490,374		11,448,984
Life Sciences Tools & Services – 5.0%
Agilent Technologies, Inc.		443,600		17,056,420
ICON Plc - ADR (a)		476,300		11,607,431
Illumina, Inc. (a)		210,900		10,165,380
Life Technologies Corp. (a)(b)		310,900		15,196,792
Luminex Corp. (a)(b)		238,700		4,640,328
Mettler-Toledo International, Inc. (a)		32,906		5,618,370
Thermo Fisher Scientific, Inc.		336,000		19,766,880
Waters Corp. (a)(b)		159,475		13,289,052
				97,340,653
Pharmaceuticals – 31.3%
Abbott Laboratories		879,900		60,325,944
Allergan, Inc.		423,400		38,774,972
AstraZeneca Plc		200,700		9,582,449
Bayer AG		134,800		11,591,405
Elan Corp. Plc - ADR (a)		825,800		8,852,576
Eli Lilly & Co.		1,510,500		71,612,805
Forest Laboratories, Inc. (a)		305,100		10,864,611
Hospira, Inc. (a)(b)		337,700		11,083,314
Johnson & Johnson		848,700		58,483,917
Merck & Co., Inc.		1,290,900		58,219,590
Merck KGaA		85,600		10,566,716
Novartis AG		188,800		11,555,224
Perrigo Co.		182,500		21,201,025
Pfizer, Inc.		2,340,640		58,164,904
Roche Holding AG		295,500		55,272,297
Sanofi SA		654,000		55,967,016
Teva Pharmaceutical Industries Ltd. - ADR		333,300		13,801,953
UCB SA		174,100		9,580,472
Valeant Pharmaceuticals International, Inc. (a)		219,000		12,104,130
Watson Pharmaceuticals, Inc. (a)		250,200		21,307,032
				608,912,352
Total Long-Term Investments
(Cost – $1,543,638,508) – 99.1%				1,929,238,711

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	21

  Schedule of Investments (continued)   BlackRock Health Sciences Opportunities Portfolio (Percentages shown are based on Net Assets)

Short-Term Securities	Shares		Value
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.15% (c)(d)		62,805,555	$	62,805,555
	Beneficial Interest (000)
BlackRock Liquidity Series, LLC Money Market Series, 0.29% (c)(d)(e)	$	176,439		176,438,673
Total Short-Term Securities (Cost – $239,244,228) – 12.3%				239,244,228

	Value
Total Investments (Cost – $1,782,882,736) – 111.4%	$	2,168,482,939
Liabilities in Excess of Other Assets – (11.4)%		(221,964,451)
Net Assets – 100.0%	$	1,946,518,488

(a) Non-income producing security.

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

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

(d) Investments in issuers considered to be an affiliate of the Fund during the year ended September 30, 2012, 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, 2011			Net Activity				Shares/ Beneficial Interest Held at September 30, 2012			Income			Realized Gain
BlackRock Liquidity Funds, TempFund, Institutional Class			114,422,161			(51,616,606	)			62,805,555		$	108,379		$	321
BlackRock Liquidity Series, LLC Money Market Series		$	27,098,498		$	149,340,175			$	176,438,673		$	301,097			–

(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 Fund management. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

— Foreign currency exchange contracts as of September 30, 2012 were as follows:

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
CHF	3,156,000	USD	3,370,405	Citigroup, Inc.	10/02/12	$	(14,743	)
EUR	1,432,000	USD	1,850,904	Royal Bank of Scotland Group Plc	10/02/12		(10,713	)
EUR	404,000	USD	519,588	UBS AG	10/02/12		(428	)
GBP	151,000	USD	244,862	Royal Bank of Scotland Group Plc	10/02/12		(1,026	)
AUD	332,000	USD	346,176	Citigroup, Inc.	10/03/12		(1,792	)
CHF	2,947,000	USD	3,017,458	UBS AG	10/17/12		117,154
EUR	4,273,000	USD	5,244,001	Citigroup, Inc.	10/17/12		248,089
EUR	5,723,000	USD	7,075,957	Deutsche Bank AG	10/17/12		279,819
HKD	1,852,000	USD	238,857	Citigroup, Inc.	10/17/12		(13	)
USD	345,744	AUD	332,000	Citigroup, Inc.	10/17/12		1,996
USD	5,098,205	AUD	5,078,000	Deutsche Bank AG	10/17/12		(159,479	)
USD	32,331,244	CHF	31,753,000	Citigroup, Inc.	10/17/12		(1,443,207	)
USD	15,999,453	CHF	15,671,000	Citigroup, Inc.	10/17/12		(669,191	)
USD	2,481,189	CHF	2,430,000	Citigroup, Inc.	10/17/12		(103,509	)
USD	3,371,107	CHF	3,156,000	Citigroup, Inc.	10/17/12		14,190

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
USD	4,465,015	CHF	4,402,000	Royal Bank of Scotland Group Plc	10/17/12	$	(217,224	)
USD	481,648	CHF	475,000	Royal Bank of Scotland Group Plc	10/17/12		(23,592	)
USD	10,841,214	CHF	10,599,000	UBS AG	10/17/12		(432,536	)
USD	962,121	DKK	5,698,000	Royal Bank of Scotland Group Plc	10/17/12		(20,408	)
USD	5,541,159	EUR	4,485,000	Citigroup, Inc.	10/17/12		(223,415	)
USD	1,158,602	EUR	940,000	Citigroup, Inc.	10/17/12		(49,581	)
USD	1,851,168	EUR	1,432,000	Royal Bank of Scotland Group Plc	10/17/12		10,617
USD	86,923,930	EUR	71,234,000	UBS AG	10/17/12		(4,633,187	)
USD	5,992,541	EUR	4,877,000	UBS AG	10/17/12		(275,871	)
USD	519,663	EUR	404,000	UBS AG	10/17/12		401
USD	244,847	GBP	151,000	Royal Bank of Scotland Group Plc	10/17/12		1,026
USD	9,062,670	GBP	5,834,000	UBS AG	10/17/12		(357,523	)
USD	238,815	HKD	1,852,000	Citigroup, Inc.	10/17/12		(29	)
USD	2,342,888	EUR	1,910,000	Royal Bank of Scotland Group Plc	10/22/12		(112,163	)
Total						$(8,076,338)

— 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 as follows:

— Level 1 – unadjusted price quotations in active markets/exchanges for identical assets and liabilities that the Fund has the ability to access

See Notes to Financial Statements.
22	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Schedule of Investments (concluded)   BlackRock Health Sciences Opportunities Portfolio

— 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)

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 level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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. 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. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements.

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy as of September 30, 2012:

	Level 1			Level 2			Level 3	Total
Assets:
Investments:
Long-Term Investments:
Common Stocks:
Biotechnology		$	542,664,485		$	21,253,829	–		$	563,918,314
Chemicals			9,384,888			–	–			9,384,888
Diversified Consumer Services			11,226,181			–	–			11,226,181
Food & Staples Retailing			15,953,636			–	–			15,953,636
Health Care Equipment & Supplies			258,462,488			–	–			258,462,488
Health Care Providers & Services			340,615,888			–	–			340,615,888
Health Care Technology			11,975,327			–	–			11,975,327
Industrial Conglo- merates			–			11,448,984	–			11,448,984
Life Sciences Tools & Services			97,340,653			–	–			97,340,653
Pharma- ceuticals			444,796,773			164,115,579	–			608,912,352
Short-Term Securities			62,805,555			176,438,673	–			239,244,228
Total		$	1,795,225,874		$	373,257,065	–		$	2,168,482,939

	Level 1				Level 2				Level 3	Total
Derivative Financial Instruments1
Assets:
Foreign currency exchange contracts			–			$	673,292		–		$	673,292
Liabilities:
Foreign currency exchange contracts		$	(28,702	)			(8,720,928	)	–			(8,749,630	)
Total		$	(28,702	)		$	(8,047,636	)	–		$	(8,076,338	)

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

Certain of the Fund’s assets and liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of September 30, 2012, such assets and liabilities are categorized within the disclosure hierarchy as follows:

	Level 1			Level 2				Level 3	Total
Assets:
Foreign currency at value		$	789,029			–		–		$	789,029
Liabilities:
Collateral on securities loaned at value			–		$	(176,438,673	)	–			(176,438,673	)
Total		$	789,029		$	(176,438,673	)	–		$	(175,649,644	)

There were no transfers between levels during the year ended September 30, 2012.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	23

  Schedule of Investments  September 30, 2012   BlackRock International Opportunities Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Argentina – 0.5%
Arcos Dorados Holdings, Inc.		518,800	$	8,005,084
Australia – 3.8%
Australia & New Zealand Banking Group Ltd.		950,500		24,290,620
BHP Billiton Ltd.		611,700		20,901,096
CSL Ltd.		119,800		5,698,145
Newcrest Mining Ltd.		448,000		13,467,383
				64,357,244
Belgium – 1.0%
Anheuser-Busch InBev NV		188,979		16,166,898
Brazil – 1.5%
Banco Bradesco SA, Preference Shares		972,300		15,582,699
BRF - Brasil Foods SA		596,400		10,223,159
				25,805,858
Canada – 4.8%
Canadian Natural Resources Ltd.		305,000		9,409,673
Gildan Activewear, Inc.		207,000		6,563,106
Manulife Financial Corp.		652,300		7,862,634
Royal Bank of Canada		216,500		12,451,338
The Toronto-Dominion Bank		118,500		9,882,835
TransCanada Corp.		171,600		7,809,362
Yamana Gold, Inc.		1,402,600		26,793,641
				80,772,589
China – 1.5%
China Construction Bank Corp., H Shares		20,430,300		14,090,580
Tencent Holdings Ltd.		356,800		12,079,709
				26,170,289
France – 6.1%
AXA SA		518,827		7,724,127
BNP Paribas SA		138,870		6,583,977
Danone SA		253,300		15,585,301
LVMH Moet Hennessy Louis Vuitton SA		55,800		8,376,592
Publicis Groupe SA		202,900		11,348,784
Sanofi SA		492,900		42,180,646
Société Generale SA (a)		89,900		2,547,579
Technip SA		74,900		8,322,262
				102,669,268
Germany – 6.6%
Allianz SE		143,000		17,054,678
BASF SE		156,600		13,232,085
Continental AG		40,900		4,011,249
Daimler AG		208,300		10,109,958
Deutsche Bank AG		326,800		12,944,362
Deutsche Lufthansa AG		629,100		8,537,566
Gerry Weber International AG		317,388		13,131,827
Merck KGaA		125,300		15,467,402
SAP AG - ADR		119,800		8,545,334
Volkswagen AG, Preference Shares		45,700		8,356,031
				111,390,492
Gibraltar – 0.1%
Bwin.Party Digital Entertainment Plc		732,575		1,232,734
Hong Kong – 3.2%
AIA Group Ltd.		9,408,100		34,861,072
Melco Crown Entertainment Ltd.- ADR (a)		576,000		7,764,480
REXLot Holdings Ltd.		39,046,100		2,960,530
Wharf Holdings Ltd.		1,288,400		8,909,030
				54,495,112
India – 1.4%
ICICI Bank Ltd.		439,800		8,814,125

Common Stocks	Shares		Value
India (concluded)
ICICI Bank Ltd. - ADR		217,900	$	8,746,506
Jubilant Foodworks Ltd. (a)		235,756		6,120,095
				23,680,726
Indonesia – 0.8%
Indofood Sukses Makmur Tbk PT		14,977,700		8,817,430
Tower Bersama Infrastructure Tbk PT (a)		10,000,500		4,644,181
				13,461,611
Ireland – 3.5%
Accenture Plc, Class A		176,800		12,381,304
CRH Plc		1,271,040		24,468,271
Experian Plc		1,394,261		23,215,520
				60,065,095
Israel – 0.7%
Teva Pharmaceutical Industries Ltd. - ADR		277,800		11,503,698
Italy – 1.2%
ENI SpA		601,900		13,195,736
Intesa Sanpaolo SpA		4,873,600		7,431,485
				20,627,221
Japan – 10.2%
Bridgestone Corp.		325,500		7,549,078
The Chiba Bank Ltd.		1,691,000		9,830,168
Daiwa Office Investment Corp.		1,269		4,207,420
Honda Motor Co. Ltd.		273,700		8,458,794
Japan Prime Realty Investment Corp.		1,470		4,431,748
JGC Corp.		436,000		14,520,649
Kubota Corp.		1,428,100		14,412,835
Mitsui Fudosan Co. Ltd.		528,300		10,556,831
ORIX Corp.		107,600		10,777,180
SMC Corp.		70,800		11,394,105
Softbank Corp.		385,400		15,582,312
Sumitomo Mitsui Financial Group, Inc.		473,900		14,765,865
Tokio Marine Holdings, Inc.		419,400		10,672,299
Toyota Motor Corp.		298,200		11,692,220
Yahoo Japan Corp.		18,101		6,886,551
Yamato Holdings Co. Ltd.		420,800		6,655,206
Zeon Corp.		1,643,600		11,428,149
				173,821,410
Jersey – 1.1%
Randgold Resources Ltd.		156,600		19,263,826
Malaysia – 0.4%
Genting Malaysia BHD		5,869,000		6,709,629
Mexico – 2.4%
Alpek SA de CV		1,648,200		4,283,201
Fomento Economico Mexicano SAB de CV - ADR		172,900		15,903,342
Fresnillo Plc		645,500		19,374,830
Grupo Financiero Santander Mexico SAB de CV, Class B - ADR (a)		38,700		530,190
				40,091,563
Netherlands – 4.0%
ASML Holding NV		244,666		13,086,805
NXP Semiconductor NV (a)		343,200		8,583,432
Royal Dutch Shell Plc, A Shares		1,024,000		35,455,398
Unilever NV		324,100		11,494,541
				68,620,176
Norway – 1.0%
Seadrill Ltd.		420,900		16,534,880

See Notes to Financial Statements.
24	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Schedule of Investments (continued)   BlackRock International Opportunities Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Singapore – 2.9%
Avago Technologies Ltd.		263,124	$	9,173,818
DBS Group Holdings Ltd.		967,000		11,294,804
Keppel Corp. Ltd.		1,825,000		16,873,568
Singapore Telecommunications Ltd.		4,773,100		12,428,908
				49,771,098
South Africa – 0.5%
MTN Group Ltd.		472,500		9,121,672
South Korea – 1.5%
Samsung Electronics Co. Ltd.		21,700		26,150,632
Spain – 0.7%
Banco Santander SA (a)		776,200		5,793,871
Telefonica SA		473,900		6,333,982
				12,127,853
Sweden – 4.6%
Electrolux AB, Series B		688,994		17,024,761
Svenska Cellulosa AB, B Shares		1,942,922		36,122,537
Volvo AB, B Shares		1,799,200		25,277,789
				78,425,087
Switzerland – 10.1%
Actelion Ltd		318,520		15,966,082
GAM Holding AG		1,857,400		24,240,081
Nestle SA		539,000		34,009,485
Roche Holding AG		276,400		51,699,705
Sulzer AG		58,600		8,553,857
Swiss Re AG		315,900		20,326,209
Syngenta AG		46,300		17,320,016
				172,115,435
Taiwan – 0.7%
Mega Financial Holding Co. Ltd.		14,273,320		10,945,582
Thailand – 0.4%
Charoen Pokphand Foods Pcl		5,743,700		6,251,265
United Kingdom – 20.7%
Aberdeen Asset Management Plc		2,702,384		13,597,128
Antofagasta Plc		346,881		7,094,437
APR Energy Plc		1,286,301		17,354,382
Ashtead Group Plc		1,370,227		7,189,113
AstraZeneca Plc		482,000		23,013,157
Aveva Group Plc		179,852		5,722,553
Babcock International Group Plc		283,200		4,246,231
Barclays Plc		2,215,500		7,693,583
British American Tobacco Plc		535,200		27,500,494
Clinigen Healthcare Ltd. (a)		1,614,400		4,744,633

Common Stocks	Shares		Value
United Kingdom (concluded)
De La Rue Plc		218,761	$	3,580,855
Diageo Plc		509,300		14,340,995
Hargreaves Lansdown Plc		730,304		7,427,667
HSBC Holdings Plc		2,471,599		22,960,629
Inchcape Plc		1,058,320		6,161,753
Intertek Group Plc		187,900		8,330,546
Invensys Plc		2,934,576		11,124,997
Jardine Lloyd Thompson Group Plc		245,756		3,042,412
Meggitt Plc		455,781		2,908,769
National Grid Plc		1,960,900		21,630,481
Rexam Plc		4,925,700		34,657,874
Rotork Plc		206,206		7,549,617
SSE Plc		947,800		21,328,110
Subsea 7 SA		1,001,943		23,144,271
Tullow Oil Plc		535,200		11,872,989
Unilever Plc		320,000		11,683,856
Vodafone Group Plc - ADR		783,400		22,322,983
				352,224,515
United States – 0.6%
NII Holdings, Inc. (a)(b)		144,300		1,132,755
Sirona Dental Systems, Inc. (a)(b)		157,200		8,954,112
				10,086,867
Total Long-Term Investments
(Cost – $1,508,691,032) – 98.5%				1,672,665,409
Short-Term Securities
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.15% (c)(d)		5,622,104		5,622,104
	Beneficial Interest (000)
BlackRock Liquidity Series, LLC Money Market Series, 0.29% (c)(d)(e)	$	4,116		4,115,755
Total Short-Term Securities
(Cost – $9,737,859) – 0.6%				9,737,859
Total Investments (Cost – $1,518,428,891) – 99.1%				1,682,403,268
Other Assets Less Liabilities – 0.9%				15,567,419
Net Assets – 100.0%			$	1,697,970,687

(a) Non-income producing security.

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

(c) Investments in issuers considered to be an affiliate of the Fund during the year ended September 30, 2012, 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, 2011		Net Activity			Shares/ Beneficial Interest Held at September 30, 2012		Income		Realized Gain
BlackRock Liquidity Funds, TempFund, Institutional Class		71,355,791		(65,733,687	)		5,622,104	$	75,076	$	1,306
BlackRock Liquidity Series, LLC Money Market Series	$	7,202,388	$	(3,086,633	)	$	4,115,755	$	7,128		–

(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.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	25

  Schedule of Investments (continued)   BlackRock International Opportunities Portfolio

• Foreign currency exchange contracts as of September 30, 2012 were as follows:

Currency Purchased		Currency Sold		Counter- party	Settle- ment Date	Unre- alized Appre- ciation (Depre- ciation)
CAD	1,643,000	USD	1,669,290	Royal Bank of Scotland Group Plc	10/01/12	$  1,267
CHF	1,034,000	USD	1,100,409	Citigroup, Inc.	10/01/12	(993)
EUR	3,162,000	USD	4,070,013	Citigroup, Inc.	10/01/12	(6,685)
SEK	61,497,000	USD	9,368,402	Citigroup, Inc.	10/01/12	(6,418)
USD	1,669,851	CAD	1,643,000	Royal Bank of Scotland Group Plc	10/01/12	(1,393)
USD	5,262,412	GBP	3,241,000	Citigroup, Inc.	10/01/12	28,829
USD	900,644	SGD	1,105,000	Citigroup, Inc.	10/01/12	220
USD	366,011	ZAR	3,035,000	UBS AG	10/01/12	1,359
BRL	33,000,000	USD	16,019,806	Standard Chartered Plc	10/02/12	248,828
BRL	12,000,000	USD	5,904,059	UBS AG	10/02/12	15,290
BRL	45,000,000	USD	22,160,938	UBS AG	10/02/12	36,621
BRL	45,000,000	USD	22,112,479	UBS AG	10/02/12	85,079
CHF	2,900,000	USD	3,097,013	Citigroup, Inc.	10/02/12	(13,547)
JPY	3,700,104	USD	287,783,000	Deutsche Bank AG	10/02/12	12,470
KRW	8,976,020,454	USD	8,052,409	Bank of New York Mellon Corp.	10/02/12	23,728
SEK	20,335,000	USD	3,117,873	Citigroup, Inc.	10/02/12	(22,178)
USD	16,251,354	BRL	33,000,000	Standard Chartered Plc	10/02/12	(26,855)
USD	5,909,583	BRL	12,000,000	UBS AG	10/02/12	(9,765)
USD	22,205,774	BRL	45,000,000	UBS AG	10/02/12	8,215
USD	4,379,100	GBP	2,697,000	Citigroup, Inc.	10/02/12	23,971
USD	20,279,832	NOK	116,317,000	Bank of New York Mellon Corp.	10/02/12	(23,717)
USD	1,684,932	NOK	9,625,000	Citigroup, Inc.	10/02/12	4,853
CHF	2,898,000	USD	3,088,620	Citigroup, Inc.	10/03/12	(7,281)
HKD	35,142,000	USD	4,532,229	Citigroup, Inc.	10/03/12	(146)
USD	20,957,657	EUR	16,287,000	Royal Bank of Scotland Group Plc	10/03/12	28,052
AUD	28,420,000	USD	29,442,665	Citigroup, Inc.	10/17/12	(17,026)
AUD	6,855,000	USD	7,083,957	Citigroup, Inc.	10/17/12	13,606
AUD	816,000	USD	850,650	Royal Bank of Scotland Group Plc	10/17/12	(5,776)
AUD	2,830,000	USD	2,921,050	Royal Bank of Scotland Group Plc	10/17/12	9,090
AUD	32,197,000	USD	32,307,725	UBS AG	10/17/12	1,028,562
CAD	1,061,000	USD	1,094,183	Citigroup, Inc.	10/17/12	(15,388)
CAD	4,478,000	USD	4,542,669	Citigroup, Inc.	10/17/12	10,435
CAD	3,600,000	USD	3,640,022	Citigroup, Inc.	10/17/12	20,357
CAD	3,000,000	USD	3,016,142	Citigroup, Inc.	10/17/12	34,174
CAD	4,997,000	USD	5,034,482	Citigroup, Inc.	10/17/12	46,328
CAD	13,895,000	USD	14,062,356	Citigroup, Inc.	10/17/12	65,690
CAD	39,866,000	USD	39,049,743	Citigroup, Inc.	10/17/12	1,484,888
CAD	7,930,000	USD	8,020,722	UBS AG	10/17/12	42,279
CAD	6,405,300	USD	6,451,967	UBS AG	10/17/12	60,762

Currency Purchased		Currency Sold		Counter- party	Settle- ment Date	Unre- alized Appre- ciation (Depre- ciation)
CHF	1,491,000	USD	1,590,168	Citigroup, Inc.	10/17/12	$	(4,248	)
CHF	1,575,000	USD	1,667,628	Citigroup, Inc.	10/17/12		7,639
CHF	3,241,000	USD	3,393,714	Citigroup, Inc.	10/17/12		53,614
CHF	1,102,000	USD	1,114,636	Citigroup, Inc.	10/17/12		57,520
CHF	3,100,000	USD	3,166,344	Citigroup, Inc.	10/17/12		131,007
CHF	613,000	USD	654,282	UBS AG	10/17/12		(2,501	)
CHF	3,236,000	USD	3,313,367	UBS AG	10/17/12		128,642
CHF	45,387,000	USD	46,203,320	UBS AG	10/17/12		2,073,096
DKK	50,987,000	USD	8,381,537	UBS AG	10/17/12		410,349
EUR	3,690,000	USD	4,536,076	BNP Paribas SA	10/17/12		206,684
EUR	308,000	USD	401,100	Citigroup, Inc.	10/17/12		(5,227	)
EUR	125,000	USD	163,091	Citigroup, Inc.	10/17/12		(2,429	)
EUR	538,000	USD	685,113	Citigroup, Inc.	10/17/12		6,379
EUR	13,210,000	USD	16,932,710	Citigroup, Inc.	10/17/12		46,113
EUR	6,695,000	USD	8,321,021	Citigroup, Inc.	10/17/12		284,067
EUR	6,560,000	USD	8,128,102	Citigroup, Inc.	10/17/12		303,471
EUR	5,659,000	USD	6,944,957	Citigroup, Inc.	10/17/12		328,560
EUR	11,000,000	USD	13,805,902	Citigroup, Inc.	10/17/12		332,407
EUR	5,218,000	USD	6,758,562	Deutsche Bank AG	10/17/12		(51,863	)
EUR	6,803,000	USD	8,411,277	Deutsche Bank AG	10/17/12		332,624
EUR	16,287,000	USD	20,960,524	Royal Bank of Scotland Group Plc	10/17/12		(26,830	)
EUR	15,000,000	USD	19,207,110	UBS AG	10/17/12		72,402
EUR	12,884,000	USD	15,913,789	UBS AG	10/17/12		646,027
GBP	7,807,000	USD	12,681,691	Citigroup, Inc.	10/17/12		(75,683	)
GBP	3,241,000	USD	5,262,078	Citigroup, Inc.	10/17/12		(28,817	)
GBP	2,697,000	USD	4,378,841	Citigroup, Inc.	10/17/12		(23,980	)
GBP	7,594,000	USD	12,270,537	Citigroup, Inc.	10/17/12		(8,462	)
GBP	5,313,000	USD	8,545,238	Citigroup, Inc.	10/17/12		33,693
GBP	11,406,000	USD	17,772,487	Citigroup, Inc.	10/17/12		644,846
GBP	608,000	USD	953,402	Royal Bank of Scotland Group Plc	10/17/12		28,339
GBP	14,230,000	USD	22,041,957	UBS AG	10/17/12		935,305
HKD	2,172,000	USD	280,009	Citigroup, Inc.	10/17/12		104
HKD	23,209,000	USD	2,992,667	Citigroup, Inc.	10/17/12		491
HKD	229,467,000	USD	29,592,112	Citigroup, Inc.	10/17/12		1,189
HKD	64,919,000	USD	8,370,289	Citigroup, Inc.	10/17/12		2,015
HKD	91,493,000	USD	11,796,530	Citigroup, Inc.	10/17/12		2,901
HKD	11,914,000	USD	1,536,589	Deutsche Bank AG	10/17/12		(95	)
HKD	5,285,000	USD	681,550	Royal Bank of Scotland Group Plc	10/17/12		34
HKD	94,262,000	USD	12,154,050	UBS AG	10/17/12		2,485
JPY	235,000,000	USD	3,007,688	Citigroup, Inc.	10/17/12		4,073
JPY	137,571,000	USD	1,758,754	Citigroup, Inc.	10/17/12		4,356
JPY	83,593,000	USD	1,066,801	Citigroup, Inc.	10/17/12		4,528
JPY	212,000,000	USD	2,698,416	Citigroup, Inc.	10/17/12		18,577

See Notes to Financial Statements.
26	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Schedule of Investments (continued)   BlackRock International Opportunities Portfolio

Currency Purchased		Currency Sold		Counter- party	Settle- ment Date	Unre- alized Appre- ciation (Depre- ciation)
JPY	462,000,000	USD	5,885,605	Citigroup, Inc.	10/17/12	$  35,390
JPY	1,279,865,000	USD	16,361,037	Citigroup, Inc.	10/17/12	41,721
JPY	762,366,000	USD	9,739,112	Credit Suisse Group AG	10/17/12	31,375
JPY	269,791,000	USD	3,484,159	Deutsche Bank AG	10/17/12	(26,516)
JPY	287,783,000	USD	3,700,528	Deutsche Bank AG	10/17/12	(12,299)
JPY	80,482,000	USD	1,031,051	Deutsche Bank AG	10/17/12	407
JPY	98,712,000	USD	1,254,500	Deutsche Bank AG	10/17/12	10,593
JPY	494,718,000	USD	6,293,754	Deutsche Bank AG	10/17/12	46,555
JPY	1,600,000,000	USD	20,360,845	Deutsche Bank AG	10/17/12	144,765
JPY	171,289,000	USD	2,191,750	UBS AG	10/17/12	3,491
JPY	124,608,000	USD	1,586,918	UBS AG	10/17/12	10,059
JPY	56,407,000	USD	712,588	UBS AG	10/17/12	10,324
MXN	325,783,000	USD	24,042,330	UBS AG	10/17/12	1,213,660
NOK	116,317,000	USD	20,268,877	Bank of New York Mellon Corp.	10/17/12	20,070
NOK	9,625,000	USD	1,684,033	Citigroup, Inc.	10/17/12	(5,163)
NOK	2,048,000	USD	357,853	Citigroup, Inc.	10/17/12	(624)
SEK	58,418,000	USD	8,713,835	UBS AG	10/17/12	174,308
SGD	1,105,000	USD	900,645	Citigroup, Inc.	10/17/12	(244)
SGD	636,000	USD	509,152	Citigroup, Inc.	10/17/12	9,088
SGD	2,671,000	USD	2,132,535	Credit Suisse Group AG	10/17/12	43,908
SGD	3,000,000	USD	2,376,223	Deutsche Bank AG	10/17/12	68,304
SGD	616,000	USD	500,778	Royal Bank of Scotland Group Plc	10/17/12	1,165
USD	15,834,600	AUD	15,350,000	Citigroup, Inc.	10/17/12	(58,559)
USD	17,557,522	AUD	16,847,000	Citigroup, Inc.	10/17/12	114,393
USD	9,390,063	CAD	9,222,000	Citigroup, Inc.	10/17/12	13,392
USD	10,184,500	CAD	9,930,000	Citigroup, Inc.	10/17/12	87,955
USD	2,500,075	CAD	2,510,000	Goldman Sachs Group, Inc.	10/17/12	(52,023)
USD	17,084,360	CHF	16,632,000	Citigroup, Inc.	10/17/12	(606,463)
USD	7,778,478	CHF	7,618,000	Citigroup, Inc.	10/17/12	(324,497)
USD	17,520,317	CHF	16,764,000	Citigroup, Inc.	10/17/12	(310,909)
USD	7,077,290	CHF	6,932,000	Citigroup, Inc.	10/17/12	(296,014)
USD	6,129,851	CHF	5,951,000	Citigroup, Inc.	10/17/12	(200,000)
USD	7,769,004	CHF	7,432,000	Citigroup, Inc.	10/17/12	(136,130)
USD	3,130,580	CHF	3,056,000	Citigroup, Inc.	10/17/12	(119,970)
USD	1,634,474	CHF	1,578,000	Citigroup, Inc.	10/17/12	(43,984)
USD	1,168,701	CHF	1,140,000	Citigroup, Inc.	10/17/12	(43,873)
USD	1,246,788	CHF	1,212,000	Citigroup, Inc.	10/17/12	(42,370)
USD	1,049,541	CHF	1,024,000	Citigroup, Inc.	10/17/12	(39,649)
USD	1,341,366	CHF	1,297,000	Citigroup, Inc.	10/17/12	(38,204)
USD	1,859,071	CHF	1,776,000	Citigroup, Inc.	10/17/12	(29,993)
USD	499,586	CHF	486,000	Citigroup, Inc.	10/17/12	(17,354)
USD	984,473	CHF	939,000	Citigroup, Inc.	10/17/12	(14,306)
USD	387,038	CHF	366,000	Citigroup, Inc.	10/17/12	(2,262)

Currency Purchased		Currency Sold		Counterparty	Settle- ment Date		Unre- alized Appre- ciation (Depre- ciation)
USD	344,154	CHF	323,000	Citigroup, Inc.		10/17/12	$	591
USD	1,100,666	CHF	1,034,000	Citigroup, Inc.		10/17/12		840
USD	654,231	CHF	613,000	Citigroup, Inc.		10/17/12		2,206
USD	1,441,258	CHF	1,350,000	Citigroup, Inc.		10/17/12		5,314
USD	3,089,351	CHF	2,898,000	Citigroup, Inc.		10/17/12		6,860
USD	3,097,658	CHF	2,900,000	Citigroup, Inc.		10/17/12		13,039
USD	6,540,303	CHF	6,448,000	Royal Bank of Scotland Group Plc		10/17/12		(318,188	)
USD	1,061,653	CHF	1,047,000	Royal Bank of Scotland Group Plc		10/17/12		(52,001	)
USD	20,479,147	CHF	19,006,000	Royal Bank of Scotland Group Plc		10/17/12		263,192
USD	8,029,390	CHF	7,855,000	UBS AG		10/17/12		(325,673	)
USD	5,050,846	CHF	4,938,000	UBS AG		10/17/12		(201,516	)
USD	653,356	CHF	613,000	UBS AG		10/17/12		1,331
USD	9,059,859	EUR	7,495,000	Citigroup, Inc.		10/17/12		(573,471	)
USD	6,838,421	EUR	5,535,000	Citigroup, Inc.		10/17/12		(275,719	)
USD	5,983,751	EUR	4,862,000	Citigroup, Inc.		10/17/12		(265,381	)
USD	5,417,636	EUR	4,317,000	Citigroup, Inc.		10/17/12		(131,007	)
USD	4,309,754	EUR	3,436,000	Citigroup, Inc.		10/17/12		(106,539	)
USD	1,276,417	EUR	1,053,000	Citigroup, Inc.		10/17/12		(77,005	)
USD	1,465,508	EUR	1,189,000	Citigroup, Inc.		10/17/12		(62,715	)
USD	5,121,758	EUR	4,005,000	Citigroup, Inc.		10/17/12		(25,871	)
USD	224,331	EUR	174,000	Citigroup, Inc.		10/17/12		688
USD	4,070,683	EUR	3,162,000	Citigroup, Inc.		10/17/12		6,562
USD	4,908,748	EUR	3,760,000	Citigroup, Inc.		10/17/12		76,017
USD	10,531,884	EUR	8,010,000	Citigroup, Inc.		10/17/12		236,625
USD	478,561	EUR	371,000	Royal Bank of Scotland Group Plc		10/17/12		1,715
USD	112,817,826	EUR	92,454,000	UBS AG		10/17/12		(6,013,373	)
USD	9,209,369	EUR	7,495,000	UBS AG		10/17/12		(423,961	)
USD	2,426,074	EUR	1,976,000	UBS AG		10/17/12		(113,681	)
USD	15,993,130	GBP	10,231,000	Citigroup, Inc.		10/17/12		(526,924	)
USD	12,487,676	GBP	7,986,000	Citigroup, Inc.		10/17/12		(407,363	)
USD	6,840,426	GBP	4,335,000	Citigroup, Inc.		10/17/12		(159,323	)
USD	16,904,026	GBP	10,560,000	Citigroup, Inc.		10/17/12		(147,267	)
USD	3,499,880	GBP	2,252,000	Citigroup, Inc.		10/17/12		(136,437	)
USD	2,529,029	GBP	1,633,000	Citigroup, Inc.		10/17/12		(107,786	)
USD	3,599,107	GBP	2,294,000	Citigroup, Inc.		10/17/12		(105,028	)
USD	3,018,211	GBP	1,932,000	Citigroup, Inc.		10/17/12		(101,400	)
USD	1,641,536	GBP	1,058,000	Citigroup, Inc.		10/17/12		(66,823	)
USD	2,256,582	GBP	1,438,000	Citigroup, Inc.		10/17/12		(65,365	)
USD	3,123,407	GBP	1,974,000	Citigroup, Inc.		10/17/12		(64,022	)
USD	2,641,022	GBP	1,669,000	Citigroup, Inc.		10/17/12		(53,922	)
USD	1,412,345	GBP	901,000	Citigroup, Inc.		10/17/12		(42,505	)
USD	1,102,843	GBP	706,500	Citigroup, Inc.		10/17/12		(37,947	)

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	27

  Schedule of Investments (continued)   BlackRock International Opportunities Portfolio

Currency Purchased		Currency Sold		Counterparty	Settle- ment Date		Unre- alized Appre ciation- (Depre- ciation)
USD	1,105,325	GBP	707,000	Citigroup, Inc.		10/17/12	$	(36,272	)
USD	2,190,225	GBP	1,377,000	Citigroup, Inc.		10/17/12		(33,225	)
USD	2,492,364	GBP	1,564,000	Citigroup, Inc.		10/17/12		(33,036	)
USD	639,539	GBP	412,000	Citigroup, Inc.		10/17/12		(25,720	)
USD	1,039,784	GBP	655,000	Citigroup, Inc.		10/17/12		(17,849	)
USD	550,570	GBP	352,000	Citigroup, Inc.		10/17/12		(17,806	)
USD	480,650	GBP	308,000	Citigroup, Inc.		10/17/12		(16,680	)
USD	399,421	GBP	247,000	Citigroup, Inc.		10/17/12		589
USD	804,410	GBP	497,000	Citigroup, Inc.		10/17/12		1,901
USD	6,892,124	GBP	4,244,000	Citigroup, Inc.		10/17/12		39,313
USD	956,584	GBP	610,000	Credit Suisse Group AG		10/17/12		(28,387	)
USD	7,570,651	GBP	4,885,000	Royal Bank of Scotland Group Plc		10/17/12		(317,186	)
USD	6,946,326	GBP	4,365,000	Royal Bank of Scotland Group Plc		10/17/12		(101,865	)
USD	275,867	GBP	170,000	Royal Bank of Scotland Group Plc		10/17/12		1,367
USD	12,851,653	GBP	8,189,000	UBS AG		10/17/12		(371,172	)
USD	9,057,602	GBP	5,710,000	UBS AG		10/17/12		(162,368	)
USD	4,128,673	GBP	2,641,000	UBS AG		10/17/12		(135,765	)
USD	4,870,282	GBP	3,086,000	UBS AG		10/17/12		(112,700	)
USD	5,126,234	GBP	3,220,000	UBS AG		10/17/12		(73,119	)
USD	2,944,102	GBP	1,854,000	UBS AG		10/17/12		(49,562	)
USD	4,532,190	HKD	35,142,000	Citigroup, Inc.		10/17/12		88
USD	13,915,384	HKD	107,924,000	Royal Bank of Scotland Group Plc		10/17/12		(3,077	)
USD	7,858,236	JPY	624,593,000	Citigroup, Inc.		10/17/12		(146,552	)
USD	8,283,588	JPY	647,625,000	Citigroup, Inc.		10/17/12		(16,378	)
USD	1,166,727	JPY	91,172,000	Citigroup, Inc.		10/17/12		(1,734	)
USD	1,054,114	MXN	13,622,000	Citigroup, Inc.		10/17/12		(1,917	)
USD	3,315,076	MXN	42,547,000	Citigroup, Inc.		10/17/12		16,664
USD	1,998,783	NOK	11,676,000	Citigroup, Inc.		10/17/12		(37,839	)
USD	5,700,487	NOK	33,937,000	Credit Suisse Group AG		10/17/12		(219,078	)
USD	30,607,803	NOK	188,279,000	UBS AG		10/17/12		(2,233,336	)
USD	1,592,342	NOK	9,460,000	UBS AG		10/17/12		(57,747	)
USD	4,235,845	NOK	24,610,000	UBS AG		10/17/12		(56,829	)
USD	395,929	NOK	2,358,000	UBS AG		10/17/12		(15,372	)
USD	2,117,812	SEK	14,817,000	Citigroup, Inc.		10/17/12		(136,555	)
USD	1,073,090	SEK	7,586,000	Citigroup, Inc.		10/17/12		(81,100	)
USD	9,867,299	SEK	65,335,000	Citigroup, Inc.		10/17/12		(73,246	)
USD	3,723,800	SEK	24,939,000	Citigroup, Inc.		10/17/12		(70,602	)
USD	398,012	SEK	2,763,000	Citigroup, Inc.		10/17/12		(22,371	)
USD	2,523,834	SEK	16,697,000	Citigroup, Inc.		10/17/12		(16,570	)
USD	9,363,876	SEK	61,497,000	Citigroup, Inc.		10/17/12		7,272
USD	4,266,854	SEK	27,960,000	Citigroup, Inc.		10/17/12		12,815
USD	3,116,428	SEK	20,335,000	Citigroup, Inc.		10/17/12		22,512
USD	689,450	SEK	4,624,000	Credit Suisse Group AG		10/17/12		(14,080	)

Currency Purchased		Currency Sold		Counterparty	Settle- ment Date		Unre- alized Appre ciation- (Depre- ciation)
USD	2,708,375	SEK	19,110,000	UBS AG		10/17/12	$	(199,160	)
USD	2,422,803	SEK	17,203,000	UBS AG		10/17/12		(194,587	)
USD	1,126,876	SEK	7,963,000	UBS AG		10/17/12		(84,673	)
USD	4,556,467	SEK	30,209,000	UBS AG		10/17/12		(39,752	)
USD	850,411	SEK	5,698,000	UBS AG		10/17/12		(16,524	)
USD	23,665,692	SGD	30,028,000	Citigroup, Inc.		10/17/12		(802,387	)
USD	2,795,231	SGD	3,462,000	UBS AG		10/17/12		(25,752	)
ZAR	8,838,000	USD	1,074,196	Citigroup, Inc.		10/17/12		(15,185	)
ZAR	3,035,000	USD	365,210	UBS AG		10/17/12		(1,541	)

Total $ (6,676,664 ) 

• 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 as follows:

• Level 1 – unadjusted price quotations in active markets/exchanges for identical assets and 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)

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 level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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. 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. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements.

See Notes to Financial Statements.
28	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Schedule of Investments (concluded)   BlackRock International Opportunities Portfolio

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy as of September 30, 2012:

	Level 1			Level 2			Level 3	Total
Assets:
Investments:
Long-Term Investments:
Common Stocks:
Argentina		$	8,005,084			–	–		$	8,005,084
Australia			–		$	64,357,244	–			64,357,244
Belgium			–			16,166,898	–			16,166,898
Brazil			25,805,858			–	–			25,805,858
Canada			80,772,589			–	–			80,772,589
China			–			26,170,289	–			26,170,289
France			–			102,669,268	–			102,669,268
Germany			8,545,334			102,845,158	–			111,390,492
Gibraltar			–			1,232,734	–			1,232,734
Hong Kong			7,764,480			46,730,632	–			54,495,112
India			8,746,506			14,934,220	–			23,680,726
Indonesia			–			13,461,611	–			13,461,611
Ireland			12,381,304			47,683,791	–			60,065,095
Israel			11,503,698			–	–			11,503,698
Italy			–			20,627,221	–			20,627,221
Japan			–			173,821,410	–			173,821,410
Jersey			–			19,263,826	–			19,263,826
Malaysia			–			6,709,629	–			6,709,629
Mexico			20,716,733			19,374,830	–			40,091,563
Netherlands			8,583,432			60,036,744	–			68,620,176
Norway			–			16,534,880	–			16,534,880
Singapore			9,173,818			40,597,280	–			49,771,098
South Africa			–			9,121,672	–			9,121,672
South Korea			–			26,150,632	–			26,150,632
Spain			–			12,127,853	–			12,127,853
Sweden			–			78,425,087	–			78,425,087
Switzerland			–			172,115,435	–			172,115,435
Taiwan			–			10,945,582	–			10,945,582
Thailand			–			6,251,265	–			6,251,265
United Kingdom			44,421,998			307,802,517	–			352,224,515
United States			10,086,867			–	–			10,086,867
Short-Term Securities			5,622,104			4,115,755	–			9,737,859
Total		$	262,129,805		$	1,420,273,463	–		$	1,682,403,268

	Level 1				Level 2				Level 3	Total
Derivative Financial Instruments1
Assets:
Foreign currency exchange contracts		$	160,103			$	13,076,811		–		$	13,236,914
Liabilities:
Foreign currency exchange contracts			(121,479	)			(19,792,099	)	–			(19,913,578	)
Total		$	38,624			$	(6,715,288	)	–		$	(6,676,664	)

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

Certain of the Fund’s assets and liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of September 30, 2012, such assets and liabilities are categorized within the disclosure hierarchy as follows:

	Level 1			Level 2				Level 3	Total
Assets:
Foreign currency at value		$	11,596,389			–		–		$	11,596,389
Liabilities:
Collateral on securities loaned at value			–		$	(4,115,755	)	–			(4,115,755	)
Total		$	11,596,389		$	(4,115,755	)	–		$	7,480,634

There were no transfers between levels during the year ended September 30, 2012.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	29

  Schedule of Investments September 30, 2012   BlackRock Science & Technology Opportunities Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Biotechnology – 1.0%
Amgen, Inc.		21,500	$	1,812,880
Communications Equipment – 12.4%
Cisco Systems, Inc.		423,203		8,078,945
F5 Networks, Inc. (a)(b)		37,748		3,952,216
Juniper Networks, Inc. (a)		4,900		83,839
Palo Alto Networks, Inc. (a)		1,600		98,512
Polycom, Inc. (a)(b)		8,350		82,415
QUALCOMM, Inc.		85,046		5,314,524
Riverbed Technology, Inc. (a)(b)		175,658		4,087,562
				21,698,013
Computers & Peripherals – 14.7%
Apple, Inc.		28,597		19,081,634
EMC Corp. (a)		65,899		1,797,066
NetApp, Inc. (a)		148,753		4,890,999
				25,769,699
Diversified Consumer Services – 0.0%
New Oriental Education & Technology Group, Inc. - ADR		6,600		110,022
Electronic Equipment, Instruments & Components – 3.3%
Amphenol Corp., Class A		14,200		836,096
Avnet, Inc. (a)		57,600		1,675,584
Jabil Circuit, Inc.		171,193		3,204,733
				5,716,413
Internet & Catalog Retail – 6.4%
Amazon.com, Inc. (a)		24,500		6,230,840
Expedia, Inc.		23,300		1,347,672
priceline.com, Inc. (a)		5,190		3,211,209
TripAdvisor, Inc. (a)		10,700		352,351
				11,142,072
Internet Software & Services – 8.4%
E2open, Inc. (a)		16,041		217,837
eBay, Inc. (a)		95,800		4,637,678
Google, Inc., Class A (a)		8,475		6,394,387
MercadoLibre, Inc. (b)		1,258		103,848
Rackspace Hosting, Inc. (a)(b)		3,700		244,533
Tencent Holdings Ltd.		39,600		1,349,272
Web.com Group, Inc. (a)		95,471		1,713,704
				14,661,259
IT Services – 13.8%
Accenture Plc, Class A		58,200		4,075,746
Alliance Data Systems Corp. (a)(b)		21,100		2,995,145
Cognizant Technology Solutions Corp., Class A (a)		15,150		1,059,288
Fidelity National Information Services, Inc.		2,838		88,602
Fiserv, Inc. (a)		12,715		941,291
International Business Machines Corp.		9,400		1,950,030
Jack Henry & Associates, Inc.		2,431		92,135
Lender Processing Services, Inc.		13,422		374,339
Mastercard, Inc., Class A		8,200		3,702,136
Teradata Corp. (a)		42,523		3,206,659
Visa, Inc., Class A		41,200		5,532,336
The Western Union Co.		5,308		96,712
				24,114,419
Pharmaceuticals – 0.5%
Sanofi SA		10,700		912,315
Semiconductors & Semiconductor Equipment – 17.3%
Altera Corp.		2,537		86,220
Analog Devices, Inc.		44,800		1,755,712
ASML Holding NV		34,677		1,853,320
Avago Technologies Ltd.		71,499		2,492,813

Common Stocks	Shares		Value
Semiconductors & Semiconductor Equipment (concluded)
Broadcom Corp., Class A (a)		109,600	$	3,789,968
Fairchild Semiconductor International, Inc. (a)(b)		191,242		2,509,095
Intel Corp.		70,900		1,608,012
KLA-Tencor Corp.		1,985		94,694
Lam Research Corp. (a)		2,447		77,778
Linear Technology Corp.		90,341		2,877,361
Maxim Integrated Products, Inc.		124,500		3,314,190
Microchip Technology, Inc.		86,600		2,835,284
NXP Semiconductor NV (a)		80,565		2,014,931
Samsung Electronics Co. Ltd.		975		1,180,781
Skyworks Solutions, Inc. (a)		3,232		76,162
Texas Instruments, Inc.		3,200		88,160
Xilinx, Inc.		107,700		3,598,257
				30,252,738
Software – 19.3%
ACI Worldwide, Inc. (a)(b)		98,300		4,154,158
Allot Communications Ltd. (a)		71,198		1,888,171
Autodesk, Inc. (a)		30,035		1,002,268
Citrix Systems, Inc. (a)		22,891		1,752,764
CommVault Systems, Inc. (a)(b)		1,928		113,174
Concur Technologies, Inc. (a)(b)		26,890		1,982,600
Eloqua, Inc. (a)		6,600		130,350
Fortinet, Inc. (a)		129,608		3,128,737
Intuit, Inc.		59,700		3,515,136
MICROS Systems, Inc. (a)(b)		37,144		1,824,513
Microsoft Corp.		115,317		3,434,140
MicroStrategy, Inc., Class A (a)		768		102,966
QLIK Technologies, Inc. (a)		34,717		778,008
Red Hat, Inc. (a)		40,782		2,322,127
Salesforce.com, Inc. (a)		33,200		5,069,308
SAP AG - ADR		1,400		99,862
ServiceNow, Inc. (a)(b)		3,600		139,248
SolarWinds, Inc. (a)		17,422		971,102
TIBCO Software, Inc. (a)		38,667		1,168,903
VMware, Inc., Class A (a)(b)		1,983		191,835
				33,769,370
Total Long-Term Investments
(Cost – $146,158,953) – 97.1%				169,959,200
Short-Term Securities
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.15% (c)(d)		5,845,906		5,845,906
	Beneficial Interest (000)
BlackRock Liquidity Series, LLC Money Market Series, 0.29% (c)(d)(e)	$	17,744		17,744,216
Total Short-Term Securities (Cost – $23,590,122) – 13.5%				23,590,122
Total Investments (Cost – $169,749,075) – 110.6%				193,549,322
Liabilities in Excess of Other Assets – (10.6)%				(18,599,935	)
Net Assets – 100.0%			$	174,949,387

See Notes to Financial Statements.
30	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Schedule of Investments (continued)   BlackRock Science & Technology Opportunities Portfolio

(a) Non-income producing security.

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

(c) Investments in issuers considered to be an affiliate of the Fund during the year ended September 30, 2012, 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, 2011	Net Activity	Shares/ Beneficial Interest Held at September 30, 2012		Income	Realized Gain
BlackRock Liquidity Funds, TempFund, Institutional Class	6,191,478	(345,572)		5,845,906	$  7,796	$222
BlackRock Liquidity Series, LLC Money Market Series	$8,808,582	$8,935,634		$17,744,216	$64,223	–

(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 Fund management. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

— Foreign currency exchange contracts as of September 30, 2012 were as follows:

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unrealized Appreciation (Depreciation)
CHF	1,692,000	USD	1,752,168	Royal Bank of Scotland Group Plc	10/17/12		$    47,548
EUR	203,000	USD	258,509	Citigroup, Inc.	10/17/12		2,407
EUR	521,000	USD	647,536	Citigroup, Inc.	10/17/12		22,106
EUR	769,000	USD	946,321	Citigroup, Inc.	10/17/12		42,075
EUR	437,000	USD	540,310	Deutsche Bank AG	10/17/12		21,367
EUR	103,000	USD	132,964	UBS AG	10/17/12		(578)
EUR	404,000	USD	499,004	UBS AG	10/17/12		20,257
USD	513,543	CHF	503,000	Citigroup, Inc.	10/17/12		(21,479)
USD	845,637	CHF	831,000	UBS AG	10/17/12		(38,266)
USD	366,181	CHF	358,000	UBS AG	10/17/12		(14,610)
USD	1,266,005	EUR	1,037,000	Citigroup, Inc.	10/17/12		(66,852)
USD	537,437	EUR	435,000	Citigroup, Inc.	10/17/12		(21,669)
USD	3,367,915	EUR	2,760,000	UBS AG	10/17/12		(179,515)
USD	385,520	EUR	314,000	UBS AG	10/17/12		(18,065)
USD	197,826	EUR	161,000	UBS AG	10/17/12		(9,107)
USD	1,119,567	HKD	8,683,000	UBS AG	10/17/12		(240)
Total						$(214,621)

— 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 as follows:

— Level 1 – unadjusted price quotations in active markets/exchanges for identical assets and 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)

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 level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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. 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. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	31

  Schedule of Investments (concluded)   BlackRock Science & Technology Opportunities Portfolio

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy as of September 30, 2012:

	Level 1	Level 2	Level 3	Total
Assets:
Investments:
Long-Term Investments:
Common Stocks:
Biotechnology	$  1,812,880	–	–	$    1,812,880
Communications Equipment	21,698,013	–	–	21,698,013
Computers & Peripherals	25,769,699	–	–	25,769,699
Diversified Consumer Services	110,022	–	–	110,022
Electronic Equipment, Instruments & Components	5,716,413	–	–	5,716,413
Internet & Catalog Retail	11,142,072	–	–	11,142,072
Internet Software & Services	13,311,987	$  1,349,272	–	14,661,259
IT Services	24,114,419	–	–	24,114,419
Pharmaceuticals	–	912,315	–	912,315
Semiconductors & Semiconductor Equipment	27,218,637	3,034,101	–	30,252,738
Software	33,769,370	–	–	33,769,370
Short-Term Securities	5,845,906	17,744,216	–	23,590,122
Total	$  170,509,418	$  23,039,904	–	$  193,549,322
	Level 1	Level 2	Level 3	Total
Derivative Financial Instruments1
Assets:
Foreign currency exchange contracts	–	$  155,760	–	$  155,760
Liabilities:
Foreign currency exchange contracts	–	(370,381)	–	(370,381)
Total	–	$  (214,621)	–	$  (214,621)

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

Certain of the Fund’s assets and liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of September 30, 2012, such assets and liabilities are categorized within the disclosure hierarchy as follows:

	Level 1	Level 2	Level 3	Total
Assets:
Cash	$  23,211	–	–	$  23,211
Foreign currency at value	2,502	–	–	2,502
Liabilities:
Collateral on securities loaned at value	–	$  (17,744,216)	–	(17,744,216)
Total	$  25,713	$  (17,744,216)	–	$  (17,718,503)

There were no transfers between levels during the year ended September 30, 2012.

See Notes to Financial Statements.
32	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Schedule of Investments September 30, 2012   BlackRock U.S. Opportunities Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Aerospace & Defense – 1.8%
Raytheon Co.		287,200	$	16,416,352
Triumph Group, Inc.		402,200		25,149,566
				41,565,918
Auto Components – 1.0%
The Goodyear Tire & Rubber Co. (a)		1,146,700		13,978,273
Lear Corp.		212,600		8,034,154
				22,012,427
Automobiles – 0.5%
Tesla Motors, Inc. (a)(b)		388,300		11,369,424
Biotechnology – 2.7%
Alexion Pharmaceuticals, Inc. (a)		230,000		26,312,000
ARIAD Pharmaceuticals, Inc. (a)		351,388		8,512,374
Medivation, Inc. (a)(b)		115,200		6,492,672
Seattle Genetics, Inc. (a)		269,500		7,263,025
Vertex Pharmaceuticals, Inc. (a)(b)		229,300		12,829,335
				61,409,406
Building Products – 0.9%
Owens Corning (a)(b)		618,100		20,681,626
Capital Markets – 2.1%
Affiliated Managers Group, Inc. (a)(b)		105,400		12,964,200
Invesco Ltd.		1,052,400		26,299,476
Raymond James Financial, Inc.		258,800		9,485,020
				48,748,696
Chemicals – 3.8%
Airgas, Inc.		160,900		13,242,070
Celanese Corp.		412,300		15,630,293
Cytec Industries, Inc.		274,400		17,978,688
PPG Industries, Inc.		231,600		26,596,944
Valspar Corp.		266,700		14,961,870
				88,409,865
Commercial Banks – 4.3%
Capital Bank Financial Corp., Class A (a)		190,200		3,423,600
Comerica, Inc.		360,600		11,196,630
Commerce Bancshares, Inc.		289,065		11,657,991
CVB Financial Corp.		904,400		10,798,536
Huntington Bancshares, Inc.		2,776,800		19,159,920
KeyCorp		3,345,800		29,242,292
Regions Financial Corp.		1,806,300		13,023,423
				98,502,392
Communications Equipment – 0.7%
Riverbed Technology, Inc. (a)(b)		675,100		15,709,577
Computers & Peripherals – 1.5%
NetApp, Inc. (a)		1,036,459		34,078,772
Construction & Engineering – 0.4%
KBR, Inc.		285,900		8,525,538
Containers & Packaging – 1.0%
Crown Holdings, Inc. (a)(b)		655,500		24,089,625
Diversified Financial Services – 0.5%
CBOE Holdings, Inc.		353,200		10,391,144
Electric Utilities – 0.7%
Xcel Energy, Inc.		573,400		15,888,914
Electrical Equipment – 0.3%
Rockwell Automation, Inc.		92,214		6,413,484
Electronic Equipment, Instruments & Components – 2.2%
Amphenol Corp., Class A		250,200		14,731,776
Avnet, Inc. (a)		411,900		11,982,171

Common Stocks	Shares		Value
Electronic Equipment, Instruments & Components (concluded)
Jabil Circuit, Inc.		1,280,653	$	23,973,824
				50,687,771
Energy Equipment & Services – 4.1%
Cameron International Corp. (a)		268,000		15,026,760
Dresser-Rand Group, Inc. (a)(b)		449,606		24,777,787
Oceaneering International, Inc.		458,300		25,321,075
Rowan Cos. Plc, Class A (a)		852,300		28,782,171
				93,907,793
Food Products – 3.5%
Annie’s, Inc. (a)(b)		144,900		6,497,316
ConAgra Foods, Inc.		292,479		8,069,496
The Hain Celestial Group, Inc. (a)(b)		185,141		11,663,883
Post Holdings, Inc. (a)		287,268		8,635,276
Ralcorp Holdings, Inc. (a)		327,136		23,880,928
Snyder’s-Lance, Inc.		305,800		7,645,000
TreeHouse Foods, Inc. (a)(b)		293,500		15,408,750
				81,800,649
Health Care Equipment & Supplies – 2.5%
Align Technology, Inc. (a)(b)		166,241		6,145,930
The Cooper Cos., Inc.		185,300		17,503,438
DENTSPLY International, Inc.		209,600		7,994,144
Edwards Lifesciences Corp. (a)(b)		51,600		5,540,292
ResMed, Inc.		181,300		7,337,211
Zimmer Holdings, Inc.		207,600		14,037,912
				58,558,927
Health Care Providers & Services – 3.1%
Aetna, Inc.		173,249		6,860,660
Catamaran Corp. (a)		138,600		13,578,642
CIGNA Corp.		149,200		7,037,764
HCA Holdings, Inc.		209,700		6,972,525
Henry Schein, Inc. (a)(b)		115,600		9,163,612
Humana, Inc.		95,300		6,685,295
Laboratory Corp. of America Holdings (a)(b)		65,700		6,075,279
Universal Health Services, Inc., Class B		161,700		7,394,541
VCA Antech, Inc. (a)(b)		375,600		7,410,588
				71,178,906
Health Care Technology – 0.3%
Cerner Corp. (a)(b)		78,300		6,061,203
Hotels, Restaurants & Leisure – 1.8%
Ryman Hospitality Properties, Inc. (a)(b)		232,100		9,174,913
Penn National Gaming, Inc. (a)(b)		334,600		14,421,260
Starwood Hotels & Resorts Worldwide, Inc.		309,400		17,932,824
				41,528,997
Household Durables – 3.7%
Jarden Corp. (b)		496,200		26,219,208
PulteGroup, Inc. (a)		1,106,868		17,156,454
Toll Brothers, Inc. (a)(b)		510,170		16,952,949
Tupperware Brands Corp.		267,300		14,324,607
Whirlpool Corp.		120,100		9,957,491
				84,610,709
Independent Power Producers & Energy Traders – 0.7%
Calpine Corp. (a)		885,900		15,326,070
Insurance – 5.0%
AON Plc		389,600		20,372,184
Brown & Brown, Inc.		733,000		19,109,310
Fidelity National Financial, Inc., Class A		983,000		21,026,370
PartnerRe Ltd.		181,100		13,452,108

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	33

i
Schedule of Investments (continued)	BlackRock U.S. Opportunities Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Insurance (concluded)
Reinsurance Group of America, Inc.		239,500	$	13,859,865
RenaissanceRe Holdings Ltd.		351,700		27,094,968
				114,914,805
Internet Software & Services – 0.2%
Web.com Group, Inc. (a)(b)		305,187		5,478,107
IT Services – 3.3%
Alliance Data Systems Corp. (a)(b)		160,600		22,797,170
Fiserv, Inc. (a)		321,605		23,808,418
Teradata Corp. (a)		382,286		28,828,187
				75,433,775
Life Sciences Tools & Services – 0.8%
Agilent Technologies, Inc.		154,400		5,936,680
Life Technologies Corp. (a)		147,700		7,219,576
Waters Corp. (a)(b)		65,700		5,474,781
				18,631,037
Machinery – 4.1%
Eaton Corp.		495,000		23,393,700
Ingersoll-Rand Plc		685,600		30,728,592
Parker Hannifin Corp.		248,900		20,803,062
Snap-On, Inc.		270,700		19,455,209
				94,380,563
Media – 2.1%
Charter Communications, Inc., Class A (a)		193,530		14,528,297
Liberty Global, Inc., Class A (a)		560,500		34,050,375
				48,578,672
Multiline Retail – 3.1%
Dollar Tree, Inc. (a)		321,946		15,541,943
JC Penney Co., Inc. (b)		437,800		10,634,162
Macy’s, Inc.		698,800		26,288,856
Nordstrom, Inc.		349,200		19,268,856
				71,733,817
Multi-Utilities – 3.9%
Alliant Energy Corp.		416,400		18,067,596
CenterPoint Energy, Inc.		967,900		20,616,270
CMS Energy Corp.		813,000		19,146,150
Sempra Energy		249,200		16,070,908
Wisconsin Energy Corp.		436,600		16,446,722
				90,347,646
Oil, Gas & Consumable Fuels – 3.2%
Cabot Oil & Gas Corp.		418,900		18,808,610
Concho Resources, Inc. (a)(b)		269,200		25,506,700
Pioneer Natural Resources Co.		151,860		15,854,184
Whiting Petroleum Corp. (a)		287,500		13,621,750
				73,791,244
Paper & Forest Products – 0.8%
International Paper Co.		488,700		17,749,584
Pharmaceuticals – 2.3%
Elan Corp. Plc - ADR (a)		577,600		6,191,872
Forest Laboratories, Inc. (a)		383,200		13,645,752
Hospira, Inc. (a)(b)		246,000		8,073,720
Perrigo Co.		122,300		14,207,591
Watson Pharmaceuticals, Inc. (a)		133,400		11,360,344
				53,479,279
Professional Services – 0.8%
Equifax, Inc.		403,600		18,799,688
Real Estate Investment Trusts (REITs) – 6.5%
Essex Property Trust, Inc. (b)		173,400		25,704,816

Common Stocks	Shares		Value
Real Estate Investment Trusts (REITs) (concluded)
Federal Realty Investment Trust (b)		306,500	$	32,274,450
Health Care REIT, Inc.		226,100		13,057,275
Hospitality Properties Trust (b)		867,200		20,622,016
Rayonier, Inc. (b)		603,050		29,555,481
SL Green Realty Corp. (b)		263,000		21,058,410
Weyerhaeuser Co.		287,193		7,507,225
				149,779,673
Real Estate Management & Development – 0.7%
CBRE Group, Inc., Class A (a)		919,743		16,932,469
Road & Rail – 1.0%
Kansas City Southern		316,800		24,007,104
Semiconductors & Semiconductor Equipment – 3.9%
Analog Devices, Inc.		329,000		12,893,510
Avago Technologies Ltd.		146,308		5,101,028
Fairchild Semiconductor International, Inc. (a)		586,552		7,695,562
Linear Technology Corp.		493,200		15,708,420
Maxim Integrated Products, Inc.		714,300		19,014,666
Microchip Technology, Inc.		322,500		10,558,650
Xilinx, Inc.		544,200		18,181,722
				89,153,558
Software – 2.6%
ACI Worldwide, Inc. (a)(b)		152,655		6,451,200
Allot Communications Ltd. (a)		348,700		9,247,524
Citrix Systems, Inc. (a)		99,200		7,595,744
Fortinet, Inc. (a)		473,191		11,422,831
Intuit, Inc.		221,400		13,036,032
Red Hat, Inc. (a)		193,087		10,994,374
TIBCO Software, Inc. (a)		61,585		1,861,715
				60,609,420
Specialty Retail – 5.5%
American Eagle Outfitters, Inc.		668,600		14,094,088
The Gap, Inc.		486,700		17,414,126
Genesco, Inc. (a)		232,000		15,481,360
Guess?, Inc.		367,000		9,329,140
Limited Brands, Inc.		321,800		15,851,868
O’Reilly Automotive, Inc. (a)(b)		257,800		21,557,236
Ross Stores, Inc.		401,100		25,911,060
rue21, Inc. (a)(b)		259,000		8,067,850
				127,706,728
Textiles, Apparel & Luxury Goods – 2.5%
Coach, Inc.		176,700		9,898,734
PVH Corp.		263,400		24,685,848
VF Corp.		149,700		23,856,192
				58,440,774
Trading Companies & Distributors – 1.3%
United Rentals, Inc. (a)(b)		912,597		29,851,048
Wireless Telecommunication Services – 1.7%
SBA Communications Corp., Class A (a)(b)		605,700		38,098,530
Total Long-Term Investments
(Cost – $1,867,747,691) – 99.4%				2,289,355,354
Short-Term Securities	Beneficial Interest (000)
BlackRock Liquidity Series, LLC Money Market
Series, 0.29% (c)(d)(e)	$	327,377		327,377,250
Total Short-Term Securities
(Cost – $327,377,250) – 14.2%				327,377,250

See Notes to Financial Statements.
34	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Schedule of Investments (continued)   BlackRock U.S. Opportunities Portfolio (Percentages shown are based on Net Assets)

	Value
Total Investments (Cost – $ 2,195,124,941) – 113.6%	$	2,616,732,604
Liabilities in Excess of Other Assets – (13.6)%		(312,338,817	)
Net Assets – 100.0%	$	2,304,393,787

(a) Non-income producing security.

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

(c) Investments in issuers considered to be an affiliate of the Fund during the year ended September 30, 2012, 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, 2011		Net Activity			Shares/ Beneficial Interest Held at September  30, 2012		Income		Realized Gain
BlackRock Liquidity Funds, TempFund, Institutional Class		187,421,477		(187,421,477	)		–	$	118,893	$	1,359
BlackRock Liquidity Series, LLC Money Market Series	$	274,382,587	$	52,994,663		$	327,377,250	$	1,656,068		–

(d) 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.

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

• 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 Fund management. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

• Foreign currency exchange contracts as of September 30, 2012 were as follows:

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unrea- lized Appre- ciation (Depre- ciation)
EUR	13,213,000	USD	16,422,055	Citigroup, Inc.	10/17/12	$	557,307
USD	15,443,961	EUR	12,610,000	Citigroup, Inc.	10/17/12		(763,682	)
USD	781,483	EUR	603,000	Citigroup, Inc.	10/17/12		6,598

Total $ (199,777 ) 

• 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 as follows:

• Level 1 - unadjusted price quotations in active markets/exchanges for identical assets and 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)

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 level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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. 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. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements.

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy as of September 30, 2012:

	Level 1		Level 2		Level 3	Total
Assets:
Investments:
Long-Term Invest- ments1	$	2,289,355,354		–	–	$	2,289,355,354
Short-Term Securities		–	$	327,377,250	–		327,377,250
Total	$	2,289,355,354	$	327,377,250	–	$	2,616,732,604

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	–	$	563,905		–	$	563,905
Liabilities:
Foreign currency exchange contracts	–		(763,682	)	–		(763,682	)
Total	–	$	(199,777	)	–	$	(199,777	)

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

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	35

  Schedule of Investments (concluded)   BlackRock U.S. Opportunities Portfolio

Certain of the Fund’s liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of September 30, 2012, liabilities are categorized within the disclosure hierarchy as follows:

	Level 1		Level 2			Level 3		Total
Liabilities:
Bank overdraft		–	$	(4,726,609	)		–	$	(4,726,609	)
Collateral on securities loaned at value		–		(327,777,250	)		–		(327,777,250	)
Total		–	$	(332,503,859	)		–	$	(332,503,859	)

There were no transfers between levels during the year ended September 30, 2012.

See Notes to Financial Statements.
36	BLACKROCK FUNDS	SEPTEMBER 30, 2012

Statements of Assets and Liabilities

September 30, 2012	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	$	322,491,975		$	1,929,238,711	$	1,672,665,409		$	169,959,200		$	2,289,355,354
Investments at value – affiliated3		1,615,812			239,244,228		9,737,859			23,590,122			327,377,250
Cash		30,659			–		–			23,211			–
Foreign currency at value4		539,637			789,029		11,596,389			2,502			–
Investments sold receivable		3,411,474			11,718,898		60,953,666			479,115			31,581,744
Unrealized appreciation on foreign currency exchange contracts		2,082,955			673,292		13,236,914			155,760			563,905
Capital shares sold receivable		56,765			3,417,209		1,252,345			73,060			1,664,355
Dividends receivable – unaffiliated		481,800			2,345,356		5,350,979			38,140			2,794,997
Dividends receivable – affiliated		194			7,279		1,422			347			4,036
Receivable from Manager		34,669			–		226			–			11,881
Securities lending income receivable – affiliated		–			25,622		94			1,450			185,747
Prepaid expenses		17,774			76,004		66,475			29,740			49,048
Total assets		330,763,714			2,187,535,628		1,774,861,778			194,352,647			2,653,588,317
Liabilities
Bank overdraft		–			–		–			–			4,726,609
Collateral on securities loaned at value		–			176,438,673		4,115,755			17,744,216			327,377,250
Investments purchased payable		1,956,069			46,830,675		47,013,914			–			3,772,850
Unrealized depreciation on foreign currency exchange contracts		2,477,504			8,749,630		19,913,578			370,381			763,682
Capital shares redeemed payable		789,152			6,035,239		2,686,375			854,883			8,103,278
Investment advisory fees payable		222,319			1,139,832		1,371,778			133,022			1,925,382
Service and distribution fees payable		103,085			564,760		284,135			48,470			362,966
Other affiliates payable		12,910			184,435		176,551			21,281			256,275
Officer’s and Trustees’ fees payable		2,831			15,149		12,765			2,109			25,276
Other accrued expenses payable		342,756			1,058,747		1,316,240			228,898			1,880,962
Total liabilities		5,906,626			241,017,140		76,891,091			19,403,260			349,194,530
Net Assets	$	324,857,088		$	1,946,518,488	$	1,697,970,687		$	174,949,387		$	2,304,393,787
Net Assets Consist of
Paid-in capital	$	458,926,217		$	1,484,304,687	$	1,705,268,982		$	205,474,732		$	1,891,003,142
Undistributed (distributions in excess of) net investment income (loss)		3,037,693			13,730,136		25,693,670			(879,149	)		6,744,357
Accumulated net realized gain (loss)		(170,392,661	)		70,915,600		(190,224,298	)		(53,231,789	)		(14,761,598	)
Net unrealized appreciation/depreciation		33,285,839			377,568,065		157,232,333			23,585,593			421,407,886
Net Assets	$	324,857,088		$	1,946,518,488	$	1,697,970,687		$	174,949,387		$	2,304,393,787
1 Investments at cost – unaffiliated	$	288,801,664		$	1,543,638,508	$	1,508,691,032		$	146,158,953		$	1,867,747,691
2 Securities loaned at value		–		$	184,092,268	$	4,012,458		$	17,154,037		$	327,661,947
3 Investments at cost – affiliated	$	1,615,812		$	239,244,228	$	9,737,859		$	23,590,122		$	327,377,250
4 Foreign currency at cost	$	541,211		$	794,893	$	11,602,605		$	2,345			–

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	37

Statements of Assets and Liabilities (concluded)

September 30, 2012	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	$	54,447,844	$	473,193,102	$	798,204,870	$	34,022,375	$	1,294,928,361
Shares outstanding1		4,899,606		13,668,715		24,323,464		3,397,560		35,559,747
Net asset value	$	11.11	$	34.62	$	32.82	$	10.01	$	36.42
Service
Net assets		–	$	14,921,320	$	47,597,588	$	944,339	$	159,938,522
Shares outstanding1		–		442,530		1,505,354		97,802		4,608,515
Net asset value		–	$	33.72	$	31.62	$	9.66	$	34.71
Investor A
Net assets	$	195,960,688	$	1,018,429,210	$	692,444,785	$	106,466,096	$	610,343,463
Shares outstanding1		17,779,114		30,270,155		22,101,095		11,197,253		17,793,687
Net asset value	$	11.02	$	33.64	$	31.33	$	9.51	$	34.30
Investor B
Net assets	$	5,411,982	$	40,451,775	$	10,812,965	$	2,644,891	$	12,833,132
Shares outstanding1		503,606		1,285,730		370,892		307,673		417,770
Net asset value	$	10.75	$	31.46	$	29.15	$	8.60	$	30.72
Investor C
Net assets	$	54,332,150	$	384,909,881	$	148,910,479	$	26,542,656	$	226,350,309
Shares outstanding1		5,074,061		12,283,618		5,150,900		3,092,709		7,361,261
Net asset value	$	10.71	$	31.34	$	28.91	$	8.58	$	30.75
Class R
Net assets	$	14,704,424	$	14,613,200		–	$	4,329,030		–
Shares outstanding1		1,337,476		436,774		–		444,596		–
Net asset value	$	10.99	$	33.46		–	$	9.74		–
1 Unlimited number of shares authorized, $0.001 par value.

See Notes to Financial Statements.
38	BLACKROCK FUNDS	SEPTEMBER 30, 2012

Statements of Operations

Year Ended September 30, 2012	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	$	8,730,703		$	25,838,115		$	59,783,042		$	1,331,213		$	44,596,551
Foreign taxes withheld		(462,451	)		(706,327	)		(4,474,771	)		(5,165	)		(24,363	)
Dividends – affiliated		5,582			108,379			75,076			7,796			118,893
Interest		–			–			6,563			305			–
Securities lending – affiliated		–			301,097			7,128			64,223			1,656,068
Total income		8,273,834			25,541,264			55,397,038			1,398,372			46,347,149
Expenses
Investment advisory		3,106,875			12,797,950			17,464,422			1,659,969			31,593,740
Service and distribution – class specific		1,238,681			6,388,582			3,679,852			615,018			5,218,176
Transfer agent – class specific		641,290			3,106,518			3,561,899			672,022			5,082,662
Administration		258,906			1,116,267			1,132,164			138,331			1,793,714
Administration – class specific		86,480			396,916			390,703			46,165			520,223
Professional		84,943			61,054			99,639			51,303			80,915
Custodian		73,002			131,437			600,727			27,986			133,154
Registration		52,633			105,883			105,973			73,225			157,511
Printing		37,647			102,713			88,332			14,666			132,695
Officer and Trustees		13,269			54,347			48,695			7,928			82,508
Miscellaneous		39,629			63,578			87,006			23,955			69,705
Recoupment of past waived fees		–			–			–			464			–
Recoupment of past waived fees – class specific		2,394			–			1,304			20,181			550
Total expenses		5,635,749			24,325,245			27,260,716			3,351,213			44,865,553
Less fees waived by Manager		(36,215	)		(55,297	)		(42,291	)		(4,385	)		(3,261,610	)
Less administration fees waived – class specific		(83,262	)		(658	)		(7,485	)		(8,479	)		(239,989	)
Less transfer agent fees waived – class specific		(21,186	)		(85	)		(25,217	)		(3,456	)		(86,698	)
Less transfer agent fees reimbursed – class specific		(490,057	)		(531	)		(17,477	)		(11,061	)		(2,439,827	)
Less fees paid indirectly		(81	)		(729	)		(442	)		(132	)		(676	)
Total expenses after fees waived, reimbursed and paid indirectly		5,004,948			24,267,945			27,167,804			3,323,700			38,836,753
Net investment income (loss)		3,268,886			1,273,319			28,229,234			(1,925,328	)		7,510,396
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		(14,624,615	)1		80,704,027			(119,413,113	)		10,576,489			(9,355,220	)
Capital gain distributions received from affiliated investment companies		199			321			1,306			222			1,359
Options written		319,731			3,221,866			–			–			–
Financial futures contracts		–			–			4,819,897			(307,584	)		3,640,472
Foreign currency transactions		(460,346	)		17,689,900			10,805,682			1,278,147			336,135
		(14,765,031	)		101,616,114			(103,786,228	)		11,547,274			(5,377,254	)
Net change in unrealized appreciation/depreciation on:
Investments		72,417,455			320,470,488			360,610,483			18,036,906			590,001,186
Financial futures contracts		–			–			1,617,815			–			10,765,517
Foreign currency translations		1,000,059			(13,487,032	)		(7,365,601	)		(1,020,816	)		(199,777	)
		73,417,514			306,983,456			354,862,697			17,016,090			600,566,926
Total realized and unrealized gain		58,652,483			408,599,570			251,076,469			28,563,364			595,189,672
Net Increase in Net Assets Resulting from Operations	$	61,921,369		$	409,872,889		$	279,305,703		$	26,638,036		$	602,700,068
1 Net of $(2,148) foreign capital gain tax.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	39

Statements of Changes in Net Assets

	BlackRock Global Opportunities Portfolio						BlackRock Health Sciences Opportunities Portfolio
	Year Ended September 30,						Year Ended September 30,
Increase (Decrease) in Net Assets:	2012			2011			2012			2011
Operations
Net investment income (loss)	$	3,268,886		$	275,112		$	1,273,319		$	(5,001,828	)
Net realized gain (loss)		(14,765,031	)		3,378,527			101,616,114			91,796,358
Net change in unrealized appreciation/depreciation		73,417,514			(26,740,125	)		306,983,456			(53,887,779	)
Net increase (decrease) in net assets resulting from operations		61,921,369			(23,086,486	)		409,872,889			32,906,751
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(118,127	)		(151,636	)		–			(356,523	)
Investor A		(283,735	)		(128,372	)		–			–
Class R		(4,925	)		–			–			–
Net realized gain:
Institutional		–			–			(18,534,663	)		(10,061,316	)
Service		–			–			(758,372	)		(519,043	)
Investor A		–			–			(44,254,751	)		(30,115,936	)
Investor B		–			–			(2,120,280	)		(1,712,754	)
Investor C		–			–			(15,906,640	)		(11,157,356	)
Class R		–			–			(527,704	)		–
Decrease in net assets resulting from dividends and distributions to shareholders		(406,787	)		(280,008	)		(82,102,410	)		(53,922,928	)
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share transactions		(86,077,748	)		288,633,793			34,317,071			344,887,812
Redemption Fees
Redemption fees		–			2,143			–			17,727
Net Assets
Total increase (decrease) in net assets		(24,563,166	)		265,269,442			362,087,550			323,889,362
Beginning of year		349,420,254			84,150,812			1,584,430,938			1,260,541,576
End of year	$	324,857,088		$	349,420,254		$	1,946,518,488		$	1,584,430,938
Undistributed (distributions in excess of) net investment income (loss)	$	3,037,693		$	638,088		$	13,730,136		$	(5,233,083	)

See Notes to Financial Statements.
40	BLACKROCK FUNDS	SEPTEMBER 30, 2012

Statements of Changes in Net Assets (concluded)

	BlackRock International Opportunities Portfolio						BlackRock Science & Technology Opportunities Portfolio						BlackRock U.S. Opportunities Portfolio
	Year Ended September 30,						Year Ended September 30,						Year Ended September 30,
Increase (Decrease) in Net Assets:	2012			2011			2012			2011			2012			2011
Operations
Net investment income (loss)	$	28,229,234		$	26,393,452		$	(1,925,328	)	$	(2,170,676	)	$	7,510,396		$	(6,590,565	)
Net realized gain (loss)		(103,786,228	)		149,988,562			11,547,274			(1,510,360	)		(5,377,254	)		396,998,889
Net change in unrealized appreciation/depreciation		354,862,697			(417,009,868	)		17,016,090			(7,020,373	)		600,566,926			(659,559,092	)
Net increase (decrease) in net assets resulting from operations		279,305,703			(240,627,854	)		26,638,036			(10,701,409	)		602,700,068			(269,150,768	)
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(16,930,123	)		(10,989,330	)		–			–			–			–
Service		(747,975	)		(459,323	)		–			–			–			–
Investor A		(13,129,458	)		(7,220,618	)		–			–			–			–
Investor B		(122,493	)		(6,972	)		–			–			–			–
Investor C		(1,570,033	)		(523,946	)		–			–			–			–
Net realized gain:
Institutional		–			–			–			–			(200,665,343	)		(33,361,497	)
Service		–			–			–			–			(20,074,027	)		(3,268,451	)
Investor A		–			–			–			–			(94,447,430	)		(16,649,136	)
Investor B		–			–			–			–			(1,740,672	)		(237,927	)
Investor C		–			–			–			–			(31,519,270	)		(4,147,409	)
Decrease in net assets resulting from dividends and distributions to shareholders		(32,500,082	)		(19,200,189	)		–			–			(348,446,742	)		(57,664,420	)
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share transactions		(277,626,222	)		71,985,983			(27,451,915	)		12,679,272			(1,224,644,158	)		263,237,665
Redemption Fees
Redemption fees		–			28,640			–			10,894			–			87,311
Net Assets
Total increase (decrease) in net assets		(30,820,601	)		(187,813,420	)		(813,879	)		1,988,757			(970,390,832	)		(63,490,212	)
Beginning of year		1,728,791,288			1,916,604,708			175,763,266			173,774,509			3,274,784,619			3,338,274,831
End of year	$	1,697,970,687		$	1,728,791,288		$	174,949,387		$	175,763,266		$	2,304,393,787		$	3,274,784,619
Undistributed (distributions in excess of) net investment income (loss)	$	25,693,670		$	19,090,970		$	(879,149	)	$	(821,722	)	$	6,744,357		$	195,808

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	41

  Financial Highlights   BlackRock Global Opportunities Portfolio

	Institutional
	Year Ended September 30,
	2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	9.32		$	10.52		$	10.13		$	9.96		$	13.31
Net investment income1		0.14			0.08			0.06			0.06			0.09
Net realized and unrealized gain (loss)		1.67			(1.20	)2		0.48	2		0.12	2		(2.77	)2
Net increase (decrease) from investment operations		1.81			(1.12	)		0.54			0.18			(2.68	)
Dividends and distributions from:
Net investment income		(0.02	)		(0.08	)		(0.15	)		(0.01	)		(0.17	)
Net realized gain		–			–			–			–			(0.50	)
Total dividends and distributions		(0.02	)		(0.08	)		(0.15	)		(0.01	)		(0.67	)
Net asset value, end of year	$	11.11		$	9.32		$	10.52		$	10.13		$	9.96
Total Investment Return3
Based on net asset value		19.45	%		(10.81	)%4		5.32	%4		1.78	%4		(21.16	)%4
Ratios to Average Net Assets
Total expenses		1.25	%		1.53	%		1.43	%		1.50	%		1.33	%
Total expenses excluding recoupment of past waived fees		1.25	%		1.52	%		1.42	%		1.49	%		1.33	%
Total expenses after fees waived, reimbursed and paid indirectly		1.06	%		1.34	%		1.37	%		1.36	%		1.32	%
Net investment income		1.35	%		0.68	%		0.64	%		0.70	%		0.77	%
Supplemental Data
Net assets, end of year (000)	$	54,448		$	58,793		$	21,699		$	16,971		$	36,625
Portfolio turnover		122	%		137	%		146	%		190	%		181	%

¹ Based on average shares outstanding.

² Includes redemption fees, which are less than $0.01 per share.

³ Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴ Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

See Notes to Financial Statements.
42	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Financial Highlights (continued)   BlackRock Global Opportunities Portfolio

	Investor A														Investor B
	Year Ended September 30,														Year Ended September 30,
	2012			2011			2010			2009		2008			2012		2011		2010			2009		2008
Per Share Operating Performance
Net asset value, beginning of year	$	9.26		$	10.45		$	10.08		$	9.92	$	13.27		$	9.10	$	10.31	$	9.93		$	9.83	$	13.16
Net investment income (loss)1		0.11			0.05			0.03			0.04		0.06			0.02		(0.04)		(0.04)			(0.02)		(0.04)
Net realized and unrealized gain (loss)		1.66			(1.20)2			0.462			0.122		(2.77)2			1.63		(1.17)2		0.452			0.122		(2.76)2
Net increase (decrease) from investment operations		1.77			(1.15)			0.49			0.16		(2.71)			1.65		(1.21)		0.41			0.10		(2.80)
Dividends and distributions from:
Net investment income		(0.01	)		(0.04	)		(0.12	)		–		(0.14	)		–		–		(0.03	)		–		(0.03	)
Net realized gain		–			–			–			–		(0.50	)		–		–		–			–		(0.50	)
Total dividends and distributions		(0.01)			(0.04)			(0.12)			–		(0.64)			–		–		(0.03)			–		(0.53)
Net asset value, end of year	$	11.02		$	9.26		$	10.45		$	10.08	$	9.92		$	10.75	$	9.10	$	10.31		$	9.93	$	9.83
Total Investment Return3
Based on net asset value		19.16%			(11.11)%4			4.92%4			1.61%4		(21.44)%4			18.13%		(11.74)%4		4.09%4			1.02%4		(22.13)%4
Ratios to Average Net Assets
Total expenses		1.52%			1.76%			1.72%			1.81%		1.60%			2.21%		2.56%		2.45%			2.65%		2.37%
Total expenses excluding recoupment of past waived fees		1.52%			1.74%			1.70%			1.80%		1.60%			2.20%		2.53%		2.45%			2.63%		2.37%
Total expenses after fees waived, reimbursed and paid indirectly		1.33%			1.61%			1.67%			1.66%		1.60%			2.18%		2.42%		2.43%			2.42%		2.36%
Net investment income (loss)		1.06%			0.42%			0.32%			0.49%		0.49%			0.21%		(0.39)%		(0.44)%			(0.25)%		(0.30)%
Supplemental Data
Net assets, end of year (000)	$	195,961		$	210,299		$	39,280		$	45,110	$	37,529		$	5,412	$	6,750	$	3,617		$	4,351	$	5,665
Portfolio turnover		122%			137%			146%			190%		181%			122%		137%		146%			190%		181%

¹ Based on average shares outstanding.

² Includes redemption fees, which are less than $0.01 per share.

³ Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴ Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	43

  Financial Highlights (concluded)   BlackRock Global Opportunities Portfolio

	Investor C										Class R
	Year Ended September 30,										Year Ended September 30, 2012		Period September 12,  20111 to September 30, 2011
	2012		2011		2010		2009		2008
Per Share Operating Performance
Net asset value, beginning of period	$	9.06	$	10.27	$	9.91	$	9.82	$	13.16	$	9.26		$        9.76
Net investment income (loss)2		0.03		(0.04)		(0.04)		(0.02)		(0.03)		0.08		0.003
Net realized and unrealized gain (loss)		1.62		(1.17)4		0.454		0.114		(2.77)4		1.65		(0.50)4
Net increase (decrease) from investment operations		1.65		(1.21)		0.41		0.09		(2.80)		1.73		(0.50)
Dividends and distributions from:
Net investment income		–		–		(0.05)		–		(0.04)		(0.00)5		–
Net realized gain		–		–		–		–		(0.50)		–		–
Total dividends and distributions		–		–		(0.05)		–		(0.54)		–		–
Net asset value, end of period	$	10.71	$	9.06	$	10.27	$	9.91	$	9.82	$	10.99		$        9.26
Total Investment Return6
Based on net asset value		18.21%		(11.78)%7		4.13%7		0.92%7		(22.14)%7		18.72%		(4.83)%7,8
Ratios to Average Net Assets
Total expenses		2.32%		2.59%		2.49%		2.62%		2.38%		1.80%		1.98%9
Total expenses excluding recoupment of past waived fees		2.32%		2.57%		2.49%		2.62%		2.38%		1.79%		1.98%9
Total expenses after fees waived, reimbursed and paid indirectly		2.14%		2.42%		2.44%		2.42%		2.37%		1.65%		1.72%9
Net investment income (loss)		0.26%		(0.38)%		(0.40)%		(0.26)%		(0.26)%		0.74%		0.23%9
Supplemental Data
Net assets, end of period (000)	$	54,332	$	58,687	$	19,554	$	16,348	$	18,074	$	14,704		$    14,891
Portfolio turnover		122%		137%		146%		190%		181%		122%		137%

¹  Commencement of operations.

² Based on average shares outstanding.

³ Less than $0.01 per share.

⁴ Includes redemption fees, which are less than $0.01 per share.

⁵ Less than $(0.01) per share.

⁶ Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁷ Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

⁸ Aggregate total investment return.

⁹ Annualized.

See Notes to Financial Statements.
44	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Financial Highlights   BlackRock Health Sciences Opportunities Portfolio

	Institutional														Service
	Year Ended September 30,														Year Ended September 30,
	2012			2011			2010		2009			2008			2012			2011			2010		2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	28.77		$	28.92		$	26.29	$	28.77		$	30.41		$	28.05		$	28.22		$	25.74	$	28.20		$	29.85
Net investment income (loss)1		0.15			0.02			0.06		0.08			0.08			0.05			(0.07)			(0.03)		0.01			(0.02)
Net realized and unrealized gain (loss)		7.26			1.232			2.572		(0.14)2			(0.49)2			7.10			1.192			2.512		(0.14)2			(0.49)2
Net increase (decrease) from investment operations		7.41			1.25			2.63		(0.06)			(0.41)			7.15			1.12			2.48		(0.13)			(0.51)
Dividends and distributions from:
Net investment income		–			(0.05	)		–		–			–			–			–			–		–			–
Net realized gain		(1.56	)		(1.35	)		–		(2.42	)		(1.23	)		(1.48	)		(1.29	)		–		(2.33	)		(1.14	)
Total dividends and distributions		(1.56)			(1.40)			–		(2.42)			(1.23)			(1.48)			(1.29)			–		(2.33)			(1.14)
Net asset value, end of year	$	34.62		$	28.77		$	28.92	$	26.29		$	28.77		$	33.72		$	28.05		$	28.22	$	25.74		$	28.20
Total Investment Return3
Based on net asset value		27.06%			4.41%4			10.00%4,5		1.91%4			(1.64)%4			26.73%			4.04%4			9.64%4,5		1.59%4			(1.98)%4
Ratios to Average Net Assets
Total expenses		0.98%			1.00%			1.00%		1.03%			1.00%			1.28%			1.32%			1.33%		1.37%			1.35%
Total expenses excluding recoupment of past waived fees		0.98%			1.00%			1.00%		1.03%			1.00%			1.28%			1.31%			1.33%		1.35%			1.35%
Total expenses after fees waived, reimbursed and paid indirectly		0.98%			1.00%			1.00%		1.03%			1.00%			1.28%			1.31%			1.32%		1.36%			1.35%
Net investment income (loss)		0.47%			0.07%			0.21%		0.36%			0.28%			0.18%			(0.24)%			(0.12)%		0.03%			(0.06)%
Supplemental Data
Net assets, end of year (000)	$	473,193		$	362,292		$	232,697	$	171,607		$	185,933		$	14,921		$	13,478		$	11,704	$	8,110		$	5,764
Portfolio turnover		135%			135%			184%		153%			91%			135%			135%			184%		153%			91%

¹ Based on average shares outstanding.

²  Includes redemption fees, which are less than $0.01 per share.

³ Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴ Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

⁵ Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	45

  Financial Highlights (continued)   BlackRock Health Sciences Opportunities Portfolio

	Investor A										Investor B
	Year Ended September 30,										Year Ended September 30,
		2012		2011		2010		2009		2008		2012		2011		2010		2009		2008
Per Share Operating Performance
Net asset value, beginning of year	$	28.00	$	28.18	$	25.69	$	28.14	$	29.77	$	26.26	$	26.39	$	24.25	$	26.73	$	28.28
Net investment income (loss)1		0.05		(0.07)		(0.03)		0.01		(0.02)		(0.17)		(0.28)		(0.23)		(0.17)		(0.23)
Net realized and unrealized gain (loss)		7.07		1.192		2.522		(0.15)2		(0.49)2		6.63		1.142		2.372		(0.16)2		(0.49)2
Net increase (decrease) from investment operations		7.12		1.12		2.49		(0.14)		(0.51)		6.46		0.86		2.14		(0.33)		(0.72)
Distributions from net realized gain		(1.48)		(1.30)		–		(2.31)		(1.12)		(1.26)		(0.99)		–		(2.15)		(0.83)
Net asset value, end of year	$	33.64	$	28.00	$	28.18	$	25.69	$	28.14	$	31.46	$	26.26	$	26.39	$	24.25	$	26.73
Total Investment Return3
Based on net asset value		26.68%		4.03%4		9.69%4,5		1.57%4		(1.97)%4		25.70%		3.27%4		8.82%4,5		0.73%4		(2.78)%4
Ratios to Average Net Assets
Total expenses		1.29%		1.31%		1.31%		1.37%		1.35%		2.07%		2.06%		2.10%		2.20%		2.14%
Total expenses excluding recoupment of past waived fees		1.29%		1.31%		1.31%		1.37%		1.35%		2.07%		2.06%		2.10%		2.17%		2.14%
Total expenses after fees waived, reimbursed and paid indirectly		1.28%		1.31%		1.31%		1.37%		1.35%		2.07%		2.06%		2.09%		2.20%		2.14%
Net investment income (loss)		0.17%		(0.24)%		(0.11)%		0.02%		(0.06)%		(0.59)%		(0.99)%		(0.88)%		(0.80)%		(0.85)%
Supplemental Data
Net assets, end of year (000)	$	1,018,429	$	825,046	$	682,857	$	478,273	$	564,943	$	40,452	$	46,180	$	47,855	$	57,835	$	80,269
Portfolio turnover		135%		135%		184%		153%		91%		135%		135%		184%		153%		91%

¹ Based on average shares outstanding.

² Includes redemption fees, which are less than $0.01 per share.

³ Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴ Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

⁵ Includes proceeds received from a settlement of litigation, which had no impact on the Fund’s total return.

See Notes to Financial Statements.
46	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Financial Highlights (concluded)   BlackRock Health Sciences Opportunities Portfolio

	Investor C										Class R
	Year Ended September 30,										Year Ended September 30, 2012		Period September 12, 20111 to September 30, 2011
	2012		2011		2010		2009		2008
Per Share Operating Performance
Net asset value, beginning of period	$	26.18	$	26.37	$	24.22	$	26.70	$	28.27	$	28.00		$          28.19
Net investment loss2		(0.16)		(0.27)		(0.21)		(0.15)		(0.21)		(0.07)		(0.01	)
Net realized and unrealized gain (loss)		6.62		1.143		2.363		(0.16)3		(0.47)3		7.05		(0.18	)3
Net increase (decrease) from investment operations		6.46		0.87		2.15		(0.31)		(0.68)		6.98		(0.19	)
Distributions from net realized gain		(1.30)		(1.06)		–		(2.17)		(0.89)		(1.52)		–
Net asset value, end of period	$	31.34	$	26.18	$	26.37	$	24.22	$	26.70	$	33.46		$          28.00
Total Investment Return4
Based on net asset value		25.80%		3.32%5		8.88%5,6		0.81%5		(2.66)%5		26.17%		(0.64)%	5,7
Ratios to Average Net Assets
Total expenses		2.01%		2.02%		2.04%		2.09%		2.05%		1.70%		1.75%	8
Total expenses excluding recoupment of past waived fees		2.01%		2.02%		2.04%		2.09%		2.05%		1.70%		1.75%	8
Total expenses after fees waived, reimbursed and paid indirectly		2.01%		2.02%		2.04%		2.09%		2.05%		1.68%		1.75%	8
Net investment loss		(0.55)%		(0.95)%		(0.83)%		(0.70)%		(0.76)%		(0.24)%		(0.82)%	8
Supplemental Data
Net assets, end of period (000)	$	384,910	$	327,855	$	285,428	$	255,340	$	305,015	$	14,613		$          9,580
Portfolio turnover		135%		135%		184%		153%		91%		135%		135%

¹ Commencement of operations.

² Based on average shares outstanding.

³ Includes redemption fees, which are less than $0.01 per share.

⁴ Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

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 had no impact on the Fund’s total return.

⁷ Aggregate total investment return.

⁸ Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	47

  Financial Highlights   BlackRock International Opportunities Portfolio

	Institutional															Service
	Year Ended September 30,															Year Ended September 30,
	2012			2011			2010			2009			2008			2012			2011			2010			2009		2008
Per Share Operating Performance
Net asset value, beginning of year	$	28.37		$	32.76		$	31.36		$	29.44		$	51.08		$	27.34		$	31.58		$	30.26		$	28.36	$	49.52
Net investment income1		0.56			0.49			0.28			0.34			0.47			0.39			0.34			0.16			0.27		0.28
Net realized and unrealized gain (loss)		4.49			(4.52)2			1.582			1.682			(13.66)2			4.33			(4.37)2			1.532			1.632		(13.14)2
Net increase (decrease) from investment operations		5.05			(4.03)			1.86			2.02			(13.19)			4.72			(4.03)			1.69			1.90		(12.86)
Dividends and distributions from:
Net investment income		(0.60	)		(0.36	)		(0.46	)		(0.10	)		(1.21	)		(0.44	)		(0.21	)		(0.37	)		–		(1.06	)
Net realized gain		–			–			–			–			(7.24	)		–			–			–			–		(7.24	)
Total dividends and distributions		(0.60)			(0.36)			(0.46)			(0.10)			(8.45)			(0.44)			(0.21)			(0.37)			–		(8.30)
Net asset value, end of year	$	32.82		$	28.37		$	32.76		$	31.36		$	29.44		$	31.62		$	27.34		$	31.58		$	30.26	$	28.36
Total Investment Return3
Based on net asset value		18.08%			(12.50)%4			5.99%4			6.99%4			(30.87)%4,5			17.48%			(12.88)%4			5.63%4			6.70%4		(31.10)%4,5
Ratios to Average Net Assets
Total expenses		1.29%			1.26%			1.35%			1.45%			1.25%			1.90%			1.66%			1.72%			1.75%		1.58%
Total expenses excluding recoupment of past waived fees		1.29%			1.26%			1.34%			1.45%			1.25%			1.90%			1.66%			1.69%			1.73%		1.58%
Total expenses after fees waived, reimbursed and paid indirectly		1.29%			1.26%			1.35%			1.43%			1.25%			1.80%			1.65%			1.72%			1.70%		1.58%
Net investment income		1.83%			1.41%			0.91%			1.36%			1.18%			1.31%			1.02%			0.53%			1.13%		0.72%
Supplemental Data
Net assets, end of year (000)	$	798,205		$	792,695		$	802,167		$	673,420		$	450,605		$	47,598		$	47,846		$	70,365		$	83,093	$	64,368
Portfolio turnover		99%			116%			116%			143%			138%			99%			116%			116%			143%		138%

¹  Based on average shares outstanding.

²  Includes redemption fees, which are less than $0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

⁵  Payment from affiliate of $112,880 received by the Fund is reflected in total return calculations. There was no impact to the return.

See Notes to Financial Statements.
48	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Financial Highlights (continued)   BlackRock International Opportunities Portfolio

	Investor A															Investor B
	Year Ended September 30,															Year Ended September 30,
	2012			2011			2010			2009			2008			2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	27.10		$	31.33		$	30.02		$	28.14		$	49.19		$	25.18		$	29.10		$	27.83		$	26.29		$	46.43
Net investment income (loss)1		0.45			0.39			0.21			0.27			0.33			0.16			0.10			(0.05)			0.09			(0.06)
Net realized and unrealized gain (loss)		4.30			(4.34)2			1.502			1.622			(13.09)2			4.03			(4.01)2			1.422			1.452			(12.16)2
Net increase (decrease) from investment operations		4.75			(3.95)			1.71			1.89			(12.76)			4.19			(3.91)			1.37			1.54			(12.22)
Dividends and distributions from:
Net investment income		(0.52	)		(0.28	)		(0.40	)		(0.01	)		(1.05	)		(0.22	)		(0.01	)		(0.10	)		–			(0.68	)
Net realized gain		–			–			–			–			(7.24	)		–			–			–			–			(7.24	)
Total dividends and distributions		(0.52)			(0.28)			(0.40)			(0.01)			(8.29)			(0.22)			(0.01)			(0.10)			–			(7.92)
Net asset value, end of year	$	31.33		$	27.10		$	31.33		$	30.02		$	28.14		$	29.15		$	25.18		$	29.10		$	27.83		$	26.29
Total Investment Return3
Based on net asset value		17.74%			(12.77)%	4		5.73%	4		6.73%	4		(31.09)%	4,5		16.72%			(13.45)%	4		4.92%	4		5.86%	4		(31.63)%	4,5
Ratios to Average Net Assets
Total expenses		1.57%			1.54%			1.59%			1.68%			1.58%			2.41%			2.32%			2.38%			2.49%			2.35%
Total expenses excluding recoupment of past waived fees		1.57%			1.54%			1.59%			1.68%			1.58%			2.41%			2.32%			2.38%			2.49%			2.35%
Total expenses after fees waived, reimbursed and paid indirectly		1.57%			1.53%			1.59%			1.68%			1.58%			2.41%			2.32%			2.38%			2.49%			2.35%
Net investment income (loss)		1.52%			1.16%			0.72%			1.15%			0.87%			0.60%			0.34%			(0.18)%			0.41%			(0.15)%
Supplemental Data
Net assets, end of year (000)	$	692,445		$	703,201		$	794,034		$	604,283		$	482,526		$	10,813		$	15,568		$	25,080		$	33,094		$	42,927
Portfolio turnover		99%			116%			116%			143%			138%			99%			116%			116%			143%			138%

¹  Based on average shares outstanding.

²  Includes redemption fees, which are less than $0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

⁵  Payment from affiliate of $112,880 received by the Fund is reflected in total return calculations. There was no impact to the return.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	49

  Financial Highlights (concluded)   BlackRock International Opportunities Portfolio

	Investor C
	Year Ended September 30,
	2012		2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	24.98	$	28.92		$	27.74		$	26.21		$	46.34
Net investment income (loss)1		0.20		0.11			(0.02)			0.08			0.03
Net realized and unrealized gain (loss)		3.98		(3.98)	2		1.39	2		1.45	2		(12.20)	2
Net increase (decrease) from investment operations		4.18		(3.87)			1.37			1.53			(12.17)
Dividends and distributions from:
Net investment income		(0.25)		(0.07)			(0.19)			–			(0.72)
Net realized gain		–		–			–			–			(7.24)
Total dividends and distributions		(0.25)		(0.07)			(0.19)			–			(7.96)
Net asset value, end of year	$	28.91	$	24.98		$	28.92		$	27.74		$	26.21
Total Investment Return3
Based on net asset value		16.83%		(13.44)%	4		4.95%	4		5.84%	4		(31.61)%	4,5
Ratios to Average Net Assets
Total expenses		2.34%		2.31%			2.36%			2.49%			2.32%
Total expenses excluding recoupment of past waived fees		2.34%		2.31%			2.36%			2.49%			2.32%
Total expenses after fees waived, reimbursed and paid indirectly		2.34%		2.31%			2.36%			2.48%			2.32%
Net investment income (loss)		0.73%		0.37%			(0.06)%			0.38%			0.08%
Supplemental Data
Net assets, end of year (000)	$	148,910	$	169,481		$	224,958		$	187,246		$	194,068
Portfolio turnover		99%		116%			116%			143%			138%

¹  Based on average shares outstanding.

² Includes redemption fees, which are less than $0.01 per share.

³ Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

⁵ Payment from affiliate of $112,880 received by the Fund is reflected in total return calculations. There was no impact to the return.

See Notes to Financial Statements.
50	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Financial Highlights   BlackRock Science & Technology Opportunities Portfolio

	Institutional															Service
	Year Ended September 30,															Year Ended September 30,
	2012			2011			2010			2009			2008			2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	8.61		$	9.02		$	7.79		$	6.98		$	9.03		$	8.32		$	8.72		$	7.56		$	6.80		$	8.83
Net investment loss1		(0.06	)		(0.06	)		(0.05	)		(0.02	)		(0.05	)		(0.08	)		(0.07	)		(0.08	)		(0.04	)		(0.06	)
Net realized and unrealized gain (loss)		1.46			(0.35	)2		1.28	2		0.83	2		(2.00	)2		1.42			(0.33	)2		1.24	2		0.80	2		(1.97	)2
Net increase (decrease) from investment operations		1.40			(0.41	)		1.23			0.81			(2.05	)		1.34			(0.40	)		1.16			0.76			(2.03	)
Net asset value, end of year	$	10.01		$	8.61		$	9.02		$	7.79		$	6.98		$	9.66		$	8.32		$	8.72		$	7.56		$	6.80
Total Investment Return3
Based on net asset value		16.26%			(4.55)%	4		15.79%	4,5		11.60%	4,6		(22.70)%	4		16.11%			(4.59)%	4		15.34%	4,7		11.18%	4,8		(22.99)%	4
Ratios to Average Net Assets
Total expenses		1.45%			1.46%			1.55%			1.90%			1.70%			1.57%			1.55%			1.76%			1.96%			2.01%
Total expenses excluding recoupment of past waived fees		1.44%			1.46%			1.55%			1.90%			1.70%			1.56%			1.54%			1.67%			1.96%			2.01%
Total expenses after fees waived, reimbursed and paid indirectly		1.39%			1.39%			1.39%			1.36%			1.35%			1.57%			1.53%			1.74%			1.75%			1.73%
Net investment loss		(0.63)%			(0.60)%			(0.59)%			(0.27)%			(0.55)%			(0.81)%			(0.74)%			(0.94)%			(0.71)%			(0.75)%
Supplemental Data
Net assets, end of year (000)	$	34,022		$	33,982		$	33,135		$	27,013		$	42,886		$	944		$	851		$	659		$	193		$	106
Portfolio turnover		320%			103%			97%			158%			89%			320%			103%			97%			158%			89%

¹  Based on average shares outstanding.

²  Includes redemption fees, which are less than $0.01 per share.

³ Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

⁵  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%.

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 9.03%.

⁷  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%.

⁸  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 8.53%.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	51

  Financial Highlights (continued)   BlackRock Science & Technology Opportunities Portfolio

	Investor A															Investor B
	Year Ended September 30,															Year Ended September 30,
	2012			2011			2010			2009			2008			2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	8.21		$	8.62		$	7.48		$	6.73		$	8.74		$	7.48		$	7.93		$	6.94		$	6.30			$     8.26
Net investment loss1		(0.09	)		(0.09	)		(0.08	)		(0.04	)		(0.06	)		(0.15	)		(0.16	)		(0.14	)		(0.08	)		(0.13	)
Net realized and unrealized gain (loss)		1.39			(0.32	)2		1.22	2		0.79	2		(1.95	)2		1.27			(0.29	)2		1.13	2		0.72	2		(1.83	)2
Net increase (decrease) from investment operations		1.30			(0.41	)		1.14			0.75			(2.01	)		1.12			(0.45	)		0.99			0.64			(1.96	)
Net asset value, end of year	$	9.51		$	8.21		$	8.62		$	7.48		$	6.73		$	8.60		$	7.48		$	7.93		$	6.94			$    6.30
Total Investment Return3
Based on net asset value		15.84%			(4.76)%	4		15.24%	4,5		11.14%	4,6		(23.00)%	4		14.97%			(5.68)%	4		14.27%	4,7		10.16%	4,8		(23.73)%	4
Ratios to Average Net Assets
Total expenses		1.72%			1.79%			1.82%			2.24%			2.04%			2.52%			2.67%			2.70%			3.13%			2.96%
Total expenses excluding recoupment of past waived fees		1.70%			1.71%			1.81%			2.24%			2.04%			2.52%			2.44%			2.65%			3.00%			2.96%
Total expenses after fees waived, reimbursed and paid indirectly		1.71%			1.78%			1.79%			1.77%			1.75%			2.52%			2.66%			2.69%			2.65%			2.65%
Net investment loss		(0.95)%			(0.98)%			(0.99)%			(0.68)%			(0.77)%			(1.76)%			(1.87)%			(1.90)%			(1.53)%			(1.70)%
Supplemental Data
Net assets, end of year (000)	$	106,466		$	106,632		$	105,577		$	83,734		$	72,659		$	2,645		$	3,130		$	4,390		$	6,538			$    11,473
Portfolio turnover		320%			103%			97%			158%			89%			320%			103%			97%			158%			89%

¹  Based on average shares outstanding.

²  Includes redemption fees, which are less than $0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

⁵  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%.

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 8.47%.

⁷  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%.

⁸  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 7.30%.

See Notes to Financial Statements.
52	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Financial Highlights (concluded)   BlackRock Science & Technology Opportunities Portfolio

	Investor C															Class R
	Year Ended September 30,															Year Ended September 30,												Period September 8, 20081to September 30, 2008
	2012			2011			2010			2009			2008			2012			2011			2010			2009
Per Share Operating Performance
Net asset value, beginning of period	$	7.47		$	7.92		$	6.94		$	6.29		$	8.25		$	8.43		$	8.88		$	7.72		$	6.97		$	7.38
Net investment loss2		(0.15	)		(0.16	)		(0.14	)		(0.09	)		(0.13	)		(0.12	)		(0.12	)		(0.11	)		(0.06	)		(0.01	)
Net realized and unrealized gain (loss)		1.26			(0.29	)3		1.12	3		0.74	3		(1.83	)3		1.43			(0.33	)3		1.27	3		0.81	3		(0.40	)3
Net increase (decrease) from investment operations		1.11			(0.45	)		0.98			0.65			(1.96	)		1.31			(0.45	)		1.16			0.75			(0.41	)
Net asset value, end of period	$	8.58		$	7.47		$	7.92		$	6.94		$	6.29		$	9.74		$	8.43		$	8.88		$	7.72		$	6.97
Total Investment Return4
Based on net asset value		14.86%			(5.68)%	5		14.12%	5,6		10.33%	5,7		(23.76)%	5		15.54%			(5.07)%	5		15.03%	5,8		10.76%	5,9		(5.56)%	5,10
Ratios to Average Net Assets
Total expenses		2.60%			2.68%			2.73%			3.23%			2.73%			2.00%			2.00%			2.10%			2.42%			2.36%	11
Total expenses excluding recoupment of past waived fees		2.59%			2.59%			2.73%			3.23%			2.73%			1.99%			2.00%			2.10%			2.42%			2.36%	11
Total expenses after fees waived, reimbursed and paid indirectly		2.60%			2.67%			2.71%			2.68%			2.62%			1.99%			2.00%			2.09%			2.13%			2.13%	11
Net investment loss		(1.84)%			(1.88)%			(1.92)%			(1.59)%			(1.67)%			(1.23)%			(1.21)%			(1.29)%			(1.04)%			(1.49)%	11
Supplemental Data
Net assets, end of period (000)	$	26,543		$	27,651		$	27,053		$	22,575		$	22,003		$	4,329		$	3,518		$	2,961		$	1,904		$	1,362
Portfolio turnover		320%			103%			97%			158%			89%			320%			103%			97%			158%			89%

¹ Commencement of operations.

²  Based on average shares outstanding.

³  Includes redemption fees, which are less than $0.01 per share.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

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 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 7.47%.

⁸  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%.

⁹  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 8.18%.

¹⁰  Aggregate total investment return.

¹¹  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	53

  Financial Highlights   BlackRock U.S. Opportunities Portfolio

	Institutional															Service
	Year Ended September 30,															Year Ended September 30,
	2012			2011			2010			2009			2008			2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	33.86		$	36.94		$	32.20		$	31.69		$	37.05		$	32.44		$	35.40		$	30.93		$	30.58		$	35.89
Net investment income (loss)1		0.19			0.05			0.04			0.09			0.09			0.02			(0.12	)		(0.11	)		(0.01	)		(0.06	)
Net realized and unrealized gain (loss)		6.31			(2.44	)2		4.77	2		0.42	2		(5.45	)2		6.03			(2.34	)2		4.58	2		0.35	2		(5.25	)2
Net increase (decrease) from investment operations		6.50			(2.39	)		4.81			0.51			(5.36	)		6.05			(2.46	)		4.47			0.34			(5.31	)
Dividends and distributions from:
Net investment income		–			–			(0.07	)		(0.01	)		–			–			–			–			–			–
Net realized gains		(3.94	)		(0.69	)		–			–			–			(3.78	)		(0.50	)		–			–			–
Total dividends and distributions		(3.94	)		(0.69	)		(0.07	)		(0.01	)		–			(3.78	)		(0.50	)		–			–			–
Redemption fees added to paid-in capital		–			0.00	3		0.00	3		0.01			0.00	3		–			0.00	3		0.00	3		0.01			0.00	3
Net asset value, end of year	$	36.42		$	33.86		$	36.94		$	32.20		$	31.69		$	34.71		$	32.44		$	35.40		$	30.93		$	30.58
Total Investment Return4
Based on net asset value		20.40%			(6.75)%	5		14.96%	5,6		1.63%	7		(14.47)%	5		19.80%			(7.16)%	5		14.45%	5,6		1.14%	7		(14.80)%	5
Ratios to Average Net Assets
Total expenses		1.30%			1.36%			1.30%			1.40%			1.42%			1.62%			1.57%			1.60%			1.71%			1.68%
Total expenses excluding recoupment of past waived fees		1.30%			1.36%			1.30%			1.40%			1.42%			1.62%			1.57%			1.60%			1.70%			1.68%
Total expenses after fees waived, reimbursed and paid indirectly		1.03%			1.03%			1.03%			1.01%			1.00%			1.51%			1.46%			1.48%			1.49%			1.43%
Net investment income (loss)		0.52%			0.12%			0.13%			0.36%			0.26%			0.05%			(0.30)%			(0.34)%			(0.06)%			(0.17)%
Supplemental Data
Net assets, end of year (000)	$	1,294,928		$	1,905,254		$	1,588,509		$	890,264		$	298,166		$	159,939		$	183,604		$	235,926		$	191,318		$	109,679
Portfolio turnover		106%			120%			123%			166%			164%			106%			120%			123%			166%			164%

¹  Based on average shares outstanding.

²  Includes redemption fees, which are less than $0.01 per share.

³  Less than $0.01 per share.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

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 had no impact on the Fund’s total return.

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%.

See Notes to Financial Statements.
54	BLACKROCK FUNDS	SEPTEMBER 30, 2012

  Financial Highlights (continued)   BlackRock U.S. Opportunities Portfolio

	Investor A															Investor B
	Year Ended September 30,															Year Ended September 30,
	2012			2011			2010			2009			2008			2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	32.08		$	35.02		$	30.61		$	30.29		$	35.57		$	29.11		$	31.96		$	28.16		$	28.06		$	33.20
Net investment income (loss)1		0.01			(0.13	)		(0.12	)		(0.04	)		(0.08	)		(0.23	)		(0.40	)		(0.35	)		(0.17	)		(0.31	)
Net realized and unrealized gain (loss)		5.97			(2.31	)2		4.53	2		0.35	2		(5.20	)2		5.39			(2.06	)2		4.15	2		0.26	2		(4.83	)2
Net increase (decrease) from investment operations		5.98			(2.44	)		4.41			0.31			(5.28	)		5.16			(2.46	)		3.80			0.09			(5.14	)
Distributions from net realized gains		(3.76	)		(0.50	)		–			–			–			(3.55	)		(0.39	)		–			–			–
Redemption fees added to paid-in capital		–			0.00	3		0.00	3		0.01			0.00	3		–			0.00	3		0.00	3		0.01			0.00	3
Net asset value, end of year	$	34.30		$	32.08		$	35.02		$	30.61		$	30.29		$	30.72		$	29.11		$	31.96		$	28.16		$	28.06
Total Investment Return4
Based on net asset value		19.82%			(7.19)%	5		14.41%	5,6		1.06%	7		(14.84)%	5		18.87%			(7.90)%	5		13.49%	5,6		0.36%	7		(15.48)%	5
Ratios to Average Net Assets
Total expenses		1.62%			1.59%			1.64%			1.76%			1.73%			2.42%			2.39%			2.44%			2.59%			2.56%
Total expenses excluding recoupment of past waived fees		1.62%			1.59%			1.64%			1.75%			1.73%			2.42%			2.37%			2.44%			2.59%			2.56%
Total expenses after fees waived, reimbursed and paid indirectly		1.51%			1.49%			1.51%			1.56%			1.48%			2.30%			2.28%			2.30%			2.27%			2.22%
Net investment loss		0.03%			(0.34)%			(0.37)%			(0.15)%			(0.22)%			(0.74)%			(1.12)%			(1.18)%			(0.77)%			(0.95)%
Supplemental Data
Net assets, end of year (000)	$	610,343		$	888,293		$	1,158,626		$	855,127		$	495,656		$	12,833		$	15,047		$	20,255		$	21,849		$	20,998
Portfolio turnover		106%			120%			123%			166%			164%			106%			120%			123%			166%			164%

¹  Based on average shares outstanding.

²  Includes redemption fees, which are less than $0.01 per share.

³  Less than $0.01 per share.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

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 had no impact on the Fund’s total return.

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 0.04%.

See Notes to Financial Statements.
	BLACKROCK FUNDS	SEPTEMBER 30, 2012	55

  Financial Highlights (concluded)   BlackRock U.S. Opportunities Portfolio

	Investor C
	Year Ended September 30,
	2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	29.11		$	31.95		$	28.14		$	28.04		$	33.18
Net investment loss1		(0.21	)		(0.38	)		(0.33	)		(0.19	)		(0.30	)
Net realized and unrealized gain (loss)		5.39			(2.07	)2		4.14	2		0.28	2		(4.84	)2
Net increase (decrease) from investment operations		5.18			(2.45	)		3.81			0.09			(5.14	)
Distributions from net realized gains		(3.54	)		(0.39	)		–			–			–
Redemption fees added to paid-in capital		–			0.00	3		0.00	3		0.01			0.00	3
Net asset value, end of year	$	30.75		$	29.11		$	31.95		$	28.14		$	28.04
Total Investment Return4
Based on net asset value		18.94%			(7.87)%	5		13.54%	5,6		0.36%	7		(15.49)%	5
Ratios to Average Net Assets
Total expenses		2.35%			2.34%			2.39%			2.52%			2.46%
Total expenses excluding recoupment of past waived fees		2.35%			2.33%			2.38%			2.52%			2.46%
Total expenses after fees waived, reimbursed and paid indirectly		2.25%			2.24%			2.27%			2.28%			2.21%
Net investment loss		(0.69)%			(1.08)%			(1.12)%			(0.85)%			(0.95)%
Supplemental Data
Net assets, end of year (000)	$	226,350		$	282,586		$	334,958		$	238,819		$	145,626
Portfolio turnover		106%			120%			123%			166%			164%

¹  Based on average shares outstanding.

²  Includes redemption fees, which are less than $0.01 per share.

³  Less than $0.01 per share.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

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 had no impact on the Fund’s total return.

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 0.04%.

See Notes to Financial Statements.
56	BLACKROCK FUNDS	SEPTEMBER 30, 2012

Notes to Financial Statements

1. Organization and Significant Accounting Policies:

BlackRock Funds^SM (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. BlackRock Global Opportunities Portfolio (“Global Opportunities”), BlackRock Health Sciences Opportunities Portfolio (“Health Sciences Opportunities”), BlackRock International Opportunities Portfolio (“International Opportunities”), BlackRock Science & Technology Opportunities Portfolio (“Science & Technology Opportunities”) and BlackRock U.S. Opportunities Portfolio (“U.S. Opportunities”) (collectively, the “Funds” or individually, a “Fund”) are each a series of the Trust. Each of the Funds, except Health Sciences Opportunities, is diversified. The Funds’ financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US 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 offers multiple classes of shares. Institutional Shares are sold without a sales charge and only to certain eligible investors. Service Shares are sold without a sales charge. Investor A Shares are generally sold with a front-end sales charge. Investor B and Investor C Shares may be subject to a CDSC. Class R Shares are sold without a sales charge and only to certain retirement and other similar plans. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Service, Investor A, Investor B, Investor C and Class R Shares bear certain expenses related to the shareholder servicing of such shares, and Investor B, Investor C and Class R Shares also bear certain expenses related to the distribution of such shares. Investor B Shares automatically convert to Investor A Shares after approximately eight years. Investor B Shares are only available through exchanges, dividend reinvestment by existing shareholders or for purchase by certain qualified employee benefit plans. 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).

Reorganizations: The Board of Trustees of the Trust (the “Board”) on behalf of Global Opportunities and the Board of Directors and shareholders of BlackRock Global Growth Fund, Inc. (“Global Growth”) approved the reorganization of Global Growth into Global Opportunities pursuant to which Global Opportunities acquired substantially all of the assets and assumed certain stated liabilities of Global Growth in exchange for an equal aggregate value of Global Opportunities shares.

Each shareholder of Global Growth received shares of Global Opportunities with the same class designation and an amount equal to the aggregate NAV of such shareholder’s Global Growth shares, as determined at the close of business on September 9, 2011. In connection with the reorganization, Global Opportunities issued newly created Class R Shares.

The reorganization was accomplished by a tax-free exchange of shares of Global Opportunities in the following amounts and at the following conversion ratios:

	Global Growth Shares Prior to Reorganization		Conversion Ratio		Shares of Global Opportunities
Institutional		3,509,188		1.33658929		4,690,343
Investor A		14,755,527		1.32869118		19,605,539
Investor B		367,181		1.29848147		476,778
Investor C		3,757,078		1.29501571		4,865,475
Class R		1,252,737		1.28821323		1,613,792

Global Growth’s net assets and composition of net assets on September 9, 2011, the date of the reorganization, were as follows:

Net Assets	Paid-in Capital	Accumulated Net Investment Income	Accumulated Net Realized Loss	Net Unre- alized Depre- ciation
$304,152,785	$462,591,696	$180,888	$(135,908,279)	$(22,711,520)

For financial reporting purposes, assets received and shares issued by Global Opportunities were recorded at fair value. However, the cost basis of the investments received from Global Growth was carried forward to align ongoing reporting of Global Opportunities’ realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.

The net assets of Global Opportunities before the acquisition were $69,097,151. The aggregate net assets of Global Opportunities immediately after the acquisition amounted to $373,249,936. Global Growth’s fair value and cost of investments prior to the reorganization were $320,739,432 and $298,207,845, respectively.

The purpose of the transaction was to combine two funds managed by the Manager, the investment advisor to both Global Growth and Global Opportunities, with the same or substantially similar (but not identical) investment objectives, investment policies, strategies, risks and restrictions. The reorganization was a tax-free event and was effective on September 12, 2011.

Assuming the acquisition had been completed on October 1, 2010, the beginning of the annual reporting period of Global Opportunities, the pro forma results of operations for the year ended September 30, 2011, were as follows:

• Net investment income: $2,320,634

• Net realized and change in unrealized gain/loss on investments: $(41,230,418)

• Net decrease in the net assets resulting from operations: $(38,909,784)

Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of Global Growth that have been included in the Global Opportunities’ Statement of Operations since September 12, 2011.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 57 

Notes to Financial Statements (continued)

Reorganization costs incurred by Global Opportunities in connection with the reorganization were expensed by Global Opportunities.

The Board of Health Sciences Opportunities and the Board of Directors and shareholders of BlackRock Healthcare Fund, Inc. (“Healthcare”) approved the reorganization of Healthcare into Health Sciences Opportunities pursuant to which Health Sciences Opportunities acquired substantially all of the assets and assumed certain stated liabilities of Healthcare in exchange for an equal aggregate value of Health Sciences Opportunities shares.

Each shareholder of Healthcare received shares of Health Sciences Opportunities with the same class designation and an amount equal to the aggregate NAV of such shareholder’s Healthcare shares, as determined at the close of business on September 9, 2011. In connection with the reorganization, Health Sciences Opportunities issued newly created Class R Shares.

The reorganization was accomplished by a tax-free exchange of shares of Health Sciences Opportunities in the following amounts and at the following conversion ratios:

	Healthcare Shares Prior to Reorganization		Conversion Ratio		Shares of Health Sciences Opportunities
Institutional		13,244,297		0.19034241		2,520,951
Investor A		27,277,774		0.16917605		4,614,746
Investor B		2,622,885		0.10066507		264,033
Investor C		17,312,942		0.10007561		1,732,603
Class R		3,541,881		0.09820156		347,818

Healthcare’s net assets and composition of net assets on September 9, 2011, the date of the reorganization, were as follows:

Net Assets	Paid-in Capital	Accumulated Net Investment Loss	Accumulated Net Realized Loss	Net Unre- alized Appre- ciation
$265,090,492	$262,990,491	$(202,292)	$(913,655)	$3,215,948

For financial reporting purposes, assets received and shares issued by Health Sciences Opportunities were recorded at fair value. However, the cost basis of the investments received from Healthcare was carried forward to align ongoing reporting of Health Sciences Opportunities’ realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.

The net assets of Health Sciences Opportunities before the acquisition were $1,331,983,361. The aggregate net assets of Health Sciences Opportunities immediately after the acquisition amounted to $1,597,073,853. Healthcare’s fair value and cost of investments prior to the reorganization were $263,048,253 and $265,906,507, respectively.

The purpose of the transaction was to combine two funds managed by the Manager, the investment advisor to Healthcare and Health Sciences Opportunities, with the same or substantially similar (but not identical) investment objectives, investment policies, strategies, risks and restrictions.

The reorganization was a tax-free event and was effective on September 12, 2011.

Assuming the acquisition had been completed on October 1, 2010; the beginning of the annual reporting period of Health Sciences Opportunities, the pro forma results of operations for the year ended September 30, 2011, were as follows:

• Net investment loss: $(7,044,861)

• Net realized and change in unrealized gain/loss on investments: $(518,793)

• Net decrease in the net assets resulting from operations: $(7,563,654)

Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of Healthcare that have been included in the Health Sciences Opportunities’ Statement of Operations since September 12, 2011.

Reorganization costs incurred by Health Sciences Opportunities in connection with the reorganization were paid by the Manager.

The following is a summary of significant accounting policies followed by the Funds:

Valuation: US 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 fair value 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 or the NASDAQ Global Market System (“NASDAQ”) are valued at the last reported sale price that day or the NASDAQ official closing price, if applicable. For equity investments traded on more than one exchange, the last reported sale 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 are valued at the last available bid price. If no bid price is available, the prior day’s price will be used, unless it is determined that such prior day’s price no longer reflects the fair value of the security. Financial futures contracts traded on exchanges are valued at their last sale price. Investments in open-end registered investment companies are valued at NAV each business day.

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

 58   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor in the Money Market Series to withdraw more than 25% on any one day.

Securities and other assets and liabilities denominated in foreign currencies are translated into US dollars using exchange rates determined as of the close of business on the New York Stock Exchange (“NYSE”). 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.

In the event that 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 Assets”). When determining the price for Fair Value Assets, the Global Valuation Committee, or its delegate, seeks to determine the price that each Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the investment advisor and/or sub-advisor deems relevant consistent with the principles of fair value measurement which include the market approach, income approach and/or cost approach, as appropriate. A market approach generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to present value and 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 Trust’s pricing vendors, a regular review 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 Assets 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 (for example, a company announcement, market volatility or a natural disaster) occur during such periods that are expected to affect the value of such instruments materially, those instruments may be Fair Value Assets and valued at their fair value, as determined in good faith by the Global Valuation Committee 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: The Funds’ books and records are maintained in US dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective date of such transactions. Generally, when the US dollar rises in value against a foreign currency, the Funds’ investments denominated in that currency will lose value because that currency is worth fewer US dollars; the opposite effect occurs if the US dollar falls in relative value.

The Funds do 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 on 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. The Funds report realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are treated as ordinary income for federal income tax purposes.

Segregation and Collateralization: In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”) require that each Fund either deliver collateral or segregate assets in connection with certain investments (e.g., financial futures contracts, foreign currency exchange contracts and options written), each Fund will, consistent with SEC rules and/or certain interpretive letters issued by the SEC, segregate collateral or designate on its books and records cash or liquid securities having a market value at least equal to the amount that would otherwise be required to be physically segregated. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, a Fund engaging in such transactions may have requirements to deliver/deposit securities to/with an exchange or broker-dealer as collateral for certain investments.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 59 

Notes to Financial Statements (continued)

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 dates. 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 and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Dividends and Distributions: Dividends and distributions paid by the Funds are recorded on the ex-dividend dates. The portion of distributions that exceeds a Fund’s current and accumulated earnings and profits, which are measured on a tax basis, will constitute a nontaxable return of capital. Distributions in excess of a Fund’s taxable income and net capital gains, but not in excess of a Fund’s earnings and profits, will be taxable to shareholders as ordinary income and will not constitute a non-taxable return of capital. Capital losses carried forward from years beginning before 2011 do not reduce earnings and profits, even if such carried forward losses offset current year realized gains. The character and timing of dividends and distributions are determined in accordance with federal income tax regulations, which may differ from US GAAP.

Securities Lending: The Funds may lend securities to approved borrowers, such as banks, brokers and other financial institutions. The borrower pledges cash, securities issued or guaranteed by the US government or irrevocable letters of credit issued by a bank as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Funds and any additional required collateral is delivered to the Funds on the next business day. Securities lending income, as disclosed in the Statements of Operations, represents the income earned from the investment of the cash collateral, net of rebates paid to, or fees paid by, borrowers and less the fees paid to the securities lending agent. During the term of the loan, the Funds earn dividend or interest income on the securities loaned but do not receive dividend or interest income on the securities received as collateral. 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. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Funds could experience delays and costs in gaining access to the collateral. The Funds also 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. During the year ended September 30, 2012, any securities on loan were collateralized by cash.

Income Taxes: 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.

Each Fund files US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Funds’ US federal tax returns remains open for each of the four years ended September 30, 2012. 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 does not believe there are any uncertain tax positions that require recognition of a tax liability.

Recent Accounting Standard: In December 2011, the Financial Accounting Standards Board issued guidance that will expand current disclosure requirements on the offsetting of certain assets and liabilities. The new disclosures will be required for investments and derivative financial instruments subject to master netting or similar agreements which are eligible for offset in the Statements of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial statements. The guidance is effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within those fiscal years. Management is evaluating the impact 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 class. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Funds and other shared expenses pro rated 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 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 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.

2. 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 hedge, or protect, 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.

Losses may arise if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument or if the counterparty does not perform under the contract. The Funds’ maximum risk of loss from counterparty credit risk on OTC derivatives is generally the aggregate unrealized gain netted against any collateral pledged by/posted to the counterparty. For OTC options purchased, the Funds bear the risk of loss in the amount of the premiums paid plus the positive change in market values net of any collateral received on the options should the counterparty fail to perform under the contracts. Options

 60   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

written by the Funds do not give rise to counterparty credit risk, as options written obligate the Funds to perform and not the counterparty. Counterparty risk related to exchange-traded options is deemed to be minimal due to the protection against defaults provided by the exchange on which these contracts trade.

The Funds may mitigate counterparty risk by procuring collateral and through netting provisions included within an International Swaps and Derivatives Association, Inc. master agreement (“ISDA Master Agreement”) implemented between a Fund and each of its respective counterparties. The ISDA Master Agreement allows each Fund to offset with each separate counterparty certain derivative financial instrument’s payables and/or receivables with collateral held. The amount of collateral moved to/from applicable counterparties is generally based upon minimum transfer amounts of up to $500,000. To the extent amounts due to the Funds from their counterparties are not fully collateralized contractually or otherwise, the Funds bear the risk of loss from counterparty non-performance. See Note 1 “Segregation and Collateralization” for information with respect to collateral practices. In addition, the Funds manage counterparty risk by entering into agreements only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties.

Certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Funds’ net assets decline by a stated percentage or the Funds fail to meet the terms of their ISDA Master Agreements, which would cause the Funds to accelerate payment of any net liability owed to the counterparty.

Financial Futures Contracts: Certain Funds purchase or sell financial futures 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 Fund and 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. Pursuant to the contract, the Funds 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 and are recorded by the Funds as unrealized appreciation or depreciation. When the contract is closed, the Funds 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 and the underlying assets.

Foreign Currency Exchange Contracts: The Funds enter into foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to foreign currencies (foreign currency exchange rate risk). A 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. 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 foreign currency exchange contracts involves the risk that the value of a foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies and the risk that a counterparty to the contract does not perform its obligations under the agreement.

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 at a price different from the current market value.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 61 

Notes to Financial Statements (continued)

Derivative Financial Instruments Categorized by Risk Exposure:

Fair Values of Derivative Financial Instruments as of September 30, 2012
	Asset Derivatives
		Global Opportunities			Health Sciences Opportunities			International Opportunities			Science & Technology Opportunities			U.S. Opportunities
	Statements of Assets and Liabilities Location							Value
Foreign currency exchange contracts	Unrealized appreciation   on foreign currency   exchange contracts		$	2,082,955		$	673,292		$	13,236,914		$	155,760		$	563,905
	Liability Derivatives
		Global Opportunities			Health Sciences Opportunities			International Opportunities			Science & Technology Opportunities			U.S. Opportunities
	Statements of Assets and Liabilities Location							Value
Foreign currency exchange contracts	Unrealized depreciation on foreign currency exchange contracts		$	2,477,504		$	8,749,630		$	19,913,578		$	370,381		$	763,682

The Effect of Derivative Financial Instruments in the Statements of Operations Year Ended September 30, 2012
	Net Realized Gain (Loss) From
	Global Opportunities	Health Sciences Opportunities				International Opportunities				Science & Technology Opportunities				U.S. Opportunities
Foreign currency exchange contracts:
Foreign currency transactions.	$(534,662)		$	16,678,422			$	8,822,720			$	1,202,142			$	26,286
Equity contracts:
Financial futures contracts	–			–				4,819,897				(307,584	)			3,640,472
Options	319,731			3,221,866				–				–				–
Total	$(214,931)		$	19,900,288			$	13,642,617			$	894,558			$	3,666,758
	Net Change in Unrealized Appreciation/Depreciation on
	Global Opportunities	Health Sciences Opportunities				International Opportunities				Science & Technology Opportunities				U.S. Opportunities
Foreign currency exchange contracts:
Foreign currency translations	$985,584		$	(13,378,416	)		$	(8,495,397	)		$	(1,036,664	)		$	(199,777	)
Equity contracts:
Financial futures contracts	–			–				1,617,815				–				10,765,517
Total	$985,584		$	(13,378,416	)		$	(6,877,582	)		$	(1,036,664	)		$	10,565,740

For the year ended September 30, 2012, the average quarterly balances of outstanding derivative financial instruments were as follows:

	Global Opportunities	Health Sciences Opportunities			International Opportunities			Science & Technology Opportunities				U.S. Opportunities
Financial futures contracts:
Average number of contracts purchased	–			–			227			63	1			304	1
Average notional value of contracts purchased	–			–		$	14,185,695		$	3,978,491	1		$	21,841,091	1
Foreign currency exchange contracts:
Average number of contracts - US dollars purchased	42			22			70			8				1
Average number of contracts - US dollars sold	35			8			50			7				1
Average US dollar amounts purchased	$58,921,597		$	190,354,828		$	514,957,626		$	9,889,662			$	4,056,361
Average US dollar amounts sold	$77,454,707		$	43,090,824		$	631,638,468		$	5,130,958			$	4,105,514
Options:
Average number of option contracts written	1			2			–			–				–
Average notional value of option contracts written .	$     672,938		$	15,247,375			–			–				–

¹ Average contract amount shown due to limited activity.

 62   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

3. Investment Advisory Agreement and Other Transactions with Affiliates:

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

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 and administration services. The Manager is responsible for the management of each Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary 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%

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 Manager in the Statements of Operations. For the year ended September 30, 2012, the amounts waived were as follows:

Global Opportunities	$	4,573
Health Sciences Opportunities	$	55,297
International Opportunities	$	42,291
Science & Technology Opportunities	$	4,235
U.S. Opportunities	$	71,098

The Manager entered into separate sub-advisory agreements with BlackRock Financial Management, Inc. (“BFM”), an affiliate of the Manager, to serve as sub-advisor for a portion of the assets of Global Opportunities and with BlackRock International Limited (“BIL”), an affiliate of the Manager, to serve as sub-advisor for International Opportunities. The Manager pays BFM and BIL, for services they provide, a monthly fee that is a percentage of the investment advisory fees paid by the applicable Fund to the Manager.

The Trust, on behalf of the Funds, entered into a Distribution Agreement and 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 Funds pay 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 shares 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.

For the year ended September 30, 2012, 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		–	$   518,027	$  61,503	$   582,905	$76,246	$	1,238,681
Health Sciences Opportunities	$	37,282	$2,309,224	$437,455	$3,544,475	$60,146	$	6,388,582
International Opportunities	$	121,939	$1,799,138	$131,777	$1,626,998	–	$	3,679,852
Science & Technology Opportunities	$	2,460	$   277,023	$  29,444	$   285,610	$20,481	$	615,018
U.S. Opportunities	$	449,385	$1,930,510	$146,208	$2,692,073	–	$	5,218,176

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 63 

Notes to Financial Statements (continued)

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 annual fee per shareholder account, which will vary depending on share class and/or net assets. For the year ended September 30, 2012, the Funds paid the following to the affiliates in return

for these services, which are included in transfer agent – class specific in the Statements of Operations:

Global Opportunities	$	34
Health Sciences Opportunities	$	218
International Opportunities	$	428,608
Science & Technology Opportunities	$	3,216
U.S. Opportunities	$	278,407

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 year ended September 30, 2012, 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	$  3,782		–	$13,434	$1,074	$  3,674		$  634	$  22,598
Health Sciences Opportunities	$17,237		$     840	$75,502	$4,102	$11,692		$1,067	$110,440
International Opportunities	$  7,945		$28,241	$22,735	$1,023	$  5,041		–	$  64,985
Science & Technology Opportunities	$  4,280		$     149	$10,672	$     24	$  2,180		$  230	$  17,535
U.S. Opportunities	$86,264		$  2,677	$28,420	$1,109	$  8,547		–	$127,017

For the year ended September 30, 2012, 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	$     93,150		–	$   376,973	$  6,768	$133,831		$30,568	$   641,290
Health Sciences Opportunities	$   562,610		$  27,513	$1,805,158	$97,347	$571,897		$41,993	$3,106,518
International Opportunities	$1,454,389		$256,536	$1,456,784	$38,698	$355,492		–	$3,561,899
Science & Technology Opportunities	$   124,752		$    1,961	$   379,329	$12,393	$137,722		$15,865	$   672,022
U.S. Opportunities	$2,526,169		$370,032	$1,639,316	$37,635	$509,510		–	$5,082,662

BNY Mellon Investment Servicing (US) Inc. (“BNYMIS”) and the Manager act as co-administrators for the Funds. For these services, the co-administrators receive a combined administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of each Fund. The combined administration fee is paid at the following annual rates: 0.075% of the first $500 million, 0.065% of the next $500 million and 0.055% of the average daily net assets in excess of $1 billion. In addition, each of the share classes is charged an administration fee based on the following percentages of average daily net assets of each respective class: 0.025% of the first $500 million, 0.015% of the next $500 million and 0.005% of the average daily net assets in excess of $1 billion. In addition, 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. For the year ended September 30, 2012, the Funds paid the following to the Manager in return for these services, which are included in administration, administration – class specific and administration fees waived – class specific in the Statements of Operations:

Global Opportunities	$	162,319
Health Sciences Opportunities	$	1,095,153
International Opportunities	$	1,092,230
Science & Technology Opportunities	$	116,402
U.S. Opportunities	$	1,606,933

For the year ended September 30, 2012, the following table shows the administration fees – class specific borne directly by each class of each Fund:

	Institutional		Service		Investor A		Investor B		Investor C		Class R		Total
Global Opportunities		$  14,755		–		$  51,803		$  1,538		$14,573		$3,811		$  86,480
Health Sciences Opportunities		$102,166		$  3,728		$188,467		$10,936		$88,612		$3,007		$396,916
International Opportunities		$176,255		$12,229		$158,147		$  3,303		$40,769		–		$390,703
Science & Technology Opportunities		$    9,258		$     246		$  27,743		$     742		$  7,151		$1,025		$  46,165
U.S. Opportunities		$237,802		$45,052		$166,225		$  3,665		$67,479		–		$520,223

 64   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

The Manager contractually agreed to waive and/or reimburse fees or expenses, excluding interest expense, dividend 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, in order to limit expenses. The expense limitations as a percentage of average daily net assets are as follows:

	Global Opportunities	Health Sciences Opportunities2,3	International Opportunities2	Science & Technology Opportunities2	U.S. Opportunities2
Institutional	1.06%1	N/A	1.49%	1.39%	1.03%
Service	1.70%2,4	N/A	1.80%	1.78%	1.65%
Investor A	1.33%1	N/A	1.98%	1.80%	1.65%
Investor B	2.18%1	N/A	2.75%	2.73%	2.32%
Investor C	2.14%1	N/A	2.75%	2.73%	2.32%
Class R	1.72%1	1.81%	2.18%4	2.57%	2.39%4

¹  The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to February 1, 2015 unless approved by the Board, including a majority of the Independent Trustees.

²  The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to February 1, 2013 unless approved by the Board, including a majority of the Independent Trustees.

³  Effective January 31, 2012.

⁴  There were no shares outstanding as of September 30, 2012.

Prior to January 31, 2012, the expense limitations as a percentage of average daily net assets of Health Sciences Opportunities were as follows.

	Health Sciences Opportunities
Institutional	1.25%
Service	1.55%
Investor A	1.55%
Investor B	2.25%
Investor C	2.25%

These amounts are included in fees waived by 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 year ended September 30, 2012, the amounts included in fees waived by Manager were as follows:

Global Opportunities	$	31,642
Science & Technology Opportunities	$	150
U.S. Opportunities	$	3,190,512

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		$  14,755		–		$51,803		$   637		$14,573		$1,494		$  83,262
Health Sciences Opportunities		–		–		–		–		–		$   658		$       658
International Opportunities		–		$7,485		–		–		–		–		$    7,485
Science & Technology Opportunities		$    8,194		$       2		$     219		–		$       57		$       7		$    8,479
U.S. Opportunities		$237,802		–		$970		$1,217		–		–		$239,989
Transfer Agent Fees Waived
	Institutional		Service		Investor A		Investor B		Investor C		Class R		Total
Global Opportunities		$  3,782		–		$13,434		$166		$3,674		$130		$21,186
Health Sciences Opportunities		–		–		–		–		–		$  85		$       85
International Opportunities		–		$25,217		–		–		–		–		$25,217
Science & Technology Opportunities		$  3,352		$         1		$        73		–		$     28		$    2		$  3,456
U.S. Opportunities		$86,264		–		–		$434		–		–		$86,698
Transfer Agent Fees Reimbursed
	Institutional		Service		Investor A		Investor B		Investor C		Class R		Total
Global Opportunities		$     84,513		–		$306,243		$135		$80,038		$19,128		$   490,057
Health Sciences Opportunities		–		–		–		–		–		$     531		$          531
International Opportunities		–		$17,477		–		–		–		–		$     17,477
Science & Technology Opportunities		$       8,868		$       14		$    1,855		–		$     315		$         9		$     11,061
U.S. Opportunities		$2,439,577		–		–		$250		–		–		$2,439,827

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.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 65 

Notes to Financial Statements (continued)

For the year ended September 30, 2012, the Manager recouped the following waivers previously recorded by the Funds:

	Institutional		Service		Investor A		Investor B		Investor C		Class R		Total
Global Opportunities		–		–		–		$406		–		$1,988	$	2,394
International Opportunities		–		$1,304		–		–		–		–	$	1,304
Science & Technology Opportunities		$969		$   152		$16,595		$    7		$2,831		$     91	$	20,645
U.S. Opportunities		–		–		$     549		$    1		–		–	$	550

On September 30, 2012, the amounts subject to possible future recoupment under the expense limitation agreement are as follows:

		Expiring September 30,
		2013		2014
Global Opportunities	$	164,479	$	626,147
Health Sciences Opportunities		–	$	1,274
International Opportunities		–	$	50,179
Science & Technology Opportunities	$	26,971	$	23,146
U.S. Opportunities	$	9,403,382	$	5,957,026

The following waivers previously recorded by the Funds, which were subject to recoupment by the Manager, expired on September 30, 2012:

Global Opportunities	$	27,177
Science & Technology Opportunities	$	48,428
U.S. Opportunities	$	5,213,829

For the year ended September 30, 2012, affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of each Fund’s Investor A Shares as follows:

Global Opportunities	$	3,422
Health Sciences Opportunities	$	106,293
International Opportunities	$	28,959
Science & Technology Opportunities	$	5,824
U.S. Opportunities	$	6,409

For the year ended September 30, 2012, affiliates received CDSCs as follows:

	Investor A	Investor B	Investor C
Global Opportunities	$28,919	$10,272	$  2,759
Health Sciences Opportunities	$15,511	$35,359	$31,588
International Opportunities	$  6,532	$13,684	$15,757
Science & Technology Opportunities	$     943	$  3,334	$  4,098
U.S. Opportunities	$  2,829	$33,093	$27,516

The Funds received an exemptive order from the SEC permitting them, among other things, to pay an affiliated securities lending agent a fee based on a share of the income derived from the securities lending activities and have retained BlackRock Investment Management, LLC (“BIM”) as the securities lending agent. BIM may, on behalf of the Funds, invest cash collateral received by a Fund for such loans, among other things, in a private investment company managed by the Manager or in registered money market funds advised by the Manager or its affiliates. As securities lending agent, BIM is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BIM does not receive any fees for managing the cash collateral. The market value of securities on loan and the value of the related collateral, if applicable, are shown in the Statements of Assets and Liabilities as securities loaned at value and collateral on securities loaned at value, respectively. The cash collateral invested by BIM is disclosed in the Schedules of Investments, if any. Securities lending income is equal to the total of income earned from

the reinvestment of cash collateral, net of rebates paid to, or fees paid by, borrowers of securities. The Funds retain 65% of securities lending income and pay a fee to BIM equal to 35% of such income. The share of income earned by the Funds is shown as securities lending – affiliated in the Statements of Operations. For the year ended September 30, 2012, BIM received $1,092,853 in securities lending agent fees related to securities lending activities for the Funds.

During the year ended September 30, 2012, Science & Technology Opportunities received reimbursements of $93 from an affiliate, which is included in capital share transactions on the Statements of Changes in Net Assets, relating to processing errors.

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.

4. Investments:

Purchases and sales of investments, excluding short-term securities, for the year ended September 30, 2012, were as follows:

		Purchases		Sales
Global Opportunities	$	411,852,709	$	486,675,054
Health Sciences Opportunities	$	2,302,310,083	$	2,276,182,018
International Opportunities	$	1,665,766,244	$	1,850,394,607
Science & Technology Opportunities .	$	569,046,447	$	591,557,322
U.S. Opportunities	$	3,038,067,573	$	4,381,240,754

Transactions in options written for the year ended September 30, 2012, were as follows:

Global Opportunities

Calls

Puts

Contracts

Premiums Received

Contracts

Premiums Received

Outstanding options, beginning of year

–

–

–

–

Options written

4,299

$214,096

4,316

$105,635

Options expired

(4,299

)

(214,096

)

(4,316

)

(105,635

)

Outstanding options, end of year

–

–

–

–

 66   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

	Health Sciences Opportunities
	Calls						Puts
	Contracts			Premiums Received			Contracts			Premiums Received
Outstanding options, beginning of year		–			–			–			–
Options written		22,225		$	2,855,957			24,029		$	2,680,660
Options expired		(10,588	)		(1,179,451	)		(24,029	)		(2,680,660	)
Options closed		(10,880	)		(1,596,653	)		–			–
Options exercised		(757	)		(79,853	)		–			–
Outstanding options, end of year		–			–			–			–

5. Income Tax Information:

US GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of September 30, 2012 attributable to foreign currency transactions, net operating losses, the characterization of expenses, the reclassification of distributions, the classification of settlement proceeds, income recognized from pass-through entities and the sale of stock of passive foreign investment companies were reclassified to the following accounts:

	Global Oppor- tunities	Health Sciences Oppor- tunities	Interna- tional Oppor- tunities	Science & Tech- nology Oppor- tunities	U.S. Oppor- tunities
Paid-in capital	–	–	–	$  (589,754)	$1,696,290
Undistri- buted (distri-butions in excess of) net invest-ment income (loss)	$(462,494)	$  17,689,900	$  10,873,548	$  1,867,901	$(961,847)
Accu-mulated net realized gain (loss)	$  462,494	$(17,689,900)	$(10,873,548)	$(1,278,147)	$(734,443)

The tax character of distributions paid during the fiscal years ended September 30, 2012 and September 30, 2011 was as follows:

	Global Opportunities		Health Sciences Opportunities		International Opportunities		U.S. Opportunities
Ordinary income
9/30/12	$	406,787	$	11,094,152	$	32,500,082	$	40,663,799
9/30/11	$	280,008	$	21,499,014	$	19,200,189	$	19,000,183
Long-term capital gain
9/30/12		–		71,008,258		–		307,782,943
9/30/11		–		32,423,914		–		38,664,237
Total
9/30/12	$	406,787	$	82,102,410	$	32,500,082	$	348,446,742
9/30/11	$	280,008	$	53,922,928	$	19,200,189	$	57,664,420

As of September 30, 2012, the tax components of accumulated net gains were as follows:

	Global Opportunities			Health Sciences Opportunities		Interna- tional Opportunities
Undistri- buted ordinary income	$	2,601,571		$	22,201,902	$	20,243,992
Undistributed long-term capital gains		–			64,398,280		–
Capital loss carry forwards		(157,871,588	)		–		(86,836,803	)
Net unrealized gains (losses)1		32,416,947			375,613,619		160,083,678
Qualified late-year losses2		(11,216,059	)		–		(100,789,162	)
Total	$	(134,069,129	)	$	462,213,801	$	(7,298,295	)

	Science & Technology Opportunities			U.S. Opportunities
Undistributed ordinary income		–		$	7,674,686
Undistributed long-term capital gains		–
Capital loss carry forwards	$	(47,466,686	)		(4,845,999	)
Net unrealized gains (losses)1		20,638,820			410,561,958
Qualified late-year losses2		(3,697,479	)		–
Total	$	(30,525,345	)	$	413,390,645

¹  The difference between book-basis and tax-basis net unrealized gains was attributable primarily to the tax deferral of losses on wash sales and straddles, the realization for tax purposes of unrealized gains/losses on certain foreign currency, options and futures contracts, the realization for tax purposes of unrealized gain on investments in passive foreign investment companies, the timing and recognition of partnership income and the difference between the book and tax treatment of certain security lending transactions.

²  The Funds have elected to defer certain qualified late-year losses and recognize such losses in the year ending September 30, 2013.

As of September 30, 2012, the Funds had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:

Expires	Global Opportunities		International Opportunities		Science & Technology Opportunities		U.S. Opportunities
2015		–		–		$42,234,550		–
2017		$  37,763,900		$10,669,404		4,448,928		–
2018		113,289,251		63,081,604		–		–
2019		3,120,805		–		783,208		–
No expiration date3		3,697,632		13,085,795		–	$	4,845,999
Total		$157,871,588		$86,836,803		$47,466,686		$4,845,999

³  Must be utilized prior to losses subject to expiration.

During the year ended September 30, 2012, Science & Technology Opportunities utilized $11,187,145 of its capital loss carryforward.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 67 

Notes to Financial Statements (continued)

As of September 30, 2012, gross unrealized appreciation and gross unrealized 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		$291,728,412		$	1,792,741,200		$	1,521,964,849		$	172,910,230		$	2,205,933,989
Gross unrealized appreciation		$  40,394,241		$	385,148,562		$	203,860,718		$	22,386,560		$	420,495,315
Gross unrealized depreciation		(8,014,866	)		(9,406,823	)		(43,422,299	)		(1,747,468	)		(9,696,700	)
Net unrealized appreciation		$  32,379,375		$	375,741,739		$	160,438,419		$	20,639,092		$	410,798,615

6. Borrowings:

The Trust, on behalf of the Funds, along with certain other funds managed by the Manager and its affiliates, is a party to a $500 million credit agreement with a group of lenders, which expires in November 2012 and was subsequently renewed until November 2013. The Funds may borrow under the credit agreement to fund shareholder redemptions. Effective November 2010 to November 2011, the credit agreement had the following terms: a commitment fee of 0.08% per annum based on the Funds’ pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month London Interbank Offered Rate (“LIBOR”) plus 1.00% per annum or (b) the Fed Funds rate plus 1.00% per annum on amounts borrowed. In addition, the Funds paid administration and arrangement fees which were allocated to the Funds based on their net assets as of October 31, 2010. The credit agreement, which expired in November 2011, was renewed until November 2012. Effective November 2011 to November 2012, the credit agreement has the following terms: a commitment fee of 0.065% per annum based on the Funds’ pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 0.80% per annum or (b) the Fed Funds rate plus 0.80% per annum on amounts borrowed. In addition, the Funds paid administration and arrangement fees which were allocated to the Funds based on their net assets as of October 31, 2011. The Funds did not borrow under the credit agreement during the year ended September 30, 2012.

7. Concentration, Market and Credit Risk:

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.

Global Opportunities and International Opportunities invests 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, including Greece, Ireland, Italy, Portugal and Spain. As of September 30, 2012, these events have adversely affected the exchange rate of the euro and may continue to spread to other countries in Europe, including countries that do not use the euro. These events may affect the value and liquidity of certain of Global Opportunities’ and International Opportunities’ investments.

As of September 30, 2012, Health Sciences Opportunities invested a significant portion of its assets in securities in the health care sector. Changes in economic conditions affecting the health care 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 September 30, 2012, Science & Technology Opportunities invested a significant portion of its assets in securities in the information technology sector. Changes in economic conditions affecting the information technology sector would have a greater impact on Science & Technology Opportunities and could affect the value, income and/or liquidity of positions in such securities.

As of September 30, 2012, U.S. Opportunities invested a significant portion of its assets in securities in the consumer discretionary sector. Changes in economic conditions affecting the consumer discretionary sector would have a greater impact on U.S. Opportunities and could affect the value, income and/or liquidity of positions in such securities.

As of September 30, 2012, Global Opportunities invested a substantial amount of its assets in issuers located in a single country or a limited number of countries. When the 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.

 68   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

As of September 30, 2012, the Funds listed below had the following industry classifications:

Industry	Global Opportunities			International Opportunities
Commercial Banks		9	%		12	%
Pharmaceuticals		7			9
Oil, Gas & Consumable Fuels		6			–
Energy Equipment & Services		6			–
Food Products		–			6
Insurance		–			6
Metals & Mining		–			6
Other1		72			61

¹  All other industries held were each less than 5% of long-term investments.

8. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

	Year Ended September 30, 2012						Year Ended September 30, 2011
Global Opportunities		Shares			Amount			Shares			Amount
Institutional
Shares issued in the reorganization1		–			–			4,690,343		$	46,049,322
Shares sold		659,854		$	6,821,248			550,794			6,086,117
Shares issued in reinvestment of dividends		10,082			100,322			11,360			128,593
Shares redeemed		(2,080,293	)		(21,759,629	)		(1,004,993	)		(11,033,445	)
Net increase (decrease)		(1,410,357	)	$	(14,838,059	)		4,247,504		$	41,230,587
Investor A
Shares issued in the reorganization1		–			–			19,605,539		$	191,318,695
Shares sold and automatic conversion of shares		1,051,328		$	10,896,990			760,598			8,385,507
Shares issued in reinvestment of dividends		24,774			245,035			10,826			122,113
Shares redeemed		(6,009,025	)		(62,842,202	)		(1,424,020	)		(15,313,906	)
Net increase (decrease)		(4,932,923	)	$	(51,700,177	)		18,952,943		$	184,512,409
Investor B
Shares issued in the reorganization1		–			–			476,778		$	4,571,444
Shares sold		4,073		$	41,775			8,464			96,689
Shares redeemed and automatic conversion of shares		(242,558	)		(2,470,508	)		(94,007	)		(1,002,860	)
Net increase (decrease)		(238,485	)	$	(2,428,733	)		391,235		$	3,665,273
Investor C
Shares issued in the reorganization1		–			–			4,865,475		$	46,465,289
Shares sold		236,712		$	2,385,713			308,404			3,430,169
Shares redeemed		(1,641,578	)		(16,620,299	)		(598,941	)		(6,374,896	)
Net increase (decrease)		(1,404,866	)	$	(14,234,586	)		4,574,938		$	43,520,562
							Period September 12, 20112 to September 30, 2011
								Shares			Amount
Class R
Shares issued in the reorganization1		–			–			1,613,792		$	15,748,035
Shares sold		397,248		$	4,083,085			36,132			355,964
Shares issued in reinvestment of dividends		497			4,914			–			–
Shares redeemed		(668,193	)		(6,964,192	)		(42,000	)		(399,037	)
Net increase (decrease)		(270,448	)	$	(2,876,193	)		1,607,924		$	15,704,962
Total Net Increase (Decrease)		(8,257,079	)	$	(86,077,748	)		29,774,544		$	288,633,793

¹  See Note 1 regarding the reorganization.

²  Commencement of operations.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 69 

Notes to Financial Statements (continued)

	Year Ended September 30, 2012						Year Ended September 30, 2011
Health Sciences Opportunities		Shares			Amount			Shares			Amount
Institutional
Shares issued in the reorganization1		–			–			2,520,951		$	72,864,825
Shares sold		4,090,410		$	127,693,569			5,310,915			165,243,096
Shares issued in reinvestment of dividends and distributions		616,409			17,222,456			342,151			9,686,180
Shares redeemed		(3,632,124	)		(111,317,797	)		(3,625,515	)		(109,106,448	)
Net increase		1,074,695		$	33,598,228			4,548,502		$	138,687,653
Service
Shares sold		181,882		$	5,430,122			282,548		$	8,479,494
Shares issued in reinvestment of distributions.		27,004			736,672			17,268			477,975
Shares redeemed		(246,784	)		(7,450,005	)		(234,131	)		(6,889,355	)
Net increase (decrease)		(37,898	)	$	(1,283,211	)		65,685		$	2,068,114
Investor A
Shares issued in the reorganization1		–			–			4,614,746		$	129,864,024
Shares sold and automatic conversion of shares		9,035,781		$	273,713,590			8,538,548			256,119,158
Shares issued in reinvestment of distributions		1,553,813			42,294,790			1,055,037			29,150,534
Shares redeemed		(9,782,340	)		(295,306,792	)		(8,979,890	)		(263,921,203	)
Net increase		807,254		$	20,701,588			5,228,441		$	151,212,513
Investor B
Shares issued in the reorganization1		–			–			264,033		$	6,971,367
Shares sold		37,810		$	1,085,412			23,409			663,728
Shares issued in reinvestment of distributions		78,735			2,017,206			62,470			1,628,570
Shares redeemed and automatic conversion of shares		(589,171	)		(16,746,030	)		(404,936	)		(11,242,595	)
Net decrease		(472,626	)	$	(13,643,412	)		(55,024	)	$	(1,978,930	)
Investor C
Shares issued in the reorganization1		–			–			1,732,603		$	45,602,289
Shares sold		1,661,256		$	47,475,233			1,964,605			55,634,617
Shares issued in reinvestment of distributions		581,778			14,834,985			398,100			10,342,259
Shares redeemed		(2,481,520	)		(70,172,461	)		(2,395,905	)		(66,305,169	)
Net increase (decrease)		(238,486	)	$	(7,862,243	)		1,699,403		$	45,273,996
							Period September 12, 20112 to September 30, 2011
							Shares			Amount
Class R
Shares issued in the reorganization1		–			–			347,818		$	9,787,987
Shares sold		268,557		$	8,196,982			11,745			335,213
Shares issued in reinvestment of distributions		19,428			527,655			–			–
Shares redeemed		(193,362	)		(5,918,516	)		(17,412	)		(498,734	)
Net increase		94,623		$	2,806,121			342,151		$	9,624,466
Total Net Increase		1,227,562		$	34,317,071			11,829,158		$	344,887,812

¹ See Note 1 regarding the reorganization.

² Commencement of operations.

 70   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

	Year Ended September 30, 2012						Year Ended September 30, 2011
International Opportunities	Shares			Amount			Shares			Amount
Institutional
Shares sold		8,183,030		$	253,867,271			16,478,827		$	566,277,414
Shares issued in reinvestment of dividends		491,173			14,312,818			214,265			7,418,383
Shares redeemed		(12,293,903	)		(373,392,042	)		(13,232,744	)		(457,095,405	)
Net increase (decrease)		(3,619,700	)	$	(105,211,953	)		3,460,348		$	116,600,392
Service
Shares sold		236,182		$	7,089,386			310,969		$	10,329,417
Shares issued in reinvestment of dividends		26,176			737,899			13,386			448,013
Shares redeemed		(507,051	)		(15,060,123	)		(802,715	)		(26,887,480	)
Net decrease		(244,693	)	$	(7,232,838	)		(478,360	)	$	(16,110,050	)
Investor A
Shares sold and automatic conversion of shares		5,470,759		$	161,089,624			9,774,128		$	314,050,543
Shares issued in reinvestment of dividends		458,334			12,782,955			211,387			7,007,357
Shares redeemed		(9,773,567	)		(287,807,724	)		(9,380,973	)		(312,127,798	)
Net increase (decrease)		(3,844,474	)	$	(113,935,145	)		604,542		$	8,930,102
Investor B
Shares sold		4,121		$	114,065			10,981		$	340,576
Shares issued in reinvestment of dividends		4,391			114,745			200			6,178
Shares redeemed and automatic conversion of shares		(255,913	)		(7,017,833	)		(254,785	)		(7,867,647	)
Net decrease		(247,401	)	$	(6,789,023	)		(243,604	)	$	(7,520,893	)
Investor C
Shares sold		520,362		$	14,183,899			1,317,687		$	40,785,132
Shares issued in reinvestment of dividends		56,675			1,467,326			15,662			481,446
Shares redeemed		(2,210,793	)		(60,108,488	)		(2,327,389	)		(71,180,146	)
Net decrease		(1,633,756	)	$	(44,457,263	)		(994,040	)	$	(29,913,568	)
Total Net Increase (Decrease)		(9,590,024	)	$	(277,626,222	)		2,348,886		$	71,985,983

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 71 

Notes to Financial Statements (continued)

	Year Ended September 30, 2012						Year Ended September 30, 2011
Science & Technology Opportunities	Shares			Amount			Shares			Amount
Institutional
Shares sold		770,288		$	7,490,369			1,206,173		$	12,255,183
Shares redeemed		(1,317,474	)		(12,874,187	)		(935,690	)		(9,390,243	)
Net increase (decrease)		(547,186	)	$	(5,383,818	)		270,483		$	2,864,940
Service
Shares sold		22,926		$	217,472			76,484		$	728,734
Shares redeemed		(27,413	)		(258,161	)		(49,792	)		(484,979	)
Net increase (decrease)		(4,487	)	$	(40,689	)		26,692		$	243,755
Investor A
Shares sold and automatic conversion of shares		1,304,226		$	12,178,654			4,564,043		$	43,817,474
Shares redeemed		(3,101,152	)		(28,528,060	)		(3,812,838	)		(36,639,657	)
Net increase (decrease)		(1,796,926	)	$	(16,349,406	)		751,205		$	7,177,817
Investor B
Shares sold		21,447		$	181,555			68,629		$	598,949
Shares redeemed and automatic conversion of shares		(132,305	)		(1,110,087	)		(203,615	)		(1,789,504	)
Net decrease		(110,858	)	$	(928,532	)		(134,986	)	$	(1,190,555	)
Investor C
Shares sold		414,850		$	3,505,554			1,125,911		$	10,129,287
Shares redeemed		(1,022,280	)		(8,536,404	)		(840,174	)		(7,390,677	)
Net increase (decrease)		(607,430	)	$	(5,030,850	)		285,737		$	2,738,610
Class R
Shares sold		206,367		$	1,973,361			252,128		$	2,505,574
Shares redeemed		(179,136	)		(1,691,981	)		(168,337	)		(1,660,869	)
Net increase		27,231		$	281,380			83,791		$	844,705
Total Net Increase (Decrease)		(3,039,656	)	$	(27,451,915	)		1,282,922		$	12,679,272

 72   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Notes to Financial Statements (concluded)

	Year Ended September 30, 2012						Year Ended September 30, 2011
U.S. Opportunities		Shares			Amount			Shares			Amount
Institutional
Shares sold		11,527,723		$	408,516,164			34,490,335		$	1,403,849,188
Shares issued in reinvestment of distributions		4,597,296			151,572,873			562,799			22,489,473
Shares redeemed		(36,842,007	)		(1,329,556,797	)		(21,778,639	)		(883,122,611	)
Net increase (decrease)		(20,716,988	)	$	(769,467,760	)		13,274,495		$	543,216,050
Service
Shares sold		77,821		$	2,634,021			746,753		$	29,457,121
Shares issued in reinvestment of distributions		633,064			19,966,853			84,568			3,249,935
Shares redeemed		(1,762,370	)		(60,181,040	)		(1,835,825	)		(71,884,470	)
Net decrease		(1,051,485	)	$	(37,580,166	)		(1,004,504	)	$	(39,177,414	)
Investor A
Shares sold and automatic conversion of shares		2,223,701		$	75,106,543			8,996,743		$	349,422,572
Shares issued in reinvestment of distributions		2,846,386			88,721,884			413,341			15,711,130
Shares redeemed		(14,966,382	)		(503,894,800	)		(14,804,518	)		(575,969,728	)
Net decrease		(9,896,295	)	$	(340,066,373	)		(5,394,434	)	$	(210,836,026	)
Investor B
Shares sold		2,090		$	64,052			19,782		$	714,834
Shares issued in reinvestment of distributions		59,433			1,669,467			6,293			218,440
Shares redeemed and automatic conversion of shares		(160,728	)		(4,877,153	)		(142,776	)		(5,054,884	)
Net decrease		(99,205	)	$	(3,143,634	)		(116,701	)	$	(4,121,610	)
Investor C
Shares sold		309,834		$	9,436,396			2,022,997		$	71,961,051
Shares issued in reinvestment of distributions		1,073,324			30,171,224			114,346			3,967,782
Shares redeemed		(3,730,187	)		(113,993,845	)		(2,912,160	)		(101,772,168	)
Net decrease		(2,347,029	)	$	(74,386,225	)		(774,817	)	$	(25,843,335	)
Total Net Increase (Decrease)		(34,111,002	)	$	(1,224,644,158	)		5,984,039		$	263,237,665

Prior to April 1, 2011, there was a 2% redemption fee on shares redeemed or exchanged that have been held 30 days or less. The redemption fees were collected and retained by the Funds for the benefit of the remaining shareholders. The redemption fees were recorded as a credit to paid-in capital. Effective April 1, 2011, the redemption fee was terminated and is no longer charged by the Funds.

9. Subsequent Events:

Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in the financial statements.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 73 

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of

BlackRock Funds:

We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of the BlackRock Global Opportunities Portfolio, BlackRock Health Sciences Opportunities Portfolio, BlackRock International Opportunities Portfolio, BlackRock Science & Technology Opportunities Portfolio and BlackRock U.S. Opportunities Portfolio (collectively, the “Funds”), each a series of BlackRock Funds, as of September 30, 2012, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are

appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2012, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds as of September 30, 2012, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Philadelphia, Pennsylvania

November 21, 2012

Important Tax Information (Unaudited)

The following information is provided with respect to the ordinary income distributions paid during the fiscal year ended September 30, 2012:

	Payable Date	Qualified Dividend Income for Individuals1			Dividends Qualifying for the Dividends Received Deduction for Corporations1			Foreign Source Income			Foreign Taxes Paid Per Share3
BlackRock Global Opportunities Portfolio	12/13/11		100.00	%		100.00	%		–			–
BlackRock Health Sciences Opportunities Portfolio	12/09/11		100.00	%		85.52	%		–			–
BlackRock International Opportunities Portfolio	12/13/11		100.00	%2		–			100.00	%2		$0.083479
BlackRock U.S. Opportunities Portfolio	12/13/11		63.60	%		63.11	%		–			–

¹  The Funds hereby designate the percentage indicated above or the maximum allowable by law.

²  Expressed as a percentage of the cash distribution grossed-up for foreign taxes.

³  The foreign taxes paid represent taxes incurred by the Fund on income received by the Fund from foreign sources. Foreign taxes paid may be included in taxable income with an offsetting deduction from gross income or may be taken as a credit for taxes paid to foreign governments. You should consult your tax advisor regarding the appropriate treatment of foreign taxes paid.

Additionally, BlackRock Health Sciences Portfolio and BlackRock U.S. Opportunities Portfolio distributed long-term capital gains of $1.255987 and $3.38977 per share to shareholders of record on December 9, 2011 and December 13, 2011, respectively.

 74   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreements

The Board of Trustees (the “Board,” and the members of which are referred to as “Board Members”) of BlackRock FundsSM (the “Trust”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Trust’s investment advisory agreement (the “Advisory Agreement”) with BlackRock Advisors, LLC (the “Manager”), the Trust’s investment advisor, on behalf of BlackRock Global Opportunities Portfolio (“Global Opportunities Portfolio”), BlackRock Health Sciences Opportunities Portfolio (“Health Sciences Opportunities Portfolio”), BlackRock International Opportunities Portfolio (“International Opportunities Portfolio”), BlackRock Science & Technology Opportunities Portfolio (“Science & Technology Opportunities Portfolio”) and BlackRock U.S. Opportunities Portfolio (“U.S. Opportunities Portfolio,” and together with Global Opportunities Portfolio, Health Sciences Opportunities Portfolio, International Opportunities Portfolio and U.S. Opportunities Portfolio, the “Funds” and each individually, a “Fund”), each a series of the Trust. The Board also considered the approval of the sub-advisory agreement between the Manager and BlackRock Financial Management, Inc. (“BFM”) with respect to Global Opportunities Portfolio and the sub-advisory agreement between the Manager and BlackRock International Limited (“BIL,” and together with BFM, the “Sub-Advisors”) with respect to International Opportunities Portfolio (each, a “Sub-Advisory Agreement” and together, the “Sub-Advisory Agreements”). The Manager and the Sub-Advisors are referred to herein as “BlackRock.” The Advisory Agreement and the Sub-Advisory Agreements are referred to herein as the “Agreements.”

Activities and Composition of the Board

The Board consists of fourteen individuals, twelve of whom are not “interested persons” of the Trust as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of each Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are each Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreements

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreements on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreements. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Funds by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by BlackRock to the Funds and their shareholders. Among the matters the Board considered, with respect to each Fund, were: (a) investment performance for one-, three-and five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against a Fund’s peers and/or benchmark, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Fund for services, such as marketing and distribution, call center and fund accounting; (c) Fund operating expenses and how BlackRock allocates expenses to the Fund; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Fund’s investment objective, policies and restrictions; (e) the Trust’s compliance with its Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) the use of brokerage commissions and execution quality of portfolio transactions; (j) BlackRock’s implementation of the Trust’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

Board Considerations in Approving the Agreements

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreements. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on Fund fees and expenses and the investment performance of each Fund as compared with a peer group of funds as determined by Lipper and, with

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 75 

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreements

(continued)

respect to Health Sciences Opportunities Portfolio and Science & Technology Opportunities Portfolio, a customized peer group selected by BlackRock (collectively, “Peers”); (b) information on the profitability of the Agreements to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of potential economies of scale; (e) a summary of aggregate amounts paid by each Fund to BlackRock; (f) sales and redemption data regarding each Fund’s shares; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board, including all the Independent Board Members, unanimously approved the continuation of (i) the Advisory Agreement between the Manager and the Trust with respect to each Fund, (ii) the Sub-Advisory Agreement between the Manager and BFM with respect to Global Opportunities Portfolio and (iii) the Sub-Advisory Agreement between the Manager and BIL with respect to International Opportunities Portfolio, each for a one-year term ending June 30, 2013. In approving the continuation of the Agreements, the Board considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of each Fund and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Funds; (d) economies of scale; (e) fall out benefits to BlackRock as a result of its relationship with the Funds; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Fund shares and securities lending, services related to the valuation and pricing of Fund portfolio holdings, direct and indirect benefits to BlackRock and its affiliates from their relationship with the Funds and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of each

Fund. Throughout the year, the Board compared each Fund performance to the performance of a comparable group of mutual funds and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by each Fund’s portfolio management team discussing Fund performance and the Fund’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and each Fund’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to each Fund’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Funds. BlackRock and its affiliates provide the Funds with certain administrative, shareholder and other services (in addition to any such services provided to the Funds by third parties) and officers and other personnel as are necessary for the operations of the Funds. In particular, BlackRock and its affiliates provide the Funds with the following administrative services, including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions necessary for the operation of the Funds, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of each Fund and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of each Fund. In preparation for the April 17, 2012 meeting, the Board worked with its independent legal counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of each Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the investment performance of each Fund as compared to funds in the Fund’s applicable Lipper category and, with respect to Health Sciences Opportunities Portfolio and Science

 76   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreements

(continued)

& Technology Opportunities Portfolio, the customized peer group selected by BlackRock. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Fund management to discuss, the performance of each Fund throughout the year.

The Board noted that, in general, International Opportunities Portfolio performed better than its Peers in that the Fund’s performance was at or above the median of its Lipper Performance Universe in each of the one-, three- and five-year periods reported.

The Board noted that, in general, Health Sciences Opportunities Portfolio performed better than its Peers in that the Fund’s performance was at or above the median of its Customized Lipper Peer Group in the three- and five-year periods reported, although performance for the one-year period reported was below the median. The Board and BlackRock reviewed and discussed the reasons for the Fund’s underperformance during the one-year period and will monitor closely the Fund’s performance in the coming year. Based on its discussions with BlackRock and the Board’s review of the Fund’s investment performance compared to its Lipper Peer Group, the methodology used by Lipper to select peer funds, and other relevant information provided by BlackRock, the Board noted that the Fund’s investment performance as compared to its Customized Lipper Peer Group provided a more meaningful comparison of the Fund’s relative performance.

The Board noted that Global Opportunities Portfolio performed below the median of its Lipper Performance Universe in the one- and three-year periods reported, but that the Fund performed at or above the median of its Lipper Performance Universe in the five-year period reported. The Board and BlackRock reviewed and discussed the reasons for the Fund’s underperformance during the one- and three-year periods compared with its Peers. The Board was informed that, among other things, the periods of underperformance can be attributed to being overweight coal and underweight oil-related stocks in the first quarter of 2011, greater economic sensitivity within industrials and materials than anticipated by the portfolio management team, and greater end-market exposure to China and other faster-growing emerging markets than the Fund’s benchmark.

The Board noted that Science & Technology Opportunities Portfolio performed below the median of its Customized Lipper Peer Group in each of the one-, three- and five-year periods reported. Based on its discussions with BlackRock and the Board’s review of the Fund’s investment performance compared to its Lipper Peer Group, the methodology used by Lipper to select peer funds, and other relevant information provided by BlackRock, the Board noted that the Fund’s investment performance as compared to its Customized Lipper Peer Group provided a more meaningful comparison of the Fund’s relative performance. The Board and BlackRock reviewed and discussed the reasons for the Fund’s underperformance during these periods compared with its Peers. The Board was informed that, among other things, the periods of underperformance can largely be attributed to being underweight technology

and overweight healthcare at a time when more cyclically-geared industries began to outperform.

The Board noted that U.S. Opportunities Portfolio performed below the median of its Lipper Performance Universe in the one- and three-year periods reported, but that the Fund performed at or above the median of its Lipper Performance Universe in the five-year period reported. The Board and BlackRock reviewed and discussed the reasons for the Fund’s underperformance during the one- and three-year periods compared with its Peers. The Board was informed that, among other things, the period of underperformance can be attributed to being overweight coal and underweight oil-related stocks in the first quarter of 2011, greater economic sensitivity within industrials and materials than anticipated by the portfolio management team, and greater end-market exposure to China and other faster-growing emerging markets than the Fund’s benchmark.

The Board and BlackRock discussed BlackRock’s strategy for improving the performance of Global Opportunities Portfolio, Science & Technology Opportunities Portfolio and U.S. Opportunities Portfolio and BlackRock’s commitment to providing the resources necessary to assist the portfolio managers of these Funds and to improve the Funds’ performance.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to Be Realized by BlackRock and its Affiliates from their Relationship with the Funds: The Board, including the Independent Board Members, reviewed each Fund’s contractual management fee rate compared with the other funds in its Lipper category. It also compared each Fund’s total expense ratio, as well as actual management fee rate, to those of other funds in its Lipper category. The Board considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided the Funds. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Funds. The Board reviewed BlackRock’s profitability with respect to the Funds and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by the Manager and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 77 

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreements

(continued)

margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management and the relative product mix.

In addition, the Board considered the cost of the services provided to the Funds by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Funds and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of each Fund. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreements and to continue to provide the high quality of services that is expected by the Board.

The Board noted that the contractual management fee ratio (a combination of the advisory fee and the administration fee, if any) of each of Global Opportunities Portfolio and Health Sciences Opportunities Portfolio was above the median contractual management fee ratio paid by the Fund’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted, however, that each Fund’s actual total expense ratio, after giving effect to any expense reimbursements or fee waivers by BlackRock, was lower than or equal to the median actual total expense ratio paid by the Fund’s Peers, after giving effect to any expense reimbursements or fee waivers.

The Board noted that International Opportunities Portfolio’s contractual management fee ratio (a combination of the advisory fee and the administration fee, if any) was above the median contractual management fee ratio paid by the Fund’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted, however, that the Fund’s actual total expense ratio, after giving effect to any expense reimbursements or fee waivers by BlackRock, was reasonable relative to the median actual total expense ratio paid by the Fund’s Peers, after giving effect to any expense reimbursements or fee waivers.

The Board noted that Science & Technology Opportunities Portfolio’s contractual management fee ratio (a combination of the advisory fee and the administration fee, if any) was above the median contractual management fee ratio paid by the Fund’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted, however, that although the Fund’s contractual management fee ratio was above the median contractual management fee ratio paid by the Fund’s Peers, the contractual management fee ratio was in the third quartile.

The Board noted that U.S. Opportunities Portfolio’s contractual management fee ratio (a combination of the advisory fee and the administration fee, if any) was above the median contractual management fee ratio

paid by the Fund’s Peers, in each case before taking into account any expense reimbursements or fee waivers.

The Board also noted that each Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that with respect to each of the Funds, BlackRock has contractually agreed to waive fees and/or reimburse expenses in order to limit, to a specified amount, the Fund’s total operating expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis, as applicable.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of each Fund increase, as well as the existence of expense caps. The Board also considered the extent to which each Fund benefits from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Fund to participate in these economies of scale, for example through the use of revised breakpoints in the advisory fee based upon the asset level of the Fund. In their consideration, the Board Members took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Funds, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Funds, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

In connection with its consideration of the Agreements, the Board also received information regarding BlackRock’s brokerage and soft dollar practices. The Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.

The Board noted the competitive nature of the open-end fund marketplace, and that shareholders are able to redeem their Fund shares if they believe that a Fund’s fees and expenses are too high or if they are dissatisfied with the performance of a Fund.

Conclusion

The Board, including all the Independent Board Members, unanimously approved (i) the continuation of the Advisory Agreement between the

 78   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreements

(concluded)

Manager and the Trust with respect to each Fund, (ii) the continuation of the Sub-Advisory Agreement between the Manager and BFM with respect to Global Opportunities Portfolio and (iii) the continuation of the Sub-Advisory Agreement between the Manager and BIL with respect to International Opportunities Fund, each for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board, including the Independent Board Members, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of each Fund and its shareholders. In arriving at its decision to approve the Agreements, the Board did not identify any single factor or group of factors as all-important or controlling,

but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Funds reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 79 

Officers and Trustees

Name, Address, and Year of Birth	Position(s) Held with Trust	Length of Time Served as a Trustee2	Principal Occupation(s) During Past 5 Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1
Ronald W. Forbes 55 East 52nd Street New York, NY 10055 1940	Co-Chairman of the Board and Trustee	Since 2007	Professor Emeritus of Finance, School of Business, State University of New York at Albany since 2000.	33 RICs consisting of 102 Portfolios	None
Rodney D. Johnson 55 East 52nd Street New York, NY 10055 1941	Co-Chairman of the Board and Trustee	Since 2007	President, Fairmount Capital Advisors, Inc. since 1987; Member of the Archdiocesan Investment Committee of the Archdiocese of Philadelphia since 2004; Director, The Committee of Seventy (civic) since 2006; Director, Fox Chase Cancer Center from 2004 to 2011.	33 RICs consisting of 102 Portfolios	None
David O. Beim 55 East 52nd Street New York, NY 10055 1940	Trustee	Since 2007	Professor of Professional Practice at the Columbia University Graduate School of Business since 1991; Trustee, Phillips Exeter Academy since 2002; Chairman, Wave Hill, Inc. (public garden and cultural center) from 1990 to 2006.	33 RICs consisting of 102 Portfolios	None
Dr. Matina S. Horner 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2004	Executive Vice President of Teachers Insurance and Annuity Association and College Retirement Equities Fund from 1989 to 2003.	33 RICs consisting of 102 Portfolios	NSTAR (electric and gas utility)
Herbert I. London 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2007	Professor Emeritus, New York University since 2005; John M. Olin Professor of Humanities, New York University from 1993 to 2005 and Professor thereof from 1980 to 2005; President Emeritus, Hudson Institute (policy research organization) since 2011, President thereof from 1997 to 2011 and Trustee since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director, InnoCentive, Inc. (strategic solutions company) since 2005; Director, Cerego, LLC (software development and design) since 2005; Director Cybersettle (dispute resolution technology) since 2009.	33 RICs consisting of 102 Portfolios	AIMS Worldwide, Inc. (marketing)
Ian A. MacKinnon 55 East 52nd Street New York, NY 10055 1948	Trustee	Since 2012	Director, Kennett Capital, Inc. (investments) since 2006; Director, Free Library of Philadelphia from 1999 to 2008.	33 RICs consisting of 102 Portfolios	None
Cynthia A. Montgomery 55 East 52nd Street New York, NY 10055 1952	Trustee	Since 2007	Professor, Harvard Business School since 1989; Director, McLean Hospital since 2005; Director, Harvard Business School Publishing from 2005 to 2010.	33 RICs consisting of 102 Portfolios	Newell Rubbermaid, Inc. (manufacturing)
Joseph P. Platt 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2007	Director, The West Penn Allegheny Health System (a not-for-profit health system) since 2008; Director, Jones and Brown (Canadian insurance broker) since 1998; General Partner, Thorn Partners, LP (private investments) since 1998; Director, WQED Multi-Media (public broadcasting not-for-profit) since 2001; Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008.	33 RICs consisting of 102 Portfolios	Greenlight Capital Re, Ltd. (reinsurance company)
Robert C. Robb, Jr. 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2007	Partner, Lewis, Eckert, Robb and Company (management and financial consulting firm) since 1981.	33 RICs consisting of 102 Portfolios	None
Toby Rosenblatt 55 East 52nd Street New York, NY 10055 1938	Trustee	Since 2005	President, Founders Investments Ltd. (private investments) since 1999; Director, Forward Management, LLC since 2007; Director, College Access Foundation of California (philanthropic foundation) since 2009; Director, A.P. Pharma, Inc. (specialty pharmaceuticals) from 1983 to 2011; Director, The James Irvine Foundation (philanthropic foundation) from 1998 to 2008.	33 RICs consisting of 102 Portfolios	None

 80   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Officers and Trustees (continued)

Name, Address, and Year of Birth	Position(s) Held with Trust	Length of Time Served as a Trustee2	Principal Occupation(s) During Past 5 Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1 (concluded)
Kenneth L. Urish 55 East 52nd Street New York, NY 10055 1951	Trustee	Since 2007	Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Chairman Elect of the Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants and Committee Member thereof since 2007; Member of External Advisory Board, The Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Institute from 2001 to 2010; President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter-Tel from 2006 to 2007.	33 RICs consisting of 102 Portfolios	None
Frederick W. Winter 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2007	Professor and Dean Emeritus of the Joseph M. Katz School of Business, University of Pittsburgh since 2005 and Dean thereof from 1997 to 2005; Director, Alkon Corporation (pneumatics) since 1992; Director, Tippman Sports (recreation) since 2005; Director, Indotronix International (IT services) from 2004 to 2008.	33 RICs consisting of 102 Portfolios	None
	1     Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved one-year extensions in terms of Trustees who turn 72 prior to December 31, 2013.
	2     Date shown is the earliest date a person has served for the Trust covered by this annual report. Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. (“BlackRock”) in September 2006, the various legacy MLIM and legacy BlackRock fund boards were realigned and consolidated into three new Fund boards in 2007. As a result, although the chart shows certain Trustees as joining the Trust’s board in 2007, each Trustee first became a member of the board of other legacy MLIM or legacy BlackRock Funds as follows: David O. Beim, 1998; Ronald W. Forbes, 1977; Dr. Matina S. Horner, 2004; Rodney D. Johnson, 1995; Herbert I. London, 1987; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Robert C. Robb, Jr., 1998; Toby Rosenblatt, 2005; Kenneth L. Urish, 1999; and Frederick W. Winter, 1999.
Independent Trustees3
Paul L. Audet 55 East 52nd Street New York, NY 10055 1953	Trustee	Since 2011	Senior Managing Director of BlackRock, and Head of U.S. Mutual Funds since 2011; Chair of the U.S. Mutual Funds Committee reporting to the Global Executive Committee since 2011; Head of BlackRock’s Real Estate business from 2008 to 2011; Member of BlackRock’s Global Operating and Corporate Risk Management Committees and of the BlackRock Alternative Investors Executive Committee and Investment Committee for the Private Equity Fund of Funds business since 2008; Head of BlackRock’s Global Cash Management business from 2005 to 2010; Acting Chief Financial Officer of BlackRock from 2007 to 2008; Chief Financial Officer of BlackRock from 1998 to 2005.	160 RICs consisting of 278 Portfolios	None
Henry Gabbay 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2007	Consultant, BlackRock from 2007 to 2008; Managing Director, BlackRock from 1989 to 2007; Chief Administrative Officer, BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of certain closed-end funds in the BlackRock fund complex from 1989 to 2006.	160 RICs consisting of 278 Portfolios	None
	3     Mr. Audet is an “interested person,” as defined in the 1940 Act, of the Trust based on his positions with BlackRock and its affiliates. Mr. Gabbay is an “interested person” of the Trust based on his former positions with BlackRock and its affiliates as well as his ownership of BlackRock and The PNC Financial Services Group, Inc. securities. Mr. Audet and Mr. Gabbay are also Directors of the BlackRock registered closed-end funds and Directors of other BlackRock registered open-end funds. Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved one-year extensions in terms of Trustees who turn 72 prior to December 31, 2013.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 81 

Officers and Trustees (continued)

Name, Address, and Year of Birth	Position(s) Held with Trust	Length of Time Served	Principal Occupation(s) During Past 5 Years
Trust Officers1
John M. Perlowski 55 East 52nd Street New York, NY 10055 1964	President and Chief Executive Officer	Since 2010	Managing Director of BlackRock since 2009; Global Head of BlackRock Fund Administration since 2009; Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from 2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family Resource Network (charitable foundation) since 2009.
Richard Hoerner, CFA 55 East 52nd Street New York, NY 10055 1958	Vice President	Since 2009	Managing Director of BlackRock since 2000; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2002; Member of the Cash Management Group Executive Committee since 2005.
Brendan Kyne 55 East 52nd Street New York, NY 10055 1977	Vice President	Since 2009	Managing Director of BlackRock since 2010; Director of BlackRock from 2008 to 2009; Head of Product Development and Management for BlackRock’s U.S. Retail Group since 2009 and Co-head thereof from 2007 to 2009; Vice President of BlackRock from 2005 to 2008.
Simon Mendelson 55 East 52nd Street New York, NY 10055 1964	Vice President	Since 2009	Managing Director of BlackRock since 2005; Co-head of the Global Cash and Securities Lending Group since 2010; Chief Operating Officer and Head of the Global Client Group for BlackRock’s Global Cash Management Business from 2007 to 2010; Head of BlackRock’s Strategy and Development Group from 2005 to 2007; Partner of McKinsey & Co. from 1997 to 2005.
Christopher Stavrakos, CFA 55 East 52nd Street New York, NY 10055 1959	Vice President	Since 2009	Managing Director of BlackRock since 2006; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2006; Senior Vice President, CIO, and Director of Liability Management for the Securities Lending Group at Mellon Bank from 1999 to 2006.
Neal Andrews 55 East 52nd Street New York, NY 10055 1966	Chief Financial Officer	Since 2007	Managing Director of BlackRock since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006.
Jay Fife 55 East 52nd Street New York, NY 10055 1970	Treasurer	Since 2007	Managing Director of BlackRock since 2007; Director of BlackRock in 2006; Assistant Treasurer of the MLIM and Fund Asset Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.
Brian Kindelan 55 East 52nd Street New York, NY 10055 1959	Chief Compliance Officer and Anti-Money Laundering Officer	Since 2007	Chief Compliance Officer of the BlackRock-advised funds since 2007; Managing Director and Senior Counsel of BlackRock since 2005.
Benjamin Archibald 55 East 52nd Street New York, NY 10055 1975	Secretary	Since 2012	Director of BlackRock since 2010; Assistant Secretary to the funds from 2010 to 2012; General Counsel and Chief Operating Officer of Uhuru Capital Management from 2009 to 2010; Executive Director and Counsel of Goldman Sachs Asset Management from 2005 to 2009.
	1   Officers of the Trust serve at the pleasure of the Board of Trustees.
	Further information about the Trust’s Officers and Trustees is available in the Trust’s Statement of Additional Information, which can be obtained without charge by calling 1-800-441-7762.

Effective May 15, 2012, Ian A. MacKinnon became a Trustee of the Trust.

  Effective May 16, 2012, Ira P. Shapiro resigned as Secretary of the Trust and Benjamin Archibald became Secretary of the Trust.  

 82   BLACKROCK FUNDS   SEPTEMBER 30, 2012

Officers and Trustees (concluded)

Investment Advisor and Co-Administrator BlackRock Advisors, LLC Wilmington, DE 19809	Sub-Advisor - Global Opportunities Portfolio BlackRock Financial Management, Inc. New York, NY 10055	Sub-Advisor - International Opportunities Portfolio BlackRock International Limited Edinburgh, Scotland EH3 8JB	Address of the Trust 100 Bellevue Parkway Wilmington, DE 19809
Accounting Agent, Co-Administrator and Transfer Agent BNY Mellon Investment Servicing (US) Inc. Wilmington, DE 19809	Independent Registered Public Accounting Firm Deloitte & Touche LLP Philadelphia, PA 19103	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

Additional Information

  General Information

Electronic Delivery

Electronic copies of most financial reports and prospectuses are available on the Funds’ website or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Funds’ electronic delivery program.

To enroll:

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 http://www.blackrock.com/ edelivery

2) Select “eDelivery” under the “More Information” section

3) Log into your account

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 (1) without charge, upon request, 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 FUNDS   SEPTEMBER 30, 2012 83 

Additional Information (concluded)

  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 Plan

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 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.

 84   BLACKROCK FUNDS   SEPTEMBER 30, 2012

A World-Class 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.

Equity Funds
BlackRock ACWI ex-US Index Fund	BlackRock Global Dividend Income Portfolio	BlackRock Mid-Cap Growth Equity Portfolio
BlackRock All-Cap Energy & Resources Portfolio	BlackRock Global Opportunities Portfolio	BlackRock Mid Cap Value Opportunities Fund
BlackRock Balanced Capital Fund†	BlackRock Global SmallCap Fund	BlackRock Natural Resources Trust
BlackRock Basic Value Fund	BlackRock Health Sciences Opportunities Portfolio	BlackRock Pacific Fund
BlackRock Capital Appreciation Fund	BlackRock Index Equity Portfolio	BlackRock Real Estate Securities Fund
BlackRock China Fund	BlackRock India Fund	BlackRock Russell 1000 Index Fund
BlackRock Commodity Strategies Fund	BlackRock International Fund	BlackRock Science & Technology
BlackRock Emerging Markets Fund	BlackRock International Index Fund	Opportunities Portfolio
BlackRock Emerging Markets Long/Short	BlackRock International Opportunities Portfolio	BlackRock Small Cap Growth Equity Portfolio
Equity Fund	BlackRock Large Cap Core Fund	BlackRock Small Cap Growth Fund II
BlackRock Energy & Resources Portfolio	BlackRock Large Cap Core Plus Fund	BlackRock Small Cap Index Fund
BlackRock Equity Dividend Fund	BlackRock Large Cap Growth Fund	BlackRock S&P 500 Index Fund
BlackRock EuroFund	BlackRock Large Cap Value Fund	BlackRock S&P 500 Stock Fund
BlackRock Flexible Equity Fund	BlackRock Latin America Fund	BlackRock U.S. Opportunities Portfolio
BlackRock Focus Growth Fund	BlackRock Long-Horizon Equity Fund	BlackRock Value Opportunities Fund
BlackRock Global Allocation Fund†	BlackRock Managed Volatility Portfolio†	BlackRock World Gold Fund
Taxable Fixed Income Funds
BlackRock Bond Index Fund	BlackRock High Yield Bond Portfolio	BlackRock Strategic Income
BlackRock Core Bond Portfolio	BlackRock Inflation Protected Bond Portfolio	Opportunities Portfolio
BlackRock CoreAlpha Bond Fund	BlackRock International Bond Portfolio	BlackRock Total Return Fund
BlackRock Emerging Market Local Debt Portfolio	BlackRock Long Duration Bond Portfolio	BlackRock US Government Bond Portfolio
BlackRock Floating Rate Income Portfolio	BlackRock Low Duration Bond Portfolio	BlackRock US Mortgage Portfolio
BlackRock Global Long/Short Credit Fund	BlackRock Multi-Asset Income Portfolio†	BlackRock World Income Fund
BlackRock GNMA Portfolio	BlackRock Secured Credit Portfolio
Municipal Fixed Income Funds
BlackRock California Municipal Bond Fund	BlackRock National Municipal Fund	BlackRock Pennsylvania Municipal Bond Fund
BlackRock High Yield Municipal Fund	BlackRock New Jersey Municipal Bond Fund	BlackRock Short-Term Municipal Fund
BlackRock Intermediate Municipal Fund	BlackRock New York Municipal Bond Fund

    Target Risk & Target Date Funds†

BlackRock Prepared Portfolios	LifePath Active Portfolios		LifePath Portfolios		LifePath Index Portfolios
Conservative Prepared Portfolio	2015	2035	Retirement	2040	Retirement	2040
Moderate Prepared Portfolio	2020	2040	2020	2045	2020	2045
Growth Prepared Portfolio	2025	2045	2025	2050	2025	2050
Aggressive Growth Prepared Portfolio	2030	2050	2030	2055	2030	2055
			2035		2035

† Mixed asset fund.

BlackRock mutual funds are currently distributed by BlackRock Investments, LLC. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling (800) 441-7762 or from your financial advisor. The prospectus should be read carefully before investing.

  BLACKROCK FUNDS   SEPTEMBER 30, 2012 85 

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This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of a Fund unless accompanied or preceded by that 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.

Investment in foreign securities involves special risks including fluctuating foreign exchange rates, foreign government regulations, differing degrees of liquidity and the possibility of substantial volatility due to adverse political, economic or other developments.

Eq-Opps-9/12-AR

September 30, 2012

          Annual Report

BlackRock Managed Volatility Portfolio | of BlackRock Funds^SM

        Not FDIC Insured   §  No Bank Guarantee  §  May Lose Value         

Table of Contents

	Page
Dear Shareholder		3
Annual Report:
Fund Summary		4
About Fund Performance		6
Disclosure of Expenses		6
The Benefits and Risks of Leveraging		7
Derivative Financial Instruments		7
Financial Statements:
Schedule of Investments		8
Statement of Assets and Liabilities		29
Statement of Operations		30
Statements of Changes in Net Assets		31
Financial Highlights		32
Notes to Financial Statements		35
Report of Independent Registered Public Accounting Firm		48
Important Tax Information		48
Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement		49
Officers and Trustees		53
Additional Information		56
A World-Class Mutual Fund Family		58

 2   BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012

Dear Shareholder

Late in the summer of 2011, financial markets were upended by sovereign debt turmoil in the United States and Europe as well as growing concerns about the future of the global economy. Investor confidence had crumbled. However, the fourth quarter of 2011 brought improving economic data and more concerted efforts among European leaders toward stemming the region’s debt crisis, gradually drawing investors back to the markets. Improving sentiment carried over into early 2012 as investors felt some relief from the world’s financial woes. Volatility abated and risk assets (including stocks, commodities and high yield bonds) moved boldly higher through the first two months of 2012, while climbing Treasury yields pressured higher-quality fixed income assets.

Markets reversed course in the spring when Europe’s debt problems boiled over once again. High levels of volatility returned as political instability in Greece threatened the country’s membership in the eurozone. Spain faced severe deficit issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian government debt rose to levels deemed unsustainable. European leaders conferred and debated vehemently over the need for fiscal integration among the 17 nations comprising the euro currency bloc as a means to resolve the crisis for the long term.

Alongside the drama in Europe, investors were discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key powerhouse for global growth, became particularly worrisome. In the United States, disappointing jobs reports dealt a crushing blow to investor sentiment. Risk assets sold off in the second quarter as investors again retreated to safe haven assets.

Despite ongoing concerns about the health of the global economy and the debt crisis in Europe, most asset classes enjoyed a robust summer rally powered mainly by expectations for policy stimulus from central banks in Europe and the United States. Although global economic data continued to be mixed, the spate of downside surprises seen in the second quarter had receded and, outside of Europe, the risk of recession largely subsided. Additionally, in response to growing debt pressures, the European Central Bank allayed investors’ fears by stating its conviction to hold the eurozone together. Early in September, the European Central Bank announced a plan to purchase sovereign debt in the eurozone’s most troubled nations. Later that month, the US Federal Reserve announced its long-awaited - and surprisingly aggressive – stimulus program, committing to purchase $40 billion of agency mortgage-backed securities per month until the US economy exhibits enough strength to sustain real growth and improving labor market conditions. These central bank actions boosted risk assets globally as investors increased their risk appetites in their search for higher returns.

All asset classes performed well for the 12-month period ended September 30, 2012, with particularly strong returns from US stocks and high yield bonds. For the six-month period ended September 30, 2012, fixed income investments outperformed equities. US Treasury bonds posted exceptional gains by historical standards and outperformed investment-grade corporate bonds and tax-exempt municipals. High yield bonds also generated solid returns. US stocks finished the six-month period with modest gains, while international and emerging market stocks lagged other asset classes amid ongoing uncertainty. Near-zero short term interest rates continued to keep yields on money market securities near their all-time lows.

The financial world is more uncertain than ever, but there are new avenues of opportunity – new ways to invest and new markets in which to invest. We believe it’s our responsibility to help investors adapt to today’s new world of investing and build the portfolios these times require. We encourage you to visit www.blackrock.com/newworld for more information.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“The financial world is more uncertain than ever, but there are new avenues of opportunity.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of September 30, 2012

	6-month			12-month
US large cap equities (S&P 500® Index)		3.43	%		30.20	%
US small cap equities (Russell 2000® Index)		1.60			31.91
International equities (MSCI Europe, Australasia, Far East Index)		(0.70	)		13.75
Emerging market equities (MSCI Emerging Markets Index)		(1.84	)		16.93
3-month Treasury bill (BofA Merrill Lynch 3-Month US Treasury Bill Index)		0.06			0.07
US Treasury securities (BofA Merrill Lynch 10- Year US Treasury Index)		6.78			5.66
US investment grade bonds (Barclays US Aggregate Bond Index)		3.68			5.16
Tax-exempt municipal bonds (S&P Municipal Bond Index)		4.50			8.84
US high yield bonds (Barclays US Corporate High Yield 2% Issuer Capped Index)		6.40			19.35

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 September 30, 2012

Investment Objective

BlackRock Managed Volatility Portfolio’s (the “Fund”) investment objective is to seek total return.

On May 15, 2012, the Fund changed its investment objective from “to seek to maximize total return, consistent with income generation and prudent investment management” to “to seek total return,” and changed the name of the Fund from “BlackRock Asset Allocation Portfolio” to “BlackRock Managed Volatility Portfolio.”

Portfolio Management Commentary

How did the Fund perform?

Ÿ Effective October 1, 2011, the Fund changed the equity component of its reference benchmark against which the Fund measures its performance from the S&P 500^® Index to the MSCI All Country World Index (“ACWI”) to better reflect the Fund’s increased exposure to non-US equities. Effective May 15, 2012, the Fund changed one of the components making up the customized weighted index from the Barclays US Aggregate Bond Index to the Citigroup WGBI (hedged into USD). Fund management believes that the Citigroup WGBI (hedged into USD) better reflects the Fund’s increasing global exposure.

Ÿ For the 12-month period ended September 30, 2012 the Fund generated a positive double-digit return, but underperformed its reference benchmark (60% MSCI ACWI/40% Citigroup WGBI (hedged into USD)) and both former reference benchmarks (60% MSCI ACWI/40% Barclays US Aggregate Bond Index) and (60% S&P 500^® Index/40% Barclays US Aggregate Bond Index). Individually, the Fund underperformed the MSCI ACWI and the S&P 500^® Index, but outperformed both the Citigroup WGBI (hedged into USD) and the Barclays US Aggregate Bond Index. The following discussion of relative performance pertains to the Fund’s current reference benchmark.

What factors influenced performance?

Ÿ A majority of the underperformance for the period is attributable to the Fund’s allocation to cash and cash equivalents. Given the uncertain economic environment, particularly the prominence of risks stemming from the unfolding eurozone debt crisis as well as diminished prospects for global growth and the impending “fiscal cliff” (i.e., the expiration of Bush-era tax cuts coupled with automatic spending cuts at the turn of the year), the Fund maintained an allocation to cash as a volatility management tool. From a broad asset allocation perspective, the Fund’s underweight to equities detracted from performance.

Ÿ Within the Fund’s fixed income segment, an overweight to credit sectors had a positive impact as global credit outperformed global sovereigns during the period. Exposure to high yield securities, which are not represented in the reference benchmark, was a notable contributor to performance of the Fund. The asset class has seen steady inflows as it provides an attractive risk-adjusted yield relative to other fixed income sectors. In the first part of the period, exposure to securitized assets, including an overweight in commercial mortgage-backed securities (“CMBS”) and an allocation to non-agency residential mortgage-backed securities, had a positive impact. Within CMBS, a preference for recently issued higher-quality multi-family securities proved beneficial as underlying fundamentals continued to improve in a strong rental market.

Ÿ Positive returns in the Fund’s equity segment came from overweight exposures to German and Italian stocks while these markets outperformed the MSCI ACWI. In US stocks, the Fund’s positioning in health care and information technology (“IT”) added to performance, while holdings in industrials detracted.

Describe recent portfolio activity.

Ÿ As discussed above, the Fund changed its name, strategy and benchmark during the reporting period. As part of this change, the Fund rotated its fixed income exposures from a fundamental US-only approach to a model-based approach with a global benchmark. In equities, the Fund reduced exposure to actively managed US large cap growth and mid-cap equity investments in order to increase the flexibility of the Fund to implement tactical asset allocation views via exchange- traded funds.

Ÿ The Fund also made a number of tactical allocation changes during the 12-month period. At the beginning of the period, the Fund increased its allocation to emerging market equities while maintaining its regional tilt to German stocks over broader European equities. However, in the first quarter of 2012, the Fund moved to an underweight in emerging markets as valuations on the asset class began to look rich. In the second quarter, the Fund added a number of regional and sector exposures. Most notably, the Fund moved to an overweight in Italian equities in May and exited the position in September. Within US equities, the Fund rotated into health care, industrials and information technology and out of energy.

Ÿ The Fund maintained an allocation to cash and cash equivalents throughout the 12-month period for defensive purposes. While having a negative impact on relative performance, holding cash enhanced the ability of the Fund to control risk during a period of heightened market volatility.

Describe portfolio positioning at period end.

Ÿ Relative to the reference benchmark, the Fund ended the period underweight in equities with a neutral weight in fixed income. The Fund also continued to hold a small allocation to cash and cash equivalents. In equities, the Fund remained underweight to Europe overall and continued to maintain defensive positioning in the region by investing in markets that are more likely to be resilient in the aftermath of the eurozone debt crisis, including Germany. Within fixed income, the Fund was underweight in core fixed income due to its out-of-benchmark allocation to high yield bonds and corporate credit.

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
Vanguard MSCI Emerging Markets ETF	8%
Government of Japan	8
iShares iBoxx $ High Yield Corporate Bond Fund	5
Health Care Select Sector SPDR Fund	4
Industrial Select Sector SPDR Fund	4
Financial Select Sector SPDR Fund	4
Technology Select Sector SPDR Fund	3
U.S. Treasury Notes	3
Fannie Mae	3
Freddie Mac	2

Portfolio Composition	Percent of Long-Term Investments
Common Stocks	29%
Investment Companies	28
Foreign Government Obligations	17
Corporate Bonds	11
U.S. Government Sponsored Agency Securities	6
U.S. Treasury Obligations	4
Foreign Agency Obligations	3
Non-Agency Mortgage-Backed Securities	1
Asset-Backed Securities	1

 4   BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012

Total Return Based on a $10,000 Investment

¹  Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory fees. 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, to a lesser extent, money market instruments. ³   This is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and emerging markets. ⁴   This unmanaged market- weighted index is comprised of investment grade corporate bonds (rated BBB or better), mortgages and US

Treasury and government agency issues with at least one year to maturity.

⁵  This unmanaged index covers 500 industrial, utility, transportation and financial companies of the US markets (mostly New York Stock Exchange (“NYSE”) issues) representing about 75% of NYSE market capitalization and 30% of NYSE issues.

⁶  A market capitalization weighted bond index consisting of government bond markets of 23 countries including the United States.

⁷  This customized weighted index is comprised of the returns of the MSCI All Country World Index (60%) and Barclays US Aggregate Bond Index (40%).

⁸  This customized weighted index is comprised of the returns of the S&P 500^® Index (60%) and Barclays US Aggregate Bond Index (40%).

⁹  This customized weighted index is comprised of the returns of the MSCI All Country World Index (60%) and Citigroup WGBI (hedged into USD) (40%). The fund now uses this index as its benchmark rather than the 60% MSCI All Country World Index/40% Barclays US Aggregate Bond Index because Fund management believes it is more representative of the industry standard benchmark for funds with similar strategies.

Performance Summary for the Period Ended September 30, 2012

		Average Annual Total Returns10
		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	0.43%	13.89%	N/A	2.30%	N/A	7.68%	N/A
Service	0.22	13.53	N/A	2.02	N/A	7.40	N/A
Investor A	0.22	13.51	7.59%	1.96	0.87%	7.31	6.74%
Investor B	(0.18)	12.60	8.10	1.12	0.78	6.66	6.66
Investor C	(0.09)	12.75	11.75	1.25	1.25	6.55	6.55
60% MSCI All Country World Index/40% Citigroup WGBI (hedged into USD)	1.93	14.48	N/A	1.35	N/A	7.36	N/A
Citigroup WGBI (hedged into USD)	3.03	4.32	N/A	4.99	N/A	4.45	N/A
MSCI All Country World Index	0.89	20.98	N/A	(2.07)	N/A	8.61	N/A
Barclays US Aggregate Bond Index	3.68	5.16	N/A	6.53	N/A	5.32	N/A
S&P 500® Index	3.43	30.20	N/A	1.05	N/A	8.01	N/A
60% MSCI All Country World Index/40% Barclays US Aggregate Bond Index.	2.18	14.81	N/A	1.87	N/A	7.68	N/A
60% S&P 500® Index/40% Barclays US Aggregate Bond Index	3.63	19.87	N/A	3.67	N/A	7.25	N/A

¹⁰  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			Hypothetical12
	Beginning Account Value April 1, 2012	Ending Account Value September 30, 2012	Expenses Paid During the Period11	Beginning Account Value April 1, 2012	Ending Account Value September 30, 2012	Expenses Paid During the Period11	Annualized Expense Ratio
Institutional	$1,000.00	$1,004.30	$  4.46	$1,000.00	$1,020.55	$  4.50	0.89%
Service	$1,000.00	$1,002.20	$  5.86	$1,000.00	$1,019.15	$  5.91	1.17%
Investor A	$1,000.00	$1,002.20	$  5.91	$1,000.00	$1,019.10	$  5.96	1.18%
Investor B	$1,000.00	$   998.20	$10.09	$1,000.00	$1,014.90	$10.18	2.02%
Investor C	$1,000.00	$   999.10	$  9.40	$1,000.00	$1,015.60	$  9.47	1.88%

¹¹  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 183/366 (to reflect the one-half year period shown).

¹²  Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.

See “Disclosure of Expenses” on page 6 for further information on how expenses were calculated.

  BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012 5 

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 eligible investors.

— Service Shares are not subject to any sales charge (front-end load) or deferred sales charge. These shares are subject to a service fee of 0.25% per year (but no distribution fee). Prior to January 28, 2005, Service Shares performance results are those of Institutional Shares (which have no distribution or service fees) restated to reflect Service Share fees.

— 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).

— Investor B Shares are subject to a maximum contingent deferred sales charge (“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, dividend reinvestment by existing shareholders or for purchase by certain qualified employee benefit 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.

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 page assume reinvestment of all dividends and 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.

Performance for the Fund for periods prior to January 28, 2005 is based on performance of a certain former State Street Research mutual fund that reorganized with the Fund on that date.

BlackRock Advisors, LLC (the “Manager”), the Fund’s investment advisor, waived and/or reimbursed 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 waive or reimburse or to continue waiving or reimbursing its fees after the applicable termination date. See Note 3 of the Notes to Financial Statements for additional information on waivers and reimbursements. Dividends 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.

Disclosure of Expenses

Shareholders of the Fund may incur the following charges: (a) expenses related to transactions, including sales charges and exchange fees; and (b) operating expenses, including advisory 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 April 1, 2012 and held through September 30, 2012) 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 other funds’ shareholder reports.

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 or exchange fees, 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   SEPTEMBER 30, 2012

The Benefits and Risks of Leveraging

The Fund may utilize leverage to seek to enhance its yield and NAV. However, these objectives cannot be achieved in all interest rate environments.

The Fund may utilize leverage by borrowing through entering into reverse repurchase agreements and treasury roll transactions. In general, the concept of leveraging is based on the premise that the financing cost of assets to be obtained from leverage, which will be based on short-term interest rates, will normally be lower than the income earned by the Fund on its longer-term portfolio investments. To the extent that the total assets of the Fund (including the assets obtained through leverage) are invested in higher-yielding portfolio investments, the Fund’s shareholders will benefit from the incremental net income.

The interest earned on securities purchased with the proceeds from leverage is paid to shareholders in the form of dividends, and the value of these portfolio holdings is reflected in the per share NAV. However, in order to benefit shareholders, the yield curve must be positively sloped; that is, short-term interest rates must be lower than long-term interest rates. If the yield curve becomes negatively sloped, meaning short-term interest rates exceed long-term interest rates, income to shareholders will be lower than if the Fund had not used leverage.

If short-term interest rates rise, narrowing the differential between short-term and long-term interest rates, the incremental net income pickup will be reduced or eliminated completely. Furthermore, if prevailing short-term interest rates rise above long-term interest rates, the yield curve has a negative slope. In this case, the Fund pays higher short-term interest rates whereas the Fund’s total portfolio earns income based on lower long-term interest rates.

Furthermore, the value of the Fund’s portfolio investments generally varies inversely with the direction of long-term interest rates, although other factors can influence the value of portfolio investments. As a result, changes in interest rates can influence the Fund’s NAVs positively or negatively in addition to the impact on the Fund performance from leverage and borrowings discussed above.

The use of leverage may enhance opportunities for increased income to the Fund, but as described above, it also creates risks as short- or long-term interest rates fluctuate. Leverage also will generally cause greater changes in the Fund’s NAVs and dividend rates than comparable portfolios without leverage. If the income derived from securities purchased with assets received from leverage exceeds the cost of leverage, the Fund’s net income will be greater than if leverage had not been used. Conversely, if the income from the securities purchased is not sufficient to cover the cost of leverage, the Fund’s net income will be less than if leverage had not been used, and therefore the amount available for distribution to shareholders will be reduced. The Fund may be required to sell portfolio securities at inopportune times or at distressed values in order to comply with regulatory requirements applicable to the use of leverage or as required by the terms of leverage instruments, which may cause the Fund to incur losses. The use of leverage may limit the Fund’s ability to invest in certain types of securities or use certain types of hedging strategies. The Fund will incur expenses in connection with the use of leverage, all of which are borne by Fund shareholders and may reduce income.

Derivative Financial Instruments

The Fund may invest in various derivative financial instruments, including financial futures contracts, foreign currency exchange contracts, options and swaps, as specified in Note 2 of the Notes to Financial Statements, which may constitute forms of economic leverage. Such 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 hedge market, equity, credit, interest rate, foreign currency exchange rate and/or other risks. Derivative financial instruments 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 require the Fund to sell or purchase portfolio investments at inopportune times or for distressed values, may limit the amount of appreciation the Fund can realize on an investment, may result in lower dividends paid to shareholders or may cause the Fund to hold an investment that it might otherwise sell. The Fund’s investments in these instruments are discussed in detail in the Notes to Financial Statements.

  BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012 7 

  Schedule of Investments September 30, 2012   (Percentages shown are based on Net Assets)

Asset-Backed Securities	Par (000)		Value
Amortizing Residential Collateral Trust, Series 2002-BC5, Class M2, 2.02%, 7/25/32 (a)	USD	11	$	4,853
Conseco Financial Corp., Series 1996-7, Class A6, 7.65%, 10/15/27 (a)		3		3,478
FCT GINKGO Sales Finance, Series 2012-1, Class A, 1.57%, 7/18/38 (a)	EUR	1,563		2,023,133
Home Equity Asset Trust, Series 2007-2, Class 2A1, 0.33%, 7/25/37 (a)	USD	31		30,154
Santander Drive Auto Receivables Trust:
Series 2010-B, Class B, 2.10%, 9/15/14 (b)		385		386,387
Series 2011-S1A, Class B, 1.48%, 5/15/17 (b)		143		142,931
Series 2011-S1A, Class D, 3.10%, 5/15/17 (b)		154		154,537
Total Asset-Backed Securities – 0.5%				2,745,473
Collateralized Debt Obligations – 0.0%
Knollwood Ltd., Series 2004-1A, Class C, 3.66%, 1/10/39 (a)(b)		126		–
Common Stocks	Shares
Aerospace & Defense – 0.9%
The Boeing Co.		36,200		2,520,244
Precision Castparts Corp.		4,100		669,694
TransDigm Group, Inc. (c)		7,810		1,108,005
United Technologies Corp.		10,200		798,558
				5,096,501
Air Freight & Logistics – 0.1%
United Parcel Service, Inc., Class B		5,800		415,106
Auto Components – 0.0%
Allison Transmission Holdings, Inc. (d)		11,200		225,344

Common Stocks	Shares		Value
Automobiles – 0.3%
Nissan Motor Co. Ltd.		169,000	$	1,438,308
Tesla Motors, Inc. (c)(d)		14,100		412,848
				1,851,156
Beverages – 0.8%
Anheuser-Busch InBev NV		15,871		1,357,743
The Coca-Cola Co.		47,996		1,820,488
PepsiCo, Inc.		15,500		1,096,935
				4,275,166
Biotechnology – 0.6%
Alexion Pharmaceuticals, Inc. (c)		6,300		720,720
ARIAD Pharmaceuticals, Inc. (c)		13,000		314,925
Biogen Idec, Inc. (c)		5,800		865,534
Gilead Sciences, Inc. (c)		21,900		1,452,627
Regeneron Pharmaceuticals, Inc. (c)		1,465		223,647
				3,577,453
Building Products – 0.1%
Assa Abloy AB, Class B		14,381		466,975
Masco Corp.		16,153		243,103
				710,078
Capital Markets – 0.5%
Ares Capital Corp.		30,939		530,294
Eaton Vance Corp.		3,428		99,275
Federated Investors, Inc., Class B		21,324		441,194
The Goldman Sachs Group, Inc.		6,600		750,288
Jefferies Group, Inc.		27,800		380,582
Waddell & Reed Financial, Inc., Class A		16,609		544,277
				2,745,910
Chemicals – 1.1%
Celanese Corp.		11,500		435,965
E.I. du Pont de Nemours & Co.		13,261		666,631
LG Chem Ltd.		3,495		1,033,161
Linde AG		10,954		1,888,029
Monsanto Co.		20,125		1,831,777
				5,855,563

  Portfolio Abbreviations

To simplify the listings of portfolio holdings in the Schedule of Investments, the names and descriptions of many of the securities have been abbreviated according to the following list:

ADR	American Depositary Receipts	KRW	South Korean Won
AONIA	Australian OverNight Index Average	LIBOR	London Interbank Offered Rate
AUD	Australian Dollar	MXN	Mexican Peso
BRL	Brazilian Real	MYR	Malaysian Ringgit
CAD	Canadian Dollar	NOK	Norwegian Krone
CHF	Swiss Franc	NZD	New Zealand Dollar
CLP	Chilean Peso	PHP	Philippine Peso
COP	Colombian Peso	PLN	Polish Zloty
CZK	Czech Koruna	RON	Romanian Leu
DKK	Danish Krone	RUB	Russian Ruble
EONIA	Euro OverNight Index Average	SEK	Swedish Krona
ETF	Exchange Traded Fund	SGD	Singapore Dollar
EUR	Euro	SONIA	Sterling OverNight Interbank
EURIBOR	Euro Interbank Offered Rate		Average
FEDL01	US OverNight Federal Funds Effective Rate	SPDR	Standard & Poor’s Depositary Receipts
GBP	British Pound
HKD	Hong Kong Dollar	STIBOR	Stockholm Interbank Offered Rate
HUF	Hungarian Forint	TBA	To-Be-Announced
IDR	Indonesian Rupiah	THB	Thai Baht
ILS	Israeli Shekel	TRY	Turkish Lira
INR	Indian Rupee	TWD	Taiwan Dollar
JPY	Japanese Yen	USD	US Dollar
		ZAR	South African Rand

See Notes to Financial Statements.
8	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012

  Schedule of Investments (continued)   (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Commercial Banks – 1.1%
Bank Rakyat Indonesia Persero Tbk PT		1,348,000	$	1,044,793
BNP Paribas SA		10,446		495,256
HSBC Holdings Plc		126,276		1,173,077
ICICI Bank Ltd. - ADR		20,226		811,872
Itau Unibanco Holding SA, Preference		35,937		544,218
Komercni Banka AS		3,136		622,511
Sberbank of Russia - ADR		53,314		621,108
Wells Fargo & Co.		27,600		953,028
				6,265,863
Commercial Services & Supplies – 0.1%
Pitney Bowes, Inc.		22,468		310,508
Communications Equipment – 0.6%
F5 Networks, Inc. (c)(d)		6,300		659,610
QUALCOMM, Inc.		43,600		2,724,564
				3,384,174
Computers & Peripherals – 1.6%
Apple, Inc.		9,827		6,557,164
Diebold, Inc.		15,576		525,067
EMC Corp. (c)		43,800		1,194,426
Fusion-io, Inc. (c)		11,446		346,471
				8,623,128
Containers & Packaging – 0.1%
Sonoco Products Co.		9,265		287,122
Distributors – 0.1%
Genuine Parts Co.		11,205		683,841
Diversified Consumer Services – 0.1%
H&R Block, Inc.		40,887		708,572
Diversified Financial Services – 0.1%
ING Groep NV (c)		50,407		399,234
Diversified Telecommunication Services – 0.5%
CenturyLink, Inc.		12,869		519,908
Frontier Communications Corp. (d)		58,731		287,782
Level 3 Communications, Inc. (c)		13,000		298,610
Verizon Communications, Inc.		27,598		1,257,641
Windstream Corp.		40,560		410,062
				2,774,003
Electric Utilities – 0.3%
Duke Energy Corp.		10,688		692,582
FirstEnergy Corp.		2,235		98,563
Hawaiian Electric Industries, Inc.		9,795		257,707
Pepco Holdings, Inc.		17,796		336,344
				1,385,196
Electrical Equipment – 0.1%
Emerson Electric Co.		2,278		109,959
Roper Industries, Inc.		4,400		483,516
				593,475
Electronic Equipment, Instruments & Components – 0.0%
Molex, Inc.		378		9,934
Energy Equipment & Services – 0.4%
Halliburton Co.		8,773		295,562
National Oilwell Varco, Inc.		11,000		881,210
Noble Corp.		15,000		536,700
Schlumberger Ltd.		6,170		446,276
				2,159,748

Common Stocks	Shares		Value
Food & Staples Retailing – 0.4%
Costco Wholesale Corp.		17,000	$	1,702,125
Whole Foods Market, Inc.		5,100		496,740
				2,198,865
Food Products – 0.1%
Mondelez International, Inc.		5,140		212,539
Want Want China Holdings Ltd.		363,000		462,084
				674,623
Health Care Equipment & Supplies – 0.2%
Intuitive Surgical, Inc. (c)		1,500		743,445
Medtronic, Inc.		1,699		73,261
				816,706
Health Care Providers & Services – 0.3%
Express Scripts Holding Co. (c)		26,574		1,665,393
Health Care Technology – 0.1%
Cerner Corp. (c)(d)		7,300		565,093
Hotels, Restaurants & Leisure – 0.5%
Las Vegas Sands Corp.		16,000		741,920
McDonald’s Corp.		9,200		844,100
Starbucks Corp.		19,500		989,625
				2,575,645
Household Durables – 0.1%
Leggett & Platt, Inc.		25,886		648,444
Household Products – 0.4%
Kimberly-Clark Corp.		7,067		606,207
Reckitt Benckiser Group Plc		23,288		1,341,731
				1,947,938
Industrial Conglomerates – 0.6%
Danaher Corp.		32,400		1,786,860
General Electric Co.		57,099		1,296,718
				3,083,578
Insurance – 0.5%
Aflac, Inc.		6,703		320,940
China Life Insurance Co. Ltd., H Shares		291,000		837,658
Cincinnati Financial Corp.		17,368		658,074
Principal Financial Group, Inc.		3,886		104,689
Zurich Insurance Group AG (c)		4,323		1,077,756
				2,999,117
Internet & Catalog Retail – 0.6%
Amazon.com, Inc. (c)		10,000		2,543,200
priceline.com, Inc. (c)		1,600		989,968
				3,533,168
Internet Software & Services – 0.8%
eBay, Inc. (c)		21,400		1,035,974
Google, Inc., Class A (c)		3,247		2,449,861
MercadoLibre, Inc. (d)		8,937		737,749
Rackspace Hosting, Inc. (c)(d)		5,202		343,800
				4,567,384
IT Services – 0.5%
Automatic Data Processing, Inc.		12,505		733,543
Broadridge Financial Solutions, Inc.		23,980		559,453
Paychex, Inc.		19,074		634,973
Visa, Inc., Class A		6,900		926,532
				2,854,501

See Notes to Financial Statements.
	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012	9

  Schedule of Investments (continued)   (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Life Sciences Tools & Services – 0.2%
Agilent Technologies, Inc.		25,668	$	986,935
Machinery – 0.9%
Caterpillar, Inc.		7,757		667,412
Eaton Corp.		17,200		812,872
Harsco Corp.		6,541		134,287
Illinois Tool Works, Inc.		11,886		706,860
Railpower Technologies Corp. (c)		17,600		–
SMC Corp.		6,500		1,046,069
Stanley Black & Decker, Inc.		15,200		1,159,000
Terex Corp. (c)(d)		23,144		522,592
				5,049,092
Media – 0.8%
British Sky Broadcasting Group Plc		137,993		1,656,270
CBS Corp., Class B		14,300		519,519
Comcast Corp., Class A		27,600		987,252
Liberty Global, Inc., Class A (c)		14,143		859,187
The McGraw-Hill Cos., Inc.		3,732		203,730
				4,225,958
Metals & Mining – 0.3%
Rio Tinto Plc		28,084		1,313,190
Southern Copper Corp.		11,885		408,369
				1,721,559
Multi-Utilities – 0.2%
CenterPoint Energy, Inc.		12,986		276,602
NiSource, Inc.		30,281		771,560
				1,048,162
Oil, Gas & Consumable Fuels – 1.2%
Anadarko Petroleum Corp.		9,200		643,264
BG Group Plc		79,647		1,611,640
Chevron Corp.		2,947		343,502
EQT Corp.		1,133		66,847
Exxon Mobil Corp.		4,812		440,057
Longview Energy Co. (Acquired 8/13/04, cost $48,000) (c)(e)		3,200		50,896
Matador Resources Co. (Acquired 4/13/06, cost $8,451) (c)(e)		939		9,756
Noble Energy, Inc.		5,400		500,634
Royal Dutch Shell Plc, B Shares		49,123		1,748,087
Spectra Energy Corp.		22,675		665,738
Tullow Oil Plc		34,642		768,505
				6,848,926
Paper & Forest Products – 0.0%
Ainsworth Lumber Co. Ltd. (b)(c)		19,432		46,846
Personal Products – 0.1%
Avon Products, Inc.		32,935		525,313
Herbalife Ltd.		5,705		270,417
				795,730
Pharmaceuticals – 1.9%
Bristol-Myers Squibb Co.		13,763		464,501
Eli Lilly & Co.		25,294		1,199,189
Johnson & Johnson		6,360		438,268

Common Stocks	Shares		Value
Pharmaceuticals (concluded)
Merck & Co., Inc.		18,700	$	843,370
Pfizer, Inc.		83,926		2,085,561
Roche Holding AG		11,429		2,137,757
Sanofi-Aventis SA		21,896		1,866,920
Teva Pharmaceutical Industries Ltd. - ADR		20,936		866,960
Valeant Pharmaceuticals International, Inc. (c)		11,200		619,024
				10,521,550
Professional Services – 0.0%
Manpower, Inc.		2,687		98,882
Real Estate Investment Trusts (REITs) – 0.5%
American Capital Agency Corp.		19,878		687,580
American Tower Corp.		10,300		735,317
Annaly Capital Management, Inc. (d)		28,887		486,457
CommonWealth REIT		4,660		67,850
Piedmont Office Realty Trust, Inc., Class A		26,340		456,736
Senior Housing Properties Trust		21,748		473,671
Simon Property Group, Inc.		1		150
				2,907,761
Semiconductors & Semiconductor Equipment – 0.5%
Avago Technologies Ltd.		4,500		156,893
Broadcom Corp., Class A (c)		18,334		633,990
Intel Corp.		15,976		362,336
Maxim Integrated Products, Inc.		7,082		188,523
Microchip Technology, Inc.		15,749		515,622
ON Semiconductor Corp. (c)		16,500		101,887
Veeco Instruments, Inc. (c)		16,921		507,968
Xilinx, Inc.		14,200		474,422
				2,941,641
Software – 1.2%
Activision Blizzard, Inc.		56,379		635,955
Microsoft Corp.		89,725		2,672,011
Oracle Corp.		27,700		872,273
Red Hat, Inc. (c)		13,600		774,384
Salesforce.com, Inc. (c)(d)		5,580		852,010
VMware, Inc., Class A (c)(d)		9,000		870,660
				6,677,293
Specialty Retail – 0.5%
American Eagle Outfitters, Inc.		14,751		310,951
Hennes & Mauritz AB, B Shares		41,518		1,444,958
The Home Depot, Inc.		18,300		1,104,771
				2,860,680
Textiles, Apparel & Luxury Goods – 0.4%
Michael Kors Holdings Ltd. (c)		11,400		606,252
The Swatch Group AG		2,393		955,655
Under Armour, Inc., Class A (c)		13,200		736,956
VF Corp.		395		62,947
				2,361,810
Thrifts & Mortgage Finance – 0.1%
Capitol Federal Financial, Inc.		49,565		592,797
New York Community Bancorp, Inc.		14,244		201,695
				794,492
Tobacco – 0.7%
Altria Group, Inc.		25,809		861,762
Imperial Tobacco Group Plc		61,729		2,286,855

See Notes to Financial Statements.
10	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012

  Schedule of Investments (continued)   (Percentages shown are based on Net Assets)

Common Stocks		Shares		Value
Tobacco (concluded)
Lorillard, Inc.			6,178	$	719,428
Reynolds American, Inc.			1,381		59,853
					3,927,898
Wireless Telecommunication Services – 0.9%
NTT DoCoMo, Inc.			802		1,295,772
Rogers Communications, Inc., Class B			31,249		1,265,090
Vodafone Group Plc			807,048		2,293,341
					4,854,203
Total Common Stocks – 25.0%					139,136,948
Corporate Bonds		Par (000)
Air Freight & Logistics – 0.0%
FedEx Corp., 3.88%, 8/01/42	USD		100		97,897
Airlines – 0.1%
BAA Funding Ltd., 5.23%, 2/15/25	GBP		350		649,563
Beverages – 0.1%
SABMiller Holdings, Inc., 4.95%, 1/15/42 (b)	USD		400		465,494
Building Products – 0.0%
Lafarge SA, 5.88%, 7/09/19	EUR		200		266,440
Capital Markets – 0.3%
Credit Suisse AG, 5.40%, 1/14/20	USD		55		60,113
The Goldman Sachs Group, Inc., 5.75%, 1/24/22			700		806,313
Morgan Stanley, 5.50%, 7/28/21			480		525,306
					1,391,732
Chemicals – 0.3%
Arkema SA, 3.85%, 4/30/20	EUR		200		274,407
Brenntag Finance BV, 5.50%, 7/19/18			600		846,251
INEOS Finance Plc, 7.50%, 5/01/20	USD		150		152,250
INEOS Group Holdings SA, 7.88%, 2/15/16	EUR		200		238,377
					1,511,285
Commercial Banks – 2.1%
Abbey National Treasury Services Plc, 4.25%, 4/12/22			500		737,496
ABN AMRO Bank NV, 4.75%, 1/11/19			400		583,880
Asian Development Bank, 2.35%, 6/21/27	JPY		20,000		294,446
Barclays Bank Plc, 4.13%, 3/15/16	EUR		400		561,269
BNP Paribas SA:
2.88%, 11/27/17			600		811,345
2.50%, 8/23/19			200		259,579
Canadian Imperial Bank of Commerce, 2.60%, 7/02/15 (b)	USD		290		306,559
Carrefour Banque SA, 2.88%, 9/25/15	EUR		200		260,900
Danske Bank A/S, 3.88%, 5/18/16			500		684,326
European Investment Bank, 2.15%, 1/18/27	JPY		20,000		276,896
HSBC Bank Brasil SA - Banco Multiplo, 4.00%, 5/11/16 (b)	USD		680		699,550
HSBC Bank Plc, 3.10%, 5/24/16 (b)			335		353,019
HSBC Holdings Plc, 6.10%, 1/14/42			150		197,262
ING Bank NV:
3.38%, 1/11/18	EUR		250		355,382
4.50%, 2/21/22			150		215,744
KBC Internationale Financieringsmaatschappij NV, 4.50%, 3/27/17			500		688,206

Corporate Bonds		Par (000)		Value
Commercial Banks (concluded)
Lloyds TSB Bank Plc, 4.00%, 9/29/21	EUR		550	$	805,846
National Australia Bank Ltd., 2.75%, 8/08/22			600		775,821
Société Générale SA, 2.38%, 2/28/18			600		776,681
Société Générale SFH, 2.88%, 3/14/19			500		688,309
Sumitomo Mitsui Banking Corp., 4.85%, 3/01/22	USD		400		442,790
Turkiye Garanti Bankasi AS, 5.25%, 9/13/22			300		302,250
Wells Fargo & Co., 3.50%, 3/08/22			540		575,887
					11,653,443
Commercial Services & Supplies – 0.2%
Edenred SA, 3.63%, 10/06/17	EUR		1,000		1,377,949
Diversified Financial Services – 0.8%
Bank of America Corp., 5.70%, 1/24/22	USD		600		704,737
BP Capital Markets Plc, 3.13%, 10/01/15			160		170,848
Citigroup, Inc.:
5.00%, 9/15/14			140		147,661
4.59%, 12/15/15			1,160		1,258,631
Deutsche Boerse AG, 2.38%, 10/05/22	EUR		350		450,127
General Electric Capital Corp., 6.15%, 8/07/37	USD		200		245,060
JPMorgan Chase Bank, N.A., 6.00%, 10/01/17			445		526,602
Nationwide Building Society, 3.13%, 4/03/17	EUR		500		680,769
Old Mutual Plc, 7.13%, 10/19/16	GBP		200		378,769
					4,563,204
Diversified Telecommunication Services – 0.5%
Elisa OYJ, 2.25%, 10/04/19	EUR		300		385,245
Iliad SA, 4.88%, 6/01/16			700		962,097
Koninklijke KPN NV, 3.25%, 2/01/21			250		325,166
Telefonica Emisiones SAU, 5.81%, 9/05/17			300		405,031
Verizon Communications, Inc.:
3.50%, 11/01/21	USD		240		264,775
6.40%, 2/15/38			332		447,457
					2,789,771
Electric Utilities – 0.4%
Alabama Power Co., 3.95%, 6/01/21			220		248,594
Duke Energy Carolinas LLC, 4.25%, 12/15/41			185		195,021
EDP Finance BV, 5.75%, 9/21/17	EUR		300		380,696
Enel Finance International NV, 4.88%, 3/11/20			100		131,294
ESB Finance Ltd., 6.25%, 9/11/17			200		274,153
Georgia Power Co., 3.00%, 4/15/16	USD		390		418,250
Jersey Central Power & Light Co., 7.35%, 2/01/19			120		153,967
MidAmerican Energy Holdings Co., 6.50%, 9/15/37			150		200,864
PacifiCorp, 6.25%, 10/15/37			100		137,025
					2,139,864
Food & Staples Retailing – 0.2%
Casino Guichard Perrachon SA:
3.16%, 8/06/19	EUR		200		261,741
3.99%, 3/09/20			500		683,026
					944,767
Food Products – 0.2%
Barry Callebaut Services NV, 5.38%, 6/15/21			500		745,457
Mondelez International, Inc.:
6.50%, 8/11/17	USD		160		196,718
6.50%, 2/09/40			100		135,453
					1,077,628

See Notes to Financial Statements.
	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012	11

  Schedule of Investments (continued)   (Percentages shown are based on Net Assets)

Corporate Bonds		Par (000)		Value
Gas Utilities – 0.0%
KeySpan Gas East Corp., 5.82%, 4/01/41 (b)	USD		185	$	241,306
Health Care Providers & Services – 0.2%
HCA, Inc.:
6.50%, 2/15/20			172		191,350
7.25%, 9/15/20			455		509,600
Tenet Healthcare Corp.:
6.25%, 11/01/18			235		259,087
8.88%, 7/01/19			150		169,500
					1,129,537
Hotels, Restaurants & Leisure – 0.3%
Carlson Wagonlit BV, 7.50%, 6/15/19	EUR		100		132,681
MGM Resorts International:
10.38%, 5/15/14	USD		200		225,000
11.13%, 11/15/17			260		287,625
William Hill Plc, 7.13%, 11/11/16	GBP		350		625,232
Wyndham Worldwide Corp., 4.25%, 3/01/22	USD		330		339,161
					1,609,699
Household Durables – 0.1%
NVR, Inc., 3.95%, 9/15/22			550		563,969
Industrial Conglomerates – 0.1%
Smiths Group Plc, 4.13%, 5/05/17	EUR		500		693,266
Insurance – 0.5%
Allianz Finance II BV, 5.75%, 7/08/41 (a)			100		129,904
American International Group, Inc.:
3.80%, 3/22/17	USD		423		454,984
6.40%, 12/15/20			100		121,809
Aviva Plc, 6.13%, 11/14/36 (a)	GBP		160		228,832
AXA SA, 5.25%, 4/16/40 (a)	EUR		350		411,771
Metropolitan Life Global Funding I:
5.13%, 6/10/14 (b)	USD		300		321,736
2.38%, 9/30/19	EUR		400		521,422
Willow No.2 Ireland Plc for Zurich Insurance Co. Ltd., 3.38%, 6/27/22			300		402,479
					2,592,937
IT Services – 0.1%
Amadeus Capital Markets SA, 4.88%, 7/15/16			300		413,063
Computer Sciences Corp., 4.45%, 9/15/22	USD		300		300,307
					713,370
Leisure Equipment & Products – 0.0%
Mattel, Inc., 5.45%, 11/01/41			200		223,581
Life Sciences Tools & Services – 0.0%
Life Technologies Corp., 6.00%, 3/01/20			230		273,570
Machinery – 0.0%
Flowserve Corp., 3.50%, 9/15/22			100		101,094
Media – 0.3%
CCH II LLC/CCH II Capital Corp., 13.50%, 11/30/16			700		759,500
Cyfrowy Polsat Finance AB, 7.13%, 5/20/18	EUR		300		416,356
News America, Inc., 6.20%, 12/15/34	USD		100		120,434
Time Warner Cable, Inc., 4.50%, 9/15/42			6		5,984
Unitymedia Hessen GmbH & Co. KG/Unitymedia NRW GmbH, 5.50%, 9/15/22	EUR		100		126,256
Virgin Media Secured Finance Plc, 6.50%, 1/15/18	USD		280		306,600
					1,735,130

Corporate Bonds		Par (000)		Value
Metals & Mining – 0.1%
BHP Billiton Finance Ltd., 3.25%, 9/24/27	EUR		250	$	316,755
Multiline Retail – 0.1%
Macy’s Retail Holdings, Inc., 7.45%, 7/15/17	USD		286		353,628
Multi-Utilities – 0.2%
Centrica Plc, 6.38%, 3/10/22	GBP		200		415,102
Dominion Resources, Inc., 1.95%, 8/15/16	USD		305		315,232
National Grid Electricity Transmission Plc, 4.00%, 6/08/27	GBP		150		249,717
					980,051
Oil, Gas & Consumable Fuels – 0.6%
El Paso Pipeline Partners Operating Co. LLC, 6.50%, 4/01/20	USD		280		332,174
Energy Transfer Partners LP, 6.50%, 2/01/42			140		161,550
Enterprise Products Operating LLC:
Series L, 6.30%, 9/15/17			250		304,080
6.13%, 10/15/39			225		270,417
EOG Resources, Inc., 2.63%, 3/15/23			650		657,006
Kinder Morgan Energy Partners LP:
5.95%, 2/15/18			225		270,870
5.00%, 8/15/42			150		155,751
Linn Energy LLC/Linn Energy Finance Corp., 6.25%, 11/01/19 (b)			345		343,275
Shell International Finance BV, 1.13%, 8/21/17			800		802,770
					3,297,893
Paper & Forest Products – 0.2%
Mondi Finance Plc, 3.38%, 9/28/20	EUR		700		898,635
Pharmaceuticals – 0.0%
Watson Pharmaceuticals, Inc., 3.25%, 10/01/22	USD		100		101,281
Professional Services – 0.2%
Experian Finance Plc, 4.75%, 11/23/18	GBP		600		1,089,494
Real Estate Investment Trusts (REITs) – 0.4%
Goodman Funding Pty Ltd., 6.38%, 4/15/21 (b)	USD		400		439,070
Hospitality Properties Trust, 5.63%, 3/15/17			186		201,261
Klepierre, 2.75%, 9/17/19	EUR		300		382,192
Mercialys SA, 4.13%, 3/26/19			300		410,872
Unibail-Rodamco SE, 2.25%, 8/01/18			287		372,979
Ventas Realty LP/Ventas Capital Corp., 4.75%, 6/01/21	USD		135		148,369
Vornado Realty LP, 5.00%, 1/15/22			200		221,304
					2,176,047
Real Estate Management & Development – 0.0%
WEA Finance LLC, 4.63%, 5/10/21 (b)			150		163,754
Road & Rail – 0.2%
Burlington Northern Santa Fe LLC, 5.75%, 5/01/40			150		187,872
National Express Group Plc, 6.63%, 6/17/20	GBP		400		735,253
					923,125
Specialty Retail – 0.1%
Dixons Retail Plc, 8.75%, 9/15/17			150		243,432
O’Reilly Automotive, Inc., 3.80%, 9/01/22	USD		500		515,968
					759,400

See Notes to Financial Statements.
12	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012

  Schedule of Investments (continued)   (Percentages shown are based on Net Assets)

Corporate Bonds		Par (000)		Value
Textiles, Apparel & Luxury Goods – 0.1%
LVMH Moet Hennessy Louis Vuitton SA, 1.63%, 6/29/17 (b)	USD		800	$	806,800
Tobacco – 0.3%
B.A.T. International Finance Plc, 3.63%, 11/09/21	EUR		700		985,476
Philip Morris International, Inc., 3.88%, 8/21/42	USD		450		452,291
					1,437,767
Wireless Telecommunication Services – 0.4%
America Movil SAB de CV, 2.38%, 9/08/16			400		416,236
Crown Castle Towers LLC, 6.11%, 1/15/40 (b)			760		915,332
Global Switch Holdings Ltd., 5.50%, 4/18/18	EUR		300		424,290
Phones4u Finance Plc, 9.50%, 4/01/18	GBP		150		243,735
					1,999,593
Total Corporate Bonds – 9.7%					54,110,719
Foreign Agency Obligations
Electricite de France SA, 2.75%, 3/10/23	EUR		500		631,987
European Financial Stability Facility, 1.63%, 9/15/17			2,000		2,622,272
Hydro Quebec, 8.40%, 1/15/22	USD		405		584,016
Kreditanstalt fuer Wiederaufbau:
1.38%, 7/15/13			350		352,765
0.50%, 7/25/16	EUR		3,200		4,105,362
Petrobras International Finance Co., 3.88%, 1/27/16	USD		345		364,944
Province of British Columbia, 4.80%, 6/15/21	CAD		350		420,740
Province of Manitoba:
4.30%, 3/01/16			200		222,429
1.75%, 5/30/19	USD		490		501,515
Province of Ontario:
4.30%, 3/08/17	CAD		600		676,057
6.20%, 6/02/31			400		571,999
Province of Quebec:
4.50%, 12/01/19			600		695,636
5.00%, 12/01/41			150		193,569
Total Foreign Agency Obligations – 2.1%					11,943,291
Foreign Government Obligations
Australia – 0.4%
Commonwealth of Australia, 4.75%, 6/15/16	AUD		1,100		1,233,877
New South Wales Treasury Corp., 6.00%, 2/01/18			400		469,060
Queensland Treasury Corp., 6.25%, 2/21/20			400		477,563
Treasury Corp. of Victoria, 6.00%, 6/15/20			250		302,356
					2,482,856
Austria – 0.5%
Republic of Austria, 3.40%, 11/22/22	EUR		1,800		2,601,319
Belgium – 0.7%
Kingdom of Belgium:
4.25%, 9/28/22			2,000		2,956,128
4.25%, 3/28/41			750		1,121,087
					4,077,215

Foreign Government Obligations		Par (000)		Value
Canada – 0.6%
Canada Housing Trust No. 1:
2.75%, 9/15/14	CAD		400	$	419,282
2.75%, 6/15/16			400		426,081
3.35%, 12/15/20			250		280,134
Canadian:
0.75%, 5/01/14			900		910,793
8.00%, 6/01/27			250		444,347
4.00%, 6/01/41			450		617,028
					3,097,665
Czech Republic – 0.0%
Czech Republic, 3.85%, 9/29/21	CZK		4,300		248,652
Denmark – 0.1%
Kingdom of Denmark, 4.00%, 11/15/19	DKK		3,500		732,011
Finland – 0.4%
Republic of Finland, 1.63%, 9/15/22	EUR		1,700		2,163,612
Germany – 0.2%
Federal Republic of Germany:
1.75%, 7/04/22			150		198,775
3.25%, 7/04/42			550		867,089
					1,065,864
Israel – 0.0%
State of Israel, 4.25%, 8/31/16	ILS		1,000		268,811
Japan – 7.1%
Development Bank of Japan (20 Year), 1.05%, 6/20/23	JPY		50,000		657,961
Japan Finance Organization for Municipalities,
2.00%, 5/09/16			100,000		1,369,490
Japan Government (5 Year Issue):
0.90%, 6/20/14			400,000		5,195,300
0.40%, 6/20/15			500,000		6,458,400
0.20%, 6/20/17			320,000		4,103,393
Japan Government (10 Year Issue):
1.40%, 12/20/13			65,000		845,977
1.50%, 3/20/19			545,000		7,489,176
0.90%, 6/20/22			330,000		4,288,820
Japan Government (20 Year Issue):
2.10%, 3/20/27			250,000		3,554,379
1.70%, 6/20/32			210,000		2,717,799
Japan Government (30 Year Issue):
2.40%, 3/20/37			95,000		1,365,194
2.00%, 3/20/42			75,000		986,064
Japan Government (40 Year Issue), 2.00%, 3/20/52			24,000		302,180
					39,334,133
Malaysia – 0.1%
Federation of Malaysia, 3.58%, 9/28/18	MYR		1,200		396,258
Mexico – 0.2%
United Mexican States:
6.50%, 6/09/22	MXN		7,500		633,663
8.30%, 8/15/31	USD		194		311,370
					945,033
Netherlands – 0.5%
Kingdom of the Netherlands, 1.25%, 1/15/18	EUR		2,000		2,619,625
New Zealand – 0.0%
New Zealand, 5.00%, 3/15/19	NZD		300		276,558

See Notes to Financial Statements.
	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012	13

  Schedule of Investments (continued)   (Percentages shown are based on Net Assets)

Foreign Government Obligations	Par (000)		Value
Norway – 0.0%
Kingdom of Norway, 2.00%, 5/24/23	NOK	800	$	137,758
Peru – 0.1%
Republic of Peru, 6.55%, 3/14/37	USD	215		316,587
Poland – 0.1%
Republic of Poland:
5.13%, 4/21/21		200		233,000
5.00%, 3/23/22		250		290,000
				523,000
Russia – 0.0%
Russian Federation, 7.50%, 3/31/30 (f)		193		243,915
Singapore – 0.1%
Republic of Singapore, 2.25%, 6/01/21	SGD	350		309,336
South Africa – 0.1%
Republic of South Africa:
5.50%, 3/09/20	USD	100		118,750
7.00%, 2/28/31	ZAR	3,000		329,202
				447,952
Spain – 1.3%
Kingdom of Spain:
3.80%, 1/31/17	EUR	3,100		3,824,985
5.85%, 1/31/22		2,000		2,547,380
4.70%, 7/30/41		900		869,421
				7,241,786
Sweden – 0.2%
Kingdom of Sweden, 3.75%, 8/12/17	SEK	6,000		1,032,426
Thailand – 0.1%
Kingdom of Thailand, 3.45%, 3/08/19	THB	13,500		435,737
United Kingdom – 1.4%
United Kingdom Gilts:
2.75%, 1/22/15	GBP	900		1,537,690
1.75%, 1/22/17		600		1,018,296
3.75%, 9/07/19		550		1,048,408
4.25%, 6/07/32		800		1,614,676
4.50%, 12/07/42		1,200		2,485,999
4.25%, 12/07/55		100		202,513
				7,907,582
Total Foreign Government Obligations – 14.2%				78,905,691
Investment Companies	Shares
Financial Select Sector SPDR Fund		1,239,925		19,342,830
Health Care Select Sector SPDR Fund		502,750		20,165,303
Industrial Select Sector SPDR Fund		532,800		19,468,512
iShares iBoxx $ High Yield Corporate Bond Fund (g)		245,498		22,676,650
Technology Select Sector SPDR Fund		441,000		13,596,030
Vanguard MSCI Emerging Markets ETF		949,800		39,654,150
Total Investment Companies – 24.2%				134,903,475

Non-Agency Mortgage-Backed Securities	Par (000)		Value
Collateralized Mortgage Obligations – 0.5%
Gosforth Funding Plc, Series 2012-1,
Class A, 2.19%, 12/19/47	GBP	237	$	392,675
Lanark Master Issuer Plc, Series 2012-2X, Class 2A, 2.33%, 12/22/54	USD	365		606,400
Permanent Master Issuer Plc, Series 2009-1, Class A2, 2.72%, 7/15/42	GBP	1,300		2,151,772
				3,150,847
Commercial Mortgage-Backed Securities – 0.5%
Banc of America Commercial Mortgage Trust, Series 2007-1, Class AMFX, 5.48%, 1/15/49	USD	30		30,921
COBALT CMBS Commercial Mortgage Trust, Series 2006-C1, Class A4, 5.22%, 8/15/48		330		370,572
Credit Suisse First Boston Mortgage Securities Corp.:
Series 2002-CKN2, Class A3, 6.13%, 4/15/37		13		12,889
Series 2003-C3, Class A5, 3.94%, 5/15/38		870		879,234
Greenwich Capital Commercial Funding Corp., Series 2006-GG7, Class AJ, 6.07%, 7/10/38		170		151,055
JPMorgan Chase Commercial Mortgage Securities Corp., Series 2006-CB14, Class AM, 5.64%, 12/12/44		180		187,551
LB-UBS Commercial Mortgage Trust, Series 2007-C1, Class AM, 5.46%, 2/15/40		165		177,350
Morgan Stanley Capital I Trust, Series 2003-IQ4, Class A2, 4.07%, 5/15/40		831		840,946
				2,650,518
Total Non-Agency Mortgage-Backed Securities – 1.0%				5,801,365
U.S. Government Sponsored Agency Securities
Agency Obligations – 1.0%
Fannie Mae:
0.38%, 3/16/15		2,000		2,000,998
6.63%, 11/15/30		200		306,902
Federal Home Loan Bank, 5.63%, 6/13/16		890		1,040,686
Freddie Mac:
1.00%, 7/30/14		1,000		1,012,950
5.25%, 4/18/16		760		886,807
Small Business Administration Participation Certificates, Series 1997-20F, Class 1, 7.20%, 6/01/17		121		132,696
Tennessee Valley Authority, 5.25%, 9/15/39		145		192,215
				5,573,254
Federal Deposit Insurance Corporation Guaranteed – 0.1%
General Electric Capital Corp., 2.13%, 12/21/12		385		386,652
Mortgage-Backed Securities – 4.1%
Fannie Mae Mortgage-Backed Securities:
3.50%, 10/01/27-10/01/42 (h)		2,350		2,512,468
4.00%, 10/01/27-10/01/42 (h)		1,700		1,823,797
4.50%, 10/01/42 (h)		1,650		1,785,609
5.00%, 10/01/26-10/01/42 (h)		1,700		1,850,953
5.50%, 10/01/42 (h)		900		986,625
6.00%, 10/01/42 (h)		900		993,656
6.50%, 10/01/42 (h)		650		730,641

See Notes to Financial Statements.
14	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012

  Schedule of Investments (continued)   (Percentages shown are based on Net Assets)

U.S. Government Sponsored Agency Securities	Par (000)			Value
Mortgage-Backed Securities (concluded)
Freddie Mac Mortgage-Backed Securities:
3.00%, 10/15/27 (h)		750		$	791,484
4.00%, 10/01/42 (h)		1,150			1,235,891
4.50%, 10/01/23-10/01/42 (h)		2,000			2,148,282
5.00%, 1/01/42 (h)		950			1,029,266
5.50%, 10/01/42 (h)		700			762,781
6.00%, 10/01/42 (h)		700			768,469
Ginnie Mae Mortgage-Backed Securities:
4.00%, 10/15/42 (h)		1,400			1,543,500
4.50%, 10/15/42 (h)		1,600			1,756,000
5.00%, 10/15/42 (h)		1,000			1,102,500
5.50%, 10/15/42 (h)		850			945,359
					22,767,281
Total U.S. Government Sponsored Agency Securities – 5.2%					28,727,187
U.S. Treasury Obligations
U.S. Treasury Bonds:
5.25%, 11/15/28		1,200			1,679,626
5.38%, 2/15/31		700			1,012,484
5.00%, 5/15/37		170			243,445
3.00%, 5/15/42		1,338			1,387,339
U.S. Treasury Notes:
0.25%, 4/30/14		570			570,156
0.38%, 6/15/15		4,590			4,599,680
0.88%, 4/30/17		1,385			1,404,585
0.63%, 5/31/17		2,120			2,125,300
1.13%, 5/31/19		3,770			3,805,344
1.75%, 5/15/22		550			557,734
Total U.S. Treasury Obligations – 3.1%					17,385,693
Total Long-Term Investments (Cost – $428,733,714) – 85.0%					473,659,842
Short-Term Securities		Shares
BlackRock Liquidity Funds, TempFund, Institutional Class, 0.15% (g)(i)		97,232,371			97,232,371
		Beneficial Interest (000	)
BlackRock Liquidity Series, LLC Money Market Series, 0.29% (g)(i)(j)		2,629			2,629,449
Total Short-Term Securities (Cost – $99,861,820) – 17.9%					99,861,820
Total Investments (Cost – $528,595,534) – 102.9%					573,521,662
Liabilities in Excess of Other Assets – (2.9)%					(16,332,260	)
Net Assets – 100.0%				$	557,189,402

(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) Non-income producing security.

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

(e) 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 $60,652 and an original cost of $56,451, in these securities.

(f) 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.

(g) Investments in issuers considered to be an affiliate of the Fund during the year ended September 30, 2012, 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 Septe- mber 30, 2011	Net Activity	Shares/ Beneficial Interest Held at Septe- mber 30, 2012	Value at Septe- mber 30, 2012	Income
BlackRock Liquidity Funds, TempFund, Institutional Class	91,218,601	6,013,770	97,232,371	$97,232,371	$122,042
BlackRock Liquidity Series, LLC Money Market Series	$  2,411,435	$218,014	$2,629,449	$  2,629,449	$  51,840
iShares iBoxx $ High Yield Corporate Bond Fund	–	245,498	245,498	$22,676,650	$452,112

(h) Represents or includes a TBA transaction. Unsettled TBA transactions as of September 30, 2012 were as follows:

Counterparty	Value		Unrealized Appreciation
Barclays Plc	$	1,608,281	$	20,625
Credit Suisse Group AG	$	791,484	$	4,219
Deutsche Bank AG	$	4,386,750	$	3,562
JPMorgan Chase & Co.	$	15,980,766	$	2,008

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

(j) 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 Fund management. 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.
	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012	15

Schedule of Investments (continued)

— Foreign currency exchange contracts as of September 30, 2012 were as follows:

Currency Purchased	Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
BRL 590,000	USD	291,214	Bank of America Corp.	10/02/12	$	(351	)
BRL 740,000	USD	364,424	Bank of America Corp.	10/02/12		602
BRL 1,080,000	USD	531,863	Bank of America Corp.	10/02/12		879
BRL 1,870,000	USD	920,910	Bank of America Corp.	10/02/12		1,522
BRL 190,000	USD	93,568	HSBC Holdings Plc	10/02/12		155
BRL 240,000	USD	118,192	HSBC Holdings Plc	10/02/12		195
BRL 260,000	USD	128,041	HSBC Holdings Plc	10/02/12		212
BRL 730,000	USD	359,500	HSBC Holdings Plc	10/02/12		594
BRL 90,000	USD	43,749	HSBC Holdings Plc	10/02/12		620
BRL 90,000	USD	43,700	HSBC Holdings Plc	10/02/12		669
BRL 570,000	USD	280,098	HSBC Holdings Plc	10/02/12		905
BRL 2,700,000	USD	1,326,781	HSBC Holdings Plc	10/02/12		4,289
BRL 330,000	USD	162,514	Morgan Stanley	10/02/12		269
BRL 450,000	USD	222,222	UBS AG	10/02/12		(377	)
BRL 70,000	USD	34,445	UBS AG	10/02/12		64
BRL 350,000	USD	172,371	UBS AG	10/02/12		175
BRL 370,000	USD	182,212	UBS AG	10/02/12		301
BRL 410,000	USD	201,911	UBS AG	10/02/12		334
BRL 420,000	USD	205,781	UBS AG	10/02/12		1,274
BRL 890,000	USD	436,061	UBS AG	10/02/12		2,699
USD 916,218	BRL	1,870,000	Bank of America Corp.	10/02/12		(5,672	)
USD 362,567	BRL	740,000	Bank of America Corp.	10/02/12		(2,244	)
USD 290,555	BRL	590,000	Bank of America Corp.	10/02/12		(480	)
USD 533,070	BRL	1,080,000	Bank of America Corp.	10/02/12		642
USD 1,329,656	BRL	2,700,000	HSBC Holdings Plc	10/02/12		(2,197	)
USD 92,359	BRL	190,000	HSBC Holdings Plc	10/02/12		(1,309	)
USD 280,705	BRL	570,000	HSBC Holdings Plc	10/02/12		(464	)
USD 44,322	BRL	90,000	HSBC Holdings Plc	10/02/12		(73	)
USD 44,322	BRL	90,000	HSBC Holdings Plc	10/02/12		(73	)
USD 118,419	BRL	240,000	HSBC Holdings Plc	10/02/12		102
USD 128,332	BRL	260,000	HSBC Holdings Plc	10/02/12		155
USD 360,316	BRL	730,000	HSBC Holdings Plc	10/02/12		434
USD 162,562	BRL	330,000	Morgan Stanley	10/02/12		(125	)
USD 200,098	BRL	410,000	UBS AG	10/02/12		(2,028	)
USD 180,488	BRL	370,000	UBS AG	10/02/12		(1,918	)
USD 438,294	BRL	890,000	UBS AG	10/02/12		(724	)
USD 221,609	BRL	450,000	UBS AG	10/02/12		(366	)
USD 206,835	BRL	420,000	UBS AG	10/02/12		(342	)
USD 172,363	BRL	350,000	UBS AG	10/02/12		(285	)
USD 34,473	BRL	70,000	UBS AG	10/02/12		(57	)
AUD 625,000	USD	651,188	Deutsche Bank AG	10/03/12		(3,189	)

Currency Purchased	Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
AUD 625,000	USD	651,250	Goldman Sachs Group, Inc.	10/03/12	$	(3,252	)
AUD 625,000	USD	650,522	HSBC Holdings Plc	10/03/12		(2,524	)
AUD 625,000	USD	650,438	UBS AG	10/03/12		(2,439	)
CAD 1,400,000	USD	1,422,475	Deutsche Bank AG	10/03/12		1,437
CAD 1,400,000	USD	1,423,802	HSBC Holdings Plc	10/03/12		111
CAD 2,800,000	USD	2,846,888	UBS AG	10/03/12		937
CZK 1,175,000	USD	60,130	Deutsche Bank AG	10/03/12		(65	)
CZK 1,175,000	USD	60,222	HSBC Holdings Plc	10/03/12		(157	)
CZK 2,350,000	USD	120,395	UBS AG	10/03/12		(264	)
DKK 1,100,000	USD	189,503	Deutsche Bank AG	10/03/12		122
DKK 1,100,000	USD	189,766	HSBC Holdings Plc	10/03/12		(141	)
DKK 2,200,000	USD	379,315	UBS AG	10/03/12		(65	)
EUR 10,395,000	USD	13,350,621	Deutsche Bank AG	10/03/12		8,158
EUR 10,395,000	USD	13,369,020	HSBC Holdings Plc	10/03/12		(10,241	)
EUR 20,790,000	USD	26,722,011	UBS AG	10/03/12		(4,453	)
GBP 2,521,250	USD	4,080,368	Deutsche Bank AG	10/03/12		(9,108	)
GBP 2,521,250	USD	4,082,577	HSBC Holdings Plc	10/03/12		(11,317	)
GBP 5,042,500	USD	8,165,320	UBS AG	10/03/12		(22,800	)
HKD 696,918	USD	89,890	Citigroup, Inc.	10/03/12		(12	)
ILS 300,000	USD	76,630	Deutsche Bank AG	10/03/12		(80	)
ILS 300,000	USD	76,637	HSBC Holdings Plc	10/03/12		(86	)
ILS 600,000	USD	153,554	UBS AG	10/03/12		(452	)
JPY 782,500,000	USD	10,077,387	Deutsche Bank AG	10/03/12		(50,052	)
JPY 782,500,000	USD	10,077,088	HSBC Holdings Plc	10/03/12		(49,754	)
JPY 1,565,000,000	USD	20,156,097	UBS AG	10/03/12		(101,428	)
MXN 2,125,000	USD	165,058	Deutsche Bank AG	10/03/12		(60	)
MXN 2,125,000	USD	165,279	HSBC Holdings Plc	10/03/12		(282	)
MXN 4,250,000	USD	330,463	UBS AG	10/03/12		(468	)
NOK 212,500	USD	37,088	Deutsche Bank AG	10/03/12		(3	)
NOK 212,500	USD	37,112	HSBC Holdings Plc	10/03/12		(26	)
NOK 425,000	USD	74,218	UBS AG	10/03/12		(47	)
NZD 87,500	USD	72,503	Deutsche Bank AG	10/03/12		(7	)
NZD 87,500	USD	72,570	HSBC Holdings Plc	10/03/12		(74	)
NZD 175,000	USD	145,171	UBS AG	10/03/12		(179	)
SEK 1,875,000	USD	285,808	Deutsche Bank AG	10/03/12		(411	)
SEK 1,875,000	USD	286,133	HSBC Holdings Plc	10/03/12		(736	)
SEK 3,750,000	USD	572,116	UBS AG	10/03/12		(1,321	)
SGD 100,000	USD	81,398	Deutsche Bank AG	10/03/12		88
SGD 100,000	USD	81,433	HSBC Holdings Plc	10/03/12		53
SGD 200,000	USD	162,892	UBS AG	10/03/12		80
THB 13,500,000	USD	436,187	HSBC Holdings Plc	10/03/12		2,244

See Notes to Financial Statements.
16	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012

Schedule of Investments (continued)

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unrea- lized Appre- ciation (Depre- ciation)
USD	875,424	AUD	850,000	Deutsche Bank AG	10/03/12	$	(5,854	)
USD	850,272	AUD	825,000	HSBC Holdings Plc	10/03/12		(5,086	)
USD	850,054	AUD	825,000	UBS AG	10/03/12		(5,304	)
USD	1,921,550	CAD	1,905,000	Deutsche Bank AG	10/03/12		(15,988	)
USD	1,866,170	CAD	1,850,000	HSBC Holdings Plc	10/03/12		(15,428	)
USD	1,861,222	CAD	1,845,000	UBS AG	10/03/12		(15,291	)
USD	236,831	CZK	4,700,000	Deutsche Bank AG	10/03/12		(3,430	)
USD	251,966	DKK	1,495,000	Deutsche Bank AG	10/03/12		(5,752	)
USD	244,422	DKK	1,450,000	HSBC Holdings Plc	10/03/12		(5,538	)
USD	245,210	DKK	1,455,000	UBS AG	10/03/12		(5,612	)
USD	269,006	EUR	210,000	Credit Suisse Group AG	10/03/12		(868	)
USD	16,347,625	EUR	13,025,000	Deutsche Bank AG	10/03/12		(391,008	)
USD	794,347	EUR	630,000	Deutsche Bank AG	10/03/12		(15,275	)
USD	410,906	EUR	320,000	Deutsche Bank AG	10/03/12		(331	)
USD	15,876,632	EUR	12,645,000	HSBC Holdings Plc	10/03/12		(373,657	)
USD	1,907,457	EUR	1,500,000	HSBC Holdings Plc	10/03/12		(20,217	)
USD	678,971	EUR	540,000	Royal Bank of Scotland Group Plc	10/03/12		(14,992	)
USD	15,872,055	EUR	12,645,000	UBS AG	10/03/12		(378,235	)
USD	83,955	EUR	65,000	UBS AG	10/03/12		423
USD	5,342,913	GBP	3,370,000	Deutsche Bank AG	10/03/12		(98,891	)
USD	5,185,618	GBP	3,270,000	HSBC Holdings Plc	10/03/12		(94,707	)
USD	292,059	GBP	180,000	HSBC Holdings Plc	10/03/12		1,399
USD	5,177,170	GBP	3,265,000	UBS AG	10/03/12		(95,082	)
USD	101,539	ILS	410,000	Deutsche Bank AG	10/03/12		(3,080	)
USD	97,706	ILS	395,000	HSBC Holdings Plc	10/03/12		(3,086	)
USD	97,790	ILS	395,000	UBS AG	10/03/12		(3,002	)
USD	13,554,443	JPY	1,064,200,000	Deutsche Bank AG	10/03/12		(82,731	)
USD	13,151,545	JPY	1,032,900,000	HSBC Holdings Plc	10/03/12		(84,536	)
USD	13,151,930	JPY	1,032,900,000	UBS AG	10/03/12		(84,151	)
USD	215,627	MXN	2,890,000	Deutsche Bank AG	10/03/12		(8,770	)
USD	209,288	MXN	2,805,000	HSBC Holdings Plc	10/03/12		(8,509	)
USD	209,310	MXN	2,805,000	UBS AG	10/03/12		(8,487	)
USD	49,887	NOK	290,000	Deutsche Bank AG	10/03/12		(724	)
USD	48,162	NOK	280,000	HSBC Holdings Plc	10/03/12		(704	)
USD	48,165	NOK	280,000	UBS AG	10/03/12		(701	)
USD	95,888	NZD	120,000	Deutsche Bank AG	10/03/12		(3,535	)
USD	91,927	NZD	115,000	HSBC Holdings Plc	10/03/12		(3,353	)
USD	91,896	NZD	115,000	UBS AG	10/03/12		(3,385	)
USD	382,269	SEK	2,550,000	Deutsche Bank AG	10/03/12		(5,871	)
USD	371,034	SEK	2,475,000	HSBC Holdings Plc	10/03/12		(5,690	)
USD	371,053	SEK	2,475,000	UBS AG	10/03/12		(5,672	)
USD	107,752	SGD	135,000	Deutsche Bank AG	10/03/12		(2,254	)

Currency Purchased			Currency Sold	Counterparty	Settlement Date	Unrea- lized Appre- ciation (Depre- ciation)
USD	103,735	SGD	130,000	HSBC Holdings Plc	10/03/12	$	(2,197	)
USD	107,743	SGD	135,000	UBS AG	10/03/12		(2,263	)
USD	429,769	THB	13,500,000	HSBC Holdings Plc	10/03/12		(8,662	)
USD	120,175	ZAR	1,020,000	Deutsche Bank AG	10/03/12		(2,290	)
USD	116,613	ZAR	990,000	HSBC Holdings Plc	10/03/12		(2,250	)
USD	116,685	ZAR	990,000	UBS AG	10/03/12		(2,178	)
ZAR	750,000	USD	90,779	Deutsche Bank AG	10/03/12		(731	)
ZAR	750,000	USD	91,163	HSBC Holdings Plc	10/03/12		(1,116	)
ZAR	1,500,000	USD	181,495	UBS AG	10/03/12		(1,400	)
AUD	155,000	USD	162,535	HSBC Holdings Plc	10/09/12		(1,925	)
AUD	113,000	USD	118,306	HSBC Holdings Plc	10/09/12		(1,217	)
AUD	630,000	USD	659,092	Royal Bank of Canada	10/09/12		(6,291	)
AUD	285,000	USD	301,232	Royal Bank of Canada	10/09/12		(5,917	)
AUD	388,000	USD	406,449	Royal Bank of Canada	10/09/12		(4,407	)
AUD	428,000	USD	444,788	Royal Bank of Canada	10/09/12		(1,298	)
AUD	194,000	USD	201,991	Royal Bank of Canada	10/09/12		(970	)
AUD	260,000	USD	270,182	Royal Bank of Canada	10/09/12		(772	)
AUD	154,000	USD	160,343	Royal Bank of Canada	10/09/12		(770	)
AUD	65,000	USD	68,096	Royal Bank of Canada	10/09/12		(743	)
AUD	224,000	USD	231,804	Royal Bank of Canada	10/09/12		303
AUD	61,000	USD	62,400	Royal Bank of Canada	10/09/12		807
AUD	234,000	USD	241,118	Royal Bank of Canada	10/09/12		1,351
AUD	584,000	USD	595,998	Royal Bank of Canada	10/09/12		9,138
AUD	885,000	USD	926,622	Westpac Banking Corp.	10/09/12		(9,592	)
AUD	565,000	USD	592,739	Westpac Banking Corp.	10/09/12		(7,291	)
AUD	336,000	USD	352,333	Westpac Banking Corp.	10/09/12		(4,172	)
AUD	341,000	USD	357,037	Westpac Banking Corp.	10/09/12		(3,696	)
AUD	193,000	USD	203,362	Westpac Banking Corp.	10/09/12		(3,377	)
AUD	188,000	USD	197,890	Westpac Banking Corp.	10/09/12		(3,086	)
AUD	175,000	USD	183,666	Westpac Banking Corp.	10/09/12		(2,332	)
AUD	84,000	USD	88,510	Westpac Banking Corp.	10/09/12		(1,470	)
AUD	276,000	USD	286,977	Westpac Banking Corp.	10/09/12		(988	)
AUD	189,000	USD	196,740	Westpac Banking Corp.	10/09/12		(899	)
AUD	75,000	USD	78,252	Westpac Banking Corp.	10/09/12		(538	)
AUD	50,000	USD	52,188	Westpac Banking Corp.	10/09/12		(378	)
AUD	76,000	USD	79,009	Westpac Banking Corp.	10/09/12		(258	)
AUD	39,000	USD	39,277	Westpac Banking Corp.	10/09/12		1,135
AUD	117,000	USD	118,868	Westpac Banking Corp.	10/09/12		2,366
AUD	336,000	USD	344,921	Westpac Banking Corp.	10/09/12		3,240
AUD	532,000	USD	537,713	Westpac Banking Corp.	10/09/12		13,541
CAD	46,000	USD	46,228	HSBC Holdings Plc	10/09/12		552
CAD	150,000	USD	151,483	HSBC Holdings Plc	10/09/12		1,059

See Notes to Financial Statements.
	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012	17

Schedule of Investments (continued)

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unrealized Appreciation (Depreciation)
CAD	516,500	USD	505,275	HSBC Holdings Plc	10/09/12	$	19,978
CAD	851,000	USD	832,506	HSBC Holdings Plc	10/09/12		32,917
CAD	70,000	USD	69,608	Royal Bank of Canada	10/09/12		1,578
CAD	75,000	USD	74,313	Royal Bank of Canada	10/09/12		1,958
CAD	152,000	USD	150,369	Royal Bank of Canada	10/09/12		4,207
CAD	437,000	USD	429,866	Royal Bank of Canada	10/09/12		14,540
CAD	516,500	USD	505,260	Westpac Banking Corp.	10/09/12		19,993
CAD	851,000	USD	832,481	Westpac Banking Corp.	10/09/12		32,941
CHF	879,000	USD	893,293	Credit Suisse Group AG	10/09/12		41,519
CHF	32,000	USD	32,643	HSBC Holdings Plc	10/09/12		1,389
CHF	81,000	USD	82,969	HSBC Holdings Plc	10/09/12		3,174
CHF	117,000	USD	119,215	HSBC Holdings Plc	10/09/12		5,214
CHF	161,000	USD	163,799	HSBC Holdings Plc	10/09/12		7,423
CHF	236,000	USD	242,828	HSBC Holdings Plc	10/09/12		8,156
CHF	245,000	USD	251,483	HSBC Holdings Plc	10/09/12		9,073
CHF	274,000	USD	281,048	HSBC Holdings Plc	10/09/12		10,350
CHF	293,000	USD	298,358	HSBC Holdings Plc	10/09/12		13,246
CHF	810,000	USD	820,416	HSBC Holdings Plc	10/09/12		41,014
CHF	74,000	USD	75,835	Royal Bank of Canada	10/09/12		2,863
CHF	81,000	USD	82,940	Westpac Banking Corp.	10/09/12		3,203
CHF	245,000	USD	251,559	Westpac Banking Corp.	10/09/12		8,997
CHF	574,000	USD	583,458	Westpac Banking Corp.	10/09/12		26,988
EUR	237,000	USD	298,106	Deutsche Bank AG	10/09/12		6,486
EUR	698,000	USD	903,243	HSBC Holdings Plc	10/09/12		(6,001	)
EUR	157,000	USD	203,032	HSBC Holdings Plc	10/09/12		(1,217	)
EUR	240,000	USD	309,072	HSBC Holdings Plc	10/09/12		(626	)
EUR	26,000	USD	32,575	HSBC Holdings Plc	10/09/12		840
EUR	65,000	USD	82,010	HSBC Holdings Plc	10/09/12		1,528
EUR	47,000	USD	58,413	HSBC Holdings Plc	10/09/12		1,991
EUR	113,000	USD	138,860	HSBC Holdings Plc	10/09/12		6,367
EUR	355,000	USD	448,504	HSBC Holdings Plc	10/09/12		7,740
EUR	354,500	USD	446,275	HSBC Holdings Plc	10/09/12		9,326
EUR	216,000	USD	267,189	HSBC Holdings Plc	10/09/12		10,413
EUR	356,000	USD	445,522	HSBC Holdings Plc	10/09/12		12,007
EUR	475,000	USD	597,524	HSBC Holdings Plc	10/09/12		12,943
EUR	248,000	USD	305,523	HSBC Holdings Plc	10/09/12		13,206
EUR	341,000	USD	420,209	HSBC Holdings Plc	10/09/12		18,042
EUR	480,000	USD	596,463	HSBC Holdings Plc	10/09/12		20,430
EUR	478,000	USD	589,558	HSBC Holdings Plc	10/09/12		24,765
EUR	482,000	USD	594,556	HSBC Holdings Plc	10/09/12		24,908
EUR	482,000	USD	594,227	HSBC Holdings Plc	10/09/12		25,237
EUR	488,000	USD	601,080	HSBC Holdings Plc	10/09/12		26,095

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unrealized Appreciation (Depreciation)
EUR	488,000	USD	599,668	HSBC Holdings Plc	10/09/12	$	27,508
EUR	143,000	USD	177,017	JPMorgan Chase & Co.	10/09/12		6,766
EUR	707,500	USD	911,964	Royal Bank of Canada	10/09/12		(2,688	)
EUR	699,000	USD	899,615	Royal Bank of Canada	10/09/12		(1,264	)
EUR	31,000	USD	38,044	Royal Bank of Canada	10/09/12		1,797
EUR	94,000	USD	118,535	Royal Bank of Canada	10/09/12		2,274
EUR	49,000	USD	60,561	Royal Bank of Canada	10/09/12		2,413
EUR	237,000	USD	297,999	Royal Bank of Canada	10/09/12		6,593
EUR	282,000	USD	355,604	Royal Bank of Canada	10/09/12		6,821
EUR	429,000	USD	539,163	Royal Bank of Canada	10/09/12		12,186
EUR	366,000	USD	449,532	Royal Bank of Canada	10/09/12		20,849
EUR	601,000	USD	737,643	Royal Bank of Canada	10/09/12		34,759
EUR	964,000	USD	1,172,335	Royal Bank of Canada	10/09/12		66,593
EUR	693,000	USD	894,691	State Street Corp.	10/09/12		(4,051	)
EUR	44,000	USD	56,806	State Street Corp.	10/09/12		(257	)
EUR	489,000	USD	602,556	State Street Corp.	10/09/12		25,905
EUR	430,000	USD	522,910	UBS AG	10/09/12		29,724
EUR	709,000	USD	921,682	Westpac Banking Corp.	10/09/12		(10,479	)
EUR	346,000	USD	451,224	Westpac Banking Corp.	10/09/12		(6,546	)
EUR	707,500	USD	910,692	Westpac Banking Corp.	10/09/12		(1,416	)
EUR	207,000	USD	267,352	Westpac Banking Corp.	10/09/12		(1,317	)
EUR	692,000	USD	890,244	Westpac Banking Corp.	10/09/12		(889	)
EUR	129,000	USD	165,122	Westpac Banking Corp.	10/09/12		668
EUR	155,000	USD	198,518	Westpac Banking Corp.	10/09/12		687
EUR	290,000	USD	371,205	Westpac Banking Corp.	10/09/12		1,501
EUR	32,000	USD	39,347	Westpac Banking Corp.	10/09/12		1,779
EUR	96,000	USD	121,579	Westpac Banking Corp.	10/09/12		1,800
EUR	208,000	USD	263,421	Westpac Banking Corp.	10/09/12		3,899
EUR	125,000	USD	156,492	Westpac Banking Corp.	10/09/12		4,158
EUR	356,000	USD	447,444	Westpac Banking Corp.	10/09/12		10,085
EUR	248,000	USD	305,495	Westpac Banking Corp.	10/09/12		13,233
EUR	754,000	USD	926,110	Westpac Banking Corp.	10/09/12		42,928
GBP	513,000	USD	833,649	HSBC Holdings Plc	10/09/12		(5,283	)
GBP	166,000	USD	269,292	HSBC Holdings Plc	10/09/12		(1,244	)
GBP	72,000	USD	117,057	HSBC Holdings Plc	10/09/12		(796	)
GBP	25,000	USD	39,750	HSBC Holdings Plc	10/09/12		618
GBP	51,000	USD	80,477	HSBC Holdings Plc	10/09/12		1,875
GBP	78,000	USD	122,365	HSBC Holdings Plc	10/09/12		3,585
GBP	80,000	USD	125,172	HSBC Holdings Plc	10/09/12		4,008
GBP	113,000	USD	176,899	HSBC Holdings Plc	10/09/12		5,567
GBP	201,000	USD	313,357	HSBC Holdings Plc	10/09/12		11,207
GBP	233,500	USD	362,280	HSBC Holdings Plc	10/09/12		14,764

See Notes to Financial Statements.
18	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012

Schedule of Investments (continued)

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unrea- lized Appre- ciation (Depre- ciation)
GBP	656,000	USD	1,015,399	HSBC Holdings Plc	10/09/12	$	43,875
GBP	122,000	USD	198,429	Royal Bank of Canada	10/09/12		(1,430	)
GBP	123,000	USD	199,581	Royal Bank of Canada	10/09/12		(967	)
GBP	128,000	USD	201,673	Royal Bank of Canada	10/09/12		5,014
GBP	152,000	USD	239,487	Royal Bank of Canada	10/09/12		5,954
GBP	4,000	USD	6,245	Westpac Banking Corp.	10/09/12		214
GBP	25,000	USD	38,754	Westpac Banking Corp.	10/09/12		1,614
GBP	233,500	USD	362,228	Westpac Banking Corp.	10/09/12		14,815
JPY	2,900,000	USD	37,014	Deutsche Bank AG	10/09/12		150
JPY	4,800,000	USD	61,850	HSBC Holdings Plc	10/09/12		(337	)
JPY	3,000,000	USD	38,408	HSBC Holdings Plc	10/09/12		38
JPY	2,200,000	USD	27,970	HSBC Holdings Plc	10/09/12		223
JPY	9,600,000	USD	122,787	HSBC Holdings Plc	10/09/12		239
JPY	5,400,000	USD	68,809	HSBC Holdings Plc	10/09/12		393
JPY	3,200,000	USD	40,368	HSBC Holdings Plc	10/09/12		640
JPY	13,000,000	USD	165,888	HSBC Holdings Plc	10/09/12		709
JPY	9,500,000	USD	120,978	HSBC Holdings Plc	10/09/12		765
JPY	6,100,000	USD	77,025	HSBC Holdings Plc	10/09/12		1,147
JPY	8,800,000	USD	111,118	HSBC Holdings Plc	10/09/12		1,655
JPY	9,500,000	USD	119,651	HSBC Holdings Plc	10/09/12		2,093
JPY	14,000,000	USD	176,676	HSBC Holdings Plc	10/09/12		2,735
JPY	17,700,000	USD	223,040	HSBC Holdings Plc	10/09/12		3,788
JPY	59,400,000	USD	748,507	HSBC Holdings Plc	10/09/12		12,712
JPY	56,700,000	USD	726,268	JPMorgan Chase & Co.	10/09/12		351
JPY	3,000,000	USD	38,348	Royal Bank of Canada	10/09/12		98
JPY	3,000,000	USD	38,365	Westpac Banking Corp.	10/09/12		80
JPY	2,400,000	USD	30,590	Westpac Banking Corp.	10/09/12		166
JPY	3,100,000	USD	39,507	Westpac Banking Corp.	10/09/12		220
JPY	18,700,000	USD	239,226	Westpac Banking Corp.	10/09/12		417
JPY	3,100,000	USD	39,148	Westpac Banking Corp.	10/09/12		579
JPY	16,900,000	USD	215,944	Westpac Banking Corp.	10/09/12		632
JPY	9,300,000	USD	118,479	Westpac Banking Corp.	10/09/12		701
JPY	15,500,000	USD	197,780	Westpac Banking Corp.	10/09/12		854
JPY	16,500,000	USD	210,540	Westpac Banking Corp.	10/09/12		909
JPY	21,600,000	USD	275,616	Westpac Banking Corp.	10/09/12		1,191
JPY	12,500,000	USD	158,388	Westpac Banking Corp.	10/09/12		1,801
JPY	34,700,000	USD	442,707	Westpac Banking Corp.	10/09/12		1,979
JPY	19,000,000	USD	239,123	Westpac Banking Corp.	10/09/12		4,365
NOK	3,322,000	USD	578,303	HSBC Holdings Plc	10/09/12		1,323
NOK	336,000	USD	55,020	HSBC Holdings Plc	10/09/12		3,605
NOK	473,000	USD	77,865	HSBC Holdings Plc	10/09/12		4,664
NOK	1,211,000	USD	198,075	HSBC Holdings Plc	10/09/12		13,221

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
NOK	2,388,000	USD	391,352	HSBC Holdings Plc	10/09/12	$	25,308
NOK	3,443,500	USD	564,073	HSBC Holdings Plc	10/09/12		36,752
NOK	5,192,000	USD	888,554	JPMorgan Chase & Co.	10/09/12		17,351
NOK	2,173,000	USD	355,818	Royal Bank of Canada	10/09/12		23,329
NOK	1,435,000	USD	236,985	State Street Corp.	10/09/12		13,395
NOK	1,731,000	USD	296,696	Westpac Banking Corp.	10/09/12		5,330
NOK	3,443,500	USD	563,524	Westpac Banking Corp.	10/09/12		37,301
NZD	74,500	USD	58,989	HSBC Holdings Plc	10/09/12		2,712
NZD	496,000	USD	392,729	HSBC Holdings Plc	10/09/12		18,054
NZD	371,000	USD	299,360	Royal Bank of Canada	10/09/12		7,899
NZD	182,000	USD	150,091	Westpac Banking Corp.	10/09/12		640
NZD	218,000	USD	179,779	Westpac Banking Corp.	10/09/12		767
NZD	180,000	USD	147,569	Westpac Banking Corp.	10/09/12		1,506
NZD	558,000	USD	460,246	Westpac Banking Corp.	10/09/12		1,885
NZD	74,500	USD	58,966	Westpac Banking Corp.	10/09/12		2,734
NZD	496,000	USD	392,578	Westpac Banking Corp.	10/09/12		18,205
SEK	4,863,000	USD	741,869	HSBC Holdings Plc	10/09/12		(1,798	)
SEK	288,000	USD	42,849	HSBC Holdings Plc	10/09/12		980
SEK	3,898,000	USD	590,114	HSBC Holdings Plc	10/09/12		3,100
SEK	2,977,000	USD	448,489	HSBC Holdings Plc	10/09/12		4,563
SEK	4,050,000	USD	596,156	HSBC Holdings Plc	10/09/12		20,190
SEK	6,093,500	USD	867,277	HSBC Holdings Plc	10/09/12		60,057
SEK	2,963,000	USD	446,181	State Street Corp.	10/09/12		4,740
SEK	3,911,000	USD	596,194	UBS AG	10/09/12		(1,001	)
SEK	2,907,000	USD	439,031	Westpac Banking Corp.	10/09/12		3,368
SEK	6,093,500	USD	866,717	Westpac Banking Corp.	10/09/12		60,617
USD	619,917	AUD	614,000	HSBC Holdings Plc	10/09/12		(16,305	)
USD	523,496	AUD	518,500	HSBC Holdings Plc	10/09/12		(13,769	)
USD	297,401	AUD	291,000	HSBC Holdings Plc	10/09/12		(4,131	)
USD	159,385	AUD	156,000	HSBC Holdings Plc	10/09/12		(2,261	)
USD	590,237	AUD	571,000	HSBC Holdings Plc	10/09/12		(1,429	)
USD	592,111	AUD	571,000	HSBC Holdings Plc	10/09/12		445
USD	57,747	AUD	55,000	HSBC Holdings Plc	10/09/12		757
USD	444,686	AUD	428,000	HSBC Holdings Plc	10/09/12		1,196
USD	277,931	AUD	274,000	Royal Bank of Canada	10/09/12		(5,986	)
USD	33,115	AUD	32,000	Royal Bank of Canada	10/09/12		(43	)
USD	35,498	AUD	34,000	Royal Bank of Canada	10/09/12		268
USD	74,143	AUD	71,000	Royal Bank of Canada	10/09/12		573
USD	588,028	AUD	566,000	Royal Bank of Canada	10/09/12		1,543
USD	394,986	AUD	379,000	Royal Bank of Canada	10/09/12		2,269
USD	295,034	AUD	282,000	Royal Bank of Canada	10/09/12		2,828
USD	509,626	AUD	489,000	Royal Bank of Canada	10/09/12		2,928

See Notes to Financial Statements.
	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012	19

Schedule of Investments (continued)

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
USD	620,405	AUD	614,000	Westpac Banking Corp.	10/09/12	$	(15,817	)
USD	523,908	AUD	518,500	Westpac Banking Corp.	10/09/12		(13,357	)
USD	329,523	AUD	321,000	Westpac Banking Corp.	10/09/12		(3,095	)
USD	197,299	AUD	193,000	Westpac Banking Corp.	10/09/12		(2,687	)
USD	212,715	AUD	206,000	Westpac Banking Corp.	10/09/12		(741	)
USD	114,685	AUD	111,000	Westpac Banking Corp.	10/09/12		(333	)
USD	38,472	AUD	37,000	Westpac Banking Corp.	10/09/12		132
USD	39,516	AUD	38,000	Westpac Banking Corp.	10/09/12		140
USD	385,152	AUD	370,000	Westpac Banking Corp.	10/09/12		1,760
USD	626,009	AUD	602,000	Westpac Banking Corp.	10/09/12		2,221
USD	440,924	AUD	421,000	Westpac Banking Corp.	10/09/12		4,687
USD	14,003	CAD	14,000	HSBC Holdings Plc	10/09/12		(235	)
USD	246,668	CAD	249,000	Royal Bank of Canada	10/09/12		(6,552	)
USD	29,510	CAD	30,000	Royal Bank of Canada	10/09/12		(998	)
USD	34,672	CAD	35,000	Royal Bank of Canada	10/09/12		(921	)
USD	215,849	CAD	213,000	Royal Bank of Canada	10/09/12		(761	)
USD	163,343	CAD	166,000	Westpac Banking Corp.	10/09/12		(5,470	)
USD	1,565,880	CHF	1,546,000	HSBC Holdings Plc	10/09/12		(78,282	)
USD	880,963	CHF	867,000	HSBC Holdings Plc	10/09/12		(41,086	)
USD	866,847	CHF	844,500	HSBC Holdings Plc	10/09/12		(31,274	)
USD	867,109	CHF	844,500	Westpac Banking Corp.	10/09/12		(31,012	)
USD	31,446	EUR	25,000	Deutsche Bank AG	10/09/12		(684	)
USD	1,043,969	EUR	840,000	HSBC Holdings Plc	10/09/12		(35,595	)
USD	765,654	EUR	621,500	HSBC Holdings Plc	10/09/12		(33,094	)
USD	703,339	EUR	573,000	HSBC Holdings Plc	10/09/12		(33,078	)
USD	836,418	EUR	673,000	HSBC Holdings Plc	10/09/12		(28,518	)
USD	595,269	EUR	482,000	HSBC Holdings Plc	10/09/12		(24,195	)
USD	358,075	EUR	296,000	HSBC Holdings Plc	10/09/12		(22,343	)
USD	325,191	EUR	266,000	HSBC Holdings Plc	10/09/12		(16,671	)
USD	293,280	EUR	240,000	HSBC Holdings Plc	10/09/12		(15,166	)
USD	595,980	EUR	475,000	HSBC Holdings Plc	10/09/12		(14,488	)
USD	596,063	EUR	475,000	HSBC Holdings Plc	10/09/12		(14,404	)
USD	295,185	EUR	240,000	HSBC Holdings Plc	10/09/12		(13,262	)
USD	360,420	EUR	290,000	HSBC Holdings Plc	10/09/12		(12,287	)
USD	135,810	EUR	112,000	HSBC Holdings Plc	10/09/12		(8,132	)
USD	148,481	EUR	121,000	HSBC Holdings Plc	10/09/12		(7,027	)
USD	297,564	EUR	237,000	HSBC Holdings Plc	10/09/12		(7,027	)
USD	273,447	EUR	218,000	HSBC Holdings Plc	10/09/12		(6,725	)
USD	241,358	EUR	192,000	HSBC Holdings Plc	10/09/12		(5,400	)
USD	76,170	EUR	62,000	HSBC Holdings Plc	10/09/12		(3,512	)
USD	446,823	EUR	349,000	HSBC Holdings Plc	10/09/12		(1,710	)
USD	33,632	EUR	27,000	HSBC Holdings Plc	10/09/12		(1,069	)

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
USD	32,619	EUR	26,000	HSBC Holdings Plc	10/09/12	$	(796	)
USD	1,198,449	EUR	932,000	HSBC Holdings Plc	10/09/12		647
USD	890,282	EUR	692,000	HSBC Holdings Plc	10/09/12		927
USD	195,205	EUR	151,000	HSBC Holdings Plc	10/09/12		1,140
USD	208,132	EUR	161,000	HSBC Holdings Plc	10/09/12		1,216
USD	593,846	EUR	461,000	HSBC Holdings Plc	10/09/12		1,371
USD	898,886	EUR	698,000	HSBC Holdings Plc	10/09/12		1,820
USD	154,760	EUR	118,000	HSBC Holdings Plc	10/09/12		3,107
USD	745,728	EUR	571,000	HSBC Holdings Plc	10/09/12		11,882
USD	60,656	EUR	49,000	JPMorgan Chase & Co.	10/09/12		(2,318	)
USD	35,842	EUR	29,000	Royal Bank of Canada	10/09/12		(1,428	)
USD	43,863	EUR	35,000	Royal Bank of Canada	10/09/12		(1,118	)
USD	41,445	EUR	32,000	Royal Bank of Canada	10/09/12		319
USD	164,620	EUR	126,000	Royal Bank of Canada	10/09/12		2,685
USD	901,975	EUR	699,000	Royal Bank of Canada	10/09/12		3,448
USD	910,504	EUR	703,000	Royal Bank of Canada	10/09/12		7,012
USD	506,203	EUR	387,000	Royal Bank of Canada	10/09/12		8,832
USD	712,912	EUR	544,000	Royal Bank of Canada	10/09/12		13,766
USD	446,516	EUR	349,000	State Street Corp.	10/09/12		(2,017	)
USD	893,443	EUR	712,000	UBS AG	10/09/12		(21,616	)
USD	594,263	EUR	456,000	UBS AG	10/09/12		8,214
USD	886,753	EUR	722,000	Westpac Banking Corp.	10/09/12		(41,158	)
USD	765,585	EUR	621,500	Westpac Banking Corp.	10/09/12		(33,163	)
USD	588,646	EUR	483,000	Westpac Banking Corp.	10/09/12		(32,104	)
USD	592,294	EUR	482,000	Westpac Banking Corp.	10/09/12		(27,170	)
USD	592,596	EUR	481,000	Westpac Banking Corp.	10/09/12		(25,582	)
USD	469,388	EUR	383,000	Westpac Banking Corp.	10/09/12		(22,842	)
USD	233,625	EUR	189,000	Westpac Banking Corp.	10/09/12		(9,277	)
USD	115,717	EUR	94,000	Westpac Banking Corp.	10/09/12		(5,091	)
USD	120,056	EUR	97,000	Westpac Banking Corp.	10/09/12		(4,608	)
USD	82,834	EUR	67,000	Westpac Banking Corp.	10/09/12		(3,274	)
USD	446,262	EUR	349,000	Westpac Banking Corp.	10/09/12		(2,271	)
USD	129,156	EUR	100,000	Westpac Banking Corp.	10/09/12		636
USD	90,998	EUR	70,000	Westpac Banking Corp.	10/09/12		1,035
USD	685,704	GBP	443,000	HSBC Holdings Plc	10/09/12		(29,629	)
USD	921,156	GBP	587,000	HSBC Holdings Plc	10/09/12		(26,700	)
USD	470,886	GBP	303,500	HSBC Holdings Plc	10/09/12		(19,190	)
USD	437,976	GBP	279,000	HSBC Holdings Plc	10/09/12		(12,538	)
USD	354,858	GBP	227,000	HSBC Holdings Plc	10/09/12		(11,689	)
USD	260,806	GBP	166,000	HSBC Holdings Plc	10/09/12		(7,242	)
USD	395,738	GBP	249,000	HSBC Holdings Plc	10/09/12		(6,334	)
USD	357,595	GBP	225,000	HSBC Holdings Plc	10/09/12		(5,724	)

See Notes to Financial Statements.
20	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012

Schedule of Investments (continued)

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
USD	123,371	GBP	79,000	HSBC Holdings Plc	10/09/12	$	(4,194	)
USD	233,245	GBP	147,000	HSBC Holdings Plc	10/09/12		(4,123	)
USD	114,599	GBP	73,000	HSBC Holdings Plc	10/09/12		(3,277	)
USD	145,620	GBP	92,000	HSBC Holdings Plc	10/09/12		(2,937	)
USD	199,379	GBP	125,000	HSBC Holdings Plc	10/09/12		(2,465	)
USD	194,594	GBP	122,000	HSBC Holdings Plc	10/09/12		(2,405	)
USD	155,881	GBP	98,000	HSBC Holdings Plc	10/09/12		(2,364	)
USD	57,774	GBP	37,000	HSBC Holdings Plc	10/09/12		(1,972	)
USD	46,832	GBP	30,000	HSBC Holdings Plc	10/09/12		(1,610	)
USD	61,604	GBP	39,000	HSBC Holdings Plc	10/09/12		(1,371	)
USD	140,897	GBP	88,000	HSBC Holdings Plc	10/09/12		(1,200	)
USD	159,085	GBP	98,000	HSBC Holdings Plc	10/09/12		850
USD	195,510	GBP	125,000	Royal Bank of Canada	10/09/12		(6,334	)
USD	191,273	GBP	122,000	Royal Bank of Canada	10/09/12		(5,726	)
USD	160,305	GBP	99,000	Royal Bank of Canada	10/09/12		445
USD	470,819	GBP	303,500	Westpac Banking Corp.	10/09/12		(19,257	)
USD	165,868	GBP	107,000	Westpac Banking Corp.	10/09/12		(6,910	)
USD	278,823	GBP	176,000	Westpac Banking Corp.	10/09/12		(5,373	)
USD	209,117	GBP	132,000	Westpac Banking Corp.	10/09/12		(4,030	)
USD	83,108	GBP	53,000	Westpac Banking Corp.	10/09/12		(2,473	)
USD	57,488	GBP	37,000	Westpac Banking Corp.	10/09/12		(2,257	)
USD	807,786	JPY	64,300,000	HSBC Holdings Plc	10/09/12		(16,227	)
USD	548,993	JPY	43,700,000	HSBC Holdings Plc	10/09/12		(11,029	)
USD	295,455	JPY	23,450,000	HSBC Holdings Plc	10/09/12		(5,060	)
USD	39,113	JPY	3,100,000	HSBC Holdings Plc	10/09/12		(614	)
USD	358,229	JPY	28,000,000	HSBC Holdings Plc	10/09/12		(595	)
USD	45,590	JPY	3,600,000	HSBC Holdings Plc	10/09/12		(544	)
USD	36,737	JPY	2,900,000	HSBC Holdings Plc	10/09/12		(427	)
USD	38,227	JPY	3,000,000	HSBC Holdings Plc	10/09/12		(218	)
USD	148,441	JPY	11,600,000	HSBC Holdings Plc	10/09/12		(215	)
USD	127,992	JPY	10,000,000	HSBC Holdings Plc	10/09/12		(159	)
USD	148,593	JPY	11,600,000	HSBC Holdings Plc	10/09/12		(63	)
USD	295,245	JPY	23,000,000	HSBC Holdings Plc	10/09/12		497
USD	299,094	JPY	23,300,000	HSBC Holdings Plc	10/09/12		501
USD	123,558	JPY	9,600,000	Royal Bank of Canada	10/09/12		533
USD	808,142	JPY	64,300,000	Westpac Banking Corp.	10/09/12		(15,871	)
USD	549,235	JPY	43,700,000	Westpac Banking Corp.	10/09/12		(10,786	)
USD	161,580	JPY	12,800,000	Westpac Banking Corp.	10/09/12		(2,454	)
USD	113,622	JPY	9,000,000	Westpac Banking Corp.	10/09/12		(1,714	)
USD	112,734	JPY	8,900,000	Westpac Banking Corp.	10/09/12		(1,321	)
USD	301,630	JPY	23,600,000	Westpac Banking Corp.	10/09/12		(807	)
USD	83,055	JPY	6,500,000	Westpac Banking Corp.	10/09/12		(243	)

Currency Purchased		Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
USD	42,535	JPY	3,300,000	Westpac Banking Corp.	10/09/12	$	239
USD	176,586	JPY	13,700,000	Westpac Banking Corp.	10/09/12		990
USD	631,996	NOK	3,760,000	HSBC Holdings Plc	10/09/12		(24,052	)
USD	270,939	NOK	1,654,000	HSBC Holdings Plc	10/09/12		(17,653	)
USD	274,226	NOK	1,625,000	HSBC Holdings Plc	10/09/12		(9,306	)
USD	447,853	NOK	2,605,000	HSBC Holdings Plc	10/09/12		(6,669	)
USD	86,330	NOK	527,000	HSBC Holdings Plc	10/09/12		(5,622	)
USD	123,660	NOK	736,000	HSBC Holdings Plc	10/09/12		(4,758	)
USD	298,371	NOK	1,737,000	HSBC Holdings Plc	10/09/12		(4,702	)
USD	83,256	NOK	494,000	HSBC Holdings Plc	10/09/12		(2,938	)
USD	21,842	NOK	130,000	HSBC Holdings Plc	10/09/12		(840	)
USD	316,182	NOK	1,927,000	State Street Corp.	10/09/12		(20,043	)
USD	270,675	NOK	1,654,000	Westpac Banking Corp.	10/09/12		(17,916	)
USD	472,477	NOK	2,751,000	Westpac Banking Corp.	10/09/12		(7,519	)
USD	440,239	NZD	550,000	JPMorgan Chase & Co.	10/09/12		(15,266	)
USD	181,315	NZD	230,000	JPMorgan Chase & Co.	10/09/12		(9,169	)
USD	301,839	NZD	362,000	Royal Bank of Canada	10/09/12		2,034
USD	234,013	NZD	298,000	Westpac Banking Corp.	10/09/12		(12,788	)
USD	18,797	NZD	23,000	Westpac Banking Corp.	10/09/12		(252	)
USD	295,684	SEK	1,976,000	Credit Suisse Group AG	10/09/12		(5,032	)
USD	233,702	SEK	1,634,000	Deutsche Bank AG	10/09/12		(14,967	)
USD	708,293	SEK	4,971,000	HSBC Holdings Plc	10/09/12		(48,215	)
USD	603,054	SEK	4,113,000	HSBC Holdings Plc	10/09/12		(22,880	)
USD	432,574	SEK	2,921,000	HSBC Holdings Plc	10/09/12		(11,956	)
USD	612,039	SEK	4,073,000	HSBC Holdings Plc	10/09/12		(7,807	)
USD	81,262	SEK	573,000	HSBC Holdings Plc	10/09/12		(5,939	)
USD	78,352	SEK	550,500	HSBC Holdings Plc	10/09/12		(5,426	)
USD	20,532	SEK	138,000	HSBC Holdings Plc	10/09/12		(469	)
USD	898,863	SEK	5,860,000	HSBC Holdings Plc	10/09/12		7,576
USD	584,506	SEK	3,908,000	JPMorgan Chase & Co.	10/09/12		(10,230	)
USD	904,147	SEK	5,978,000	State Street Corp.	10/09/12		(5,610	)
USD	78,301	SEK	550,500	Westpac Banking Corp.	10/09/12		(5,476	)
USD	442,723	SEK	2,915,000	Westpac Banking Corp.	10/09/12		(894	)
AUD	791,000	USD	802,861	JPMorgan Chase & Co.	10/18/12		16,049
USD	378,728	MYR	1,200,000	HSBC Holdings Plc	10/24/12		(13,089	)
AUD	150,000	USD	155,530	UBS AG	11/05/12		(757	)
BRL	290,000	USD	142,087	HSBC Holdings Plc	11/05/12		220
BRL	170,000	USD	83,477	UBS AG	11/05/12		(239	)
USD	649,297	AUD	625,000	Deutsche Bank AG	11/05/12		3,283
USD	649,363	AUD	625,000	Goldman Sachs Group, Inc.	11/05/12		3,349
USD	648,619	AUD	625,000	HSBC Holdings Plc	11/05/12		2,605

See Notes to Financial Statements.
	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012	21

Schedule of Investments (continued)

Currency Purchased	Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
USD 648,549	AUD	625,000	UBS AG	11/05/12	$	2,535
USD 1,320,681	BRL	2,700,000	HSBC Holdings Plc	11/05/12		(4,251	)
USD 278,810	BRL	570,000	HSBC Holdings Plc	11/05/12		(898	)
USD 1,421,440	CAD	1,400,000	Deutsche Bank AG	11/05/12		(1,425	)
USD 1,422,782	CAD	1,400,000	HSBC Holdings Plc	11/05/12		(83	)
USD 2,844,872	CAD	2,800,000	UBS AG	11/05/12		(858	)
USD 60,126	CZK	1,175,000	Deutsche Bank AG	11/05/12		64
USD 60,220	CZK	1,175,000	HSBC Holdings Plc	11/05/12		158
USD 120,381	CZK	2,350,000	UBS AG	11/05/12		257
USD 189,622	DKK	1,100,000	Deutsche Bank AG	11/05/12		(127	)
USD 189,879	DKK	1,100,000	HSBC Holdings Plc	11/05/12		130
USD 379,542	DKK	2,200,000	UBS AG	11/05/12		46
USD 13,354,748	EUR	10,395,000	Deutsche Bank AG	11/05/12		(8,606	)
USD 13,373,251	EUR	10,395,000	HSBC Holdings Plc	11/05/12		9,897
USD 218,777	EUR	170,000	UBS AG	11/05/12		181
USD 26,730,535	EUR	20,790,000	UBS AG	11/05/12		3,827
USD 4,079,849	GBP	2,521,250	Deutsche Bank AG	11/05/12		9,014
USD 4,082,055	GBP	2,521,250	HSBC Holdings Plc	11/05/12		11,221
USD 8,164,276	GBP	5,042,500	UBS AG	11/05/12		22,608
USD 76,520	ILS	300,000	Deutsche Bank AG	11/05/12		92
USD 76,524	ILS	300,000	HSBC Holdings Plc	11/05/12		96
USD 153,335	ILS	600,000	UBS AG	11/05/12		479
USD 10,079,983	JPY	782,500,000	Deutsche Bank AG	11/05/12		49,868
USD 10,079,580	JPY	782,500,000	HSBC Holdings Plc	11/05/12		49,465
USD 20,161,083	JPY	1,565,000,000	UBS AG	11/05/12		100,852
USD 164,509	MXN	2,125,000	Deutsche Bank AG	11/05/12		95
USD 164,733	MXN	2,125,000	HSBC Holdings Plc	11/05/12		320
USD 329,369	MXN	4,250,000	UBS AG	11/05/12		541
USD 37,042	NOK	212,500	Deutsche Bank AG	11/05/12		4
USD 37,066	NOK	212,500	HSBC Holdings Plc	11/05/12		27
USD 74,126	NOK	425,000	UBS AG	11/05/12		48
USD 72,345	NZD	87,500	Deutsche Bank AG	11/05/12		10
USD 72,413	NZD	87,500	HSBC Holdings Plc	11/05/12		78
USD 144,855	NZD	175,000	UBS AG	11/05/12		185
USD 285,525	SEK	1,875,000	Deutsche Bank AG	11/05/12		415
USD 285,850	SEK	1,875,000	HSBC Holdings Plc	11/05/12		739
USD 571,547	SEK	3,750,000	UBS AG	11/05/12		1,325
USD 81,375	SGD	100,000	Deutsche Bank AG	11/05/12		(107	)
USD 81,419	SGD	100,000	HSBC Holdings Plc	11/05/12		(63	)
USD 162,862	SGD	200,000	UBS AG	11/05/12		(102	)
USD 435,357	THB	13,500,000	HSBC Holdings Plc	11/05/12		(1,992	)
USD 90,370	ZAR	750,000	Deutsche Bank AG	11/05/12		743

Currency Purchased	Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
USD 90,752	ZAR	750,000	HSBC Holdings Plc	11/05/12	$	1,126
USD 180,679	ZAR	1,500,000	UBS AG	11/05/12		1,425
CHF 791,182	JPY	66,380,000	UBS AG	11/15/12		(8,920	)
JPY 66,380,000	CHF	823,842	JPMorgan Chase & Co.	11/15/12		(25,839	)
CLP 545,900,000	USD	1,116,132	Credit Suisse Group AG	12/04/12		22,837
CLP 36,300,000	USD	76,101	HSBC Holdings Plc	12/04/12		(364	)
COP 386,800,000	USD	213,383	BNP Paribas SA	12/04/12		(404	)
COP 386,800,000	USD	213,348	Citigroup, Inc.	12/04/12		(369	)
CZK 1,340,000	USD	67,964	BNP Paribas SA	12/04/12		540
CZK 2,750,000	USD	138,477	BNP Paribas SA	12/04/12		2,110
CZK 5,250,000	USD	265,534	BNP Paribas SA	12/04/12		2,859
CZK 8,190,000	USD	412,410	BNP Paribas SA	12/04/12		6,284
CZK 5,870,000	USD	303,642	Deutsche Bank AG	12/04/12		(3,553	)
CZK 2,340,000	USD	122,139	Deutsche Bank AG	12/04/12		(2,512	)
CZK 9,640,000	USD	485,760	Deutsche Bank AG	12/04/12		7,061
CZK 5,870,000	USD	302,531	JPMorgan Chase & Co.	12/04/12		(2,441	)
CZK 5,780,000	USD	292,833	JPMorgan Chase & Co.	12/04/12		2,655
HUF 20,400,000	USD	92,879	Bank of America Corp.	12/04/12		(1,752	)
HUF 16,600,000	USD	74,419	Bank of America Corp.	12/04/12		(267	)
HUF 220,200,000	USD	985,720	BNP Paribas SA	12/04/12		(2,077	)
HUF 85,600,000	USD	383,186	BNP Paribas SA	12/04/12		(808	)
HUF 16,600,000	USD	73,652	BNP Paribas SA	12/04/12		501
HUF 26,500,000	USD	119,289	Citigroup, Inc.	12/04/12		(912	)
HUF 51,100,000	USD	226,643	Citigroup, Inc.	12/04/12		1,623
HUF 7,900,000	USD	35,575	Deutsche Bank AG	12/04/12		(367	)
HUF 117,500,000	USD	534,837	Goldman Sachs Group, Inc.	12/04/12		(9,960	)
HUF 13,900,000	USD	62,813	HSBC Holdings Plc	12/04/12		(721	)
HUF 30,200,000	USD	137,408	JPMorgan Chase & Co.	12/04/12		(2,504	)
HUF 43,900,000	USD	197,829	JPMorgan Chase & Co.	12/04/12		(1,726	)
HUF 7,300,000	USD	33,413	JPMorgan Chase & Co.	12/04/12		(803	)
HUF 39,100,000	USD	173,462	Morgan Stanley	12/04/12		1,200
HUF 64,500,000	USD	286,145	Morgan Stanley	12/04/12		1,979
IDR 2,347,200,000	USD	241,905	Citigroup, Inc.	12/04/12		1,047
IDR 1,241,800,000	USD	128,617	Deutsche Bank AG	12/04/12		(82	)
IDR 3,787,200,000	USD	389,029	HSBC Holdings Plc	12/04/12		2,973
ILS 540,000	USD	137,773	Bank of America Corp.	12/04/12		(455	)
ILS 210,000	USD	53,765	Bank of America Corp.	12/04/12		(330	)
ILS 230,000	USD	56,918	Bank of America Corp.	12/04/12		1,606
ILS 310,000	USD	76,894	Bank of America Corp.	12/04/12		1,986
ILS 720,000	USD	182,997	Citigroup, Inc.	12/04/12		209
ILS 830,000	USD	208,873	Citigroup, Inc.	12/04/12		2,322

See Notes to Financial Statements.
22	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012

Schedule of Investments (continued)

Currency Purchased	Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
ILS1,640,000	USD	412,714	Citigroup, Inc.	12/04/12	$	4,588
ILS 830,000	USD	208,020	Credit Suisse Group AG	12/04/12		3,175
ILS 530,000	USD	133,333	Deutsche Bank AG	12/04/12		1,526
ILS 600,000	USD	151,523	HSBC Holdings Plc	12/04/12		1,149
ILS 140,000	USD	35,889	JPMorgan Chase & Co.	12/04/12		(266	)
ILS 290,000	USD	73,915	JPMorgan Chase & Co.	12/04/12		(124	)
ILS 260,000	USD	64,441	JPMorgan Chase & Co.	12/04/12		1,716
INR 4,600,000	USD	81,982	BNP Paribas SA	12/04/12		4,097
INR 6,000,000	USD	111,297	Deutsche Bank AG	12/04/12		980
INR 3,800,000	USD	69,872	Deutsche Bank AG	12/04/12		1,236
INR 6,100,000	USD	111,456	Deutsche Bank AG	12/04/12		2,691
INR 4,100,000	USD	73,306	Deutsche Bank AG	12/04/12		3,416
INR 3,500,000	USD	61,772	Deutsche Bank AG	12/04/12		3,723
INR 5,900,000	USD	104,666	Deutsche Bank AG	12/04/12		5,739
INR 8,500,000	USD	151,326	HSBC Holdings Plc	12/04/12		7,732
INR 5,300,000	USD	93,359	JPMorgan Chase & Co.	12/04/12		5,818
INR 4,500,000	USD	82,042	UBS AG	12/04/12		2,165
INR 33,700,000	USD	597,836	UBS AG	12/04/12		32,783
KRW 42,300,000	USD	37,008	Citigroup, Inc.	12/04/12		922
KRW 5,200,000	USD	4,598	Deutsche Bank AG	12/04/12		65
KRW 52,300,000	USD	46,696	Deutsche Bank AG	12/04/12		201
KRW 189,800,000	USD	169,223	Deutsche Bank AG	12/04/12		970
KRW 82,400,000	USD	72,869	Deutsche Bank AG	12/04/12		1,019
KRW 51,500,000	USD	45,114	Deutsche Bank AG	12/04/12		1,065
KRW 162,100,000	USD	142,037	Deutsche Bank AG	12/04/12		3,317
KRW 210,300,000	USD	184,225	Deutsche Bank AG	12/04/12		4,350
KRW 333,700,000	USD	292,848	Deutsche Bank AG	12/04/12		6,378
KRW 135,100,000	USD	119,146	Goldman Sachs Group, Inc.	12/04/12		1,997
KRW 184,100,000	USD	161,004	Goldman Sachs Group, Inc.	12/04/12		4,077
KRW 33,300,000	USD	29,661	HSBC Holdings Plc	12/04/12		199
KRW 42,700,000	USD	38,074	HSBC Holdings Plc	12/04/12		215
MXN 5,720,000	USD	443,450	Bank of America Corp.	12/04/12		(2,082	)
MXN 366,200	USD	27,841	Bank of America Corp.	12/04/12		416
MXN 1,001,000	USD	76,101	Bank of America Corp.	12/04/12		1,138
MXN 9,870,000	USD	764,553	Citigroup, Inc.	12/04/12		(2,961	)
MXN 1,810,000	USD	137,486	Citigroup, Inc.	12/04/12		2,178
MXN 1,630,000	USD	122,649	Citigroup, Inc.	12/04/12		3,126
MXN 4,920,000	USD	373,718	Citigroup, Inc.	12/04/12		5,920
MXN 2,570,000	USD	197,809	Deutsche Bank AG	12/04/12		498
MXN 5,840,000	USD	437,912	Goldman Sachs Group, Inc.	12/04/12		12,716

Currency Purchased	Currency Sold		Counterparty	Settlement Date	Unre- alized Appre- ciation (Depre- ciation)
MXN 700,000	USD	51,719	JPMorgan Chase & Co.	12/04/12	$	2,295
MXN 1,333,800	USD	101,339	Morgan Stanley	12/04/12		1,580
MXN 3,629,000	USD	275,722	Morgan Stanley	12/04/12		4,300
MXN 4,350,000	USD	336,976	Royal Bank of Canada	12/04/12		(1,320	)
MYR 670,000	USD	213,410	Citigroup, Inc.	12/04/12		4,709
MYR 200,000	USD	64,599	Deutsche Bank AG	12/04/12		511
MYR 3,840,000	USD	1,230,217	State Street Corp.	12/04/12		19,895
PHP 16,700,000	USD	401,732	JPMorgan Chase & Co.	12/04/12		(2,009	)
PLN 50,000	USD	15,377	Bank of America Corp.	12/04/12		105
PLN 370,000	USD	114,036	Bank of America Corp.	12/04/12		530
PLN 610,000	USD	191,004	Citigroup, Inc.	12/04/12		(2,126	)
PLN 350,000	USD	109,260	Deutsche Bank AG	12/04/12		(1,133	)
PLN 260,000	USD	76,737	Goldman Sachs Group, Inc.	12/04/12		3,769
PLN 450,000	USD	135,989	JPMorgan Chase & Co.	12/04/12		3,348
PLN 845,300	USD	254,368	Royal Bank of Scotland Group Plc	12/04/12		7,369
PLN 910,000	USD	275,082	UBS AG	12/04/12		6,688
PLN 2,950,000	USD	891,751	UBS AG	12/04/12		21,680
RON 1,020,000	USD	292,333	Bank of America Corp.	12/04/12		(6,183	)
RON 180,000	USD	49,703	HSBC Holdings Plc	12/04/12		794
RUB 800,000	USD	25,161	Citigroup, Inc.	12/04/12		189
RUB 3,900,000	USD	121,510	Citigroup, Inc.	12/04/12		2,073
RUB 2,600,000	USD	80,309	Credit Suisse Group AG	12/04/12		2,080
RUB 6,360,000	USD	196,660	Credit Suisse Group AG	12/04/12		4,876
RUB 5,000,000	USD	153,468	Credit Suisse Group AG	12/04/12		4,973
RUB 12,260,000	USD	379,097	Credit Suisse Group AG	12/04/12		9,400
RUB 12,200,000	USD	386,810	Goldman Sachs Group, Inc.	12/04/12		(214	)
RUB 4,500,000	USD	142,360	Goldman Sachs Group, Inc.	12/04/12		237
RUB 3,300,000	USD	104,134	Goldman Sachs Group, Inc.	12/04/12		437
RUB 1,500,000	USD	45,774	HSBC Holdings Plc	12/04/12		1,759
RUB 900,000	USD	27,419	UBS AG	12/04/12		1,100
RUB 3,800,000	USD	116,404	UBS AG	12/04/12		4,011
SGD 70,000	USD	56,021	BNP Paribas SA	12/04/12		1,016
SGD 380,000	USD	304,295	BNP Paribas SA	12/04/12		5,333
SGD 220,000	USD	179,066	Deutsche Bank AG	12/04/12		192
SGD 570,000	USD	463,415	Deutsche Bank AG	12/04/12		1,026
SGD 420,000	USD	336,889	Deutsche Bank AG	12/04/12		5,330
SGD 210,000	USD	171,506	Goldman Sachs Group, Inc.	12/04/12		(397	)

See Notes to Financial Statements.
	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012	23

Schedule of Investments (continued)

Currency Purchased	Currency Sold		Counterparty	Settlement Date	Unrea- lized Appre- ciation (Depre- ciation)
SGD 340,000	USD	271,434	Goldman Sachs Group, Inc.	12/04/12	$	5,601
SGD 350,000	USD	285,579	HSBC Holdings Plc	12/04/12		(396	)
SGD 50,000	USD	40,875	HSBC Holdings Plc	12/04/12		(134	)
SGD 220,000	USD	178,816	HSBC Holdings Plc	12/04/12		442
SGD 2,150,932	USD	1,718,807	JPMorgan Chase & Co.	12/04/12		33,791
THB 6,470,000	USD	207,571	HSBC Holdings Plc	12/04/12		1,597
THB 4,860,000	USD	154,748	HSBC Holdings Plc	12/04/12		2,371
THB 13,010,000	USD	412,754	HSBC Holdings Plc	12/04/12		7,846
THB 6,470,000	USD	209,397	JPMorgan Chase & Co.	12/04/12		(228	)
TRY 200,000	USD	110,558	Bank of America Corp.	12/04/12		(655	)
TRY 40,000	USD	21,979	Bank of America Corp.	12/04/12		68
TRY 263,000	USD	144,204	Bank of America Corp.	12/04/12		756
TRY 800,000	USD	438,645	Bank of America Corp.	12/04/12		2,301
TRY 180,000	USD	98,629	BNP Paribas SA	12/04/12		583
TRY 100,000	USD	55,236	Citigroup, Inc.	12/04/12		(118	)
TRY 90,000	USD	49,532	HSBC Holdings Plc	12/04/12		74
TRY 260,000	USD	142,365	HSBC Holdings Plc	12/04/12		942
TRY 60,000	USD	32,913	JPMorgan Chase & Co.	12/04/12		158
TRY 510,000	USD	279,762	JPMorgan Chase & Co.	12/04/12		1,341
TRY 140,000	USD	77,578	Royal Bank of Scotland Group Plc	12/04/12		(413	)
TRY 500,000	USD	275,993	Royal Bank of Scotland Group Plc	12/04/12		(403	)
TRY 110,000	USD	60,789	Royal Bank of Scotland Group Plc	12/04/12		(159	)
TRY 100,000	USD	55,263	Royal Bank of Scotland Group Plc	12/04/12		(145	)
TWD 720,000	USD	24,473	Citigroup, Inc.	12/04/12		94
TWD 14,210,000	USD	481,369	Citigroup, Inc.	12/04/12		3,489
TWD 13,030,000	USD	444,938	Deutsche Bank AG	12/04/12		(343	)
TWD 13,980,000	USD	467,871	Deutsche Bank AG	12/04/12		9,138
USD 50,146	CLP	24,100,000	BNP Paribas SA	12/04/12		(137	)
USD 165,105	COP	306,600,000	Credit Suisse Group AG	12/04/12		(3,715	)
USD 254,427	COP	467,000,000	Credit Suisse Group AG	12/04/12		(2,712	)
USD 103,528	CZK	2,010,000	Bank of America Corp.	12/04/12		772
USD 145,902	CZK	2,790,000	Bank of America Corp.	12/04/12		3,270
USD 182,155	CZK	3,470,000	Bank of America Corp.	12/04/12		4,760
USD 453,918	CZK	8,680,000	Bank of America Corp.	12/04/12		10,175
USD 34,677	CZK	660,000	BNP Paribas SA	12/04/12		936
USD 101,042	CZK	1,940,000	BNP Paribas SA	12/04/12		1,865
USD 1,116,047	CZK	22,170,000	Citigroup, Inc.	12/04/12		(17,338	)
USD 917,203	CZK	18,220,000	Citigroup, Inc.	12/04/12		(14,249	)
USD 68,259	CZK	1,310,000	Deutsche Bank AG	12/04/12		1,289

Currency Purchased	Currency Sold		Counterparty	Settlement Date	Unrea- lized Appre- ciation (Depre- ciation)
USD 82,618	CZK	1,560,000	Deutsche Bank AG	12/04/12	$	2,867
USD 232,916	CZK	4,470,000	Deutsche Bank AG	12/04/12		4,398
USD 133,905	CZK	2,540,000	HSBC Holdings Plc	12/04/12		4,054
USD 150,007	CZK	2,915,000	BNP Paribas SA	12/04/12		928
USD 222,522	HUF	51,100,000	Bank of America Corp.	12/04/12		(5,744	)
USD 176,136	HUF	40,300,000	Bank of America Corp.	12/04/12		(3,885	)
USD 431,008	HUF	98,300,000	Citigroup, Inc.	12/04/12		(8,102	)
USD 165,372	HUF	38,100,000	Citigroup, Inc.	12/04/12		(4,823	)
USD 231,313	HUF	52,700,000	Citigroup, Inc.	12/04/12		(4,100	)
USD 75,524	HUF	17,400,000	Citigroup, Inc.	12/04/12		(2,202	)
USD 82,497	HUF	18,500,000	Deutsche Bank AG	12/04/12		(143	)
USD 45,973	HUF	10,100,000	Goldman Sachs Group, Inc.	12/04/12		856
USD 300,885	HUF	69,200,000	HSBC Holdings Plc	12/04/12		(8,235	)
USD 301,180	HUF	69,195,000	HSBC Holdings Plc	12/04/12		(7,917	)
USD 101,735	HUF	23,400,000	JPMorgan Chase & Co.	12/04/12		(2,794	)
USD 584,786	IDR	5,642,600,000	Goldman Sachs Group, Inc.	12/04/12		736
USD 54,479	ILS	220,000	Bank of America Corp.	12/04/12		(1,500	)
USD 44,373	ILS	180,000	Bank of America Corp.	12/04/12		(1,428	)
USD 79,192	ILS	320,000	Citigroup, Inc.	12/04/12		(2,233	)
USD 876,498	ILS	3,540,000	Deutsche Bank AG	12/04/12		(24,264	)
USD 562,048	ILS	2,270,000	Deutsche Bank AG	12/04/12		(15,559	)
USD 32,174	ILS	130,000	Deutsche Bank AG	12/04/12		(905	)
USD 288,030	ILS	1,130,000	Deutsche Bank AG	12/04/12		499
USD 133,428	INR	7,500,000	Deutsche Bank AG	12/04/12		(6,917	)
USD 93,277	INR	5,300,000	Deutsche Bank AG	12/04/12		(5,900	)
USD 49,549	INR	2,800,000	Deutsche Bank AG	12/04/12		(2,847	)
USD 81,436	INR	4,400,000	Deutsche Bank AG	12/04/12		(900	)
USD 61,077	INR	3,300,000	Deutsche Bank AG	12/04/12		(675	)
USD 27,959	INR	1,500,000	Deutsche Bank AG	12/04/12		(110	)
USD 65,889	INR	3,500,000	Deutsche Bank AG	12/04/12		663
USD 81,894	INR	4,600,000	HSBC Holdings Plc	12/04/12		(4,184	)
USD 170,303	INR	9,600,000	UBS AG	12/04/12		(9,339	)
USD 680,763	KRW	775,900,000	Deutsche Bank AG	12/04/12		(14,980	)
USD 669,997	KRW	757,700,000	Deutsche Bank AG	12/04/12		(9,426	)
USD 412,117	KRW	467,300,000	Deutsche Bank AG	12/04/12		(6,907	)
USD 127,576	KRW	143,300,000	Deutsche Bank AG	12/04/12		(920	)
USD 32,790	KRW	36,900,000	Deutsche Bank AG	12/04/12		(298	)
USD 37,659	KRW	42,300,000	Deutsche Bank AG	12/04/12		(271	)
USD 24,810	KRW	27,700,000	Deutsche Bank AG	12/04/12		(1	)
USD 342,934	KRW	384,600,000	HSBC Holdings Plc	12/04/12		(1,934	)
USD 87,254	KRW	98,100,000	HSBC Holdings Plc	12/04/12		(711	)

See Notes to Financial Statements.
24	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012

Schedule of Investments (continued)

Currency Purchased	Currency Sold		Counterparty	Settlement Date	Unrea- lized Appre- ciation (Depre- ciation)
USD 301,470	MXN	4,010,000	Citigroup, Inc.	12/04/12	$	(7,951	)
USD 343,002	MXN	4,490,000	Citigroup, Inc.	12/04/12		(3,457	)
USD 110,071	MXN	1,470,000	Citigroup, Inc.	12/04/12		(3,357	)
USD 153,079	MXN	2,004,000	Citigroup, Inc.	12/04/12		(1,555	)
USD 116,177	MXN	1,520,000	Citigroup, Inc.	12/04/12		(1,110	)
USD 290,077	MXN	3,771,000	Citigroup, Inc.	12/04/12		(902	)
USD 87,997	MXN	1,152,000	Citigroup, Inc.	12/04/12		(894	)
USD 95,000	MXN	1,235,000	Citigroup, Inc.	12/04/12		(295	)
USD 20,140	MXN	260,000	Citigroup, Inc.	12/04/12		78
USD 167,781	MXN	2,183,000	HSBC Holdings Plc	12/04/12		(664	)
USD 119,976	MXN	1,561,000	HSBC Holdings Plc	12/04/12		(475	)
USD 89,400	MXN	1,210,000	JPMorgan Chase & Co.	12/04/12		(3,967	)
USD 174,552	MXN	2,280,000	JPMorgan Chase & Co.	12/04/12		(1,378	)
USD 200,417	MXN	2,593,000	Royal Bank of Canada	12/04/12		335
USD 280,260	MXN	3,626,000	Royal Bank of Canada	12/04/12		469
USD 101,766	MXN	1,336,000	UBS AG	12/04/12		(1,322	)
USD 58,500	MXN	768,000	UBS AG	12/04/12		(760	)
USD 249,442	MXN	3,239,000	UBS AG	12/04/12		(487	)
USD 81,710	MXN	1,061,000	UBS AG	12/04/12		(159	)
USD 113,159	MYR	350,000	Bank of America Corp.	12/04/12		(784	)
USD 431,771	MYR	1,340,000	Goldman Sachs Group, Inc.	12/04/12		(4,467	)
USD 104,116	MYR	320,000	Goldman Sachs Group, Inc.	12/04/12		(60	)
USD 235,294	PHP	9,800,000	Citigroup, Inc.	12/04/12		726
USD 238,095	PHP	10,000,000	Goldman Sachs Group, Inc.	12/04/12		(1,260	)
USD 934,358	PHP	39,500,000	JPMorgan Chase & Co.	12/04/12		(11,095	)
USD 294,542	PLN	1,000,000	Bank of America Corp.	12/04/12		(15,095	)
USD 153,162	PLN	520,000	Bank of America Corp.	12/04/12		(7,850	)
USD 155,050	PLN	520,000	Bank of America Corp.	12/04/12		(5,961	)
USD 274,011	PLN	890,000	Bank of America Corp.	12/04/12		(1,567	)
USD 118,928	PLN	380,000	Bank of America Corp.	12/04/12		1,266
USD 94,177	PLN	300,000	Bank of America Corp.	12/04/12		1,286
USD 297,701	PLN	1,000,000	Citigroup, Inc.	12/04/12		(11,936	)
USD 80,086	PLN	270,000	Citigroup, Inc.	12/04/12		(3,516	)
USD 18,543	PLN	60,000	Credit Suisse Group AG	12/04/12		(35	)
USD 259,725	PLN	880,000	Goldman Sachs Group, Inc.	12/04/12		(12,756	)
USD 178,802	PLN	580,000	HSBC Holdings Plc	12/04/12		(788	)
USD 86,318	PLN	280,000	HSBC Holdings Plc	12/04/12		(380	)
USD 21,773	PLN	70,000	HSBC Holdings Plc	12/04/12		99
USD 62,214	PLN	200,000	HSBC Holdings Plc	12/04/12		287
USD 298,174	PLN	1,000,000	UBS AG	12/04/12		(11,464	)

Currency Purchased	Currency Sold		Counterparty	Settlement Date	Unrea- lized Appre- ciation (Depre- ciation)
USD 245,416	RON	870,000	Bank of America Corp.	12/04/12	$	1,347
USD 152,667	RUB	4,900,000	Citigroup, Inc.	12/04/12		(2,605	)
USD 47,416	RUB	1,500,000	Credit Suisse Group AG	12/04/12		(116	)
USD 263,806	RUB	8,300,000	Goldman Sachs Group, Inc.	12/04/12		(2,262	)
USD 186,650	RUB	5,900,000	Goldman Sachs Group, Inc.	12/04/12		(311	)
USD 85,606	RUB	2,700,000	Goldman Sachs Group, Inc.	12/04/12		47
USD 117,349	RUB	3,700,000	Goldman Sachs Group, Inc.	12/04/12		102
USD 140,463	RUB	4,400,000	Goldman Sachs Group, Inc.	12/04/12		1,035
USD 223,375	RUB	7,000,000	Goldman Sachs Group, Inc.	12/04/12		2,580
USD 19,179	RUB	600,000	JPMorgan Chase & Co.	12/04/12		166
USD 33,696	RUB	1,100,000	UBS AG	12/04/12		(1,161	)
USD 487,805	SGD	600,000	Deutsche Bank AG	12/04/12		(1,080	)
USD 358,386	SGD	440,000	Deutsche Bank AG	12/04/12		(129	)
USD 399,224	SGD	500,000	HSBC Holdings Plc	12/04/12		(8,180	)
USD 333,248	SGD	410,000	HSBC Holdings Plc	12/04/12		(823	)
USD 1,598,197	SGD	2,000,000	JPMorgan Chase & Co.	12/04/12		(31,419	)
USD 615,435	SGD	760,000	JPMorgan Chase & Co.	12/04/12		(3,819	)
USD 251,562	SGD	310,000	JPMorgan Chase & Co.	12/04/12		(1,028	)
USD 73,034	SGD	90,000	JPMorgan Chase & Co.	12/04/12		(299	)
USD 307,576	TRY	570,000	BNP Paribas SA	12/04/12		(6,597	)
USD 60,095	TRY	110,000	BNP Paribas SA	12/04/12		(535	)
USD 189,815	TRY	350,000	Citigroup, Inc.	12/04/12		(3,098	)
USD 16,420	TRY	30,000	HSBC Holdings Plc	12/04/12		(116	)
USD 249,201	TRY	460,000	JPMorgan Chase & Co.	12/04/12		(4,343	)
USD 113,970	TRY	210,000	JPMorgan Chase & Co.	12/04/12		(1,778	)
USD 86,608	TRY	160,000	JPMorgan Chase & Co.	12/04/12		(1,581	)
USD 49,565	TRY	90,000	JPMorgan Chase & Co.	12/04/12		(41	)
USD 115,917	TRY	210,000	JPMorgan Chase & Co.	12/04/12		169
USD 182,049	TRY	330,000	Morgan Stanley	12/04/12		159
USD 86,884	TWD	2,600,000	HSBC Holdings Plc	12/04/12		(1,830	)
USD 50,437	ZAR	430,000	Bank of America Corp.	12/04/12		(736	)
USD 118,372	ZAR	990,000	Bank of America Corp.	12/04/12		554
USD 129,867	ZAR	1,080,000	Bank of America Corp.	12/04/12		1,339
USD 29,428	ZAR	250,000	BNP Paribas SA	12/04/12		(324	)
USD 124,862	ZAR	1,040,000	BNP Paribas SA	12/04/12		1,094
USD 480,238	ZAR	4,000,000	BNP Paribas SA	12/04/12		4,207
USD 222,352	ZAR	1,900,000	Citigroup, Inc.	12/04/12		(3,763	)
USD 81,030	ZAR	690,000	Citigroup, Inc.	12/04/12		(1,085	)

See Notes to Financial Statements.
	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012	25

Schedule of Investments (continued)

Currency Purchased	Currency Sold			Counterparty	Settlement Date		Unrea- lized Appre- ciation (Depre- ciation)
USD 1,038,005		ZAR	8,800,000	HSBC Holdings Plc		12/04/12	$	(9,263	)
USD 202,883		ZAR	1,720,000	HSBC Holdings Plc		12/04/12		(1,811	)
USD 270,842		ZAR	2,250,000	HSBC Holdings Plc		12/04/12		3,075
USD 82,006		ZAR	690,000	JPMorgan Chase & Co.		12/04/12		(109	)
USD 235,917		ZAR	1,960,000	JPMorgan Chase & Co.		12/04/12		2,662
ZAR 1,470,000		USD	178,149	Bank of America Corp.		12/04/12		(3,208	)
ZAR 2,065,000		USD	248,402	Bank of America Corp.		12/04/12		(2,651	)
ZAR 790,000		USD	95,324	Bank of America Corp.		12/04/12		(1,308	)
ZAR 1,461,250		USD	175,509	BNP Paribas SA		12/04/12		(1,609	)
ZAR 1,012,000		USD	121,550	BNP Paribas SA		12/04/12		(1,114	)
ZAR 1,220,000		USD	142,943	BNP Paribas SA		12/04/12		2,246
ZAR 1,850,000		USD	217,016	BNP Paribas SA		12/04/12		3,148
ZAR 1,409,000		USD	170,567	Citigroup, Inc.		12/04/12		(2,885	)
ZAR 1,960,000		USD	235,082	Citigroup, Inc.		12/04/12		(2,624	)
ZAR 1,825,000		USD	219,364	Citigroup, Inc.		12/04/12		(2,175	)
ZAR 1,461,000		USD	175,912	Citigroup, Inc.		12/04/12		(2,042	)
ZAR 976,000		USD	118,150	Citigroup, Inc.		12/04/12		(1,998	)
ZAR 1,555,000		USD	186,910	Citigroup, Inc.		12/04/12		(1,853	)
ZAR 1,012,000		USD	121,850	Citigroup, Inc.		12/04/12		(1,414	)
ZAR 680,000		USD	81,857	Citigroup, Inc.		12/04/12		(931	)
ZAR 660,000		USD	77,238	Citigroup, Inc.		12/04/12		1,307
ZAR 1,443,750		USD	174,246	HSBC Holdings Plc		12/04/12		(2,429	)
ZAR 1,000,000		USD	120,690	HSBC Holdings Plc		12/04/12		(1,682	)
ZAR 170,000		USD	19,943	HSBC Holdings Plc		12/04/12		289
ZAR 1,780,000		USD	210,225	HSBC Holdings Plc		12/04/12		1,608
Total							$	(1,937,239	)

— Financial futures contracts purchased as of September 30, 2012 were as follows:

Contracts	Issue	Exchange	Expiration	Notional Value		Unre- alized Appre- ciation (Depre- ciation)
23	Australia Bond (3 Year)	Sydney	December 2012	USD	7,133,622	$	3,422
108	DAX Index Futures	Eurex	December 2012	USD	25,114,948		(299,837	)
36	Euro FX Currency Future	Chicago Mercantile	December 2012	USD	5,787,900		36,103
526	E-Mini Emerging Markets Index Futures	Chicago Mercantile	December 2012	USD	26,142,200		(336,981	)
1,135	Euro STOXX 50	Eurex	December 2012	USD	35,806,947		(1,273,603	)
17	Euro-Bobl	Eurex	December 2012	USD	2,745,804		2,578

Contracts	Issue	Exchange	Expiration	Notional Value		Unre- alized Appre- ciation (Depre- ciation)
18	Euro-Bund	Eurex	December 2012	USD	3,279,267	$	2,957
15	Gilt British	London	December 2012	USD	2,921,667		4,627
58	U.S. Treasury Notes (5 Year)	Chicago Board Options	December 2012	USD	7,228,703		2,821
140	U.S. Treasury Notes (10 Year)	Chicago Board Options	December 2012	USD	18,687,813		61,213
37	90-Day Sterling Futures	London	September 2014	USD	7,417,687		4,542
48	3-Month EURIBOR	London	September 2015	USD	15,285,667		3,870
Total						$	(1,788,288	)

— Financial futures contracts sold as of September 30, 2012 were as follows:

Contracts	Issue	Exchange	Expiration	Notional Value		Unre- alized Appre- ciation (Depre- ciation)
113	Euro-Bund 8.5 to 10.5-Year Bond Futures Call Options, Strike Price EUR 140	Eurex	October 2012	USD	318,011	$	(152,674	)
113	Euro-Bund 8.5 to 10.5-Year Bond Futures Put Options, Strike Price EUR 140	Eurex	October 2012	USD	60,988		108,036
53	Euro-Bund 8.5 to 10.5-Year Bond Futures Call Options, Strike Price EUR 140	Eurex	November 2012	USD	173,674		(40,352	)
53	Euro-Bund 8.5 to 10.5-Year Bond Futures Put Options, Strike Price EUR 140	Eurex	November 2012	USD	53,124		23,258
6	Australia Bond (10 Year)	Sydney	December 2012	USD	5,994,082		(16,856	)
2	Canada Bond (10 Year)	Montreal	December 2012	USD	279,280		(3,313	)

See Notes to Financial Statements.
26	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012

Schedule of Investments (continued)

Contracts	Issue	Exchange	Expiration	Notional Value		Unrea- lized Appre- ciation (Depre- ciation)
381	E-Mini S&P 500® Futures	Chicago Mercantile	December 2012	USD	27,321,510	$	(201,224	)
14	Euro-Schatz	Eurex	December 2012	USD	1,991,930		(782	)
14	U.S. Treasury Notes (2 Year)	Chicago Board Options	December 2012	USD	3,087,438		(1,086	)
3	U.S. Treasury Bonds (30 Year)	Chicago Board Options	December 2012	USD	448,125		1,870
Total						$	(283,123	)

— Interest rate swaps outstanding as of September 30, 2012 were as follows:

Fixed Rate	Floating Rate	Counterparty	Expiration Date		Notional Amount (000)		Unrea- lized Appre- ciation (Depre- ciation)
1.07%1	1-day STIBOR	Royal Bank of Scotland Group Plc		6/27/13	SEK	211,360	$	6,095
2.67%2	1-day AONIA	Royal Bank of Scotland Group Plc		9/24/13	AUD	6,020		(4,512	)
0.34%2	1-day SONIA	Royal Bank of Scotland Group Plc		12/27/13	GBP	18,790		(10,662	)
0.14%2	1-day EONIA	Royal Bank of Scotland Group Plc		3/18/14	EUR	9,120		(5,775	)
1.61%1	3-month STIBOR	Royal Bank of Scotland Group Plc		6/27/14	SEK	21,960		24,992
1.47%1	3-Month STIBOR	Royal Bank of Scotland Group Plc		9/10/14	SEK	19,260		3,000
0.19%2	1-day FEDL01	Citigroup, Inc.		9/20/14	USD	19,130		(6,153	)
1.46%1	3-month STIBOR	Citigroup, Inc.		9/25/15	SEK	16,738		250
1.32%2	3-month LIBOR	Deutsche Bank AG		8/15/19	USD	3,090		(23,413	)
1.20%2	3-month LIBOR	Royal Bank of Scotland Group Plc		8/15/19	USD	5,890		(2,460	)
1.63%1	6-Month EURIBOR	Deutsche Bank AG		7/04/21	EUR	3,250		1,644
1.76%2	6-month GBP LIBOR	Royal Bank of Scotland Group Plc		9/07/21	GBP	2,690		(10,052	)
Total							$	(27,046	)

¹  Fund pays the floating rate and receives the fixed rate.

²  Fund pays the fixed rate and receives the floating rate.

• Credit default swaps on traded indexes - sold protection outstanding as of September 30, 2012 were as follows:

Index	Receive Fixed Rate	Counter- party	Expiration Date	Credit Rating1	Notional Amount (000)2		Unrea- lized Appre- ciation
iTraxx XO Series 18 Version 1	5.00%	Deutsche Bank AG	12/20/17	B+	EUR	1,100	$	1,899
CDX.EM Series 18 Version 1	5.00%	Deutsche Bank AG	12/20/17	BBB-	USD	1,140		5,726
Total								$7,625

¹  Using Standard & Poor’s rating of the underlying securities.

²  The maximum potential amount the Fund may pay should a negative credit event take place as defined under the terms of the agreement.

— 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 as follows:

— Level 1 – unadjusted price quotations in active markets/exchanges for identical assets and 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)

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 level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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. 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. For information about the Fund’s policy regarding valuation of investments and

See Notes to Financial Statements.
	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012	27

Schedule of Investments (concluded)

derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements.

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy as of September 30, 2012:

	Level 1		Level 2	Level 3		Total
Assets:
Investments:
Long-Term Investments:
Asset-Backed Securities		–	$    2,745,473		–	$    2,745,473
Common Stocks	$	106,879,881	32,206,171	$	50,896	139,136,948
Corporate Bonds		–	54,110,719		–	54,110,719
Foreign Agency Obligations		–	11,943,291		–	11,943,291
Foreign Government Obligations		–	78,905,691		–	78,905,691
Investment Companies		134,903,475	–		–	134,903,475
Non-Agency Mortgage-Backed Securities		–	5,801,365		–	5,801,365
U.S. Government Sponsored Agency Securities		–	28,727,187		–	28,727,187
U.S. Treasury Obligations		–	17,385,693		–	17,385,693
Short-Term Securities		97,232,371	2,629,449		–	99,861,820
Total	$	339,015,727	$234,455,039	$	50,896	$573,521,662

	Level 1			Level 2			Level 3	Total
Derivative Financial Instruments1
Assets:
Credit contracts		–		$	7,625		–	$	7,625
Foreign currency exchange contracts	$	41,166			2,318,763		–		2,359,929
Interest rate contracts		219,194			35,981		–		255,175
Liabilities:
Equity contracts		(2,111,645	)		–		–		(2,111,645	)
Foreign currency exchange contracts		(5,073	)		(4,255,992	)	–		(4,261,065	)
Interest rate contracts		(215,063	)		(63,027	)	–		(278,090	)
Total	$	(2,071,421	)	$	(1,956,650	)	–	$	(4,028,071	)

¹  Derivative financial instruments are swaps, financial futures contracts and foreign currency exchange contracts. Swaps, financial futures contracts and foreign currency exchange contracts are valued at the unrealized appreciation/depreciation on the instrument.

Certain of the Fund’s assets and liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of September 30, 2012, such assets and liabilities are categorized within the disclosure hierarchy as follows:

	Level 1		Level 2	Level 3	Total
Assets:
Cash	$	37,020	–	–	$	37,020
Foreign currency at value		2,531,061	–	–		2,531,061
Cash pledged as collateral for financial futures contracts		9,795,000	–	–		9,795,000
Liabilities:
Collateral on securities loaned at value		–	$(2,629,449)	–		(2,629,449	)
Total	$	12,363,081	$(2,629,449)	–	$	9,733,632

There were no transfers between levels during the year ended September 30, 2012.

Certain of the Fund’s investments are categorized as Level 3 and were valued utilizing transaction prices or third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in the unobservable inputs could result in a significantly lower or higher value in such Level 3 investments.

See Notes to Financial Statements.
28	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012

Statement of Assets and Liabilities

September 30, 2012
Assets
Investments at value – unaffiliated (including securities loaned at value of $2,562,902) (cost – $406,282,160)	$	450,983,192
Investments at value – affiliated (cost – $122,313,374)		122,538,470
Cash		37,020
Cash pledged as collateral for financial futures contracts		9,795,000
Foreign currency at value (cost – $2,527,831)		2,531,061
Investments sold receivable		1,826,333
Swap premiums paid		148,706
Unrealized appreciation on foreign currency exchange contracts		2,323,826
Unrealized appreciation on swaps		43,606
Capital shares sold receivable		154,181
Interest receivable		1,507,954
Dividends receivable – unaffiliated		726,415
Dividends receivable – affiliated		8,886
Securities lending income receivable – affiliated		5,316
Receivable from Manager		85
Prepaid expenses		36,023
Total assets		592,666,074
Liabilities
Collateral on securities loaned at value		2,629,449
Variation margin payable		922,376
Investments purchased payable		25,921,772
Swap premiums received		38,389
Unrealized depreciation on foreign currency exchange contracts		4,261,065
Unrealized depreciation on swaps		63,027
Capital shares redeemed payable		465,777
Investment advisory fees payable		243,050
Service and distribution fees payable		167,502
Other affiliates payable		81,323
Officer’s and Trustees’ fees payable		5,388
Other accrued expenses payable		677,554
Total liabilities		35,476,672
Net Assets	$	557,189,402
Net Assets Consist of
Paid-in capital	$	496,123,031
Undistributed net investment income		1,678,447
Accumulated net realized gain		18,460,792
Net unrealized appreciation/depreciation		40,927,132
Net Assets	$	557,189,402
Net Asset Value
Institutional – Based on net assets of $59,041,108 and 3,841,964 shares outstanding, unlimited number of shares authorized, $0.001 par value	$	15.37
Service – Based on net assets of $1,915,161 and 125,091 shares outstanding, unlimited number of shares authorized, $0.001 par value	$	15.31
Investor A – Based on net assets of $390,209,049 and 25,504,423 shares outstanding, unlimited number of shares authorized, $0.001 par value	$	15.30
Investor B – Based on net assets of $19,077,105 and 1,263,742 shares outstanding, unlimited number of shares authorized, $0.001 par value	$	15.10
Investor C – Based on net assets of $86,946,979 and 5,790,507 shares outstanding, unlimited number of shares authorized, $0.001 par value	$	15.02

See Notes to Financial Statements.
	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012	29

Statement of Operations

Year Ended September 30, 2012
Investment Income
Interest	$	6,695,462
Dividends – unaffiliated		6,464,885
Foreign taxes withheld		(109,797	)
Dividends – affiliated		574,154
Securities lending – affiliated		51,840
Total income		13,676,544
Expenses
Investment advisory		3,036,585
Service and distribution – class specific		2,101,999
Transfer agent – class specific		962,735
Administration		408,869
Custodian		284,349
Professional		159,763
Administration – class specific		138,092
Printing		120,965
Registration		64,767
Officer and Trustees		18,535
Miscellaneous		125,883
Recoupment of past waived fees – class specific		18,109
Total expenses excluding interest expense		7,440,651
Interest expense1		38,154
Total expenses		7,478,805
Less fees waived by Manager		(166,087	)
Less administration fees waived – class specific		(6,271	)
Less transfer agent fees waived – class specific		(501	)
Less transfer agent fees reimbursed – class specific		(3,796	)
Less fees paid indirectly		(459	)
Total expenses after fees waived, reimbursed and paid indirectly		7,301,691
Net investment income		6,374,853
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments – unaffiliated		22,745,745
Options written		775,130
Financial futures contracts		(2,416,801	)
Swaps		4,395,417
Foreign currency transactions		2,364
		25,501,855
Net change in unrealized appreciation/depreciation on:
Investments – unaffiliated		40,350,103
Investments – affiliated		225,096
Options written		635,114
Financial futures contracts		(1,765,387	)
Swaps		(1,335,874	)
Foreign currency translations		(1,808,593	)
		36,300,459
Total realized and unrealized gain		61,802,314
Net Increase in Net Assets Resulting from Operations	$	68,177,167
1 See Note 6 of the Notes to Financial Statements for details of borrowings

See Notes to Financial Statements.
30	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012

Statements of Changes in Net Assets

	Year Ended September 30,
Increase (Decrease) in Net Assets:	2012			2011
Operations
Net investment income	$	6,374,853		$	8,645,327
Net realized gain		25,501,855			52,723,163
Net change in unrealized appreciation/depreciation		36,300,459			(60,944,465	)
Net increase in net assets resulting from operations		68,177,167			424,025
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(728,212	)		(885,056	)
Service		(25,629	)		(31,935	)
Investor A		(5,876,499	)		(7,180,490	)
Investor B		(233,044	)		(422,113	)
Investor C		(927,535	)		(969,379	)
Net realized gain:
Institutional		(878,568	)		—
Service		(35,473	)		—
Investor A		(8,053,732	)		—
Investor B		(650,345	)		—
Investor C		(1,802,237	)		—
Decrease in net assets resulting from dividends and distributions to shareholders		(19,211,274	)		(9,488,973	)
Capital Share Transactions
Net decrease in net assets derived from capital share transactions		(17,866,421	)		(24,771,731	)
Net Assets
Total increase (decrease) in net assets		31,099,472			(33,836,679	)
Beginning of year		526,089,930			559,926,609
End of year	$	557,189,402		$	526,089,930
Undistributed (distribution in excess of) net investment income	$	1,678,447		$	(244,093	)

See Notes to Financial Statements.
	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012	31

Financial Highlights

	Institutional															Service
	Year Ended September 30,															Year Ended September 30,
	2012			2011			2010			2009			2008			2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	14.03		$	14.31		$	13.28		$	12.96		$	17.07		$	13.99		$	14.27		$	13.24		$	12.93		$	17.03
Net investment income1		0.23			0.29			0.29			0.27			0.33			0.19			0.25			0.25			0.24			0.30
Net realized and unrealized gain (loss)		1.68			(0.26	)		1.02			0.45			(2.76	)		1.67			(0.26	)		1.03			0.44			(2.76	)
Net increase (decrease) from investment operations		1.91			0.03			1.31			0.72			(2.43	)		1.86			(0.01	)		1.28			0.68			(2.46	)
Dividends and distributions from:
Net investment income		(0.26	)		(0.31	)		(0.28	)		(0.21	)		(0.38	)		(0.23	)		(0.27	)		(0.25	)		(0.18	)		(0.34	)
Net realized gain		(0.31	)		–			–			(0.19	)		(1.30	)		(0.31	)		–			–			(0.19	)		(1.30	)
Total dividends and distributions		(0.57	)		(0.31	)		(0.28	)		(0.40	)		(1.68	)		(0.54	)		(0.27	)		(0.25	)		(0.37	)		(1.64	)
Net asset value, end of year	$	15.37		$	14.03		$	14.31		$	13.28		$	12.96		$	15.31		$	13.99		$	14.27		$	13.24		$	12.93
Total Investment Return2
Based on net asset value		13.89	%		0.06	%		9.99	%		6.15	%3		(15.81	)%		13.53	%		(0.21	)%		9.74	%		5.83	%4		(16.00	)%
Ratios to Average Net Assets
Total expenses		0.95	%5		0.94	%		0.95	%		0.95	%		0.94	%		1.27	%5		1.24	%		1.27	%		1.18	%		1.11	%
Total expenses excluding recoupment of past waived fees		0.91	%5		0.94	%		0.95	%		0.95	%		0.94	%		1.27	%5		1.24	%		1.27	%		1.15	%		1.11	%
Total expenses after fees waived, reimbursed and paid indirectly		0.90	%5		0.90	%		0.91	%		0.88	%		0.89	%		1.18	%5		1.18	%		1.19	%		1.14	%		1.11	%
Total expenses after fees waived, reimbursed and paid indirectly and excluding interest expense		0.89	%5		0.89	%		0.89	%		0.88	%		0.85	%		1.17	%5		1.17	%		1.17	%		1.14	%		1.07	%
Net investment income		1.59	%5		1.91	%		2.09	%		2.43	%		2.20	%		1.30	%5		1.63	%		1.80	%		2.17	%		1.96	%
Supplemental Data
Net assets, end of year (000)	$	59,041		$	40,259		$	39,083		$	29,127		$	23,083		$	1,915		$	1,676		$	1,652		$	1,472		$	1,552
Portfolio turnover		324	%6		401	%7		400	%8		354	%9		391	%10		324	%6		401	%7		400	%8		354	%9		391	%10

¹  Based on average shares outstanding.

²  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

³  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 5.92%.

⁴  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 5.60%.

⁵  Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.05%.

⁶  Includes mortgage dollar roll transactions; excluding these transactions the portfolio turnover would have been 254%.

⁷  Includes mortgage dollar roll transactions; excluding these transactions the portfolio turnover would have been 236%.

⁸  Includes mortgage dollar roll transactions; excluding these transactions the portfolio turnover would have been 302%.

⁹  Includes mortgage dollar roll transactions; excluding these transactions the portfolio turnover would have been 227%.

¹⁰  Includes TBA transactions; excluding these transactions the portfolio turnover would have been 121%.

See Notes to Financial Statements.
32	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012

Financial Highlights (continued)

	Investor A															Investor B
	Year Ended September 30,															Year Ended September 30,
	2012			2011			2010			2009			2008			2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	13.98		$	14.26		$	13.23		$	12.92		$	17.01		$	13.83		$	14.10		$	13.08		$	12.75		$	16.83
Net investment income1		0.19			0.25			0.24			0.23			0.28			0.06			0.13			0.12			0.14			0.16
Net realized and unrealized gain (loss)		1.66			(0.26	)		1.03			0.43			(2.75	)		1.65			(0.26	)		1.03			0.43			(2.75	)
Net increase (decrease) from investment operations		1.85			(0.01	)		1.27			0.66			(2.47	)		1.71			(0.13	)		1.15			0.57			(2.59	)
Dividends and distributions from:
Net investment income		(0.22	)		(0.27	)		(0.24	)		(0.16	)		(0.32	)		(0.13	)		(0.14	)		(0.13	)		(0.05	)		(0.19	)
Net realized gain		(0.31	)		–			–			(0.19	)		(1.30	)		(0.31	)		–			–			(0.19	)		(1.30	)
Total dividends and distributions		(0.53	)		(0.27	)		(0.24	)		(0.35	)		(1.62	)		(0.44	)		(0.14	)		(0.13	)		(0.24	)		(1.49	)
Net asset value, end of year	$	15.30		$	13.98		$	14.26		$	13.23		$	12.92		$	15.10		$	13.83		$	14.10		$	13.08		$	12.75
Total Investment Return2
Based on net asset value		13.51	%		(0.23	)%		9.70	%		5.66	%3		(16.05	)%		12.60	%		(1.01	)%		8.78	%		4.93	%4		(16.89	)%
Ratios to Average Net Assets
Total expenses		1.23	%5		1.20	%		1.23	%		1.27	%		1.24	%		2.08	%5		2.00	%		2.04	%		2.07	%		2.02	%
Total expenses excluding recoupment of past waived fees		1.23	%5		1.20	%		1.22	%		1.27	%		1.24	%		2.08	%5		2.00	%		2.02	%		2.06	%		2.02	%
Total expenses after fees waived, reimbursed and paid indirectly		1.20	%5		1.20	%		1.22	%		1.26	%		1.24	%		2.06	%5		2.00	%		2.04	%		2.04	%		2.02	%
Total expenses after fees waived, reimbursed and paid indirectly and excluding interest expense		1.19	%5		1.19	%		1.20	%		1.26	%		1.20	%		2.05	%5		1.98	%		2.02	%		2.04	%		1.97	%
Net investment income		1.28	%5		1.61	%		1.75	%		2.04	%		1.84	%		0.45	%5		0.84	%		0.91	%		1.27	%		1.06	%
Supplemental Data
Net assets, end of year (000)	$	390,209		$	370,916		$	385,511		$	361,751		$	390,051		$	19,077		$	31,595		$	49,315		$	69,934		$	97,710
Portfolio turnover		324	%6		401	%7		400	%8		354	%9		391	%10		324	%6		401	%7		400	%8		354	%9		391	%10

¹  Based on average shares outstanding.

²  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

³  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 5.42%.

⁴  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 4.69%.

⁵  Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.05%.

⁶  Includes mortgage dollar roll transactions; excluding these transactions the portfolio turnover would have been 254%.

⁷  Includes mortgage dollar roll transactions; excluding these transactions the portfolio turnover would have been 236%.

⁸  Includes mortgage dollar roll transactions; excluding these transactions the portfolio turnover would have been 302%.

⁹  Includes mortgage dollar roll transactions; excluding these transactions the portfolio turnover would have been 227%.

¹⁰  Includes TBA transactions; excluding these transactions the portfolio turnover would have been 121%.

See Notes to Financial Statements.
	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012	33

Financial Highlights (concluded)

	Investor C
	Year Ended September 30,
	2012			2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of year	$	13.76		$	14.04		$	13.04		$	12.73		$	16.78
Net investment income1		0.08			0.13			0.14			0.15			0.17
Net realized and unrealized gain (loss)		1.64			(0.25	)		1.02			0.43			(2.71	)
Net increase (decrease) from investment operations		1.72			(0.12	)		1.16			0.58			(2.54	)
Dividends and distributions from:
Net investment income		(0.15	)		(0.16	)		(0.16	)		(0.08	)		(0.21	)
Net realized gain		(0.31	)		–			–			(0.19	)		(1.30	)
Total dividends and distributions		(0.46	)		(0.16	)		(0.16	)		(0.27	)		(1.51	)
Net asset value, end of year	$	15.02		$	13.76		$	14.04		$	13.04		$	12.73
Total Investment Return2
Based on net asset value		12.75	%		(0.94	)%		8.86	%		4.99	%3		(16.66	)%
Ratios to Average Net Assets
Total expenses		1.93	%4		1.93	%		1.94	%		1.98	%		1.94	%
Total expenses excluding recoupment of past waived fees		1.93	%4		1.93	%		1.94	%		1.97	%		1.94	%
Total expenses after fees waived, reimbursed and paid indirectly		1.90	%4		1.93	%		1.94	%		1.98	%		1.94	%
Total expenses after fees waived, reimbursed and paid indirectly and excluding interest expense		1.90	%4		1.92	%		1.92	%		1.98	%		1.90	%
Net investment income		0.58	%4		0.89	%		1.05	%		1.32	%		1.14	%
Supplemental Data
Net assets, end of year (000)	$	86,947		$	81,644		$	84,367		$	72,063		$	69,584
Portfolio turnover		324	%5		401	%6		400	%7		354	%8		391	%9

¹  Based on average shares outstanding.

²  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

³  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 4.75%.

⁴  Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.05%.

⁵  Includes mortgage dollar roll transactions; excluding these transactions the portfolio turnover would have been 254%.

⁶  Includes mortgage dollar roll transactions; excluding these transactions the portfolio turnover would have been 236%.

⁷  Includes mortgage dollar roll transactions; excluding these transactions the portfolio turnover would have been 302%.

⁸  Includes mortgage dollar roll transactions; excluding these transactions the portfolio turnover would have been 227%.

⁹  Includes TBA transactions; excluding these transactions the portfolio turnover would have been 121%.

See Notes to Financial Statements.
34	BLACKROCK MANAGED VOLATILITY PORTFOLIO	SEPTEMBER 30, 2012

Notes to Financial Statements

1. Organization and Significant Accounting Policies:

BlackRock Funds^SM (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 (formerly known as BlackRock Asset Allocation Portfolio) (the “Fund”). The Fund is classified as diversified. The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US 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 offers multiple classes of shares. Institutional Shares are sold without a sales charge and only to certain eligible investors. Service Shares are sold without a sales charge. Investor A Shares are generally sold with a front-end sales charge. Investor B and Investor C Shares may be subject to a CDSC. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Service, Investor A, Investor B and Investor C Shares bear certain expenses related to the shareholder servicing of such shares, and Investor B and Investor C Shares also bear certain expenses related to the distribution of such shares. Investor B Shares automatically convert to Investor A Shares after approximately eight years. Investor B Shares are only available through exchanges, dividend reinvestment by existing shareholders or for purchase by certain qualified employee benefit plans. 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).

The following is a summary of significant accounting policies followed by the Fund:

Valuation: US 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 fair values 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.

Equity investments traded on a recognized securities exchange or the NASDAQ Global Market System (“NASDAQ”) are valued at the last reported sale price that day or the NASDAQ official closing price, if applicable. For equity investments traded on more than one exchange, the last reported sale 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 are valued at the last available bid price. If no bid price is available, the prior day’s price will be used, unless it is determined that such prior day’s price no longer reflects the fair value of the security.

The Fund values its bond investments on the basis of last available bid prices or current market quotations provided by dealers or pricing services. 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. 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. To-be-announced (“TBA”) commitments are valued on the basis of last available bid prices or current market quotations provided by pricing services. Investments in open-end registered investment companies are valued at NAV each business day.

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 in the Money Market Series to withdraw more than 25% on any one day.

Securities and other assets and liabilities denominated in foreign currencies are translated into US dollars using exchange rates determined as of the close of business on the New York Stock Exchange (“NYSE”). 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

  BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012 35 

Notes to Financial Statements (continued)

the option. Over-the-counter (“OTC”) options and 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.

In the event that 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 Assets”). When determining the price for Fair Value Assets, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the investment advisor and/or sub-advisor deems relevant consistent with the principles of fair value measurement which include the market approach, income approach and/or cost approach, as appropriate. A market approach generally consists of using comparable market transactions. The income approach generally is used to discount future cash flows to present value and 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 Trust’s pricing vendors, a regular review 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 Assets 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 (for example, a company announcement, market volatility or a natural disaster) occur during such periods that are expected to affect the value of such instruments materially, those instruments may be Fair Value Assets and valued at their fair value, as determined in good faith by the Global Valuation Committee 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 US dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective date of such transactions. Generally, when the US 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 US dollars; the opposite effect occurs if the US 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 on 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 treated as ordinary income for federal income tax purposes.

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. 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 US 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

 36   BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

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 Treasury.

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, US 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 pre-payments of principal, the Fund may not fully recoup its initial investments in IOs.

Stripped Mortgage-Backed Securities: The Fund may invest in stripped mortgage-backed securities issued by the US government, its agencies and instrumentalities. Stripped mortgage-backed securities are usually structured with two classes that receive different proportions of the interest (IOs) and principal (POs) distributions on a pool of Mortgage Assets. The Fund also may invest in stripped mortgage-backed securities that are privately issued.

Capital Trusts: The Fund may invest in capital trusts. These securities are typically issued by corporations, generally in the form of interest-bearing notes with preferred securities characteristics, or by an affiliated business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The securities can be structured as either fixed or adjustable coupon securities that can have either a perpetual or stated maturity date. Dividends can be deferred without creating an event of default or acceleration, although maturity cannot take place unless all cumulative payment obligations

have been met. The deferral of payments does not affect the purchase or sale of these securities in the open market. Payments on these securities are treated as interest rather than dividends for federal income tax purposes. These securities generally are rated below that of the issuing company’s senior debt securities.

Preferred Stock: The 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.

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 which 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 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.

Borrowed Bond Agreements: The Fund may enter into borrowed bond agreements. In a borrowed bond agreement, the Fund borrows a bond from a counterparty in exchange for cash collateral with the commitment that the security and the cash will be returned to the counterparty and the Fund, respectively, at a mutually agreed upon rate and date. Certain agreements have no stated maturity and can be terminated by either party at any time. Borrowed bond agreements are entered into primarily in connection with short sales of bonds. Earnings on cash collateral and compensation to the lender of the bond are based on agreed upon rates between the Fund and the counterparty. The value of the underlying cash collateral approximates the market value and accrued interest of

  BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012 37 

Notes to Financial Statements (continued)

the borrowed bond. To the extent that a borrowed bond transaction exceeds one business day, the value of the cash collateral in the possession of the counterparty is monitored on a daily basis to ensure the adequacy of the collateral. As the market value of the borrowed bond changes, the cash collateral is periodically increased or decreased with a frequency and in amounts prescribed in the borrowed bond agreement. Full realization of the collateral by the Fund may be limited if the value of an investment purchased with the cash collateral by the lender decreases. The Fund may also experience delays in gaining access to the collateral.

Short Sales: The Fund may enter into short sale transactions in which the Fund sells a security it does not hold in anticipation of a decline in the market price of that security. When the Fund makes a short sale, it will borrow the security sold short (borrowed bond) and deliver it to the counterparty to which it sold the security short. An amount equal to the proceeds received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the market value of the short sale. The Fund is required to repay the counterparty any interest received on the security sold short, which is shown as interest expense in the Statement of Operations. The Fund may pay a fee on the assets borrowed from the counterparty, which is shown as stock loan fees in the Statement of Operations. The Fund maintains a segregated account of securities or deposits cash with the broker-dealer as collateral for the short sales. The Fund may receive interest on its cash collateral deposited with the broker-dealer. The Fund is exposed to market risk based on the amount, if any, that the market value of the security increases beyond the market value at which the position was sold. Thus, a short sale of a security involves the risk that instead of declining, the price of the security sold short will rise. The short sale of securities involves the possibility of a theoretically unlimited loss since there is a theoretically unlimited potential for the market price of the security sold short to increase. A gain, limited to the price at which the Fund sold the security short, or a loss, unlimited as to the dollar amount, will be recognized upon the termination of a short sale if the market price is greater or less than the proceeds originally received. There is no assurance the Fund will be able to close out a short position at a particular time or at an acceptable price.

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.

Inflation-Indexed Bonds: The Fund may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed income securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation rises or falls, the principal value of inflation-indexed bonds will be adjusted upward or downward, and consequently the interest payable on these securities (calculated with respect to a larger or smaller principal amount) will be increased or reduced, respectively. Any upward or downward adjustment in the principal amount of an inflation-indexed bond will be included as interest income on the Statement of Operations, even though investors do not receive their principal until maturity. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of US Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.

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. The Fund generally enters into TBA commitments with the intent to 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.

Mortgage Dollar Roll Transactions: The Fund may sell TBA mortgage-backed securities and simultaneously contract to repurchase substantially similar (same type, coupon and maturity) securities on a specific future date at an agreed-upon price. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. The Fund accounts for mortgage dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. These transactions may increase the Fund’s portfolio turnover rate. Mortgage dollar rolls involve the risk that the market value of the securities that the Fund is required to purchase may decline below the agreed upon repurchase price of those securities.

Treasury Roll Transactions: The Fund may enter into treasury roll transactions. In a treasury roll transaction, the Fund sells a treasury security to a counterparty with a simultaneous agreement to repurchase the same security at an agreed upon price and future settlement date. The Fund receives cash from the sale of the treasury security to use for other investment purposes. The difference between the sale price and repurchase price represents net interest income or net interest expense reflective of an agreed upon rate between the Fund and the counterparty over the term of the borrowing. For US GAAP purposes, a treasury roll

 38   BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

transaction is accounted for as a secured borrowing and not as a purchase or sale. During the term of the borrowing, interest income from the Treasury security and the related interest expense on the secured borrowing is recorded by the Fund on an accrual basis. The Fund will benefit from the transaction if the income earned on the investment purchased with the cash received in the treasury roll transaction exceeds the interest expense incurred by the Fund. If the interest expense exceeds the income earned, the Fund’s net investment income and dividends to shareholders may be adversely impacted. Treasury roll transactions involve the risk that the market value of the securities that the Fund is required to repurchase may decline below the agreed upon repurchase price of those securities.

Reverse Repurchase Agreements: The Fund may enter into reverse repurchase agreements with qualified third party broker-dealers. In a reverse repurchase agreement, the Fund sells securities to a bank or broker-dealer and agrees to repurchase the same securities at a mutually agreed upon date and price. Securities sold under reverse repurchase agreements are recorded at face value as a liability in the Statement of Assets and Liabilities. Due to the short term nature of the reverse repurchase agreements, face value approximates fair value. During the term of the reverse repurchase agreement, the Fund continues to receive the principal and interest payments on these securities. Certain agreements have no stated maturity and can be terminated by either party at any time. Interest on the value of the reverse repurchase agreements issued and outstanding is based upon competitive market rates determined at the time of issuance. The Fund may utilize reverse repurchase agreements when it is anticipated that the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction. Reverse repurchase agreements involve leverage risk and also the risk that the market value of the securities that the Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds of the agreement may be restricted while the other party, or its trustee or receiver, determines whether or not to enforce the Fund’s obligation to repurchase the securities.

Zero-Coupon Bonds: The Fund may invest in zero-coupon bonds, which are normally issued at a significant discount from face value and do not provide for periodic interest payments. Zero-coupon bonds may experience greater volatility in market value than similar maturity debt obligations which provide for regular interest payments.

Segregation and Collateralization: In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”) require that the Fund either deliver collateral or segregate assets in connection with certain investments (e.g., dollar rolls, TBA sale commitments, financial futures contracts, foreign currency exchange contracts, swaps and options written), or certain borrowings (e.g., reverse repurchase agreements and treasury roll transactions), the Fund will, consistent with SEC rules and/or certain interpretive letters issued by the

SEC, segregate collateral or designate on its books and records cash or liquid securities having a market value at least equal to the amount that would otherwise be required to be physically segregated. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, the Fund engaging in such transactions may have requirements to deliver/deposit securities to/with an exchange or broker-dealer as collateral for certain investments.

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 dates. 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 and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets. Consent fees are compensation for agreeing to changes in the terms of debt instruments and are included in interest income in the Statement of Operations.

Dividends and Distributions: Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. The portion of distributions that exceeds the Fund’s current and accumulated earnings and profits, which are measured on a tax basis, will constitute a nontaxable return of capital. Distributions in excess of the Fund’s taxable income and net capital gains, but not in excess of the Fund’s earnings and profits, will be taxable to shareholders as ordinary income and will not constitute a nontaxable return of capital. Capital losses carried forward from years beginning before 2011 do not reduce earnings and profits, even if such carried forward losses offset current year realized gains. The character and timing of dividends and distributions are determined in accordance with federal income tax regulations, which may differ from US GAAP.

Securities Lending: The Fund may lend securities to approved borrowers, such as banks, brokers and other financial institutions. The borrower pledges cash, securities issued or guaranteed by the US government or irrevocable letters of credit issued by a bank as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund on the next business day. Securities lending income, as disclosed in the Statement of Operations, represents the income earned from the investment of the cash collateral, net of rebates paid to, or fees paid by, borrowers and less the fees paid to the securities lending agent. During the term of the loan, the Fund earns dividend or interest income on the securities

  BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012 39 

Notes to Financial Statements (continued)

loaned but does not receive dividend or interest income on the securities received as collateral. 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. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Fund could experience delays and costs in gaining access to the collateral. The Fund also 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. During the year ended September 30, 2012, any securities on loan were collateralized by cash.

Income Taxes: 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 US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s US federal tax returns remains open for each of the four years ended September 30, 2012. 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 does not believe there are any uncertain tax positions that require recognition of a tax liability.

Recent Accounting Standard: In December 2011, the Financial Accounting Standards Board issued guidance that will expand current disclosure requirements on the offsetting of certain assets and liabilities. The new disclosures will be required for investments and derivative financial instruments subject to master netting or similar agreements which are eligible for offset in the Statement of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial statements. The guidance is effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within those fiscal years. Management is evaluating the impact 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 class. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses pro rated 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.

2. 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 hedge, or protect, its exposure to certain risks such as credit risk, equity risk, interest rate risk, foreign currency exchange rate risk or other risk (inflation risk). These contracts may be transacted on an exchange or OTC.

Losses may arise if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument or if the counterparty does not perform under the contract. The Fund’s maximum risk of loss from counterparty credit risk on OTC derivatives is generally the aggregate unrealized gain netted against any collateral pledged by/posted to the counterparty. For OTC options purchased, the Fund bears the risk of loss in the amount of the premiums paid plus the positive change in market values net of any collateral received on the options should the counterparty fail to perform under the contracts. Options written by the Fund do not give rise to counterparty credit risk, as options written obligate the Fund to perform and not the counterparty.

Counterparty risk related to exchange-traded financial futures contracts and options and centrally cleared swaps is deemed to be minimal due to the protection against defaults provided by the exchange on which these contracts trade.

The Fund may mitigate counterparty risk by procuring collateral and through netting provisions included within an International Swaps and Derivatives Association, Inc. master agreement (“ISDA Master Agreement”) implemented between the Fund and each of its respective counterparties. An ISDA Master Agreement allows the Fund to offset with each separate counterparty certain derivative financial instrument’s payables and/or receivables with collateral held. The amount of collateral moved to/from applicable counterparties is generally based upon minimum transfer amounts of up to $500,000. To the extent amounts due to the Fund from its counterparties are not fully collateralized contractually or otherwise, the Fund bears the risk of loss from counterparty non-performance. See Note 1 “Segregation and Collateralization” for information with respect to collateral practices. In addition, the Fund manages counterparty risk by entering into agreements only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties.

Certain ISDA Master Agreements allow counterparties to OTC derivatives 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.

 40   BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

Financial Futures Contracts: The Fund purchases or sells financial futures contracts and options on financial futures contracts to gain exposure to, or economically hedge against, changes in the value of equity securities (equity risk), interest rates (interest rate risk) or foreign currencies (foreign currency exchange rate risk). Financial futures contracts are agreements between the Fund and 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. 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 and are recorded by the Fund as unrealized appreciation or depreciation. 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.

Foreign Currency Exchange Contracts: The Fund enters into foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to foreign currencies (foreign currency exchange rate risk). A 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. 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 time it was opened and the value at the time it was closed. The use of foreign currency exchange contracts involves the risk that the value of a foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies and the risk that the counterparty to the contract does not perform its obligations under the agreement.

Options: The Fund purchases and writes call and put options to increase or decrease its exposure to underlying instruments (including 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.

Options on swaps (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 swap option 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. Such transactions may be effected with respect to hedges on non-US 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 at a price different from the current market value.

Swaps: The Fund enters into swap agreements, in which the Fund and a counterparty agree to either 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 executed on a registered financial and commodities exchange (“centrally cleared swaps”). In a centrally cleared swap, the Fund typically enters into an agreement with a counterparty; however, performance is guaranteed by the central clearinghouse reducing or eliminating the Fund’s exposure to the credit risk of the counterparty. These payments received or made by the Fund are recorded in the Statement of Operations as realized gains or losses, respectively. Any upfront fees paid are recorded as assets and any upfront fees received are recorded as liabilities and are shown as

  BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012 41 

Notes to Financial Statements (continued)

swap premiums paid and swap premiums received, respectively on the Statement of Assets and Liabilities and amortized over the term of the swap. Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). The daily change in valuation of centrally cleared swaps, if any, is recorded as a receivable or payable for variation margin in the Statement of Assets and Liabilities. When the 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 contracts 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 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.

• 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 enters into credit default swap agreements to provide a measure of protection against the default of an issuer (as buyer of protection) and/or gain credit exposure to an issuer to which it is not otherwise exposed (as seller of protection). 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 buyer pays fixed periodic payments to the seller in consideration for a guarantee from the 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 occurs. As a buyer, if an underlying credit event occurs, the Fund will either 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 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.

• 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) (equity 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.

• 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 rate, 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.

Derivative Financial Instruments Categorized by Risk Exposure:

Fair Values of Derivative Financial Instruments as September 30, 2012
Asset Derivatives
	Statement of Assets and Liabilities Location	Value
Interest rate contracts	Net unrealized appreciation/depreciation1 ; Unrealized appreciation on swaps	$	255,175
Foreign currency exchange contracts	Net unrealized appreciation/depreciation1 ; Unrealized appreciation on foreign currency exchange contracts		2,359,929
Credit contracts	Unrealized appreciation on swaps; Swap premiums paid		156,331
Total		$	2,771,435

Liability Derivatives
	Statement of Assets and Liabilities Location	Value
Interest rate contracts	Net unrealized appreciation/depreciation1 ; Unrealized depreciation on swaps	$	278,090
Foreign currency exchange contracts	Unrealized depreciation on foreign currency exchange contracts		4,261,065
Credit contracts	Swap premiums received		38,389
Equity contracts	Net unrealized appreciation/depreciation1		2,111,645
Total		$	6,689,189

¹  Includes cumulative appreciation/depreciation on financial futures contracts and centrally cleared swaps as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities.

 42   BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

The Effect of Derivative Financial Instruments in the Statement of Operations Year Ended September 30, 2012
Net Realized Gain (Loss) From
Interest rate contracts:
Financial futures contracts	$	562,592
Swaps		(322,831	)
Options2		(214,817	)
Foreign currency exchange contracts:
Financial futures contracts		105,733
Foreign currency transactions		132,237
Options2		(91,261	)
Credit contracts:
Swaps		1,024,982
Options2		(22,569	)
Equity contracts:
Financial futures contracts		(3,085,126	)
Options2		48,166
Other contracts:
Swaps		3,693,266
Total	$	1,830,372

Net Change in Unrealized Appreciation/Depreciation on
Interest rate contracts:
Financial futures contracts	$	1,407,327
Swaps		(458,334	)
Options2		481,070
Foreign currency exchange contracts:
Financial futures contracts		157,091
Foreign currency translations		(1,833,552	)
Options2		(188,013	)
Credit contracts:
Swaps		(872,338	)
Equity contracts:
Financial futures contracts		(3,329,805	)
Other contracts:
Swaps		(5,202	)
Total	$	(4,641,756	)

²  Options purchased are included in the net realized gain (loss) from investments and net change in unrealized appreciation/depreciation on investments.

For the year ended September 30, 2012, the average quarterly balances of outstanding derivative financial instruments were as follows:

Financial futures contracts:
Average number of contracts purchased		1,364
Average number of contracts sold		899
Average notional value of contracts purchased	$	140,239,325
Average notional value of contracts sold	$	85,423,431
Foreign currency exchange contracts:
Average number of contracts - US dollars purchased		151
Average number of contracts - US dollars sold		143
Average US dollar amounts purchased	$	137,355,701
Average US dollar amounts sold	$	87,350,661
Options:
Average number of option contracts purchased		5
Average number of option contracts written		2
Average notional value of option contracts purchased	$	29,815,141
Average notional value of option contracts written	$	6,269,223
Average number of swaption contracts purchased		4
Average number of swaption contracts written		5
Average notional value of swaption contracts purchased	$	9,876,017
Average notional value of swaption contracts written	$	11,108,500

Credit default swaps:
Average number of contracts - buy protection		5
Average number of contracts - sell protection		8
Average notional value - buy protection	$	3,316,250
Average notional value - sell protection	$	3,608,079
Interest rate swaps:
Average number of contracts - pays fixed rate		11
Average number of contracts - receives fixed rate		8
Average notional value - pays fixed rate	$	54,207,752
Average notional value - receives fixed rate	$	104,635,949
Total return swaps:
Average number of contracts		3
Average notional value	$	4,749,000

3. Investment Advisory Agreement and Other Transactions with Affiliates:

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

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 and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary 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 included in fees waived by Manager in the Statement of Operations. For the year ended September 30, 2012, the amount waived was $61,663.

The Manager entered into a sub-advisory agreement with BlackRock Financial Management, Inc. (“BFM”), an affiliate of the Manager. The Manager pays BFM, for services it provides, 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 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

  BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012 43 

Notes to Financial Statements (continued)

accrued daily and paid monthly at annual rates based upon the average daily net assets of the shares of the 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%

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 year ended September 30, 2012, the following table shows the class specific service and distribution fees borne directly by each class of the Fund:

Service	$       4,369
Investor A	971,687
Investor B	258,095
Investor C	867,848
Total	$2,101,999

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 annual fee per shareholder account, which will vary depending on share class and/or net assets. For the year ended September 30, 2012, the Fund paid $21,546 to affiliates in return for these services, which are included in transfer agent – class specific in the Statement of Operations.

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 year ended September 30, 2012, 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	$     785
Service	118
Investor A	54,633
Investor B	4,886
Investor C	3,039
Total	$63,461

For the year ended September 30, 2012, the following table shows the class specific transfer agent fees borne directly by each class of the Fund:

Institutional	$  56,472
Service	3,952
Investor A	707,075
Investor B	75,239
Investor C	119,997
Total	$962,735

The Manager contractually agreed to waive and/or reimburse fees or expenses, excluding interest expense, dividend 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, in order to limit expenses. The expense limitations as a percentage of average daily net assets are as follows:

Institutional	0.89	%
Service	1.17	%
Investor A	1.37	%
Investor B	2.14	%
Investor C	2.14	%
Investor R1	1.81	%

¹  There were no shares outstanding as of September 30, 2012.

The Manager has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to February 1, 2013 unless approved by the Board, including a majority of the Independent Trustees.

Effective May 15, 2012, BlackRock has contractually agreed to waive 0.05% of its management fee until June 1, 2013. In addition, BlackRock has contractually agreed to waive the management fee on assets estimated to be attributed to the Fund’s investments in other equity, fixed income and money market mutual funds managed by BlackRock or its affiliates.

These amounts are included in fees waived by 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 Statement of Operations. For the year ended September 30, 2012, the amount included in fees waived by Manager was $104,424. Class specific expense waivers or reimbursements are as follows:

	Institutional Service			Total
Administration Fees Waived		$5,834	$437		$6,271
Transfer Agent Fees Waived		$   386	$115		$   501
Transfer Agent Fees Reimbursed		$3,222	$574		$3,796

BNY Mellon Investment Servicing (US) Inc. (“BNYMIS”) and the Manager act as co-administrators for the Fund. For these services, the co-administrators receive a combined administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of the Fund. The combined administration fee is paid at the following annual rates: 0.075% of the first $500 million, 0.065% of the next $500 million and 0.055% of the average daily net assets in excess of $1 billion. In addition, each of the share classes is charged an administration fee based on the following percentages of the average daily net assets of each respective class: 0.025% of the first $500 million, 0.015% of the next $500 million and 0.005% of the average daily net assets in excess of $1 billion. In addition, 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. For the year ended September 30, 2012, the Fund paid $384,965 to the Manager in return for these services, which are included in administration, administration – class specific and administration fees waived – class specific in the Statement of Operations.

 44   BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012

Notes to Financial Statements (continued)

For the year ended September 30, 2012, the following table shows the administration fees – class specific borne directly by each class of the Fund:

Institutional	$ 12,129
Service	438
Investor A	97,333
Investor B	6,469
Investor C	21,723
Total	$138,092

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 year ended September 30, 2012, the Manager recouped waivers previously recorded of $18,109 for Institutional Shares.

On September 30, 2012, the amounts subject to possible future recoupment under the expense limitation agreement is $9,108, expiring September 30, 2013 and $10,568, expiring September 30, 2014.

Waivers of $1,162 previously recorded by the Fund, which were subject to recoupment by the Manager, expired on September 30, 2012.

For the year ended September 30, 2012, affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of the Fund’s Investor A Shares of $24,393.

For the year ended September 30, 2012, affiliates received CDSCs relating to transactions in Investor A, Investor B, and Investor C Shares of $1,649, $20,811 and $11,563, respectively.

The Fund received an exemptive order from the SEC permitting it, among other things, to pay an affiliated securities lending agent a fee based on a share of the income derived from the securities lending activities and has retained BlackRock Investment Management, LLC (“BIM”) as the securities lending agent. BIM may, on behalf of the Fund, invest cash collateral received by the Fund for such loans, among other things, in a private investment company managed by the Manager or in registered money market funds advised by the Manager or its affiliates. As securities lending agent, BIM is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BIM does not receive any fees for managing the cash collateral. The market value of securities on loan and the value of the related collateral, if applicable, are shown in the Statement of Assets and Liabilities as securities loaned at value and collateral on securities loaned at value, respectively. The cash collateral invested by BIM is disclosed in the Schedule of Investments, if any. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of rebates paid to, or fees paid by, borrowers of securities. The Fund retains 65% of securities lending income and pays a fee to BIM equal to 35% of such income. The share of income earned by the Fund is shown as securities lending – affiliated in the Statement of Operations. For the year ended September 30, 2012, BIM received $30,984 in securities lending agent fees related to securities lending activities for the Fund.

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.

4. Investments:

Purchases and sales of investments including paydowns, mortgage dollar roll and TBA transactions and excluding short-term securities and US government securities for the year ended September 30, 2012, were $1,347,200,651 and $1,406,976,404, respectively.

Purchases and sales of US government securities for the year ended September 30, 2012, were $503,571,249 and $548,524,798, respectively.

Purchases and sales of mortgage dollar rolls for the year ended September 30, 2012, were $397,647,768 and $397,855,367 respectively.

Transactions in options written for the year ended September 30, 2012, were as follows:

	Calls									Puts
	Contracts			Notional (000)			Premiums Received			Contracts			Notional (000)			Premiums Received
Outstanding options, beginning of year		62			16,550		$	290,810			–			26,705		$     357,923
Options written		286			25,845			718,767			586			80,646		1,711,197
Options expired		(99	)		(14,685	)		(213,066	)		(141	)		(39,282	)	(545,100)
Options closed		(249	)		(27,710	)		(796,511	)		(445	)		(68,069	)	(1,524,020)
Outstanding options, end of year		–			–			–			–			–		–

  BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012 45 

Notes to Financial Statements (continued)

5. Income Tax Information:

US GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of September 30, 2012 attributable to the accounting for swap agreements, foreign currency transactions and the sale of stock of passive foreign investment companies were reclassified to the following accounts:

Undistributed net investment income	$	3,338,606
Accumulated net realized gain	$	(3,338,606	)

The tax character of distributions paid during the fiscal years ended September 30, 2012 and September 30, 2011 was as follows:

Ordinary income
9/30/12	$	7,790,919
9/30/11	$	9,488,973
Long-term capital gains
9/30/12		11,420,355
Total
9/30/12	$	19,211,274
9/30/11	$	9,488,973

As of September 30, 2012, the tax components of accumulated net earnings were as follows:

Undistributed ordinary income	$	9,138,349
Undistributed long-term capital gains		10,850,584
Net unrealized gains1		41,077,438
Total	$	61,066,371

¹  The difference between book-basis and tax-basis net unrealized gains was attributable primarily to the tax deferral of losses on wash sales and straddles, the realization for tax purposes of unrealized gains/losses on certain futures and foreign currency contracts and the accounting for swap agreements.

As of September 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Tax cost	$	529,509,421
Gross unrealized appreciation	$	47,504,175
Gross unrealized depreciation		(3,491,934	)
Net unrealized appreciation	$	44,012,241

6. Borrowings:

The Trust, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates, is a party to a $500 million credit agreement with a group of lenders, which expires in November 2012 and was subsequently renewed until November 2013. The Fund may borrow under the credit agreement to fund shareholder redemptions. Effective

November 2010 to November 2011, the credit agreement had the following terms: a commitment fee of 0.08% per annum based on the Fund’s pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 1.00% per annum and (b) the Fed Funds rate plus 1.00% per annum on amounts borrowed. In addition, the Fund paid administration and arrangement fees which were allocated to the Fund based on its net assets as of October 31, 2010. The credit agreement, which expired in November 2011, was renewed until November 2012. Effective November 2011 to November 2012, the credit agreement has the following terms: a commitment fee of 0.065% per annum based on the Fund’s pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 0.80% per annum or (b) the Fed Funds rate plus 0.80% per annum on amounts borrowed. In addition, the Fund paid administration and arrangement fees which were allocated to the Fund based on its net assets as of October 31, 2011. The Fund did not borrow under the credit agreement during the year ended September 30, 2012.

For the year ended September 30, 2012, the Fund’s daily average amount of transactions considered as borrowings and the daily weighted average interest rates from reverse repurchase agreements and treasury roll transactions for the Fund were $35,316,303 and 0.03%, respectively.

7. Market and Credit Risk:

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 and 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.

 46   BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012

Notes to Financial Statements (concluded)

8. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

	Year Ended September 30, 2012						Year Ended September 30, 2011
	Shares			Amount			Shares			Amount
Institutional
Shares sold		2,777,761		$	41,415,695			767,577		$	11,749,107
Shares issued in reinvestment of dividends		106,201			1,528,203			53,454			816,733
Shares redeemed		(1,910,890	)		(28,040,751	)		(683,594	)		(10,429,065	)
Net increase		973,072		$	14,903,147			137,437		$	2,136,775
Service
Shares sold		20,096		$	295,076			34,908		$	535,953
Shares issued in reinvestment of dividends		4,020			57,632			1,860			28,363
Shares redeemed		(18,831	)		(276,832	)		(32,736	)		(492,985	)
Net increase		5,285		$	75,876			4,032		$	71,331
Investor A
Shares sold and automatic conversion of shares		2,348,702		$	34,606,617			3,114,748		$	47,609,574
Shares issued in reinvestment of dividends		940,966			13,509,595			456,769			6,944,504
Shares redeemed		(4,317,341	)		(63,760,019	)		(4,078,562	)		(62,130,535	)
Net decrease		(1,027,673	)	$	(15,643,807	)		(507,045	)	$	(7,576,457	)
Investor B
Shares sold		22,892		$	334,005			55,091		$	828,679
Shares issued in reinvestment of dividends		60,727			858,151			27,249			406,173
Shares redeemed and automatic conversion of shares		(1,104,122	)		(16,180,878	)		(1,295,998	)		(19,544,899	)
Net decrease		(1,020,503	)	$	(14,988,722	)		(1,213,658	)	$	(18,310,047	)
Investor C
Shares sold		942,369		$	13,631,820			1,040,589		$	15,590,367
Shares issued in reinvestment of dividends		183,841			2,595,310			60,569			904,720
Shares redeemed		(1,269,056	)		(18,440,045	)		(1,177,536	)		(17,588,420	)
Net decrease		(142,846	)	$	(2,212,915	)		(76,378	)	$	(1,093,333	)
Total Net Decrease		(1,212,665	)	$	(17,866,421	)		(1,655,612	)	$	(24,771,731	)

9. Subsequent Events:

Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in the financial statements.

  BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012 47 

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of BlackRock Funds and Shareholders of BlackRock Managed Volatility Portfolio (formerly BlackRock Asset Allocation Portfolio):

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of the BlackRock Managed Volatility Portfolio (formerly BlackRock Asset Allocation Portfolio) (the “Fund”), a series of BlackRock Funds, as of September 30, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are

appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2012, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of September 30, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Philadelphia, Pennsylvania

November 21, 2012

Important Tax Information (Unaudited)

The following information is provided with respect to the ordinary income distributions paid during the fiscal year ended September 30, 2012:

Payable Date	10/21/11		12/13/11		4/19/12		7/20/12		October 2011 - September 2012
Qualified Dividend Income for Individuals1		44.09%		44.09%		24.40%		24.40%		–
Dividends Qualifying for the Dividends Received Deduction for Corporations1		37.83%		37.83%		16.93%		16.93%		–
Interest Related Dividends and Qualified Short-Term Gains for Non US Residents2		74.83%		74.83%		68.89%		68.89%		–
Federal Obligation Interest3		–		–		–		–		2.91%

¹  The Fund hereby designates the percentage indicated or the maximum amount allowable by law.

²  Represents the portion of the ordinary income dividends eligible for exemption from US withholding tax for nonresident aliens and foreign corporations.

³  The law varies in each state as to whether and what percentage of dividend income attributable to Federal obligations is exempt from state income tax. We recommend that you consult your tax advisor to determine if any portion of the dividends you received is exempt from state income tax.

Additionally, BlackRock Managed Volatility Portfolio distributed long-term capital gains of $0.305962 per share to shareholders of record on December 9, 2011.

 48   BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement

The Board of Trustees (the “Board,” and the members of which are referred to as “Board Members”) of BlackRock FundsSM (the “Trust”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Trust’s investment advisory agreement (the “Advisory Agreement”) with BlackRock Advisors, LLC (the “Manager”), the Trust’s investment advisor, on behalf of BlackRock Managed Volatility Portfolio (the “Fund”), a series of the Trust. The Board also considered the approval of the sub-advisory agreement (the “Sub-Advisory Agreement”) between the Manager and BlackRock Investment Management, LLC (the “Sub-Advisor”), with respect to the Fund. The Manager and the Sub-Advisor are referred to herein as “BlackRock.” The Advisory Agreement and the Sub-Advisory Agreement are referred to herein as the “Agreements.”

Activities and Composition of the Board

The Board consists of fourteen individuals, twelve of whom are not “interested persons” of the Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Fund and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are each Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreements

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreements on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreements. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Fund by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by BlackRock to the Fund and its shareholders. Among the matters the Board considered were: (a) investment performance for one-, three- and five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against its peers and/or

benchmark, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Fund for services, such as marketing and distribution, call center and fund accounting; (c) Fund operating expenses and how BlackRock allocates expenses to the Fund; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Fund’s investment objective, policies and restrictions; (e) the Trust’s compliance with its Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) the use of brokerage commissions and execution quality of portfolio transactions; (j) BlackRock’s implementation of the Trust’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

Board Considerations in Approving the Agreements

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreements. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on fees and expenses and the investment performance of the Fund as compared with a peer group of funds as determined by Lipper (collectively, “Peers”); (b) information on the profitability of the Agreements to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of potential economies of scale; (e) a

  BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012 49 

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement (continued)

summary of aggregate amounts paid by the Fund to BlackRock; (f) sales and redemption data regarding the Fund’s shares; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board, including all the Independent Board Members, unanimously approved the continuation of the Advisory Agreement between the Manager and the Trust with respect to the Fund and the Sub-Advisory Agreement between the Manager and the Sub-Advisor with respect to the Fund, each for a one-year term ending June 30, 2013. In approving the continuation of the Agreements, the Board considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Fund and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Fund; (d) economies of scale; (e) fall-out benefits to BlackRock as a result of its relationship with the Fund; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Fund shares and securities lending, services related to the valuation and pricing of Fund portfolio holdings, direct and indirect benefits to BlackRock and its affiliates from their relationship with the Fund and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of the Fund. Throughout the year, the Board compared Fund performance to the performance of a comparable group of mutual funds and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the Fund’s portfolio management team discussing Fund performance and the Fund’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and the Fund’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to the Fund’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Fund. BlackRock and its affiliates provide the Fund with certain administrative, shareholder and other services (in addition to any such services provided to the Fund by third parties) and officers and other personnel as are necessary for the operations of the Fund. In particular, BlackRock and its affiliates provide the Fund with the following administrative services, including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions necessary for the operation of the Fund, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Fund and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of the Fund. In preparation for the April 17, 2012 meeting, the Board worked with its independent legal counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of the Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the investment performance of the Fund as compared to funds in the Fund’s applicable Lipper category. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Fund management to discuss, the performance of the Fund throughout the year.

 50   BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement (continued)

The Board noted that the Fund performed below the median of its Lipper Performance Universe in the one- and three-year periods reported, but that the Fund performed at or above the median of its Lipper Performance Universe in the five-year period reported. The Board and BlackRock reviewed and discussed the reasons for the Fund’s underperformance during the one- and three-year periods compared with its Peers. The Board was informed that, among other things, the main detractor of performance for the one-year period was security selection within the Fund’s large-cap growth stocks and small- and mid-cap international stocks. For the three-year period the primary detractor from performance was exposure to international equities.

The Board and BlackRock discussed BlackRock’s strategy for improving the Fund’s performance and BlackRock’s commitment to providing the resources necessary to assist the Fund’s portfolio managers and to improve the Fund’s performance. The Board noted, in particular, that the Fund has undergone a change in its investment strategy (such change became effective May 15, 2012) and, in that connection, had changed its name (the Fund’s former name was BlackRock Asset Allocation Portfolio).

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Fund: The Board, including the Independent Board Members, reviewed the Fund’s contractual management fee rate compared with the other funds in its Lipper category. It also compared the Fund’s total expense ratio, as well as actual management fee rate, to those of other funds in its Lipper category. The Board considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided the Fund. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Fund. The Board reviewed BlackRock’s profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by the Manager and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered

BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management and the relative product mix.

In addition, the Board considered the cost of the services provided to the Fund by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Fund and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of the Fund. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreements and to continue to provide the high quality of services that is expected by the Board.

The Board noted that the Fund’s contractual management fee ratio (a combination of the advisory fee and the administration fee, if any) was lower than or equal to the median contractual management fee ratio paid by the Fund’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted that the Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board further noted that BlackRock has contractually agreed to waive fees and/or reimburse expenses in order to limit, to a specified amount, the Fund’s average daily net assets on a class-by-class basis, as applicable.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Fund increase, as well as the existence of expense caps. The Board also considered the extent to which the Fund benefits from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Fund to participate in these economies of scale, for example through the use of revised breakpoints in the advisory fee based upon the asset level of the Fund. In its consideration, the Board Members took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Fund, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the

  BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012 51 

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement (concluded)

Fund, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

In connection with its consideration of the Agreements, the Board also received information regarding BlackRock’s brokerage and soft dollar practices. The Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.

The Board noted the competitive nature of the open-end fund marketplace, and that shareholders are able to redeem their Fund shares if they believe that the Fund’s fees and expenses are too high or if they are dissatisfied with the performance of the Fund.

Conclusion

The Board, including all the Independent Board Members, unanimously approved the continuation of the Advisory Agreement between the Manager

and the Trust, with respect to the Fund, for a one-year term ending June 30, 2013 and the Sub-Advisory Agreement between the Manager and the Sub-Advisor with respect to the Fund, for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board, including the Independent Board Members, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at its decision to approve the Agreements, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Fund reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

 52   BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012

Officers and Trustees

Name, Address, and Year of Birth	Position(s) Held with Trust	Length of Time Served as a Trustee2	Principal Occupation(s) During Past 5 Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment  Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1
Ronald W. Forbes 55 East 52nd Street New York, NY 10055 1940	Co-Chair of the Board and Trustee	Since 2011	Professor Emeritus of Finance, School of Business, State University of New York at Albany since 2000.	33 RICs consisting of 102 Portfolios	None
Rodney D. Johnson 55 East 52nd Street New York, NY 10055 1941	Co-Chair of the Board and Trustee	Since 2011	President, Fairmount Capital Advisors, Inc. since 1987; Member of the Archdiocesan Investment Committee of the Archdiocese of Philadelphia since 2004; Director, The Committee of Seventy (civic) since 2006; Director, Fox Chase Cancer Center from 2004 to 2011.	33 RICs consisting of 102 Portfolios	None
David O. Beim 55 East 52nd Street New York, NY 10055 1940	Trustee	Since 2011	Professor of Professional Practice at the Columbia University Graduate School of Business since 1991; Trustee, Phillips Exeter Academy since 2002; Chairman, Wave Hill, Inc. (public garden and cultural center) from 1990 to 2006.	33 RICs consisting of 102 Portfolios	None
Dr. Matina S. Horner 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2011	Executive Vice President of Teachers Insurance and Annuity Association and College Retirement Equities Fund from 1989 to 2003.	33 RICs consisting of 102 Portfolios	NSTAR (electric and gas utility)
Herbert I. London 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2011	Professor Emeritus, New York University since 2005; John M. Olin Professor of Humanities, New York University from 1993 to 2005 and Professor thereof from 1980 to 2005; President Emeritus, Hudson Institute (policy research organization) since 2011, President thereof from 1997 to 2011 and Trustee since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director, InnoCentive, Inc. (strategic solutions company) since 2005; Director, Cerego, LLC (software development and design) since 2005; Director, Cybersettle (dispute resolution technology) since 2009.	33 RICs consisting of 102 Portfolios	AIMS Worldwide, Inc. (marketing)
Ian A. MacKinnon 55 East 52nd Street New York, NY 10055 1948	Trustee	Since 2012	Director, Kennett Capital, Inc. (investments) since 2006; Director, Free Library of Philadelphia from 1999 to 2008.	33 RICs consisting of 102 Portfolios	None
Cynthia A. Montgomery 55 East 52nd Street New York, NY 10055 1952	Trustee	Since 2011	Professor, Harvard Business School since 1989; Director, McLean Hospital since 2005; Director, Harvard Business School Publishing from 2005 to 2010.	33 RICs consisting of 102 Portfolios	Newell Rubbermaid, Inc. (manufacturing)
Joseph P. Platt 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2011	Director, The West Penn Allegheny Health System (a not-for-profit health system) since 2008; Director, Jones and Brown (Canadian insurance broker) since 1998; General Partner, Thorn Partners, LP (private investments) since 1998; Director, WQED Multi-Media (public broadcasting not-for- profit) since 2001; Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008.	33 RICs consisting of 102 Portfolios	Greenlight Capital Re, Ltd. (reinsurance company)
Robert C. Robb, Jr. 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2011	Partner, Lewis, Eckert, Robb and Company (management and financial consulting firm) since 1981.	33 RICs consisting of 102 Portfolios	None
Toby Rosenblatt 55 East 52nd Street New York, NY 10055 1938	Trustee	Since 2011	President, Founders Investments Ltd. (private investments) since 1999; Director, Forward Management, LLC since 2007; Director, College Access Foundation of California (philanthropic foundation) since 2009; Director, A.P. Pharma, Inc. (specialty pharmaceuticals) from 1983 to 2011; Director, The James Irvine Foundation (philanthropic foundation) from 1998 to 2008.	33 RICs consisting of 102 Portfolios	None

  BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012 53 

Officers and Trustees (continued)

Name, Address, and Year of Birth	Position(s) Held with Trust	Length of Time Served as a Trustee2	Principal Occupation(s) During Past 5 Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1 (concluded)
Kenneth L. Urish 55 East 52nd Street New York, NY 10055 1951	Trustee	Since 2011	Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Chairman Elect of the Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants and Committee Member thereof since 2007; Member of External Advisory Board, The Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Institute from 2001 to 2010; President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter-Tel from 2006 to 2007.	33 RICs consisting of 102 Portfolios	None
Frederick W. Winter 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2011	Professor and Dean Emeritus of the Joseph M. Katz School of Business, University of Pittsburgh since 2005 and Dean thereof from 1997 to 2005; Director, Alkon Corporation (pneumatics) since 1992; Director, Tippman Sports (recreation) since 2005; Director, Indotronix International (IT services) from 2004 to 2008.	33 RICs consisting of 102 Portfolios	None
	1    Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved one-year extensions in terms of Trustees who turn 72 prior to December 31, 2013. 2     Date shown is the earliest date a person has served for the Trust covered by this annual report. Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. (“BlackRock”) in September 2006, the various legacy MLIM and legacy BlackRock fund boards were realigned and consolidated into three new Fund boards in 2007. As a result, although the chart shows certain Trustees as joining the Trust’s board in 2007, each Trustee first became a member of the board of other legacy MLIM or legacy BlackRock Funds as follows: David O. Beim, 1998; Ronald W. Forbes, 1977; Dr. Matina S. Horner, 2004; Rodney D. Johnson, 1995; Herbert I. London, 1987; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Robert C. Robb, Jr., 1998; Toby Rosenblatt, 2005; Kenneth L. Urish, 1999; and Frederick W. Winter, 1999.
Interested Trustees3
Paul L. Audet 55 East 52nd Street New York, NY 10055 1953	Trustee	Since 2011	Senior Managing Director of BlackRock and Head of U.S. Mutual Funds since 2011; Chair of the U.S. Mutual Funds Committee reporting to the Global Executive Committee since 2011; Head of BlackRock’s Real Estate business from 2008 to 2011; Member of BlackRock’s Global Operating and Corporate Risk Management Committees and of the BlackRock Alternative Investors Executive Committee and Investment Committee for the Private Equity Fund of Funds business since 2008; Head of BlackRock’s Global Cash Management business from 2005 to 2010; Acting Chief Financial Officer of BlackRock from 2007 to 2008; Chief Financial Officer of BlackRock from 1998 to 2005.	160 RICs consisting of 278 Portfolios	None
Henry Gabbay 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2011	Consultant, BlackRock from 2007 to 2008; Managing Director, BlackRock from 1989 to 2007; Chief Administrative Officer, BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of certain closed-end funds in the BlackRock fund complex from 1989 to 2006.	160 RICs consisting of 278 Portfolios	None
	3    Mr. Audet is an “interested person,” as defined in the 1940 Act, of the Trust based on his positions with BlackRock and its affiliates. Mr. Gabbay is an “interested person” of the Trust based on his former positions with BlackRock and its affiliates as well as his ownership of BlackRock and The PNC Financial Services Group, Inc. securities. Mr. Audet and Mr. Gabbay are also Directors of the BlackRock registered closed-end funds and Directors of other BlackRock registered open-end funds. Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved one-year extensions in terms of Trustees who turn 72 prior to December 31, 2013.

 54   BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012

Officers and Trustees (continued)

Name, Address, and Year of Birth	Position(s) Held with Trust	Length of Time Served	Principal Occupation(s) During Past 5 Years
Trust Officers1
John M. Perlowski 55 East 52nd Street New York, NY 10055 1964	President and Chief Executive Officer	Since 2011	Managing Director of BlackRock since 2009; Global Head of BlackRock Fund Administration since 2009; Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from 2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family Resource Network (charitable foundation) since 2009.
Richard Hoerner, CFA 55 East 52nd Street New York, NY 10055 1958	Vice President	Since 2011	Managing Director of BlackRock since 2000; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2002; Member of the Cash Management Group Executive Committee since 2005.
Brendan Kyne 55 East 52nd Street New York, NY 10055 1977	Vice President	Since 2011	Managing Director of BlackRock since 2010; Director of BlackRock from 2008 to 2009; Head of Product Development and Management for BlackRock’s U.S. Retail Group since 2009 and Co-head thereof from 2007 to 2009; Vice President of BlackRock from 2005 to 2008.
Simon Mendelson 55 East 52nd Street New York, NY 10055 1964	Vice President	Since 2011	Managing Director of BlackRock since 2005; Co-head of the Global Cash and Securities Lending Group since 2010; Chief Operating Officer and Head of the Global Client Group for BlackRock’s Global Cash Management Business from 2007 to 2010; Head of BlackRock’s Strategy and Development Group from 2005 to 2007; Partner of McKinsey & Co. from 1997 to 2005.
Christopher Stavrakos, CFA 55 East 52nd Street New York, NY 10055 1959	Vice President	Since 2011	Managing Director of BlackRock since 2006; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2006; Senior Vice President, CIO, and Director of Liability Management for the Securities Lending Group at Mellon Bank from 1999 to 2006.
Neal Andrews 55 East 52nd Street New York, NY 10055 1966	Chief Financial Officer	Since 2011	Managing Director of BlackRock since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006.
Jay Fife 55 East 52nd Street New York, NY 10055 1970	Treasurer	Since 2011	Managing Director of BlackRock since 2007; Director of BlackRock in 2006; Assistant Treasurer of the MLIM and Fund Asset Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.
Brian Kindelan 55 East 52nd Street New York, NY 10055 1959	Chief Compliance Officer and Anti-Money Laundering Officer	Since 2011	Chief Compliance Officer of the BlackRock-advised funds since 2007; Managing Director and Senior Counsel of BlackRock since 2005.
Benjamin Archibald 55 East 52nd Street New York, NY 10055 1975	Secretary	Since 2012	Director of BlackRock since 2010; Assistant Secretary to the funds from 2010 to 2012; General Counsel and Chief Operating Officer of Uhuru Capital Management from 2009 to 2010; Executive Director and Counsel of Goldman Sachs Asset Management from 2005 to 2009.
	1    Officers of the Trust serve at the pleasure of the Board.
	Further information about the Trust’s Officers and Trustees is available in the Trust’s Statement of Additional Information, which can be obtained without charge by calling 1-800-441-7762.

Effective May 15, 2012, Ian A. MacKinnon became a Trustee of the Trust. 

Effective May 16, 2012, Ira P. Shapiro resigned as Secretary of the Trust and  Benjamin Archibald became Secretary of the Trust. 

  BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012 55 

Officers and Trustees (concluded)

Investment Advisor and Co-Administrator BlackRock Advisors, LLC Wilmington, DE 19809	Sub-Advisor BlackRock Financial Management, Inc. New York, NY 10055	Custodian The Bank of New York Mellon New York, NY 10286	Distributor BlackRock Investments, LLC New York, NY 10022
Accounting Agent, Co-Administrator and Transfer Agent BNY Mellon Investment Servicing (US) Inc. Wilmington, DE 19809	Legal Counsel Sidley Austin LLP New York, NY 10019	Independent Registered Public Accounting Firm Deloitte & Touche LLP Philadelphia, PA 19103	Address of the Trust 100 Bellevue Parkway Wilmington, DE 19809

Additional Information

  General Information

Electronic Delivery

Electronic copies of most financial reports and prospectuses are available on the Fund’s website or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Fund’s electronic delivery program.

To enroll:

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 http://www.blackrock.com/ edelivery

2) Select “eDelivery” under the “More Information” section

3) Log into your account

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 (1) without charge, upon request, 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 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.

 56   BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012

Additional Information (concluded)

  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 Plan

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 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 ASSET ALLOCATION PORTFOLIO   SEPTEMBER 30, 2012 57 

A World-Class 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.

Equity Funds
BlackRock ACWI ex-US Index Fund	BlackRock Global Dividend Income Portfolio	BlackRock Mid-Cap Growth Equity Portfolio
BlackRock All-Cap Energy & Resources Portfolio	BlackRock Global Opportunities Portfolio	BlackRock Mid-Cap Value Opportunities Fund
BlackRock Balanced Capital Fund†	BlackRock Global SmallCap Fund	BlackRock Natural Resources Trust
BlackRock Basic Value Fund	BlackRock Health Sciences Opportunities Portfolio	BlackRock Pacific Fund
BlackRock Capital Appreciation Fund	BlackRock Index Equity Portfolio	BlackRock Real Estate Securities Fund
BlackRock China Fund	BlackRock India Fund	BlackRock Russell 1000 Index Fund
BlackRock Commodity Strategies Fund	BlackRock International Fund	BlackRock Science & Technology
BlackRock Emerging Markets Fund	BlackRock International Index Fund	Opportunities Portfolio
BlackRock Emerging Markets Long/Short	BlackRock International Opportunities Portfolio	BlackRock Small Cap Growth Equity Portfolio
Equity Fund	BlackRock Large Cap Core Fund	BlackRock Small Cap Growth Fund II
BlackRock Energy & Resources Portfolio	BlackRock Large Cap Core Plus Fund	BlackRock Small Cap Index Fund
BlackRock Equity Dividend Fund	BlackRock Large Cap Growth Fund	BlackRock S&P 500 Index Fund
BlackRock EuroFund	BlackRock Large Cap Value Fund	BlackRock S&P 500 Stock Fund
BlackRock Flexible Equity Fund	BlackRock Latin America Fund	BlackRock U.S. Opportunities Portfolio
BlackRock Focus Growth Fund	BlackRock Long-Horizon Equity Fund	BlackRock Value Opportunities Fund
BlackRock Global Allocation Fund†	BlackRock Managed Volatility Portfolio†	BlackRock World Gold Fund
Taxable Fixed Income Funds
BlackRock Bond Index Fund	BlackRock High Yield Bond Portfolio	BlackRock Strategic Income
BlackRock Core Bond Portfolio	BlackRock Inflation Protected Bond Portfolio	Opportunities Portfolio
BlackRock CoreAlpha Bond Fund	BlackRock International Bond Portfolio	BlackRock Total Return Fund
BlackRock Emerging Market Local Debt Portfolio	BlackRock Long Duration Bond Portfolio	BlackRock US Government Bond Portfolio
BlackRock Floating Rate Income Portfolio	BlackRock Low Duration Bond Portfolio	BlackRock US Mortgage Portfolio
BlackRock Global Long/Short Credit Fund	BlackRock Multi-Asset Income Portfolio†	BlackRock World Income Fund
BlackRock GNMA Portfolio	BlackRock Secured Credit Portfolio
Municipal Fixed Income Funds
BlackRock California Municipal Bond Fund	BlackRock National Municipal Fund	BlackRock Pennsylvania Municipal Bond Fund
BlackRock High Yield Municipal Fund	BlackRock New Jersey Municipal Bond Fund	BlackRock Short-Term Municipal Fund
BlackRock Intermediate Municipal Fund	BlackRock New York Municipal Bond Fund

Target Risk & Target Date Funds†
BlackRock Prepared Portfolios	LifePath Active Portfolios		LifePath Portfolios		LifePath Index Portfolios
Conservative Prepared Portfolio	2015	2035	Retirement	2040	Retirement	2040
Moderate Prepared Portfolio	2020	2040	2020	2045	2020	2045
Growth Prepared Portfolio	2025	2045	2025	2050	2025	2050
Aggressive Growth Prepared Portfolio	2030	2050	2030	2055	2030	2055
			2035		2035

†  Mixed asset fund.

BlackRock mutual funds are currently distributed by BlackRock Investments, LLC. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling (800) 441-7762 or from your financial advisor. The prospectus should be read carefully before investing.

 58   BLACKROCK MANAGED VOLATILITY PORTFOLIO   SEPTEMBER 30, 2012

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This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded 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.

Investment in foreign securities involves special risks including fluctuating foreign exchange rates, foreign government regulations, differing degrees of liquidity and the possibility of substantial volatility due to adverse political, economic or other developments.

MV-9 / 12-AR

Item 2 –	Code of Ethics – The registrant (or the “Fund”) has adopted a code of ethics, as of the end of the period covered by this report, applicable to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. During the period covered by this report, there have been no amendments to or waivers granted under the code of ethics. A copy of the code of ethics is available without charge at www.blackrock.com.
Item 3 –	Audit Committee Financial Expert – The registrant’s board of directors (the “board of directors”), has determined that (i) the registrant has the following audit committee financial expert serving on its audit committee and (ii) each audit committee financial expert is independent: Kenneth L. Urish
	Under applicable securities laws, a person determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification.
Item 4 –	Principal Accountant Fees and Services
	The following table presents fees billed by Deloitte & Touche LLP (“D&T”) in each of the last two fiscal years for the services rendered to the Fund:

	(a) Audit Fees		(b) Audit-Related Fees1		(c) Tax Fees2		(d) All Other Fees3
Entity Name	Current Fiscal Year End	Previous Fiscal Year End	Current Fiscal Year End	Previous Fiscal Year End	Current Fiscal Year End	Previous Fiscal Year End	Current Fiscal Year End	Previous Fiscal Year End
BlackRock All-Cap Energy & Resources Portfolio	$24,100	$20,900	$0	$0	$22,350	$22,350	$0	$0
BlackRock China Fund	$35,000	$35,000	$0	$0	$13,350	$13,350	$0	$0
BlackRock Energy & Resources Portfolio	$26,400	$25,900	$0	$0	$12,350	$12,350	$0	$0
BlackRock Flexible Equity Portfolio	$19,500	$19,100	$0	$0	$12,350	$12,350	$0	$0
BlackRock Global Opportunities Portfolio	$23,800	$23,300	$0	$10,200	$32,350	$33,550	$0	$0
BlackRock Health Sciences Opportunities Portfolio	$19,500	$19,100	$0	$10,200	$31,350	$22,350	$0	$0
BlackRock International Opportunities Portfolio	$23,800	$23,300	$0	$0	$28,850	$28,850	$0	$0
BlackRock Managed Volatility Portfolio	$58,600	$56,600	$0	$0	$27,850	$27,850	$0	$0
BlackRock Mid-Cap Growth Equity Portfolio	$19,500	$19,100	$0	$10,200	$12,350	$12,350	$0	$0
BlackRock Science & Technology Opportunities Portfolio	$23,300	$23,300	$0	$0	$22,350	$22,350	$0	$0
BlackRock Small Cap Growth Equity Portfolio	$21,900	$21,500	$0	$0	$12,350	$12,350	$0	$0
BlackRock U.S. Opportunities Portfolio	$21,900	$21,500	$0	$0	$12,350	$12,350	$0	$0
BlackRock World Gold Fund	$26,500	$26,000	$0	$0	$13,350	$13,350	$0	$0

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The following table presents fees billed by D&T that were required to be approved by the registrant’s audit committee (the “Committee”) for services that relate directly to the operations or financial reporting of the Fund and that are rendered on behalf of BlackRock Advisors, LLC (“Investment Adviser” or “BlackRock”) and entities controlling, controlled by, or under common control with BlackRock (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) that provide ongoing services to the Fund (“Fund Service Providers”):

	Current Fiscal Year End	Previous Fiscal Year End
(b) Audit-Related Fees1	$0	$0
(c) Tax Fees2	$0	$0
(d) All Other Fees3	$2,970,000	$3,030,000

¹ The nature of the services includes assurance and related services reasonably related to the performance of the audit of financial statements not included in Audit Fees.

² The nature of the services includes tax compliance, tax advice and tax planning.

³ Aggregate fees borne by BlackRock in connection with the review of compliance procedures and attestation thereto performed by D&T with respect to all of the registered closed-end funds and some of the registered open-end funds advised by BlackRock.

(e)(1) Audit Committee Pre-Approval Policies and Procedures:

The Committee has adopted policies and procedures with regard to the pre-approval of services. Audit, audit-related and tax compliance services provided to the registrant on an annual basis require specific pre-approval by the Committee. The Committee also must approve other non-audit services provided to the registrant and those non-audit services provided to the Investment Adviser and Fund Service Providers that relate directly to the operations and the financial reporting of the registrant. Certain of these non-audit services that the Committee believes are a) consistent with the SEC’s auditor independence rules and b) routine and recurring services that will not impair the independence of the independent accountants may be approved by the Committee without consideration on a specific case-by-case basis (“general pre-approval”). The term of any general pre-approval is 12 months from the date of the pre-approval, unless the Committee provides for a different period. Tax or other non-audit services provided to the registrant which have a direct impact on the operations or financial reporting of the registrant will only be deemed pre-approved provided that any individual project does not exceed $10,000 attributable to the registrant or $50,000 per project. For this purpose, multiple projects will be aggregated to determine if they exceed the previously mentioned cost levels.

Any proposed services exceeding the pre-approved cost levels will require specific pre-approval by the Committee, as will any other services not subject to general pre-approval (e.g., unanticipated but permissible services). The Committee is informed of each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting. At this meeting, an analysis of such services is presented to the Committee for ratification. The Committee may delegate to the Committee Chairman the authority to approve the provision of and fees for any specific engagement of permitted non-audit services, including services exceeding pre-approved cost levels.

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(e)(2) None of the services described in each of Items 4(b) through (d) were approved by the Committee pursuant to the de minimus exception in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Not Applicable

(g) The aggregate non-audit fees paid to the accountant for services rendered by the accountant to the registrant, the Investment Adviser and the Fund Service Providers were:

Entity Name	Current Fiscal  Year End	Previous Fiscal  Year End
BlackRock All-Cap Energy & Resources Portfolio	$22,350	$22,350
BlackRock China Fund	$13,350	$13,350
BlackRock Energy & Resources Portfolio	$12,350	$12,350
BlackRock Flexible Equity Portfolio	$12,350	$12,350
BlackRock Global Opportunities Portfolio	$32,350	$43,750
BlackRock Health Sciences Opportunities Portfolio	$31,350	$32,550
BlackRock International Opportunities Portfolio	$28,850	$28,850
BlackRock Managed Volatility Portfolio	$27,850	$27,850
BlackRock Mid-Cap Growth Equity Portfolio	$12,350	$22,550
BlackRock Science & Technology Opportunities Portfolio	$22,350	$22,350
BlackRock Small Cap Growth Equity Portfolio	$12,350	$12,350
BlackRock U.S. Opportunities Portfolio	$12,350	$12,350
BlackRock World Gold Fund	$13,350	$13,350

Additionally, SSAE 16 Review (Formerly, SAS No. 70) fees for the current and previous fiscal years of $2,970,000 and $3,030,000, respectively, were billed by D&T to the Investment Adviser.

(h) The Committee has considered and determined that the provision of non-audit services that were rendered to the Investment Adviser, and the Fund Service Providers that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.

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

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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
11(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.
11(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
12(a)(1) –	Code of Ethics – See Item 2
12(a)(2) –	Certifications – Attached hereto
12(a)(3) –	Not Applicable
12(b) –	Certifications – Attached hereto

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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:	December 4, 2012

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:	December 4, 2012
By:	/s/ Neal J. Andrews
	Neal J. Andrews
	Chief Financial Officer (principal financial officer) of BlackRock Funds
Date:	December 4, 2012

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