BlackRock 20/80 Target Allocation Fund, Investor A NCSRS Certified semi-annual shareholder report (management investment company)

BlackRock 20/80 Target Allocation Fund, Investor A (BACPX) N-CSRSCertified semi-annual shareholder report (management investment company)

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 Impact Bond Fund

BlackRock Impact U.S. Equity 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: 05/31/2017

Date of reporting period: 11/30/2016


Item 1		–		Report to Stockholders

NOVEMBER 30, 2016

SEMI-ANNUAL REPORT (UNAUDITED)

BlackRock Funds^SM

^Ø	BlackRock Impact Bond Fund

^Ø	BlackRock Impact U.S. Equity Fund

Not FDIC Insured • May Lose Value • No Bank Guarantee


Table of Contents


	Page
The Markets in Review		3
Semi-Annual Report:
Fund Summaries		4
About Fund Performance		7
Disclosure of Expenses		8
Derivative Financial Instruments		8
Financial Statements:
Schedules of Investments		9
Statements of Assets and Liabilities		22
Statements of Operations		24
Statements of Changes in Net Assets		25
Financial Highlights		26
Notes to Financial Statements		32
Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement		45
Officers and Trustees		48
Additional Information		49

LOGO



2	BLACKROCK FUNDS	NOVEMBER 30, 2016

The Markets in Review

Dear Shareholder,

Central bank policy decisions have continued to provide support to financial markets, while changing economic outlooks and geopolitical risks have been major drivers of investor sentiment. After ending its near-zero interest rate policy at the end of 2015, the Federal Reserve (the “Fed”) remained in focus as investors considered the anticipated pace of future rate hikes. With the European Central Bank and the Bank of Japan having moved into stimulus mode, the divergence in global monetary policies drove heightened market volatility at the beginning of 2016 and the U.S. dollar strengthened considerably.

Financial markets had a rough start to the year. The strong dollar challenged U.S. companies that generate revenues overseas and pressured emerging market currencies and commodities prices. Low and volatile oil prices and signs of slowing growth in China were also meaningful factors behind the decline in risk assets. However, as the first quarter wore on, these pressures abated and a more tempered outlook for U.S. rate hikes helped the markets rebound.

Volatility spiked in late June when the United Kingdom shocked investors with its vote to leave the European Union. Uncertainty around how the British exit might affect the global economy and the political landscape drove investors to high-quality assets, pushing already low global yields to even lower levels. However, risk assets recovered swiftly in July as economic data suggested that the consequences had thus far been contained to the United Kingdom.

The U.S. presidential election brought another episode of vote-induced volatility in November. Equities fell sharply in response to Donald Trump’s victory, but quickly recovered and rallied. Interest rates moved higher (and bond prices lower) given expectations for rising inflation. Broadly, a reflation theme has been building amid signs of rising price pressures, central banks signaling a greater tolerance to let inflation run hotter, and policy emphasis shifting from monetary to fiscal stimulus.

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

Sincerely,

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

LOGO

Rob Kapito

President, BlackRock Advisors, LLC


Total Returns as of November 30, 2016
	6-month			12-month
U.S. large cap equities (S&P 500^® Index)		6.01	%		8.06	%
U.S. small cap equities (Russell 2000^® Index)		15.37			12.08
International equities (MSCI Europe, Australasia, Far East Index)		(1.25	)		(3.66	)
Emerging market equities (MSCI Emerging Markets Index)		8.42			8.47
3-month Treasury bills (BofA Merrill Lynch 3-Month U.S. Treasury Bill Index)		0.18			0.32
U.S. Treasury securities (BofA Merrill Lynch 10-Year U.S. Treasury Index)		(4.11	)		(0.09	)
U.S. investment grade bonds (Bloomberg Barclays U.S. Aggregate Bond Index)		(0.92	)		2.17
Tax-exempt municipal bonds (S&P Municipal Bond Index)		(2.82	)		0.48
U.S. high yield bonds (Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index)		6.43			12.11
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 November 30, 2016		BlackRock Impact Bond Fund


Investment Objective

BlackRock Impact Bond Fund’s (the “Fund”) investment objective is to provide a combination of income and capital growth.

Overview of the Fund’s Total Investments


Portfolio Composition¹	11/30/16
Corporate Bonds		59	%
U.S. Government Sponsored Agency Securities		41

Excludes Short-Term Securities.


Credit Quality Allocation²	11/30/16
AAA/Aaa³		42	%
AA/Aa		11
A		21
BBB/Baa		21
BB/Ba		3
B		2
CCC/Caa		—	⁴

For financial reporting purposes, credit quality ratings shown above reflect the highest rating assigned by either Standard & Poor’s (“S&P”) or Moody’s Investors Service (“Moody’s”) if ratings differ. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Credit quality ratings are subject to change.

Includes U.S. Government Sponsored Agency Securities which are deemed AAA/Aaa by the investment adviser.

⁴

Representing less than 0.50% of the Fund’s total investments.

Expense Example


	Actual						Hypothetical²
	Beginning Account Value August 23, 2016		Ending Account Value November 30, 2016		Expenses Paid During the Period¹		Beginning Account Value August 23, 2016		Ending Account Value November 30, 2016		Expenses Paid During the Period¹		Annualized Expense Ratio
Institutional	$	1,000.00	$	969.30	$	1.18	$	1,000.00	$	1,012.37	$	1.20		0.44	%
Investor A	$	1,000.00	$	968.70	$	1.87	$	1,000.00	$	1,011.66	$	1.91		0.70	%
Investor C	$	1,000.00	$	966.60	$	3.87	$	1,000.00	$	1,009.63	$	3.95		1.45	%
Class K	$	1,000.00	$	969.40	$	1.07	$	1,000.00	$	1,012.48	$	1.09		0.40	%

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 99/365 (to reflect the period from August 23, 2016, the commencement of operations, to November 30, 2016).

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

See

“Disclosure of Expenses” on page 8 for further information on how expenses were calculated.

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.



4	BLACKROCK FUNDS	NOVEMBER 30, 2016


Fund Summary as of November 30, 2016		BlackRock Impact U.S. Equity Fund


Investment Objective

BlackRock Impact U.S. Equity Fund’s (the “Fund”) investment objective is to seek to provide total return.

Portfolio Management Commentary

How did the Fund perform?

•

For the six-month period ended November 30, 2016, the Fund’s Institutional, Investor A, Class K Shares outperformed and Investor C Shares performed in line with its benchmark, the Russell 3000^® Index (the “Benchmark”).

Investment Process

The Fund will seek to provide total return by investing in a portfolio of equity securities of companies with positive aggregate societal impact outcomes, as determined by the investment adviser using the BlackRock Scientific Active Equity Impact Methodology (as developed for the Fund), compared to the Benchmark, and systematic, quantitative security selection models. The investment process is fundamentally driven with systematic and quantitative implementation based on expected returns.

The principal societal impact outcomes that are currently measured include the following, although they may change at any time:

•

Green Innovation — Companies that demonstrate “green innovation” focus on environmentally sustainable technologies as described by the United Nations Framework Convention on Climate Change and the World Intellectual Property Organization.

•

Corporate Citizenship — “Corporate citizenship” focuses on companies whose employees have a high level of satisfaction working for their employers.

•

High Impact Disease Research — Companies that work on “high impact disease research” are companies that are researching treatments for diseases with the highest potential for global impact, measured by the number of lives affected due to potential reduction in early mortality and disability.

•

Ethics Controversies — “Ethics controversies” reflect factors such as misuse of company funds, falsification of company records and other illegal activities, as well as factors in the areas of diversity, labor rights, health and safety, and the environment.

•

Litigation — “Litigation” reflects the presence of lawsuits and/or labor issues at a company.

What factors influenced performance?

•

The Fund implemented its strategy of investing in a portfolio of companies that the investment adviser believes carry the potential in the aggregate to promote positive societal outcomes.

•

Leading contributors to the Fund’s performance relative to the benchmark, which can reflect both overweight and underweight positions, included Texas Instruments, Inc. (information technology), Applied Materials, Inc. (information technology), Illinois Toolworks, Inc. (industrials), The Coca Cola Company (consumer staples), and Wintrust Financial Corp. (financials).

•

Conversely, the leading detractors from performance, which also can reflect overweight and underweight positions, included Medtronic (healthcare), The Clorox Company (consumer staples), Monster Beverage Corp. (consumer staples), Welltower Inc. (real estate), and Dr. Pepper Snapple Group Inc. (consumer staples).

Describe recent portfolio activity.

•

During the six-month period, Fund holdings were regularly and systematically assessed against their alpha forecast (outperformance versus the benchmark) and impact outcome forecasts, and rebalances were implemented weekly after adjusting for transaction costs and risks. No material changes were implemented during the reporting period.

Describe portfolio positioning at period end.

•

As of November 30, 2016, the Fund held overweight positions in the utilities, consumer staples, information technology, real estate, materials, and health care sectors, and was underweight in financials, industrials, telecommunication services, energy and consumer discretionary. The Fund was invested in more than 500 public U.S. listed equities.

•

The Fund maintained an equity portfolio designed to reflect higher exposure to positive societal impact than the benchmark with respect to the following outcomes: High Impact Disease Research, Corporate Citizenship, and Green Innovation. The Fund had lower-than-benchmark exposure to the following negative outcomes: Ethics Controversies and Litigation.



BLACKROCK FUNDS	NOVEMBER 30, 2016	5


		BlackRock Impact U.S. Equity Fund

Total Return Based on a $10,000 Investment

LOGO

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

Under normal circumstances, the Fund seeks to invest at least 80% of its net assets plus any borrowings for investment purposes in U.S. equity securities.

An index that measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.

⁴

Commencement of operations.

Performance Summary for the Period Ended November 30, 2016


				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		7.44	%		8.55	%		N/A			11.55	%		N/A
Investor A		7.28			8.35			2.66	%		11.28			6.20	%
Investor C		6.96			7.60			6.60			10.52			10.52
Class K		7.44			8.58			N/A			11.58			N/A
Russell 3000^® Index		6.93			8.31			N/A			11.60			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 7 for a detailed description of share classes, including any related sales charges and fees.

⁶

The Fund commenced operations on October 5, 2015.

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

Past performance is not indicative of future results.

Performance results may include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles.

Expense Example


	Actual						Hypothetical²
	Beginning Account Value June 1, 2016		Ending Account Value November 30, 2016		Expenses Paid During the Period¹		Beginning Account Value June 1, 2016		Ending Account Value November 30, 2016		Expenses Paid During the Period¹		Annualized Expense Ratio
Institutional	$	1,000.00	$	1,074.40	$	3.22	$	1,000.00	$	1,021.96	$	3.14		0.62	%
Investor A	$	1,000.00	$	1,072.80	$	4.68	$	1,000.00	$	1,020.56	$	4.56		0.90	%
Investor C	$	1,000.00	$	1,069.60	$	8.46	$	1,000.00	$	1,016.90	$	8.24		1.63	%
Class K	$	1,000.00	$	1,074.40	$	3.12	$	1,000.00	$	1,022.06	$	3.04		0.60	%

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 183/365 (to reflect the one-half year period shown).

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

See

“Disclosure of Expenses” on page 8 for further information on how expenses were calculated.



6	BLACKROCK FUNDS	NOVEMBER 30, 2016


		BlackRock Impact U.S. Equity Fund


Portfolio Information as of November 30, 2016


Ten Largest Holdings	Percent of Net Assets
Apple, Inc.		3	%
Microsoft Corp.		3
General Electric Co.		2
Procter & Gamble Co.		2
JPMorgan Chase & Co.		2
Amazon.com, Inc.		1
Medtronic PLC		1
Johnson & Johnson		1
Texas Instruments, Inc.		1
Citigroup, Inc.		1


Sector Allocation	Percent of Net Assets
Information Technology		20	%
Financials		14
Health Care		13
Consumer Discretionary		12
Industrials		10
Consumer Staples		9
Energy		7
Real Estate		4
Materials		4
Utilities		4
Telecommunication Services		2
Short-Terms Securities		1

About Fund Performance

Institutional and Class K Shares are not subject to any sales charge. These shares bear no ongoing distribution or service fees and are available only to eligible investors. For Impact U.S. Equity Fund, prior to the Class K Shares inception date of March 28, 2016, Class K Shares performance results are those of Institutional Shares (which have no distribution or service fees) and were restated to reflect Class K Shares fees.

Investor A Shares are subject to a maximum initial sales charge (front-end load) of 4.00% for Impact Bond Fund and 5.25% for Impact U.S. Equity Fund, respectively, and a service fee of 0.25% per year (but no distribution fee). Certain redemptions of these shares may be subject to a contingent deferred sales charge (“CDSC”) where no initial sales charge was paid at the time of purchase. These shares are generally available through financial intermediaries.

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

Performance information reflects past performance and does not guarantee future results. Current performance may be lower or higher

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

BlackRock Advisors, LLC (the “Manager”), the Funds’ investment adviser, has contractually agreed to waive and/or reimburse a portion of the Funds’ expenses. Without such waiver and/or reimbursement, the Funds’ performance would have been lower. The Manager is under no obligation to continue waiving and/or reimbursing its fees after the applicable termination date of such agreement. See Note 6 of the Notes to Financial Statements for additional information on waivers and/or reimbursements.



BLACKROCK FUNDS	NOVEMBER 30, 2016	7


Disclosure of Expenses

Shareholders of these Funds may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses, and other fund expenses. The expense examples on previous pages (which are based on a hypothetical investment of $1,000 invested on August 23, 2016 (commencement of operations) and held through November 30, 2016 for BlackRock Impact Bond Fund and are based on a hypothetical investment of $1,000 invested on June 1, 2016 and held through November 30, 2016 for BlackRock Impact U.S. Equity Fund) 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 heading entitled “Expenses Paid During the Period.”

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

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

Derivative Financial Instruments

The Funds may invest in various derivative financial instruments. These instruments are used to obtain exposure to a security, commodity index, market and/or other asset without owning or taking physical custody of securities, commodities and/or other referenced assets or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage and 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 instrument. The Funds’ successful use of a derivative financial instrument depends on the investment adviser’s ability to predict pertinent market movements accurately, which cannot be assured. The use of these instruments may result in losses greater than if they had not been used, may limit the amount of appreciation a Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Funds’ investments in these instruments, if any, are discussed in detail in the Notes to Financial Statements.



8	BLACKROCK FUNDS	NOVEMBER 30, 2016

Schedule of Investments November 30, 2016 (Unaudited)

BlackRock Impact Bond Fund

(Percentages shown are based on Net Assets)


Corporate Bonds	Par (000)		Value
Aerospace & Defense — 0.8%
Boeing Co., 6.00%, 3/15/19	$	40	$	43,761
Bombardier, Inc., 5.75%, 3/15/22 (a)		25		21,875
DigitalGlobe, Inc., 5.25%, 2/01/21 (a)		25		25,000
Embraer SA, 5.15%, 6/15/22		40		40,800
TransDigm, Inc., 6.38%, 6/15/26 (a)		25		25,438

				156,874
Auto Components — 0.4%
Toyota Motor Credit Corp., 1.45%, 1/12/18		80		79,992
Banks — 12.9%
Bank of Montreal:
1.40%, 9/11/17		50		50,033
1.45%, 4/09/18		50		49,924
1.40%, 4/10/18		80		79,815
1.50%, 7/18/19		80		78,963
Bank of Nova Scotia:
2.05%, 10/30/18		100		100,526
1.65%, 6/14/19		125		123,737
4.38%, 1/13/21		50		53,632
Boston Properties LP, 5.63%, 11/15/20		100		110,572
Canadian Imperial Bank of Commerce, 1.60%, 9/06/19		50		49,460
CIT Group, Inc., 5.50%, 2/15/19 (a)		25		26,391
Compass Bank, 6.40%, 10/01/17		100		103,295
Cooperatieve Rabobank UA, 4.50%, 1/11/21		100		107,746
Credit Suisse, New York, 5.40%, 1/14/20		80		85,321
Fifth Third Bancorp, 4.30%, 1/16/24		50		51,853
HSBC Finance Corp., 6.68%, 1/15/21		45		50,558
HSBC USA, Inc., 3.50%, 6/23/24		100		100,458
Huntington Bancshares, Inc., 2.60%, 8/02/18		100		100,964
KeyCorp, 5.10%, 3/24/21		100		109,638
Royal Bank of Canada:
1.40%, 10/13/17		50		50,019
1.80%, 7/30/18		100		100,091
2.15%, 3/15/19		110		110,453
1.50%, 7/29/19		30		29,603
Santander Holdings USA, Inc., 2.70%, 5/24/19		100		99,892
Santander UK PLC, 2.50%, 3/14/19		80		80,400
Sumitomo Mitsui Financial Group, Inc., 2.06%, 7/14/21		80		77,495
SVB Financial Group, 3.50%, 1/29/25		50		48,214
Toronto-Dominion Bank:
1.40%, 4/30/18		80		79,815
1.45%, 9/06/18		50		49,790
2.63%, 9/10/18		100		101,622
U.S. Bancorp, 2.20%, 4/25/19		80		80,663
Wells Fargo & Co.:
3.45%, 2/13/23		25		24,953
3.00%, 4/22/26		50		47,975
Westpac Banking Corp., 1.55%, 5/25/18		80		79,829

				2,493,700
Beverages — 0.1%
Ball Corp., 5.25%, 7/01/25		25		26,016
Biotechnology — 0.5%
Genzyme Corp., 5.00%, 6/15/20		80		87,566
Cable Television Services — 0.2%
Motorola Solutions, Inc., 7.50%, 5/15/25		25		29,230


Corporate Bonds	Par (000)		Value
Capital Markets — 4.4%
Goldman Sachs Group, Inc.:
2.63%, 1/31/19	$	75	$	75,793
5.38%, 3/15/20		75		81,497
3.63%, 1/22/23		50		51,197
4.25%, 10/21/25		25		25,376
3.75%, 2/25/26		25		25,160
Morgan Stanley:
1.88%, 1/05/18		100		100,088
2.20%, 12/07/18		50		50,229
2.38%, 7/23/19		100		100,371
4.88%, 11/01/22		50		53,808
3.88%, 1/27/26		75		75,994
Northern Trust Corp., 3.45%, 11/04/20		100		103,959
State Street Corp., 1.95%, 5/19/21		100		98,039

				841,511
Chemicals — 1.5%
Albemarle Corp., 4.15%, 12/01/24		50		51,458
Dow Chemical Co., 8.55%, 5/15/19		80		91,916
Sherwin-Williams Co., 1.35%, 12/15/17		100		99,990
Valspar Corp., 3.30%, 2/01/25		50		47,998

				291,362
Commercial Services & Supplies — 0.4%
Iron Mountain US Holdings, Inc., 5.38%, 6/01/26 (a)		25		24,563
Novant Health, Inc., 5.85%, 11/01/19		50		55,410

				79,973
Communications Equipment — 0.4%
Avaya, Inc., 7.00%, 4/01/19 (a)		25		21,781
Juniper Networks, Inc., 4.35%, 6/15/25		25		25,093
Zayo Group LLC/Zayo Capital, Inc., 6.38%, 5/15/25		25		26,000

				72,874
Construction Materials — 0.1%
HD Supply, Inc., 5.75%, 4/15/24 (a)		25		25,562
Consumer Finance — 2.0%
American Express Co.:
7.00%, 3/19/18		25		26,653
3.63%, 12/05/24		25		25,015
Automatic Data Processing, Inc., 2.25%, 9/15/20		80		80,334
Capital One Financial Corp., 2.45%, 4/24/19		80		80,598
Discover Financial Services:
5.20%, 4/27/22		50		53,921
3.75%, 3/04/25		25		24,276
Navient Corp., 5.88%, 10/25/24		25		23,125
OneMain Financial Holdings LLC, 6.75%, 12/15/19 (a)		25		25,438
Synchrony Financial, 4.25%, 8/15/24		50		50,804

				390,164
Containers & Packaging — 0.4%
International Paper Co., 3.80%, 1/15/26		50		50,494
Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer Lu, 7.00%, 7/15/24 (a)		25		26,390

				76,884
Diversified Consumer Services — 0.1%
ADT Corp., 6.25%, 10/15/21		25		26,937
Diversified Financial Services — 7.9%
Ally Financial, Inc., 4.25%, 4/15/21		25		24,688

See Notes to Financial Statements.



BLACKROCK FUNDS	NOVEMBER 30, 2016	9


Schedule of Investments (continued)		BlackRock Impact Bond Fund


Corporate Bonds	Par (000)		Value
Diversified Financial Services (continued)
Bank of America Corp., 5.63%, 7/01/20	$	50	$	55,087
Citigroup, Inc.:
2.70%, 3/30/21		75		74,908
3.70%, 1/12/26		50		49,901
Ford Motor Credit Co. LLC, 2.46%, 3/27/20		200		197,257
FS Investment Corp., 4.00%, 7/15/19		50		50,440
General Motors Financial Co., Inc.:
3.50%, 7/10/19		50		50,844
5.25%, 3/01/26		50		52,229
HRG Group, Inc., 7.75%, 1/15/22		25		25,937
HSBC Holdings PLC, 5.10%, 4/05/21		100		107,976
Intercontinental Exchange, Inc., 2.75%, 12/01/20		100		101,052
International Lease Finance Corp., 3.88%, 4/15/18		100		101,950
John Deere Capital Corp.:
1.55%, 12/15/17		100		100,375
1.35%, 1/16/18		80		79,951
1.95%, 1/08/19		50		50,161
JPMorgan Chase & Co.:
6.30%, 4/23/19		40		43,898
4.25%, 10/15/20		80		84,941
3.88%, 9/10/24		70		70,834
Morgan Stanley, 2.13%, 4/25/18		100		100,318
Nationstar Mortgage LLC/Nationstar Capital Corp., 6.50%, 7/01/21		25		25,062
PACCAR Financial Corp., 1.40%, 5/18/18		50		49,990
Royal Bank of Scotland Group PLC, 6.13%, 12/15/22		25		25,904

				1,523,703
Diversified Telecommunication Services — 1.3%
AT&T, Inc.:
2.38%, 11/27/18		50		50,364
4.13%, 2/17/26		50		50,364
CenturyLink, Inc., Series Y, 7.50%, 4/01/24		25		25,810
Frontier Communications Corp., 11.00%, 9/15/25		25		25,063
Verizon Communications, Inc.:
4.50%, 9/15/20		50		53,523
4.15%, 3/15/24		50		52,426

				257,550
Electric Utilities — 3.7%
Ameren Corp., 2.70%, 11/15/20		100		100,814
Black Hills Corp., 4.25%, 11/30/23		20		21,056
CenterPoint Energy Houston Electric LLC, 1.85%, 6/01/21		100		98,150
Commonwealth Edison Co., 3.40%, 9/01/21		50		52,098
Consolidated Edison, Inc., 2.00%, 5/15/21		125		122,362
NV Energy, Inc., 6.25%, 11/15/20		80		90,865
Pacific Gas & Electric Co., 4.25%, 5/15/21		50		53,455
Public Service Electric & Gas Co., 2.00%, 8/15/19		80		80,536
Talen Energy Supply LLC, 4.63%, 7/15/19 (a)		100		95,125

				714,461
Electronic Equipment, Instruments & Components — 0.2%
Avnet, Inc., 4.88%, 12/01/22		40		41,720
Energy Equipment & Services — 0.1%
Weatherford International, Ltd., 8.25%, 6/15/23		25		24,375
Food & Staples Retailing — 1.5%
Costco Wholesale Corp., 1.70%, 12/15/19		80		80,060
JM Smucker Co., 1.75%, 3/15/18		75		75,137


Corporate Bonds	Par (000)		Value
Food & Staples Retailing (continued)
Sysco Corp.:
1.90%, 4/01/19	$	75	$	74,772
2.60%, 6/12/22		50		49,541

				279,510
Food Products — 1.9%
Hershey Co., 4.13%, 12/01/20		75		80,204
Kellogg Co., 3.25%, 4/01/26		50		48,671
Kraft Heinz Foods Co., 5.38%, 2/10/20		50		54,151
Post Holdings, Inc., 5.00%, 8/15/26 (a)		25		23,656
Tyson Foods, Inc., 4.50%, 6/15/22		50		53,635
Unilever Capital Corp., 2.20%, 3/06/19		100		101,021

				361,338
Forest Products — 0.4%
Bunge, Ltd. Finance Corp., 3.50%, 11/24/20		80		81,437
Health Care Equipment & Supplies — 2.0%
Becton Dickinson & Co., 2.68%, 12/15/19		75		76,344
Edwards Lifesciences Corp., 2.88%, 10/15/18		30		30,517
Kinetic Concepts, Inc./KCI USA, Inc., 7.88%, 2/15/21 (a)		25		26,375
Mallinckrodt International Finance SA/Mallinckrodt CB LLC, 5.63%, 10/15/23 (a)		25		22,625
Medtronic, Inc., 5.60%, 3/15/19		80		86,682
St. Jude Medical, Inc., 3.88%, 9/15/25		70		70,522
Zimmer Holdings, Inc., 2.00%, 4/01/18		75		75,036

				388,101
Health Care Providers & Services — 1.6%
Aetna, Inc.:
1.90%, 6/07/19		80		79,634
3.20%, 6/15/26		40		39,142
Centene Corp., 5.63%, 2/15/21		25		25,750
HCA, Inc., 5.25%, 6/15/26		25		25,027
Humana, Inc., 7.20%, 6/15/18		80		86,599
Kindred Healthcare, Inc., 8.75%, 1/15/23		25		22,250
Tenet Healthcare Corp., 6.25%, 11/01/18		25		26,063

				304,465
Household Durables — 0.1%
PulteGroup, Inc., 5.00%, 1/15/27		25		23,531
Independent Power and Renewable Electricity Producers — 0.1%
AES Corp., 6.00%, 5/15/26		25		24,562
Industrial Conglomerates — 0.9%
General Electric Co.:
2.10%, 12/11/19		100		100,586
3.45%, 5/15/24		75		77,499

				178,085
Insurance — 2.7%
Aflac, Inc., 2.40%, 3/16/20		100		100,539
Berkshire Hathaway Finance Corp., 1.70%, 3/15/19		80		79,964
Markel Corp., 4.90%, 7/01/22		70		75,448
Marsh & McLennan Cos., Inc.:
3.30%, 3/14/23		50		50,719
3.50%, 3/10/25		50		50,504
MetLife, Inc.:
7.72%, 2/15/19		80		89,859
Series D, 4.37%, 9/15/23		70		75,552

				522,585

See Notes to Financial Statements.



10	BLACKROCK FUNDS	NOVEMBER 30, 2016


Schedule of Investments (continued)		BlackRock Impact Bond Fund


Corporate Bonds	Par (000)		Value
Internet Software & Services — 0.6%
Alphabet, Inc., 3.63%, 5/19/21	$	75	$	79,535
Equinix, Inc., 5.88%, 1/15/26		25		25,938

				105,473
IT Services — 0.5%
Xerox Corp., 2.75%, 9/01/20		100		98,008
Life Sciences Tools & Services — 0.5%
Thermo Fisher Scientific, Inc., 4.50%, 3/01/21		80		85,755
Machinery — 0.6%
CNH Industrial Capital LLC, 4.88%, 4/01/21		25		25,750
Illinois Tool Works, Inc., 6.25%, 4/01/19		80		87,967

				113,717
Media — 3.0%
CCO Holdings LLC/CCO Holdings Capital Corp., 5.88%, 4/01/24 (a)		25		26,469
Cequel Communications Holdings I LLC/Cequel Capital Corp., 5.13%, 12/15/21 (a)		25		24,625
Charter Communications Operating LLC/Charter Communications Operating Capital, 3.58%, 7/23/20 (a)		80		81,650
CSC Holdings LLC, 8.63%, 2/15/19		25		27,562
DISH DBS Corp., 7.75%, 7/01/26		25		27,594
Intelsat Jackson Holdings SA, 7.25%, 10/15/20		25		18,219
Omnicom Group, Inc., 4.45%, 8/15/20		100		106,569
Thomson Reuters Corp., 4.30%, 11/23/23		100		104,750
Walt Disney Co.:
1.65%, 1/08/19		80		80,190
0.88%, 7/12/19		80		78,467

				576,095
Metals & Mining — 1.0%
Alcoa, Inc., 5.13%, 10/01/24		25		25,500
Goldcorp, Inc., 3.63%, 6/09/21		80		81,537
Nucor Corp., 5.85%, 6/01/18		80		84,756

				191,793
Multi-Utilities — 0.1%
AmeriGas Partners LP / AmeriGas Finance Corp., 5.88%, 8/20/26		25		24,867
Oil, Gas & Consumable Fuels — 3.7%
BP Capital Markets PLC, 3.56%, 11/01/21		70		72,859
Buckeye Partners LP, 4.88%, 2/01/21		80		84,907
Canadian Natural Resources Ltd., 3.90%, 2/01/25		40		39,305
Chevron Corp.:
1.56%, 5/16/19		80		79,524
3.19%, 6/24/23		70		71,378
Concho Resources, Inc., 5.50%, 4/01/23		25		25,704
DCP Midstream Operating LP, 3.88%, 3/15/23		25		23,988
Enbridge, Inc., 4.00%, 10/01/23		40		40,142
Energy Transfer Partners LP, 4.75%, 1/15/26		50		50,373
Occidental Petroleum Corp., 3.40%, 4/15/26		25		24,980
ONEOK Partners LP, 3.38%, 10/01/22		70		69,700
Parsley Energy LLC/Parsley Finance Corp., 7.50%, 2/15/22 (a)		25		26,500
Permian Resources LLC, 13.00%, 11/30/20 (a)		25		29,000
Shell International Finance BV, 1.38%, 5/10/19		80		79,032

				717,392


Corporate Bonds	Par (000)		Value
Personal Products — 0.4%
Procter & Gamble Co., 1.90%, 11/01/19	$	80	$	80,589
Pharmaceuticals — 4.3%
AstraZeneca PLC:
1.75%, 11/16/18		125		125,048
3.38%, 11/16/25		50		49,792
GlaxoSmithKline Capital, Inc., 5.65%, 5/15/18		100		105,667
Johnson & Johnson:
1.13%, 3/01/19		80		79,329
3.55%, 5/15/21		80		84,649
Novartis Securities Investment, Ltd., 5.13%, 2/10/19		80		85,730
Teva Pharmaceutical Finance Netherlands III BV, 1.40%, 7/20/18		150		148,539
Wyeth LLC, 6.45%, 2/01/24		70		85,787
Zoetis, Inc., 3.25%, 2/01/23		70		69,407

				833,948
Professional Services — 0.1%
Verisk Analytics, Inc., 4.13%, 9/12/22		25		25,912
Real Estate — 0.4%
Prologis LP, 3.75%, 11/01/25		75		77,191
Real Estate Investment Trusts (REITs) — 2.6%
American Tower Corp.:
4.50%, 1/15/18		80		82,271
2.80%, 6/01/20		50		50,238
Camden Property Trust, 2.95%, 12/15/22		20		19,658
HCP, Inc.:
3.75%, 2/01/19		80		82,223
5.38%, 2/01/21		80		87,618
Kilroy Realty LP, 3.80%, 1/15/23		20		20,128
Realty Income Corp., 2.00%, 1/31/18		75		75,248
Welltower, Inc., 4.13%, 4/01/19		80		83,096

				500,480
Road & Rail — 0.5%
Burlington Northern Santa Fe LLC, 4.70%, 10/01/19		80		86,192
Semiconductors & Semiconductor Equipment — 0.8%
Seagate HDD Cayman, 3.75%, 11/15/18		50		51,063
Texas Instruments, Inc., 1.85%, 5/15/22		100		96,152

				147,215
Software — 1.1%
Autodesk, Inc., 4.38%, 6/15/25		25		25,722
BMC Software Finance, Inc., 8.13%, 7/15/21 (a)		25		22,500
Microsoft Corp., 1.30%, 11/03/18		80		79,885
Oracle Corp., 2.25%, 10/08/19		80		80,952

				209,059
Specialty Retail — 1.8%
Best Buy Co., Inc.:
5.00%, 8/01/18		50		52,397
5.50%, 3/15/21		80		87,654
Coach, Inc., 4.25%, 4/01/25		40		39,934
Home Depot, Inc., 2.00%, 6/15/19		80		80,851
L Brands, Inc., 8.50%, 6/15/19		25		28,719
QVC, Inc., 5.13%, 7/02/22		50		51,114

				340,669
Technology Hardware, Storage & Peripherals — 2.0%
Apple, Inc., 2.85%, 2/23/23		50		50,125

See Notes to Financial Statements.



BLACKROCK FUNDS	NOVEMBER 30, 2016	11


Schedule of Investments (continued)		BlackRock Impact Bond Fund


Corporate Bonds	Par (000)		Value
Technology Hardware, Storage & Peripherals (continued)
Diamond 1 Finance Corp./Diamond 2 Finance Corp. (a):
3.48%, 6/01/19	$	100	$	101,856
5.45%, 6/15/23		25		26,077
EMC Corp.:
1.88%, 6/01/18		75		73,903
2.65%, 6/01/20		50		47,944
Hewlett Packard Enterprise Co., 3.10%, 10/05/18 (a)		75		76,102

				376,007
Textiles, Apparel & Luxury Goods — 0.1%
Levi Strauss & Co., 5.00%, 5/01/25		25		24,937
Wireless Telecommunication Services — 1.5%
Crown Castle International Corp.:
3.40%, 2/15/21		80		81,382
5.25%, 1/15/23		50		54,353
SBA Communications Corp., 4.88%, 7/15/22		25		25,021
Sprint Communications, Inc., 9.00%, 11/15/18 (a)		25		27,469
Sprint Corp., 7.63%, 2/15/25		25		25,406
T-Mobile USA, Inc., 6.00%, 4/15/24		25		26,250
Weyerhaeuser Co., 4.63%, 9/15/23		50		53,801

				293,682
Total Corporate Bonds — 74.2%				14,313,049



U.S. Government Sponsored Agency Securities
Mortgage-Backed Securities — 52.1%
Fannie Mae Mortgage-Backed Securities:
3.00%, 12/01/46 (b)		150		149,414
3.50%, 12/01/46 (b)		1,086		1,115,108
4.00%, 12/01/31 - 4/01/46 (b)		1,557		1,643,977
4.50%, 12/01/31 - 12/01/46 (b)		1,420		1,529,493
5.00%, 6/01/39 - 3/01/41		1,114		1,233,796
5.50%, 12/01/46 (b)		400		446,502


U.S. Government Sponsored Agency Securities	Par (000)		Value
Mortgage-Backed Securities (continued)
Freddie Mac Mortgage-Backed Securities (b):
3.00%, 12/01/46	$	465	$	462,929
3.50%, 12/01/46		815		836,553
4.00%, 12/01/46		325		341,967
4.50%, 12/01/46		475		511,989
Ginnie Mae Mortgage-Backed Securities (b):
3.50%, 12/01/46		775		806,908
4.00%, 12/01/46		525		556,705
4.50%, 12/01/46		400		428,555
Total U.S. Government Sponsored Agency Securities — 52.1%				10,063,896
Total Long-Term Investments (Cost — $24,871,196) — 126.3%				24,376,945



Short-Term Securities — 11.0%	Shares
BlackRock Liquidity Funds, T-Fund, Institutional Class, 0.25% (c)(d)		2,127,852		2,127,852
Total Short-Term Securities (Cost — $2,127,852) — 11.0%				2,127,852
Total Investments (Cost — $26,999,048) — 137.3%				26,504,797
Liabilities in Excess of Other Assets — (37.3)%				(7,196,856	)

Net Assets — 100.0%			$	19,307,941

Notes to Schedule of Investments

(a)

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.

(b)

Represents or includes a TBA transaction. As of period end, unsettled TBA transactions were as follows:


Counterparty	Value		Unrealized Depreciation
Bank of America N.A.	$	341,967	$	(5,427	)
Barclays Capital, Inc.	$	1,529,494	$	(18,805	)
BNP Paribas Securities Corp.	$	224,717	$	(3,339	)
Citigroup Global Markets, Inc.	$	950,773	$	(4,689	)
Credit Suisse Securities (USA) LLC	$	2,531,330	$	(39,988	)
Goldman Sachs & Co.	$	19,922	$	(629	)
J.P. Morgan Securities LLC	$	447,704	$	(2,049	)
Mizuho Securities USA, Inc.	$	102,770	$	(605	)
Morgan Stanley & Co. LLC	$	144,376	$	(4,569	)
Nomura Securities International, Inc.	$	836,553	$	(17,796	)
RBC Capital Markets, LLC	$	159,287	$	(5,063	)

See Notes to Financial Statements.



12	BLACKROCK FUNDS	NOVEMBER 30, 2016


Schedule of Investments (continued)		BlackRock Impact Bond Fund

(c)

During the period ended November 30, 2016, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:


Affiliate	Net Activity		Shares Held at November 30, 2016		Value at November 30, 2016		Income
BlackRock Liquidity Funds, T-Fund, Institutional Class		2,127,852		2,127,852	$	2,127,852	$	1,334
BlackRock Liquidity Funds, TempFund, Institutional Class		—		—		—		853
Total					$	2,127,852	$	2,187

(d)

Current yield as of period end.

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

Derivative Financial Instruments Outstanding as of Period End


Futures Contracts
Contracts Long (Short)			Issue	Expiration		Notional Value		Unrealized Appreciation (Depreciation)
	(3	)	2-Year U.S. Treasury Note		March 2017	$	650,438	$	371
	9		5-Year U.S. Treasury Note		March 2017	$	1,060,594		(2,107	)
	5		10-Year U.S. Treasury Note		March 2017	$	622,578		(1,937	)
	1		10-Year U.S. Ultra Long Treasury Note		March 2017	$	134,438		(658	)
	(2	)	Long U.S. Treasury Bond		March 2017	$	302,563		1,263
	6		Ultra Long U.S. Treasury Bond		March 2017	$	968,438		(2,026	)
	Total							$	(5,094	)

Derivative Financial Instruments Categorized by Risk Exposure

As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:


Assets — Derivative Financial Instruments		Commodity Contracts		Credit Contracts		Equity Contracts		Foreign Currency Exchange Contracts		Interest Rate Contracts		Other Contracts		Total
Futures contracts	Net unrealized appreciation¹		—		—		—		—	$	1,634		—	$	1,634
Liabilities — Derivative Financial Instruments
Futures contracts	Net unrealized depreciation¹		—		—		—		—	$	6,728		—	$	6,728
¹Includes cumulative appreciation (depreciation) on futures contracts, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities.																��

For the period ended November 30, 2016, the effect of derivative financial instruments in the Statements of Operations was as follows:


Net Realized Gain (Loss) from:	Commodity Contracts		Credit Contracts		Equity Contracts		Foreign Currency Exchange Contracts		Interest Rate Contracts			Other Contracts		Total
Futures contracts		—		—		—		—	$	(180,053	)		—	$	(180,053	)
Net Change in Unrealized Appreciation (Depreciation) on:
Futures contracts		—		—		—		—	$	(5,094	)		—	$	(5,094	)

See Notes to Financial Statements.



BLACKROCK FUNDS	NOVEMBER 30, 2016	13


Schedule of Investments (concluded)		BlackRock Impact Bond Fund


Average Quarterly Balances of Outstanding Derivative Financial Instruments


Futures contracts:
Average notional value of contracts — long	$	1,988,914
Average notional value of contracts — short	$	541,961

For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.

Fair Value Hierarchy as of Period End

Various inputs are used in determining the fair value of investments and derivative financial instruments. For information about the Fund’s policy regarding valuation of investments and derivative financial instruments, refer to the Notes to Financial Statements.

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:


	Level 1			Level 2		Level 3		Total
Assets:
Investments:
Long Term Investments¹		—		$	24,376,945		—	$	24,376,945
Short-Term Securities	$	2,127,852			—		—		2,127,852

Total	$	2,127,852		$	24,376,945		—	$	26,504,797


Derivative Financial Instruments²
Assets:
Interest rate contracts	$	1,634			—		—	$	1,634
Liabilities:
Interest rate contracts		(6,728	)		—		—		(6,728	)

Total	$	(5,094	)		—		—	$	(5,094	)

¹See above Schedule of Investments for values in each sector.
²Derivative financial instruments are futures contracts. Futures contracts are valued at the unrealized appreciation (depreciation) on the instrument.

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of period end, cash pledged for futures contracts of $41,000 is categorized as Level 1 within the disclosure hierarchy.

See Notes to Financial Statements.



14	BLACKROCK FUNDS	NOVEMBER 30, 2016

Schedule of Investments November 30, 2016 (Unaudited)

BlackRock Impact U.S. Equity Fund

(Percentages shown are based on Net Assets)


Common Stocks	Shares		Value
Aerospace & Defense — 1.2%
Boeing Co.		643	$	96,810
HEICO Corp., Class A		37		2,486
Northrop Grumman Corp.		168		41,941
Raytheon Co.		308		46,058
Rockwell Collins, Inc.		120		11,127
United Technologies Corp.		797		85,853

				284,275
Air Freight & Logistics — 0.1%
Hub Group, Inc., Class A (a)		424		18,168
XPO Logistics, Inc. (a)		119		5,299

				23,467
Airlines — 0.7%
Delta Air Lines, Inc.		428		20,621
Hawaiian Holdings, Inc. (a)		196		10,065
SkyWest, Inc.		281		10,355
United Continental Holdings, Inc. (a)		1,754		120,938

				161,979
Auto Components — 0.2%
American Axle & Manufacturing Holdings, Inc. (a)		337		5,277
BorgWarner, Inc.		91		3,240
Lear Corp.		53		6,864
Tenneco, Inc. (a)		718		42,326

				57,707
Automobiles — 0.6%
Ford Motor Co.		11,650		139,334
Banks — 7.2%
Ameris Bancorp		151		6,772
Bank of America Corp.		9,247		195,297
Bank of Hawaii Corp.		632		52,690
Banner Corp.		430		22,416
Chemical Financial Corp.		308		15,979
CIT Group, Inc.		491		20,057
Citigroup, Inc.		4,607		259,789
Citizens Financial Group, Inc.		1,743		58,408
CoBiz Financial, Inc.		360		5,447
Enterprise Financial Services Corp.		324		12,442
FCB Financial Holdings, Inc., Class A (a)		278		12,301
First Horizon National Corp.		332		6,335
First Interstate Bancsystem, Inc.		1,284		48,471
First Merchants Corp.		100		3,433
First Republic Bank		611		50,041
Glacier Bancorp, Inc.		996		34,163
JPMorgan Chase & Co.		5,276		422,977
MutualFirst Financial, Inc.		176		5,236
Sandy Spring Bancorp, Inc.		96		3,494
SVB Financial Group (a)		94		14,855
United Community Banks, Inc.		2,269		61,671
Webster Financial Corp.		1,066		52,884
Wells Fargo & Co.		4,760		251,899
Wintrust Financial Corp.		1,842		121,277

				1,738,334
Beverages — 2.2%
Coca-Cola European Partners PLC		1,037		33,661
Dr. Pepper Snapple Group, Inc.		2,529		219,366
Monster Beverage Corp. (a)		3,243		145,124
PepsiCo, Inc.		1,236		123,724


Common Stocks	Shares		Value
Beverages (continued)
Primo Water Corp. (a)		669	$	8,603

				530,478
Biotechnology — 3.5%
AbbVie, Inc.		2,307		140,266
Alder Biopharmaceuticals, Inc. (a)		244		5,746
Alkermes PLC (a)		51		2,898
AMAG Pharmaceuticals, Inc. (a)		284		9,429
Amgen, Inc.		645		92,925
Biogen, Inc. (a)		326		95,867
Celgene Corp. (a)		1,078		127,754
Exelixis, Inc. (a)		1,488		25,177
FibroGen, Inc. (a)		228		5,050
Gilead Sciences, Inc.		1,925		141,872
Halozyme Therapeutics, Inc. (a)		2,158		25,486
Incyte Corp. (a)		401		41,018
Innoviva, Inc. (a)		2,308		23,865
Kindred Biosciences, Inc. (a)		1,062		4,514
Puma Biotechnology, Inc. (a)		265		11,408
Regeneron Pharmaceuticals, Inc. (a)		166		62,954
Rigel Pharmaceuticals, Inc. (a)		2,669		6,939
Sangamo Biosciences, Inc. (a)		1,094		3,501
Seattle Genetics, Inc. (a)		65		4,213
United Therapeutics Corp. (a)		22		2,763
Vertex Pharmaceuticals, Inc. (a)		59		4,815

				838,460
Building Products — 0.0%
Owens Corning		78		4,008
Capital Markets — 1.7%
Ameriprise Financial, Inc.		536		61,217
Charles Schwab Corp.		537		20,760
CME Group, Inc.		563		63,568
Donnelley Financial Solutions, Inc. (a)		579		11,042
Evercore Partners, Inc., Class A		1,599		107,773
Franklin Resources, Inc.		1,399		54,925
Houlihan Lokey, Inc.		715		20,370
Invesco Ltd.		1,199		37,541
Janus Capital Group, Inc.		147		1,984
Piper Jaffray Cos. (a)		116		8,462
T. Rowe Price Group, Inc.		262		19,404

				407,046
Chemicals — 2.7%
Chemtura Corp. (a)		64		2,109
Dow Chemical Co.		4,635		258,262
Ecolab, Inc.		1,919		224,005
FMC Corp.		474		26,601
Monsanto Co.		147		15,098
Stepan Co.		502		40,747
Trinseo SA		392		22,952
Valspar Corp.		78		7,963
WR Grace & Co.		767		50,054

				647,791
Commercial Services & Supplies — 1.1%
ABM Industries, Inc.		1,495		65,780
ACCO Brands Corp. (a)		4,365		54,344
InnerWorkings, Inc. (a)		275		2,544
Knoll, Inc.		438		11,612

See Notes to Financial Statements.



BLACKROCK FUNDS	NOVEMBER 30, 2016	15


Schedule of Investments (continued)		BlackRock Impact U.S. Equity Fund


Common Stocks	Shares		Value
Commercial Services & Supplies (continued)
Steelcase, Inc., Class A		5,331	$	82,897
Tetra Tech, Inc.		932		39,936

				257,113
Communications Equipment — 1.2%
Ciena Corp. (a)		1,046		22,437
Cisco Systems, Inc.		6,743		201,076
CommScope Holding Co., Inc. (a)		233		8,383
Harris Corp.		114		11,806
Ubiquiti Networks, Inc. (a)		678		37,941

				281,643
Construction & Engineering — 0.1%
MasTec, Inc. (a)		426		16,167
Construction Materials — 0.2%
Vulcan Materials Co.		342		42,972
Consumer Finance — 1.2%
Ally Financial, Inc.		357		6,933
American Express Co.		1,013		72,977
Capital One Financial Corp.		1,315		110,513
Credit Acceptance Corp. (a)		37		7,098
Discover Financial Services		324		21,957
Enova International, Inc. (a)		679		7,910
Synchrony Financial		1,948		67,323

				294,711
Containers & Packaging — 0.2%
Avery Dennison Corp.		196		14,124
Bemis Co., Inc.		626		31,344

				45,468
Diversified Consumer Services — 0.1%
Regis Corp. (a)		1,635		22,072
ServiceMaster Global Holdings, Inc. (a)		113		4,319

				26,391
Diversified Financial Services — 1.0%
Berkshire Hathaway, Inc., Class B (a)		1,447		227,816
Intercontinental Exchange, Inc.		110		6,094
MarketAxess Holdings, Inc.		30		4,973
Voya Financial, Inc.		72		2,798

				241,681
Diversified Telecommunication Services — 1.2%
AT&T, Inc.		3,654		141,154
Cogent Communications Group, Inc.		60		2,247
IDT Corp., Class B		948		20,069
Verizon Communications, Inc.		2,276		113,572
Zayo Group Holdings, Inc. (a)		163		5,624

				282,666
Electric Utilities — 0.9%
NextEra Energy, Inc.		1,925		219,893
Electrical Equipment — 0.5%
Eaton Corp. PLC		321		21,350
Emerson Electric Co.		1,990		112,315

				133,665
Electronic Equipment, Instruments & Components — 0.4%
Corning, Inc.		914		21,964
Ingram Micro, Inc., Class A		148		5,541


Common Stocks	Shares		Value
Electronic Equipment, Instruments & Components (continued)
SYNNEX Corp.		566	$	66,171

				93,676
Energy Equipment & Services — 1.2%
Baker Hughes, Inc.		1,332		85,688
Diamond Offshore Drilling, Inc.		389		7,025
Ensco PLC, Class A		4,972		48,029
Helix Energy Solutions Group, Inc. (a)		584		6,103
Mammoth Energy Services, Inc. (a)		584		9,362
Matrix Service Co. (a)		349		7,277
Noble Corp. PLC		735		4,572
Schlumberger Ltd.		1,178		99,011
Superior Energy Services, Inc.		334		5,758
Unit Corp. (a)		693		16,840
Weatherford International PLC (a)		586		2,994

				292,659
Food & Staples Retailing — 2.0%
Costco Wholesale Corp.		903		135,549
CVS Health Corp.		1,731		133,097
Kroger Co.		708		22,868
Performance Food Group Co. (a)		633		13,356
U.S. Foods Holding Corp. (a)		84		1,920
Wal-Mart Stores, Inc.		2,080		146,495
Walgreens Boots Alliance, Inc.		385		32,621

				485,906
Food Products — 1.6%
Archer-Daniels-Midland Co.		3,314		143,264
B&G Foods, Inc.		146		6,249
Cal-Maine Foods, Inc. (b)		583		23,728
Dean Foods Co.		340		6,752
J.M. Smucker Co.		532		67,006
Lancaster Colony Corp.		328		44,447
McCormick & Co., Inc.		387		35,295
Pinnacle Foods, Inc.		265		13,133
Post Holdings, Inc. (a)		361		27,555
WhiteWave Foods Co. (a)		226		12,450

				379,879
Gas Utilities — 0.7%
Southwest Gas Corp.		2,356		174,650
Health Care Equipment & Supplies — 2.6%
Align Technology, Inc. (a)		534		49,689
Anika Therapeutics, Inc. (a)		407		18,991
Baxter International, Inc.		100		4,437
Boston Scientific Corp. (a)		3,401		69,584
Cantel Medical Corp.		235		19,169
Cutera, Inc. (a)		533		8,715
Edwards Lifesciences Corp. (a)		262		21,707
Hologic, Inc. (a)		2,439		93,365
Medtronic PLC		4,146		302,699
NxStage Medical, Inc. (a)		420		10,382
St. Jude Medical, Inc.		289		22,889

				621,627
Health Care Providers & Services — 2.4%
AmerisourceBergen Corp.		514		40,087
Anthem, Inc.		406		57,867
Cardinal Health, Inc.		1,521		108,006
Express Scripts Holding Co. (a)		44		3,339

See Notes to Financial Statements.



16	BLACKROCK FUNDS	NOVEMBER 30, 2016


Schedule of Investments (continued)		BlackRock Impact U.S. Equity Fund


Common Stocks	Shares		Value
Health Care Providers & Services (continued)
Henry Schein, Inc. (a)		142	$	21,152
Humana, Inc.		203		43,166
McKesson Corp.		254		36,528
UnitedHealth Group, Inc.		1,214		192,200
VCA, Inc. (a)		1,255		78,563

				580,908
Hotels, Restaurants & Leisure — 1.3%
Aramark		195		6,710
Brinker International, Inc.		561		29,795
Cheesecake Factory, Inc.		774		45,797
Domino’s Pizza, Inc.		92		15,459
J Alexander’s Holdings, Inc. (a)		1,454		13,813
Marriott International, Inc., Class A		1		79
Papa John’s International, Inc.		77		6,804
Ruth’s Hospitality Group, Inc.		1,006		17,102
Texas Roadhouse, Inc.		920		43,139
Vail Resorts, Inc.		742		117,533
Yum China Holdings, Inc. (a)		718		20,190

				316,421
Household Durables — 0.6%
Harman International Industries, Inc.		57		6,234
iRobot Corp. (a)		940		53,580
Whirlpool Corp.		548		89,017

				148,831
Household Products — 2.8%
Clorox Co.		1,369		158,202
Kimberly-Clark Corp.		700		80,927
Procter & Gamble Co.		5,286		435,883

				675,012
Independent Power and Renewable Electricity Producers — 0.3%
NRG Energy, Inc.		2,557		28,996
Ormat Technologies, Inc.		820		39,221

				68,217
Industrial Conglomerates — 2.3%
Danaher Corp.		760		59,409
General Electric Co.		16,549		509,047

				568,456
Insurance — 3.1%
Aflac, Inc.		767		54,749
Allstate Corp.		632		44,189
Argo Group International Holdings Ltd.		917		58,184
Assured Guaranty Ltd.		291		10,406
CNO Financial Group, Inc.		492		8,807
Endurance Specialty Holdings Ltd.		65		5,993
First American Financial Corp.		253		9,548
FNF Group		486		15,523
Hanover Insurance Group, Inc.		1,158		100,271
Loews Corp.		883		39,426
Marsh & McLennan Cos., Inc.		961		66,607
MetLife, Inc.		1,003		55,175
Progressive Corp.		724		24,109
Prudential Financial, Inc.		922		92,753
Reinsurance Group of America, Inc.		681		83,116
Selective Insurance Group, Inc.		55		2,261
Travelers Cos., Inc.		683		77,418
United Insurance Holdings Corp.		162		2,200


Common Stocks	Shares		Value
Insurance (continued)
W.R. Berkley Corp.		91	$	5,623

				756,358
Internet & Direct Marketing Retail — 2.0%
Amazon.com, Inc. (a)		429		321,994
Expedia, Inc.		191		23,694
Liberty Interactive Corp QVC Group, Series A (a)		1,754		36,325
Liberty TripAdvisor Holdings, Inc., Series A (a)		240		3,852
Netflix, Inc. (a)		547		63,999
Priceline Group, Inc. (a)		19		28,570

				478,434
Internet Software & Services — 3.2%
Alphabet, Inc., Class A (a)		262		203,281
Alphabet, Inc., Class C (a)		308		233,476
EarthLink Holdings Corp.		3,467		18,306
Facebook, Inc., Class A (a)		1,839		217,774
j2 Global, Inc.		286		21,024
LogMeIn, Inc.		452		45,584
VeriSign, Inc. (a)		373		29,411
Wix.com Ltd. (a)		171		8,465
XO Group, Inc. (a)		311		5,747
Yandex NV, Class A (a)		109		2,072

				785,140
IT Services — 3.8%
Accenture PLC, Class A		1,189		142,002
Alliance Data Systems Corp.		95		21,734
Amdocs Ltd.		465		27,421
Automatic Data Processing, Inc.		1,112		106,774
Booz Allen Hamilton Holding Corp.		1,887		71,347
CSG Systems International, Inc.		472		21,004
CSRA, Inc.		184		5,890
Euronet Worldwide, Inc. (a)		772		55,368
Fidelity National Information Services, Inc.		260		20,069
First Data Corp., Class A (a)		583		8,494
Fiserv, Inc. (a)		906		94,786
Forrester Research, Inc.		1,679		68,671
Gartner, Inc. (a)		257		26,425
Hackett Group, Inc.		2,435		43,246
International Business Machines Corp.		459		74,459
Paychex, Inc.		1,882		110,944
PayPal Holdings, Inc. (a)		763		29,971
Vantiv, Inc., Class A (a)		67		3,781

				932,386
Leisure Products — 0.9%
Brunswick Corp.		2,889		144,797
Callaway Golf Co.		2,797		33,983
Hasbro, Inc.		507		43,293

				222,073
Life Sciences Tools & Services — 0.3%
Medpace Holdings, Inc. (a)		134		4,781
NanoString Technologies, Inc. (a)		935		20,570
PRA Health Sciences, Inc. (a)		614		32,984
Waters Corp. (a)		123		16,552

				74,887
Machinery — 3.3%
Briggs & Stratton Corp.		249		5,159
Caterpillar, Inc.		614		58,674

See Notes to Financial Statements.



BLACKROCK FUNDS	NOVEMBER 30, 2016	17


Schedule of Investments (continued)		BlackRock Impact U.S. Equity Fund


Common Stocks	Shares		Value
Machinery (continued)
Cummins, Inc.		234	$	33,177
Deere & Co.		697		69,839
Illinois Tool Works, Inc.		2,058		257,620
Ingersoll-Rand PLC		3,177		236,814
Joy Global, Inc.		97		2,719
Mueller Water Products, Inc., Series A		481		6,364
Oshkosh Corp.		121		8,470
PACCAR, Inc.		2,134		132,628

				811,464
Media — 3.2%
AMC Networks, Inc., Class A (a)		1,026		56,687
CBS Corp., Class B		1,643		99,763
Comcast Corp., Class A		1,740		120,947
Discovery Communications, Inc., Class A (a)		847		22,945
Discovery Communications, Inc., Class C (a)		243		6,425
Entercom Communications Corp., Class A		495		7,524
Gray Television, Inc. (a)		533		5,383
New Media Investment Group, Inc.		346		5,315
Omnicom Group, Inc.		740		64,336
Scripps Networks Interactive, Inc., Class A		431		29,851
Time Warner, Inc.		1,610		147,830
Walt Disney Co.		2,132		211,324

				778,330
Metals & Mining — 0.6%
Arconic, Inc.		286		5,514
Freeport-McMoRan, Inc.		2,436		37,393
Hecla Mining Co.		718		4,365
Royal Gold, Inc.		143		9,959
Schnitzer Steel Industries, Inc., Class A		290		8,091
Steel Dynamics, Inc.		475		16,853
Worthington Industries, Inc.		983		55,323

				137,498
Multi-Utilities — 1.6%
Consolidated Edison, Inc.		3,310		230,939
PG&E Corp.		2,775		163,170

				394,109
Multiline Retail — 0.8%
Burlington Stores, Inc. (a)		264		23,211
Kohl’s Corp.		877		47,209
Nordstrom, Inc.		419		23,430
Target Corp.		1,150		88,826

				182,676
Oil, Gas & Consumable Fuels — 5.3%
Anadarko Petroleum Corp.		429		29,665
Antero Resources Corp. (a)		689		16,874
Apache Corp.		311		20,510
Bill Barrett Corp. (a)		711		5,560
Chevron Corp.		1,870		208,617
Concho Resources, Inc. (a)		667		95,394
ConocoPhillips		2,572		124,793
Devon Energy Corp.		1,190		57,513
EP Energy Corp., Class A (a)		2,874		15,261
Exxon Mobil Corp.		2,354		205,504
Gulfport Energy Corp. (a)		894		22,967
Kinder Morgan, Inc.		852		18,914
Laredo Petroleum, Inc. (a)		241		3,854
Marathon Petroleum Corp.		842		39,591


Common Stocks	Shares		Value
Oil, Gas & Consumable Fuels (continued)
Newfield Exploration Co. (a)		607	$	27,449
Oasis Petroleum, Inc. (a)		294		4,401
Occidental Petroleum Corp.		580		41,389
Phillips 66		2,739		227,556
SM Energy Co.		625		24,913
Spectra Energy Corp.		305		12,490
Valero Energy Corp.		1,340		82,490

				1,285,705
Paper & Forest Products — 0.1%
Boise Cascade Co. (a)		841		19,175
Domtar Corp.		150		5,890
Louisiana-Pacific Corp. (a)		196		3,791

				28,856
Personal Products — 0.0%
Avon Products, Inc.		1,243		6,675
Herbalife Ltd. (a)		67		3,285

				9,960
Pharmaceuticals — 4.5%
Allergan PLC (a)		158		30,699
Amphastar Pharmaceuticals, Inc. (a)		955		19,358
Bristol-Myers Squibb Co.		1,212		68,405
Catalent, Inc. (a)		204		4,882
Corcept Therapeutics, Inc. (a)		1,165		9,774
Eli Lilly & Co.		1,666		111,822
Johnson & Johnson		2,676		297,839
Mallinckrodt PLC (a)		530		27,931
Merck & Co., Inc.		292		17,867
Nektar Therapeutics (a)		2,189		26,892
Pfizer, Inc.		7,555		242,818
Prestige Brands Holdings, Inc. (a)		2,603		123,825
Zoetis, Inc.		1,998		100,659

				1,082,771
Professional Services — 0.3%
ManpowerGroup, Inc.		914		78,065
Real Estate Investment Trusts (REITs) — 4.2%
American Tower Corp.		667		68,214
Apartment Investment & Management Co., Class A		1,521		64,034
Arbor Realty Trust, Inc.		1,686		12,561
Ares Commercial Real Estate Corp.		927		12,542
Ashford Hospitality Trust, Inc.		483		3,395
Brandywine Realty Trust		1,113		17,085
Crown Castle International Corp.		1,462		122,018
DCT Industrial Trust, Inc.		1,503		69,063
DDR Corp.		1,826		27,792
Equinix, Inc.		322		109,081
Extra Space Storage, Inc.		119		8,349
FelCor Lodging Trust, Inc.		1,492		10,832
Hudson Pacific Properties, Inc.		223		7,776
Invesco Mortgage Capital, Inc.		156		2,324
National Storage Affiliates Trust		1,163		23,934
Post Properties, Inc.		303		19,701
Prologis, Inc.		3,772		191,995
Realty Income Corp.		388		21,511
Regency Centers Corp.		108		7,219
Summit Hotel Properties, Inc.		636		9,044
UDR, Inc.		971		33,053

See Notes to Financial Statements.



18	BLACKROCK FUNDS	NOVEMBER 30, 2016


Schedule of Investments (continued)		BlackRock Impact U.S. Equity Fund


Common Stocks	Shares		Value
Real Estate Investment Trusts (REITs) (continued)
Welltower, Inc.		2,620	$	164,484

				1,006,007
Real Estate Management & Development — 0.2%
Realogy Holdings Corp.		1,819		43,929
Road & Rail — 0.8%
ArcBest Corp.		1,141		34,743
Old Dominion Freight Line, Inc. (a)		779		68,007
Ryder System, Inc.		1,044		81,745

				184,495
Semiconductors & Semiconductor Equipment — 3.9%
Analog Devices, Inc.		933		69,266
Applied Materials, Inc.		3,543		114,085
Entegris, Inc. (a)		4,145		74,403
Intel Corp.		4,758		165,102
Micron Technology, Inc. (a)		237		4,629
NVIDIA Corp.		727		67,029
QUALCOMM, Inc.		373		25,412
Texas Instruments, Inc.		3,912		289,214
Xilinx, Inc.		2,761		149,039

				958,179
Software — 4.4%
Cadence Design Systems, Inc. (a)		2,454		64,491
Dell Technologies, Inc., Class V (a)		1		54
Guidewire Software, Inc. (a)		494		27,521
Imperva, Inc. (a)		188		7,172
Microsoft Corp.		11,475		691,483
Qualys, Inc. (a)		231		7,669
Red Hat, Inc. (a)		874		69,142
salesforce.com, Inc. (a)		1,020		73,440
Silver Spring Networks, Inc. (a)		744		10,379
Take-Two Interactive Software, Inc. (a)		1,646		81,033
VMware, Inc., Class A (a)		316		25,640

				1,058,024
Specialty Retail — 2.6%
Aaron’s, Inc.		63		1,835
Best Buy Co., Inc.		741		33,864
Dick’s Sporting Goods, Inc.		300		17,721
Home Depot, Inc.		1,721		222,697
L Brands, Inc.		284		19,942
Lithia Motors, Inc., Class A		194		17,829
Lowe’s Cos., Inc.		2,570		181,314
TJX Cos., Inc.		1,050		82,257
Ulta Salon Cosmetics & Fragrance, Inc. (a)		122		31,659
West Marine, Inc. (a)		1,133		10,899

				620,017
Common Stocks	Shares		Value
Technology Hardware, Storage & Peripherals — 3.3%
Apple, Inc.		7,278	$	804,365
Hewlett Packard Enterprise Co.		163		3,879

				808,244


Common Stocks	Shares		Value
Textiles, Apparel & Luxury Goods — 0.1%
Coach, Inc.		349	$	12,700
Oxford Industries, Inc.		54		3,924
Under Armour, Inc., Class A (a)		255		7,854
Under Armour, Inc., Class C (a)		95		2,449

				26,927
Thrifts & Mortgage Finance — 0.2%
Essent Group Ltd. (a)		690		21,059
First Defiance Financial Corp.		135		6,249
HomeStreet, Inc. (a)		271		7,872
TFS Financial Corp.		527		9,818
Walker & Dunlop, Inc. (a)		133		3,909

				48,907
Trading Companies & Distributors — 0.1%
Beacon Roofing Supply, Inc. (a)		241		11,180
GMS, Inc. (a)		695		17,452
MRC Global, Inc. (a)		234		4,710

				33,342
Transportation Infrastructure — 0.0%
Macquarie Infrastructure Corp.		120		9,833
Wireless Telecommunication Services — 0.6%
SBA Communications Corp., Class A (a)		1,151		113,903
Telephone & Data Systems, Inc.		1,649		44,408

				158,311
Total Common Stocks — 99.4%				24,076,718



Rights — 0.0%
Biotechnology — 0.0%
Dyax Corp.		64		71
Total Long-Term Investments (Cost — $22,060,606) — 99.4%				24,076,489



Short-Term Securities
BlackRock Liquidity Funds, T-Fund, Institutional Class, 0.25% (c)(d)		160,235		160,235
SL Liquidity Series, LLC, Money Market Series, 0.65% (c)(d)(e)		20,457		20,461
Total Short-Term Securities (Cost — $180,694) — 0.7%				180,696
Total Investments (Cost — $22,241,300) — 100.1%				24,257,185
Liabilities in Excess of Other Assets — (0.1)%				(17,701	)

Net Assets — 100.0%			$	24,239,484

Notes to Schedule of Investments

(a)

Non-income producing security.

(b)

Security, or a portion of security, is on loan.

See Notes to Financial Statements.



BLACKROCK FUNDS	NOVEMBER 30, 2016	19


Schedule of Investments (continued)		BlackRock Impact U.S. Equity Fund

(c)

During the six months ended November 30, 2016, investments in issuers considered to be affiliates of the Fund for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:


Affiliate	Shares Held at May 31, 2016		Shares Purchased			Shares Sold			Shares Held at November 30, 2016		Value at November 30, 2016		Income			Realized Loss
BlackRock Liquidity Funds, T-Fund, Institutional Class		—		160,235	¹		—			160,235	$	160,235	$	114			—
BlackRock Liquidity Funds, TempFund, Institutional Class		168,630		—			(168,630	)²		—		—		136			—
SL Liquidity Series, LLC, Money Market Series		—		20,457	¹		—			20,457		20,461		819	³		—
PNC Financial Services Group, Inc.		25		—			(25	)²		—		—		—		$	(144	)
Total											$	180,696	$	1,069		$	(144	)

¹ Represents net shares purchased.
² Represents net shares sold.
³ Represents securities lending income earned from the reinvestments of cash collateral from loaned securities, net of fees and collateral investment expenses, and other payments to and from borrowers of securities.

(d)

Current yield as of period end.

(e)

Security was purchased with the cash collateral from loaned securities.


Derivative Financial Instruments Outstanding as of Period End

Futures Contracts

Contracts
Long

Issue

Expiration

Notional
Value

Unrealized
Appreciation

Russell 2000 E-Mini Index

December 2016

132,230

13,747

Derivative Financial Instruments Categorized by Risk Exposure

As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:


Assets — Derivative Financial Instruments		Commodity Contracts		Credit Contracts		Equity Contracts		Foreign Currency Exchange Contracts		Interest Rate Contracts		Other Contracts		Total
Futures contracts	Net unrealized appreciation¹		—		—	$	13,747		—		—		—	$	13,747
¹Includes cumulative appreciation (depreciation) on futures contracts, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities.

For the six months ended November 30, 2016, the effect of derivative financial instruments in the Statements of Operations was as follows:


Net Realized Gain (Loss) from:	Commodity Contracts		Credit Contracts		Equity Contracts		Foreign Currency Exchange Contracts		Interest Rate Contracts		Other Contracts		Total
Futures contracts		—		—	$	8,595		—		—		—	$	8,595
Net Change in Unrealized Appreciation (Depreciation) on:
Futures contracts		—		—	$	7,810		—		—		—	$	7,810

See Notes to Financial Statements.



20	BLACKROCK FUNDS	NOVEMBER 30, 2016


Schedule of Investments (concluded)		BlackRock Impact U.S. Equity Fund


Average Quarterly Balances of Outstanding Derivative Financial Instruments

Futures contracts:
Average notional value of contracts — long	$	128,055

For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.

Fair Value Hierarchy as of Period End

The following tables summarize the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy:


	Level 1		Level 2			Level 3		Total
Assets:
Investments:¹
Common Stocks	$	24,076,418		—			—	$	24,076,418
Rights		—		—		$	71		71
Short-Term Securities		160,235		—			—		160,235

Subtotal	$	24,236,653		—		$	71	$	24,236,724

Investments Valued at NAV²									20,461

Total Investments								$	24,257,185


Derivative Financial Instruments³
Assets:
Equity contracts	$	13,747		—			—	$	13,747
¹ See above Schedule of Investments for values in each sector.
² As of November 30, 2016, certain of the Fund’s investments were valued using NAV per share (or its equivalent) as no quoted market value is available and have been excluded from the fair value hierarchy.
³ Derivative financial instruments are futures contracts. Futures contracts are valued at the unrealized appreciation (depreciation) on the instrument.

The Fund may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of period end, such assets and/or liabilities are categorized within the disclosure hierarchy as follows:
	Level 1		Level 2			Level 3		Total
Assets:
Cash pledged for futures contracts	$	6,000		—			—	$	6,000
Liabilities:
Collateral on securities loaned at value		—	$	(20,461	)		—		(20,461	)

Total	$	6,000	$	(20,461	)		—	$	(14,461	)

During the six months ended November 30, 2016, there were no transfers between levels.

See Notes to Financial Statements.



BLACKROCK FUNDS	NOVEMBER 30, 2016	21


Statements of Assets and Liabilities


November 30, 2016 (Unaudited)	BlackRock Impact Bond Fund			BlackRock Impact U.S. Equity Fund

Assets
Investments at value — unaffiliated^1,2	$	24,376,945		$	24,076,489
Investments at value — affiliated³		2,127,852			180,696
Cash pledged for futures contracts		41,000			6,000
Receivables:
Investments sold — unaffiliated		—			391,735
Securities lending income — affiliated		—			81
Capital shares sold		—			10,087
Dividends — affiliated		386			38
Dividends — unaffiliated		—			46,551
Interest — unaffiliated		151,250			—
From the Manager		38,536			15,369
Deferred offering costs		116,980			13,344
Prepaid expenses		1,096			33,667

Total assets		26,854,045			24,774,057


Liabilities
Cash collateral on securities loaned at value		—			20,461
Payables:
Investments purchased — unaffiliated		7,402,601			442,184
Administration fees		318			376
Income dividends		29,738			—
Offering costs		65,245			—
Officer’s and Trustees’ fees		1,526			1,140
Other accrued expenses		33,249			69,511
Service and distribution fees		49			221
Variation margin on futures contracts		13,378			680

Total liabilities		7,546,104			534,573

Net Assets	$	19,307,941		$	24,239,484


Net Assets Consist of
Paid-in capital	$	20,010,017		$	21,677,465
Undistributed net investment income		2,703			155,144
Accumulated net realized gain (loss)		(205,434	)		377,243
Net unrealized appreciation (depreciation)		(499,345	)		2,029,632

Net Assets	$	19,307,941		$	24,239,484

¹Investments at cost — unaffiliated	$	24,871,196		$	22,060,606
²Securities loaned at value		—		$	20,309
³Investments at cost — affiliated	$	2,127,852		$	180,694


Statements of Assets and Liabilities (concluded)


November 30, 2016 (Unaudited)	BlackRock Impact Bond Fund		BlackRock Impact U.S. Equity Fund

Net Assets Value
Institutional:
Net assets	$	19,163,204	$	23,265,418

Shares outstanding		1,986,011		2,076,850

Net asset value	$	9.65	$	11.20

Shares authorized		Unlimited		Unlimited

Par value	$	0.001	$	0.001

Investor A:
Net assets	$	48,246	$	596,321

Shares outstanding		5,000		53,335

Net asset value	$	9.65	$	11.18

Shares authorized		Unlimited		Unlimited

Par value	$	0.001	$	0.001

Investor C:
Net assets	$	48,246	$	155,869

Shares outstanding		5,000		13,997

Net asset value	$	9.65	$	11.14

Shares authorized		Unlimited		Unlimited

Par value	$	0.001	$	0.001

Class K:
Net assets	$	48,245	$	221,876

Shares outstanding		5,000		19,802

Net asset value	$	9.65	$	11.20

Shares authorized		Unlimited		Unlimited

Par value	$	0.001	$	0.001


Statements of Operations


Six Months Ended November 30, 2016 (Unaudited)	BlackRock Impact Bond Fund¹			BlackRock Impact U.S. Equity Fund

Investment Income
Dividends — unaffiliated		—		$	214,186
Dividends — affiliated	$	2,187			250
Interest — unaffiliated		111,797			—
Securities lending — affiliated — net		—			819
Foreign taxes withheld		—			(3	)

Total investment income		113,984			215,252


Expenses
Organization and offering		56,038			87,065
Professional		21,285			26,427
Investment advisory		16,096			45,372
Miscellaneous		5,742			6,982
Officer and Trustees		3,564			5,826
Printing		3,465			4,623
Custodian		2,376			17,814
Administration		2,280			4,821
Accounting services		2,178			6,222
Transfer agent — class specific		1,101			834
Administration — class specific		1,074			2,269
Service and distribution — class specific		168			911
Registration		29			14,500

Total expenses		115,396			223,666
Less:
Fees waived and/or reimbursed by the Manager		(89,332	)		(146,717	)
Administration fees waived		(2,280	)		(4,821	)
Transfer agent fees reimbursed — class specific		(10	)		(256	)
Administration fees waived — class specific		(7	)		(66	)

Total expenses after fees waived and/or reimbursed		23,767			71,806

Net investment income		90,217			143,446


Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments — unaffiliated		(25,381	)		527,733
Investments — affiliated		—			(144	)
Futures contracts		(180,053	)		8,595

		(205,434	)		536,184

Net change in unrealized appreciation (depreciation) on:
Investments — unaffiliated		(494,251	)		958,283
Investments — affiliated		—			(1	)
Futures contracts		(5,094	)		7,810

		(499,345	)		966,092

Net realized and unrealized gain (loss)		(704,779	)		1,502,276

Net Increase (Decrease) in Net Assets Resulting from Operations	$	(614,562	)	$	1,645,722

¹ Commenced operations on August 23, 2016.


Statements of Changes in Net Assets


	BlackRock Impact Bond Fund			BlackRock Impact U.S. Equity Fund
Increase (Decrease) in Net Assets:	Period August 23, 2016¹ to November 30, 2016 (Unaudited)			Six Months Ended November 30, 2016 (Unaudited)			Period October 5, 2015¹ to May 31, 2016

Operations
Net investment income	$	90,217		$	143,446		$	216,430
Net realized gain (loss)		(205,434	)		536,184			(140,295	)
Net change in unrealized appreciation (depreciation)		(499,345	)		966,092			1,063,540

Net increase (decrease) in net assets resulting from operations		(614,562	)		1,645,722			1,139,675


Distributions to Shareholders²
From net investment income:
Institutional		(87,020	)		(135,949	)		(109,504	)
Investor A		(186	)		(1,899	)		(421	)
Investor C		(84	)		(117	)		(76	)
Class K		(224	)		(1,348	)		—
From net realized gain:
Institutional		—			—			(20,295	)
Investor A		—			—			(84	)
Investor C		—			—			(26	)

Decrease in net assets resulting from distributions to shareholders		(87,514	)		(139,313	)		(130,406	)


Capital Share Transactions
Net increase in net assets derived from capital share transactions		20,010,017			1,112,066			20,611,740


Net Assets
Total increase in net assets		19,307,941			2,618,475			21,621,009
Beginning of period		—			21,621,009			—

End of period	$	19,307,941		$	24,239,484		$	21,621,009

Undistributed net investment income, end of period	$	2,703		$	155,144		$	151,011

¹Commencement of operations.
²Distributions for annual periods determined in accordance with federal income tax regulations.


Financial Highlights		BlackRock Impact Bond Fund


	Institutional
	Period August 23, 2016¹ to November 30, 2016 (Unaudited)

Per Share Operating Performance
Net asset value, beginning of period	$	10.00

Net investment income²		0.05
Net realized and unrealized (loss)		(0.36	)

Net decrease from investment operations		(0.31	)

Distributions from net investment income³		(0.04	)

Net asset value, end of period	$	9.65


Total Return^4,5
Based on net asset value		(3.07)%


Ratios to Average Net Assets
Total expenses^6,7		1.13%	⁸

Total expenses after fees waived and/or reimbursed^6,7		0.44%

Net investment income^6,7		1.68%


Supplemental Data
Net assets, end of period (000)	$	19,163

Portfolio turnover rate⁹		173%

Commencement of operations.

Based on average shares outstanding.

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

⁴

Where applicable, assumes the reinvestment of distributions.

⁵

Aggregate total return.

⁶

Annualized.

⁷

Excludes 0.02% of expenses incurred indirectly as a result of investments in underlying funds.

⁸

Audit, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 2.15%.

⁹

Includes mortgage dollar roll transactions (“MDRs”). Additional information regarding portfolio turnover rate is as follows:


	Period August 23, 2016¹ to November 30, 2016 (Unaudited)

Portfolio turnover rate (excluding MDRs)		126%
			��


Financial Highlights (continued)		BlackRock Impact Bond Fund


	Investor A			Investor C
	Period August 23, 2016¹ to November 30, 2016 (Unaudited)			Period August 23, 2016¹ to November 30, 2016 (Unaudited)

Per Share Operating Performance
Net asset value, beginning of period	$	10.00		$	10.00

Net investment income²		0.04			0.02
Net realized and unrealized (loss)		(0.35	)		(0.35	)

Net decrease from investment operations		(0.31	)		(0.33	)

Distributions from net investment income³		(0.04	)		(0.02	)

Net asset value, end of period	$	9.65		$	9.65


Total Return^4,5
Based on net asset value		(3.13)%			(3.34)%


Ratios to Average Net Assets
Total expenses^6,7		1.39%	⁸		2.17%	⁸

Total expenses after fees waived and/or reimbursed^6,7		0.70%			1.45%

Net investment income^6,7		1.43%			0.67%


Supplemental Data
Net assets, end of period (000)	$	48		$	48

Portfolio turnover rate⁹		173%			173%

Commencement of operations.

Based on average shares outstanding.

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

⁴

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

⁵

Aggregate total return.

⁶

Annualized.

⁷

Excludes 0.02% of expenses incurred indirectly as a result of investments in underlying funds.

⁸

Audit, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 2.42% and 3.19%, respectively.

⁹

Includes MDRs. Additional information regarding portfolio turnover rate is as follows:


	Period August 23, 2016¹ to November 30, 2016 (Unaudited)

Portfolio turnover rate (excluding MDRs)		126%


Financial Highlights (concluded)		BlackRock Impact Bond Fund


	Class K
	Period August 23, 2016¹ to November 30, 2016 (Unaudited)

Per Share Operating Performance
Net asset value, beginning of period	$	10.00

Net investment income²		0.05
Net realized and unrealized (loss)		(0.36	)

Net decrease from investment operations		(0.31	)

Distributions from net investment income³		(0.04	)

Net asset value, end of period	$	9.65


Total Return^4,5
Based on net asset value		(3.06)%


Ratios to Average Net Assets
Total expenses^6,7		1.17%	⁸

Total expenses after fees waived and/or reimbursed^6,7		0.40%

Net investment income^6,7		1.72%


Supplemental Data
Net assets, end of period (000)	$	48

Portfolio turnover rate⁹		173%

Commencement of operations.

Based on average shares outstanding.

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

⁴

Where applicable, assumes the reinvestment of distributions.

⁵

Aggregate total return.

⁶

Annualized.

⁷

Excludes 0.02% of expenses incurred indirectly as a result of investments in underlying funds.

⁸

Audit, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 2.19%.

⁹

Includes MDRs. Additional information regarding portfolio turnover rate is as follows:


	Period August 23, 2016¹ to November 30, 2016 (Unaudited)

Portfolio turnover rate (excluding MDRs)		126%


Financial Highlights		BlackRock U.S. Impact Equity Fund


	Institutional
	Six Months Ended November 30, 2016 (Unaudited)			Period October 5, 2015¹ to May 31, 2016

Per Share Operating Performance
Net asset value, beginning of period	$	10.49		$	10.00

Net investment income²		0.07			0.11
Net realized and unrealized gain		0.71			0.45

Net increase from investment operations		0.78			0.56

Distributions:³
From net investment income		(0.07	)		(0.06	)
From net realized gain		—			(0.01	)

Total distributions		(0.07	)		(0.07	)

Net asset value, end of period	$	11.20		$	10.49


Total Return^4,5
Based on net asset value		7.44%			5.59%


Ratios to Average Net Assets
Total expenses⁶		1.58%	⁷		1.91%	^8,9

Total expenses after fees waived and/or reimbursed⁶		0.62%			0.64%	⁸

Net investment income⁶		1.27%			1.64%	⁸


Supplemental Data
Net assets, end of period (000)	$	23,265		$	21,080

Portfolio turnover rate		44%			56%

Commencement of operations.

Based on average shares outstanding.

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

⁴

Where applicable, assumes the reinvestment of distributions.

⁵

Aggregate total return.

⁶

Annualized.

⁷

Offering costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 1.96%.

⁸

Excludes 0.01% of expenses incurred indirectly as a result of investments in underlying funds.

⁹

Audit, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 2.42%.


Financial Highlights (continued)		BlackRock U.S. Impact Equity Fund


	Investor A						Investor C
	Six Months Ended November 30, 2016 (Unaudited)			Period October 5, 2015¹ to May 31, 2016			Six Months Ended November 30, 2016 (Unaudited)			Period October 5, 2015¹ to May 31, 2016

Per Share Operating Performance
Net asset value, beginning of period	$	10.48		$	10.00		$	10.45		$	10.00

Net investment income²		0.06			0.09			0.02			0.04
Net realized and unrealized gain		0.70			0.45			0.71			0.45

Net increase from investment operations		0.76			0.54			0.73			0.49

Distributions:³
From net investment income		(0.06	)		(0.05	)		(0.04	)		(0.03	)
From net realized gain		—			(0.01	)		—			(0.01	)

Total distributions		(0.06	)		(0.06	)		(0.04	)		(0.04	)

Net asset value, end of period	$	11.18		$	10.48		$	11.14		$	10.45


Total Return^4,5
Based on net asset value		7.28%			5.44%			6.96%			4.92%


Ratios to Average Net Assets
Total expenses⁶		1.93%	⁷		2.21%	^8,9		2.60%	⁷		3.27%	^8,9

Total expenses after fees waived and/or reimbursed⁶		0.90%			0.89%	⁸		1.63%			1.64%	⁸

Net investment income⁶		1.06%			1.40%	⁸		0.39%			0.64%	⁸


Supplemental Data
Net assets, end of period (000)	$	596		$	307		$	156		$	26

Portfolio turnover rate		44%			56%			44%			56%

Commencement of operations.

Based on average shares outstanding.

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

⁴

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

⁵

Aggregate total return.

⁶

Annualized.

⁷

Offering costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 2.28% and 2.89%, respectively.

⁸

Excludes 0.01% of expenses incurred indirectly as a result of investments in underlying funds.

⁹

Audit, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 2.70% and 3.78%, respectively.


Financial Highlights (concluded)		BlackRock U.S. Impact Equity Fund


	Class K
	Six Months Ended November 30, 2016 (Unaudited)			Period March 28, 2016¹ to May 31, 2016

Per Share Operating Performance
Net asset value, beginning of period	$	10.49		$	10.10

Net investment income²		0.07			0.03
Net realized and unrealized gain		0.71			0.36

Net increase from investment operations		0.78			0.39

Distributions:³
From net investment income		(0.07	)		—
From net realized gain		—			—

Total distributions		(0.07	)		—

Net asset value, end of period	$	11.20		$	10.49


Total Return^4,5
Based on net asset value		7.44%			3.86%


Ratios to Average Net Assets
Total expenses⁶		1.63%	⁷		1.27%	^8,9

Total expenses after fees waived and/or reimbursed⁶		0.60%			0.60%	⁸

Net investment income⁶		1.29%			1.81%	⁸


Supplemental Data
Net assets, end of period (000)	$	222		$	208

Portfolio turnover rate		44%			56%

Commencement of operations.

Based on average shares outstanding.

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

⁴

Where applicable, assumes the reinvestment of distributions.

⁵

Aggregate total return.

⁶

Annualized.

⁷

Offering costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 2.01%.

⁸

Excludes 0.01% of expenses incurred indirectly as a result of investments in underlying funds.

⁹

Audit, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 2.53%.


Notes to Financial Statements (Unaudited)

1. Organization:

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. The following are referred to herein collectively as the “Funds” or individually, a “Fund”:


Fund Name	Herein Referred To As	Diversification Classification
BlackRock Impact Bond Fund	Impact Bond Fund		Diversified
BlackRock Impact U.S. Equity Fund	Impact U.S. Equity Fund		Diversified

Each Fund offers multiple classes of shares. All classes of shares have identical voting, dividend, liquidation and other rights and are subject to the same terms and conditions, except that certain classes bear expenses related to the shareholder servicing and distribution of such shares, and may be subject to a contingent deferred sales charge (“CDSC”). Institutional and Class K Shares are sold only to certain eligible investors. Investor A and Investor C Shares are generally available through financial intermediaries. Each class has exclusive voting rights with respect to matters relating to its shareholder servicing and distribution expenditures.


Share Class	Initial Sales Charge	CDSC			Conversion Privilege
Institutional	No		No			None
Investor A Shares	Yes		No	¹		None
Investor C Shares	No		Yes			None
Class K Shares	No		No			None

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

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

2. Significant Accounting Policies:

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

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

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Distributions: Distributions paid by Impact U.S. Equity Fund are recorded on the ex-dividend date. For Impact Bond Fund, distributions from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend date and made at least annually. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.

Organization and Offering Costs: Upon commencement of operations, organization costs associated with the establishment of the Funds were expensed by the Funds and reimbursed by the Manager. The Manager reimbursed Impact Bond Fund $12,500, which is included in fees waived and/or reimbursed by the Manager in the Statements of Operations. Offering costs are amortized over a 12-month period beginning with the commencement of operations.



32	BLACKROCK FUNDS	NOVEMBER 30, 2016


Notes to Financial Statements (continued)

Indemnifications: In the normal course of business, a Fund enters into contracts that contain a variety of representations that provide general indemnification. A Fund’s maximum exposure under these arrangements is unknown because it involves future potential claims against a Fund, which cannot be predicted with any certainty.

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

Through May 31, 2016, the Funds had an arrangement with their custodian whereby credits were earned on uninvested cash balances, which could be used to reduce custody fees and/or overdraft charges. Credits previously earned may be utilized until December 31, 2016. Under current arrangements effective June 1, 2016, the Funds no longer earn credits on uninvested cash, and may incur charges on uninvested cash balances and overdrafts, subject to certain conditions.

3. Investment Valuation and Fair Value Measurements:

Investment Valuation Policies: The Funds’ investments are valued at fair value (also referred to as “market value” within the financial statements) as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Funds would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Funds determine the fair values of their financial instruments using various 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 oversee the pricing function for all financial instruments.

Fair Value Inputs and Methodologies: The following methods and inputs are used to establish the fair value of each Fund’s assets and liabilities:

•

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

•

Fixed-income securities for which market quotations are readily available are generally valued using the last available bid prices or current market quotations provided by independent dealers or third party pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more independent brokers or dealers as obtained from a third party pricing service. Pricing services generally value fixed-income securities assuming orderly transactions of an institutional round lot size, but the Funds may hold or transact in such securities in smaller, odd lot sizes. Odd lots often trade at lower prices than institutional round lots. The pricing services may use matrix pricing or valuation models that utilize certain inputs and assumptions to derive values, including transaction data (e.g., recent representative bids and offers), credit quality information, perceived market movements, news, and other relevant information. Certain fixed-income securities, including asset-backed and mortgage related securities may be valued based on valuation models that consider the estimated cash flows of each tranche of the entity, establish a benchmark yield and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche. The amortized cost method of valuation may be used with respect to debt obligations with sixty days or less remaining to maturity unless the Manager determines such method does not represent fair value.

•

Investments in open-end U.S. mutual funds are valued at NAV each business day.

•

The Funds value their investment in SL 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 may follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act.

•

Futures contracts traded on exchanges are valued at their last sale price.

•

To-be-announced (“TBA”) commitments are valued on the basis of last available bid prices or current market quotations provided by pricing services.



BLACKROCK FUNDS	NOVEMBER 30, 2016	33


Notes to Financial Statements (continued)

If events (e.g., a company announcement, market volatility or a natural disaster) occur that are expected to materially affect the value of such investments, or in the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Valued Investments”). When determining the price for Fair Valued Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that each Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant and consistent with the principles of fair value measurement.

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 each Fund’s pricing vendors, regular reviews of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Valued Investments is subsequently reported to the Board or a committee thereof on a quarterly basis. As a result of the inherent uncertainty in valuation of these investments, the fair values may differ from the values that would have been used had an active market existed.

For investments in equity or debt issued by privately-held companies or funds (“Private Company” or collectively, the “Private Companies”) and other Fair Valued Investments, the fair valuation approaches that are used by third party pricing services utilize one or a combination of, but not limited to, the following inputs.

Standard Inputs Generally Considered By Third Party Pricing Services


Market approach		(i) recent market transactions, including subsequent rounds of financing, in the underlying investment or comparable issuers; (ii) recapitalizations and other transactions across the capital structure; and (iii) market multiples of comparable issuers.
Income approach		(i) future cash flows discounted to present and adjusted as appropriate for liquidity, credit, and/or market risks; (ii) quoted prices for similar investments or assets in active markets; and (iii) other risk factors, such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates.
Cost approach		(i) audited or unaudited financial statements, investor communications and financial or operational metrics issued by the Private Company; (ii) changes in the valuation of relevant indices or publicly traded companies comparable to the Private Company; (iii) relevant news and other public sources; and (iv) known secondary market transactions in the Private Company’s interests and merger or acquisition activity in companies comparable to the Private Company.

The Private Companies are not subject to the public company disclosure, timing, and reporting standards as other investments held by a Fund. Typically, the most recently available information by a Private Company is as of a date that is earlier than the date a Fund is calculating its NAV. This factor may result in a difference between the value of the investment and the price a Fund could receive upon the sale of the investment.

Fair Value Hierarchy: Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques are categorized into a fair value hierarchy consisting of three broad levels for financial statement purposes as follows:

•

Level 1 — unadjusted price quotations in active markets/exchanges for identical assets or liabilities that each 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 each 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



34	BLACKROCK FUNDS	NOVEMBER 30, 2016


Notes to Financial Statements (continued)

instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments classified within Level 3 have significant unobservable inputs used by the Global Valuation Committee in determining the price for Fair Valued investments. Level 3 investments include equity or debt issued by Private Companies. There may not be a secondary market, and/or there are a limited number of investors. Level 3 investments may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the Global Valuation Committee in the absence of market information.

Changes in valuation methodologies may result in transfers into or out of an assigned level within the hierarchy. In accordance with each Fund’s policy, transfers between different levels of the fair value 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 investments and derivative financial instruments and is not necessarily an indication of the risks associated with investing in those securities.

As of November 30, 2016, certain of the Funds’ investments were valued using NAV per share (or its equivalent) as no quoted market value is available and have been excluded from the fair value hierarchy.

4. Securities and Other Investments:

Asset-Backed and Mortgage-Backed Securities: Asset-backed securities are generally issued as pass-through certificates or as debt instruments. Asset-backed securities issued as pass-through certificates represent undivided fractional ownership interests in an underlying pool of assets. Asset-backed securities issued as debt instruments, which are also known as collateralized obligations are typically 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 will have the effect of shortening the maturity of the security. In addition, a Fund may subsequently have to reinvest the proceeds at lower interest rates. If a 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.

For mortgage pass-through securities (the “Mortgage Assets”), there are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow from the U.S. Treasury.

Non-agency mortgage-backed securities are securities issued by non-governmental issuers and have no direct or indirect government guarantees of payment and are subject to various risks. Non-agency mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. The ability of a borrower to repay a loan is dependent upon the income or assets of the borrower. A number of factors, including a general economic downturn, acts of God, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay its loans.

TBA Commitments: TBA commitments are forward agreements for the purchase or sale of mortgage-backed securities for a fixed price, with payment and delivery on an agreed upon future settlement date. The specific securities to be delivered are not identified at the trade date. However, delivered securities must meet specified terms, including issuer, rate and mortgage terms. When entering into TBA commitments, a Fund may take possession of or deliver the underlying mortgage-backed securities but can extend the settlement or roll the transaction. TBA commitments involve a risk of loss if the value of the security to be purchased or sold declines or increases, respectively, prior to settlement date.

In order to better define contractual rights and to secure rights that will help a Fund mitigate their counterparty risk, TBA commitments may be entered into by a Fund under Master Securities Forward Transaction Agreements (each, an “MSFTA”). An MSFTA typically contains, among other things, collateral posting terms and netting provisions in the event of default and/or termination event. The collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of the collateral currently pledged by a Fund and the counterparty. Cash collateral that has been pledged to cover the obligations of a Fund and cash collateral received from



BLACKROCK FUNDS	NOVEMBER 30, 2016	35


Notes to Financial Statements (continued)

the counterparty, if any, is reported separately on the Statements of Assets and Liabilities as cash pledged as collateral for TBA commitments or cash received as collateral for TBA commitments, respectively. Non-cash collateral pledged by a Fund, if any, is noted in the Schedule of Investments. Typically, a Fund is permitted to sell, repledge or use the collateral it receives; however, the counterparty is not permitted to do so. To the extent amounts due to a Fund is not fully collateralized, contractually or otherwise, a Fund bears the risk of loss from counterparty non-performance.

Mortgage Dollar Roll Transactions: Certain Fund may sell TBA mortgage-backed securities and simultaneously contract to repurchase substantially similar (i.e., same type, coupon and maturity) securities on a specific future date at an agreed upon price. During the period between the sale and repurchase, a Fund is not entitled to receive interest and principal payments on the securities sold. Mortgage dollar roll transactions are treated as purchases and sales and realize gains and losses on these transactions. Mortgage dollar rolls involve the risk that the market value of the securities that a Fund is required to purchase may decline below the agreed upon repurchase price of those securities.

Securities Lending: Certain Funds may lend their securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Funds collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by each Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Funds are entitled to all distributions made on or in respect of the loaned securities, but does not receive interest income on 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.

The market value of any securities on loan, all of which were classified as common stocks/corporate bonds in the Funds’ Schedules of Investments, and the value of any related collateral are shown separately in the Statements of Assets and Liabilities as a component of investments at value-unaffiliated, and collateral on securities loaned at value, respectively. As of period end, any securities on loan were collateralized by cash and/or U.S. Government obligations. Cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedules of Investments.

Securities lending transactions are entered into by the Funds under Master Securities Lending Agreements (each, an “MSLA”), which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Funds, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, absent an event of default the borrower can resell or re-pledge the loaned securities, and a Fund can reinvest cash collateral received in connection with loaned securities. Upon an event of default, the parties’ obligations to return the securities or collateral to the other party are extinguished, and the parties can resell or re-pledge the loaned securities or the collateral received in connection with the loaned securities in order to satisfy the defaulting party’s net payment obligation for all transactions under the MSLA. The defaulting party remains liable for any deficiency.

As of period end, the following table is a summary of securities lending agreements by counterparty which are subject to offset under an MSLA:

Impact U.S. Equity Fund

Counterparty

Securities
Loaned

at Value

Cash
Collateral
Received¹

Net
Amount

Credit Suisse Securities (USA) LLC

20,309

(20,309

)

—

Cash collateral with a value of $20,461 has been received in connection with securities lending agreements. Collateral received in excess of the value of securities loaned from the individual counterparty is not shown for financial reporting purposes in the table above.

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



36	BLACKROCK FUNDS	NOVEMBER 30, 2016


Notes to Financial Statements (continued)

5. 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 manage their exposure to certain risks such as credit risk, equity risk, interest rate risk, foreign currency exchange rate risk, commodity price risk or other risks (e.g., inflation risk). Derivative financial instruments categorized by risk exposure are included in the Schedules of Investments. These contracts may be transacted on an exchange.

Futures Contracts: Certain Funds invest in long and/or short positions in futures and options on futures contracts to gain exposure to, or manage exposure to changes in interest rates (interest rate risk), changes in the value of equity securities (equity risk) or foreign currencies (foreign currency exchange rate risk).

Futures contracts are agreements between the Funds and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and on a specified date. Depending on the terms of a contract, it is settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash amount on the settlement date. Upon entering into a futures contract, the Funds are required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract.

Securities deposited as initial margin are designated in the Schedules of Investments and cash deposited, if any, is shown as cash pledged for futures contracts in the Statements of Assets and Liabilities. 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 market value of the contract (“variation margin”). Variation margin is recorded as unrealized appreciation (depreciation) and, if any, shown as variation margin receivable (or payable) on futures contracts in the Statements of Assets and Liabilities. When the contract is closed, a realized gain or loss is recorded in the Statements of Operations 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 futures contracts involves the risk of an imperfect correlation in the movements in the price of futures contracts and interest, foreign currency exchange rates or underlying assets.

6. Investment Advisory Agreement and Other Transactions with Affiliates:

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

Investment Advisory: The Trust, on behalf of the Funds, entered into an Investment Advisory Agreement with the Manager, the Funds’ investment adviser, an indirect, wholly-owned subsidiary of BlackRock, to provide investment advisory services. The Manager is responsible for the management of each Fund’s portfolio and provides the 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 at an annual rate equal to the following percentages of the average daily value of each Fund’s net assets.


	Investment Advisory Fees
Average Daily Net Assets	Impact Bond Fund		Impact U.S. Equity Fund
First $1 Billion		0.30%		0.40%
$1 Billion — $3 Billion		0.28%		0.38%
$3 Billion — $5 Billion		0.27%		0.36%
$5 Billion — $10 Billion		0.26%		0.35%
Greater than $10 Billion		0.26%		0.34%

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


	Service Fee		Distribution Fee
Investor A		0.25%		—
Investor C		0.25%		0.75%

BRIL and broker-dealers, pursuant to sub-agreements with BRIL, provide shareholder servicing and distribution services to the Funds. The ongoing service and/or distribution fee compensates BRIL and each broker-dealer for providing shareholder servicing and/or distribution related services to the shareholders.



BLACKROCK FUNDS	NOVEMBER 30, 2016	37


Notes to Financial Statements (continued)

For the six months ended November 30, 2016, the following table shows the class specific service and distribution fees borne directly by each share class of each Fund:


	Institutional		Investor A		Investor C		Class K		Total
Impact Bond Fund		—	$	34	$	134		—	$	168
Impact U.S. Equity Fund		—	$	576	$	335		—	$	911

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


Average Daily Net Assets	Administration Fee
First $500 Million		0.0425%
$500 Million — $1 Billion		0.0400%
$1 Billion — $2 Billion		0.0375%
$2 Billion — $4 Billion		0.0350%
$4 Billion — $13 Billion		0.0325%
Greater than $13 Billion		0.0300%

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

For the six months ended November 30, 2016, the Funds paid the following to the Manager in return for these services, which are included in administration — class specific in the Statements of Operations:


Administration Fees	Institutional		Investor A		Investor C		Class K		Total
Impact Bond Fund	$	1,065	$	3	$	3	$	3	$	1,074
Impact U.S. Equity Fund	$	2,195	$	45	$	7	$	22	$	2,269

Transfer Agent: Pursuant to written agreements, certain financial intermediaries, some of which may be affiliates, provide the Funds with sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to sub-accounts they service. For these services, these entities receive an asset-based fee or an annual fee per shareholder account, which will vary depending on share class and/or net assets.

The Manager maintains a call center that is responsible for providing certain shareholder services to the Funds. Shareholder services include responding to inquiries and processing subscriptions and redemptions transactions based upon instructions from shareholders. For the six months ended November 30, 2016, 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		Investor A		Investor C		Class K		Total
Impact Bond Fund	$	8		—		—		—	$	8
Impact U.S. Equity Fund	$	11	$	7		—	$	2	$	20

For the six months ended November 30, 2016, the following table shows the class specific transfer agent fees borne directly by each class of each Fund:


	Institutional		Investor A		Investor C		Class K		Total
Impact Bond Fund	$	1,079	$	6	$	8	$	8	$	1,101
Impact U.S. Equity Fund	$	473	$	277	$	30	$	54	$	834

Other Fees: For the six months ended November 30, 2016, affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of each Fund’s Investor A Shares as follows:


	Investor A
Impact Bond Fund		—
Impact U.S. Equity Fund	$	130

For the six months ended November 30, 2016, affiliates did not receive CDSCs for Investor C Shares.



38	BLACKROCK FUNDS	NOVEMBER 30, 2016


Notes to Financial Statements (continued)

Expense Limitations, Waivers, Reimbursements, and Recoupments: With respect to each Fund, the Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses, and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of each Fund’s business (“expense limitation”). The expense limitations as a percentage of average daily net assets are as follows:


	Impact Bond Fund		Impact U.S. Equity Fund
Institutional		0.45%		0.65%
Investor A		0.70%		0.90%
Investor C		1.45%		1.65%
Class K		0.40%		0.60%

The Manager has agreed not to reduce or discontinue these contractual expense limitations prior to September 30, 2017, unless approved by the Board, including a majority of the trustees, who are not “interested persons” of the Funds, as defined in the 1940 Act (“Independent Trustees”) or by a vote of a majority of the outstanding voting securities of the Funds. These amounts waived and/or reimbursed are shown as administration fees waived, administration fees waived — class specific, transfer agent fees reimbursed — class specific and fees waived and/or reimbursed by the Manager, respectively, in the Statements of Operations. For the six months ended November 30, 2016, the amounts included in fees waived and/or reimbursed by the Manager in the Statements of Operations were as follows:


	Total
Impact Bond Fund	$	76,283
Impact U.S. Equity Fund	$	146,661

With respect to each Fund, 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. These amounts are included in fees waived and/or reimbursed by the Manager in the Statements of Operations.

For the six months ended November 30, 2016, the amounts waived were as follows:


	Total
Impact Bond Fund	$	549
Impact U.S. Equity Fund	$	56

Effective September 1, 2016, the Manager voluntarily agreed to waive its advisory fee with respect to any portion of each Fund’s assets invested in affiliated equity or fixed-income mutual funds or affiliated exchange-traded funds. Prior to September 1, 2016, the Manager did not waive such fees. This voluntary waiver may be reduced or discontinued at any time without notice. With respect to Impact U.S. Equity Fund, on September 28, 2016, this waiver became contractual through September 30, 2017. The contractual agreement may be terminated upon 90 days’ notice by a majority of the non-interested directors of the Corporation or by a vote of a majority of the outstanding voting securities of the Funds.

Class specific expense waivers and/or reimbursements are as follows:

Administration Fees Waived


	Institutional		Investor A		Investor C		Class K		Total
Impact Bond Fund		—	$	1	$	3	$	3	$	7
Impact U.S. Equity Fund		—	$	43	$	1	$	22	$	66

Transfer Agent Fees Reimbursed


	Institutional		Investor A		Investor C		Class K		Total
Impact Bond Fund		—		—	$	2	$	8	$	10
Impact U.S. Equity Fund		—	$	178	$	25	$	53	$	256



BLACKROCK FUNDS	NOVEMBER 30, 2016	39


Notes to Financial Statements (continued)

With respect to the contractual expense caps, 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 and/or reimbursement from the Manager, are less than the expense cap for that share class, the Manager is entitled to be reimbursed by such share class up to the lesser of the following expenses:

(a)

The amount of fees waived and/or expenses reimbursed during those prior two fiscal years under the agreement.

(b)

The amount by which the expense cap for that share class exceeds the operating expenses of the share class for the current fiscal year, provided that:

•

Each Fund, of which the share class is a part, has more than $50 million in assets for the fiscal year; and

•

The Manager or an affiliate continues to serve as a Fund’s investment adviser or administrator.

In the event the expense cap for a share class is changed subsequent to a fiscal year in which the Manager becomes entitled to reimbursement for fees waived and/or reimbursed, the amount available to reimburse the Manager shall be calculated by reference to the expense cap for that share class in effect at the time the Manager became entitled to receive such reimbursement, rather than the subsequently changed expense cap for that share class.

On November 30, 2016, the fund level and class specific waivers and/or reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:


	Expiring May 31, 2018		Expiring May 31, 2019
	Impact U.S. Equity Fund		Impact Bond Fund		Impact U.S. Equity Fund
Fund Level	$	217,121	$	75,861	$	151,481
Institutional	$	2,859		—		—
Investor A	$	82	$	2	$	221
Investor C	$	64	$	5	$	26
Class K	$	23	$	11	$	75

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

Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. Each Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.

Pursuant to such agreement, each Fund retains 80% of securities lending income. In addition, commencing the business day following the date that the aggregate securities lending income earned across certain funds in the Equity-Liquidity Complex in a calendar year exceeds a specified threshold, each Fund, pursuant to the securities lending agreement, will retain for the remainder of the calendar year securities lending income in an amount equal to 85% of securities lending income.

The share of securities lending income earned by Impact U.S. Equity Fund is shown as securities lending — affiliated — net in the Statements of Operations. For the six months ended November 30, 2016, the Fund paid BIM $205 for securities lending agent services.

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



40	BLACKROCK FUNDS	NOVEMBER 30, 2016


Notes to Financial Statements (continued)

7. Purchases and Sales:

For the six months ended November 30, 2016, purchases and sales of investments, excluding short-term securities were as follows:


	Impact Bond Fund		Impact U.S. Equity Fund
Purchases	$	89,688,354	$	11,087,144
Sales	$	43,083,019	$	9,924,625

For the six months ended November 30, 2016, purchases and sales related to mortgage dollar rolls for Impact Bond Fund were $11,701,840 and $11,715,487, respectively.

8. Income Tax Information:

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

Each Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on Impact U.S. Equity Fund’s U.S. federal tax return generally remains open for the period ended May 31, 2016.

Management has analyzed tax laws and regulations and their application to the Funds as of November 30, 2016, inclusive of the open tax return years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Funds’ financial statements.

As of November 30, 2016, gross unrealized appreciation and depreciation based on cost for federal income tax purposes were as follows:


	Impact Bond Fund			Impact U.S. Equity Fund
Tax cost	$	26,999,048		$	22,280,554

Gross unrealized appreciation	$	5,870		$	2,477,017
Gross unrealized depreciation		(500,121	)		(500,386	)

Net unrealized appreciation (depreciation)	$	(494,251	)	$	1,976,631

9. Bank Borrowings:

The Trust, on behalf of the Funds, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders. Under this agreement, the Funds may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Funds, can borrow up to an aggregate commitment amount of $1.6 billion at any time outstanding, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.12% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2017 unless extended or renewed. Prior to April 21, 2016, the credit agreement had a fee per annum of 0.06% on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. Participating Funds paid administration, legal and arrangement fees, which, if applicable, are included in miscellaneous expenses in the Statements of Operations. These fees were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended November 30, 2016, the Funds did not borrow under the credit agreement.

10. Principal Risks:

In the normal course of business, certain Funds invest in securities and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer to meet all its obligations, including the ability to pay principal and interest when due (issuer credit risk). The value of securities held by the Funds may decline in response to certain events, including those directly involving the issuers of securities owned by the Funds. Changes arising from the general economy, the overall market and local, regional or global political and/or social instability, as well as currency, interest rate and price fluctuations, may also affect the securities’ value.



BLACKROCK FUNDS	NOVEMBER 30, 2016	41


Notes to Financial Statements (continued)

Impact Bond Fund may be exposed to prepayment risk, which is the risk that borrowers may exercise their option to prepay principal earlier than scheduled during periods of declining interest rates, which would force the Fund to reinvest in lower yielding securities. The Fund may also be exposed to reinvestment risk, which is the risk that income from the Fund’s portfolio will decline if the Fund invests the proceeds from matured, traded or called fixed income securities at market interest rates that are below the Fund portfolio’s current earnings rate.

On October 11, 2016, BlackRock implemented certain changes required by amendments to Rule 2a-7 under the 1940 Act, which governs the operations of U.S. money market funds. The Funds may be exposed to additional risks when reinvesting cash collateral in money market funds that do not seek to maintain a stable NAV per share of $1.00 and which may be subject to redemption gates or liquidity fees under certain circumstances.

Valuation Risk: The market values of equities, such as common stocks and preferred securities or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company. They may also decline due to factors which affect a particular industry or industries. A Fund may invest in illiquid investments and may experience difficulty in selling those investments in a timely manner at the price that it believes the investments are worth. Prices may fluctuate widely over short or extended periods in response to company, market or economic news. Markets also tend to move in cycles, with periods of rising and falling prices. This volatility may cause each Fund’s NAV to experience significant increases or decreases over short periods of time. If there is a general decline in the securities and other markets, the NAV of a Fund may lose value, regardless of the individual results of the securities and other instruments in which the Fund invests.

The price a Fund could receive upon the sale of any particular portfolio investment may differ from a Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using a fair valuation technique or a price provided by an independent pricing service. Changes to significant unobservable inputs and assumptions (i.e., publicly traded company multiples, growth rate, time to exit) due to the lack of observable inputs may significantly impact the resulting fair value and therefore a Fund’s results of operations. As a result, the price received upon the sale of an investment may be less than the value ascribed by a Fund, and a Fund could realize a greater than expected loss or lesser than expected gain upon the sale of the investment. A Fund’s ability to value its investments may also be impacted by technological issues and/or errors by pricing services or other third party service providers.

Counterparty Credit Risk: Similar to issuer credit risk, the Funds may be exposed to counterparty credit risk, or the risk that an entity may fail to or be unable to perform on its commitments related to unsettled or open transactions. The Funds manage counterparty credit risk by entering into transactions only with counterparties that the Manager believes 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 approximately their value recorded in the Statements of Assets and Liabilities, less any collateral held by the Funds.

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

With exchange-traded futures, there is less counterparty credit risk to the Funds since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, a Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency). Additionally, credit risk exists in exchange-traded futures with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Funds.

Concentration Risk: Impact Bond Fund invests a significant portion of its assets in fixed income securities and/or uses derivatives tied to the fixed income markets. Changes in market interest rates or economic conditions may affect the value and/or liquidity of such investments. Interest rate risk is the risk that prices of bonds and other fixed income securities will increase as interest rates fall and decrease as interest rates rise. The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates.



42	BLACKROCK FUNDS	NOVEMBER 30, 2016


Notes to Financial Statements (continued)

11. Capital Share Transactions:

Transactions in capital shares for each class were as follows:


							Period August 23, 2016¹ to November 30, 2016
Impact Bond Fund							Shares		Amount
Institutional
Shares sold								1,986,009	$	19,860,000
Shares issued in reinvestment of distributions								2		17

Net increase								1,986,011	$	19,860,017


Investor A
Shares sold								5,000	$	50,000

Net increase								5,000	$	50,000


Investor C
Shares sold								5,000	$	50,000

Net increase								5,000	$	50,000


Class K
Shares sold								5,000	$	50,000

Net increase								5,000	$	50,000

Total Net Increase								2,001,011	$	20,010,017


	Six Months Ended November 30, 2016						Period October 5, 2015¹ to May 31, 2016
Impact U.S. Equity Fund	Shares			Amount			Shares		Amount
Institutional
Shares sold		70,559		$	758,357			2,009,171	$	20,096,042
Shares issued in reinvestment of distributions		108			1,164			1		12
Shares redeemed		(2,989	)		(33,546	)		—		—

Net increase		67,678		$	725,975			2,009,172	$	20,096,054


Investor A
Shares sold		24,655		$	267,365			29,225	$	290,334
Shares issued in reinvestment of distributions		155			1,664			35		352
Shares redeemed		(735	)		(7,808	)		—		—

Net increase		24,075		$	261,221			29,260	$	290,686


Investor C
Shares sold		11,496		$	124,859			2,500	$	25,000
Shares issued in reinvestment of distributions		1			11			—		—

Net increase		11,497		$	124,870			2,500	$	25,000


Class K²
Shares sold		—			—			19,802	$	200,000

Net increase		—			—			19,802	$	200,000

Total Net Increase		103,250		$	1,112,066			2,060,734	$	20,611,740

Commencement of operations.

Commenced operations on March 28, 2016.



BLACKROCK FUNDS	NOVEMBER 30, 2016	43


Notes to Financial Statements (concluded)

At period end, shares owned by BlackRock HoldCo 2, Inc., an affiliate of the Funds, were as follows:


	Impact Bond Fund		Impact U.S. Equity Fund
Institutional		1,985,000		1,995,000
Investor A		5,000		2,500
Investor C		5,000		2,500
Class K		5,000		19,802

12. 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.



44	BLACKROCK FUNDS	NOVEMBER 30, 2016


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 Funds^SM (the “Trust”) met in person on May 18-20, 2016 (the “Meeting”) to consider the approval of the Trust’s proposed investment advisory agreement (the “Advisory Agreement”) with BlackRock Advisors, LLC (the “Manager”), the Trust’s investment advisor, on behalf of BlackRock Impact Bond Fund (the “Fund”), a portfolio of the Trust. The Advisory Agreement was the same agreement that had previously been approved by the Board with respect to other portfolios of the Trust. The Board also considered the approval of the proposed sub-advisory agreement (the “Sub-Advisory Agreement”) between the Manager and BlackRock International Limited (the “Sub-Advisor”) with respect to the Fund. The Sub-Advisory Agreement was substantially the same as the sub-advisory agreements previously approved with respect to certain other portfolios of the Trust. The Advisory Agreement and the Sub-Advisory Agreement are referred to herein as the “Agreements.” The Manager and the Sub-Advisor are referred to herein as “BlackRock.” The Fund commenced operations in August 2016.

Activities and Composition of the Board

On the date of the Meeting, the Board consisted of fifteen individuals, thirteen of whom were 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 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 Chair of the Board is an Independent Board Member. 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 initial approval of the Agreements. In connection with this process, the Board assessed, among other things, the nature, extent and quality of the services to be provided to the Fund by BlackRock, BlackRock’s personnel and affiliates, including (as applicable): investment management; administrative and shareholder services; the oversight of fund service providers; marketing; risk oversight; compliance; and ability to meet applicable legal and regulatory requirements.

Board Considerations in Approving the Agreements

The Approval Process: At the Meeting, the Board reviewed materials relating to its consideration of the Agreements. The Board considered all factors it believed relevant with respect to the Trust and the Fund, including, among other factors: (a) the nature, extent and quality of the services to be provided by BlackRock; (b) the investment performance of BlackRock portfolio management; (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) the sharing of potential economies of scale; (e) fall out benefits to BlackRock and its affiliates from their relationship with the Fund; (f) possible alternatives to the proposed Agreements; (g) the policies and practices of BlackRock with respect to portfolio transactions for the Fund; (h) BlackRock’s portfolio compliance systems and capabilities; and (i) other factors deemed relevant by the Board Members.

In considering approval of the Agreements, the Board met with the relevant investment advisory personnel from BlackRock and considered all information it deemed reasonably necessary to evaluate the terms of the Agreements. The Board received materials in advance of the Meeting relating to its consideration of the Agreements, including fees and estimated expense ratios of each class of the Fund, and for a representative class of the Fund, as compared with the fees and expense ratios of a peer group of funds as determined by Broadridge Financial Solutions, Inc. (“Broadridge”)¹. The Board also received (a) information regarding BlackRock’s economic outlook for the Fund and its general investment outlook for the markets; (b) information regarding fees paid to service providers that are affiliates of BlackRock; and (c) information outlining the legal duties of the Board under the 1940 Act with respect to the consideration and approval of the Agreements. The Board also noted information received at prior Board meetings concerning compliance records and regulatory matters relating to BlackRock.

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, securities lending and cash management, 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 determinative, and each Board Member may have attributed different weights to the various items considered.

Funds are ranked by Broadridge in quartiles, ranging from first to fourth, where first is the most desirable quartile position and fourth is the least desirable.



BLACKROCK FUNDS	NOVEMBER 30, 2016	45


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

A. Nature, Extent and Quality of the Services: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services to be provided by BlackRock, including the investment advisory services to be provided to the Fund. The Board received information concerning the investment philosophy and investment process to be used by BlackRock in managing the Fund, as well as a description of the capabilities, personnel and services of BlackRock. In connection with this review, the Board considered BlackRock’s in-house research capabilities as well as other resources available to its personnel. The Board considered the scope of the services provided by BlackRock to the Fund under the Agreements relative to services typically provided by third parties to other funds. The Board noted that the standard of care applicable under the Agreements was comparable to that found generally in investment company advisory agreements. The Board concluded that the scope of BlackRock’s services to be provided to the Fund was consistent with the Fund’s operational requirements, including, in addition to seeking to meet its investment objective(s), compliance with investment restrictions, tax and reporting requirements and related shareholder services.

The Board, including the Independent Board Members, also considered the quality of the administrative and other non-investment advisory services to be provided by BlackRock and its affiliates to the Fund. The Board evaluated the procedures of BlackRock designed to fulfill its fiduciary duty to the Fund with respect to possible conflicts of interest, including BlackRock’s code of ethics (regulating the personal trading of BlackRock’s officers and employees), the procedures by which BlackRock allocates trades among its various investment advisory clients, the integrity of the systems in place to ensure compliance with the foregoing and the record of BlackRock in these matters. The Board also noted information received at prior Board meetings concerning standards of BlackRock with respect to the execution of portfolio transactions.

The Board considered, among other factors, with respect to BlackRock: the number, education and experience of investment personnel generally and the Fund’s portfolio management team; BlackRock’s research capabilities; investments by portfolio managers in the funds they manage; portfolio trading capabilities; use of technology; commitment to compliance; credit analysis capabilities; risk analysis and oversight capabilities; and the approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board reviewed 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. The Board also considered the business reputation of BlackRock and its financial resources and concluded that BlackRock would be able to meet any reasonably foreseeable obligation under the Agreements.

In addition to investment advisory services, the Board considered the quality of the administrative and other non-investment advisory services to be provided to the Fund. The Board noted that BlackRock and its affiliates will 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 will provide the Fund with administrative services, including, among others: (i) preparing disclosure documents, such as the prospectus, the summary prospectus, the statement of additional information and periodic shareholder reports; (ii) oversight of daily accounting and pricing; (iii) preparing periodic filings with regulators; (iv) overseeing and coordinating the activities of other service providers; (v) organizing Board meetings and preparing the materials for such Board meetings; (vi) providing legal and compliance support; (vii) furnishing analytical and other support to assist the Board in its consideration of strategic issues such as the merger, consolidation or repurposing of certain open-end funds; and (viii) 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, shareholder services, and legal & 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: With respect to the Meeting, the Board, including the Independent Board Members, previously received and considered information about BlackRock’s investment performance for other funds. The Board, however, did not consider the performance history of the Fund because the Fund was newly organized and had not yet commenced operations as of the date of the Meeting.

C. Consideration of the Advisory Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Fund: In connection with the initial approval of the Agreements, the Board, including the Independent Board Members, reviewed the Fund’s contractual management fee rate compared with the other funds in its Broadridge category. The contractual management fee rate represents a combination of the advisory fee and any administrative fees, before taking into account any reimbursements or fee waivers. The Board also compared the Fund’s estimated total expense ratio, as well as its estimated actual management fee rate, to those of other funds in its Broadridge category. The total expense ratio represents a fund’s total net operating expenses, including any 12b-1 or non 12b-1 service fees. The total expense ratio gives effect to any expense reimbursements or fee waivers that benefit a fund, and the actual management fee rate gives effect to any management fee reimbursements or waivers that benefit a fund. Additionally, the Board noted information received at prior Board meetings concerning the services provided and the fees charged by BlackRock and its affiliates to other types of clients with similar investment mandates, as applicable, including institutional accounts and sub-advised mutual funds (including mutual funds sponsored by third parties).



46	BLACKROCK FUNDS	NOVEMBER 30, 2016


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

The Board noted that the Fund’s contractual management fee rate ranked in the first quartile, and that the estimated actual management fee rate and the estimated total expense ratio ranked in the second and first quartiles, respectively, relative to the Fund’s Expense Peers. The Board also noted that BlackRock has contractually agreed to a cap on the Fund’s total net operating expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. The Board further 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.

Following consideration of this information, as pertinent, the Board, including the independent Board Members, concluded that the fees to be paid pursuant to the Agreements were fair and reasonable in light of the services provided.

As the Fund had not commenced operations as of the date of the Meeting, BlackRock was not able to provide the Board with specific information concerning the expected profits to be realized by BlackRock and its affiliates from their relationships with the Fund. BlackRock, however, will provide the Board with such information at future meetings.

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. The Board also noted the existence of expense caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including a majority of 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 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 affiliated ETFs without any offset against the management fees payable by the funds to BlackRock.

The Board, including the Independent Board Members, concluded that these ancillary benefits that BlackRock and its affiliates could receive with regard to providing investment advisory and other services to the Fund were consistent with those generally available to other mutual fund sponsors.

Conclusion

The Board, including a majority of the Independent Board Members, approved the Advisory Agreement between the Manager and the Trust, on behalf of the Fund, and the Sub-Advisory Agreement between the Manager and the Sub-Advisor with respect to the Fund, each for a two-year term beginning on the effective date of the Agreements. Based upon its evaluation of all of the aforementioned factors in their totality, the Board, including a majority of 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 a 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.



BLACKROCK FUNDS	NOVEMBER 30, 2016	47


Officers and Trustees

Rodney D. Johnson, Chair of the Board and Trustee

David O. Beim, Trustee

Susan J. Carter, Trustee

Collette Chilton, Trustee

Neil A. Cotty, Trustee

Dr. Matina S. Horner, Trustee

Cynthia A. Montgomery, Trustee

Joseph P. Platt, Trustee

Robert C. Robb, Jr., Trustee

Mark Stalnecker, Trustee

Kenneth L. Urish, Trustee

Claire A. Walton, Trustee

Frederick W. Winter, Trustee

Barbara G. Novick, Trustee

John M. Perlowski, Trustee, President and Chief Executive Officer

Thomas Callahan, Vice President

Jennifer McGovern, Vice President

Neal J. Andrews, Chief Financial Officer

Jay M. Fife, Treasurer

Charles Park, Chief Compliance Officer

Fernanda Piedra, Anti-Money Laundering Compliance Officer

Benjamin Archibald, Secretary

Effective December 31, 2016, David O. Beim and Dr. Matina S. Horner resigned as Trustees of the Trust.

Investment Adviser and Administrator

BlackRock Advisors, LLC

Wilmington, DE 19809

Sub-Advisor¹

BlackRock International Limited

Edinburgh, EH3 8BL

United Kingdom

Custodian and

Accounting Agent

State Street Bank and Trust Company

Boston, MA 02110

Transfer Agent

BNY Mellon Investment

Servicing (US) Inc.

Wilmington, DE 19809

Distributor

BlackRock Investments, LLC

New York, NY 10022

Independent Registered Public Accounting Firm

Deloitte & Touche LLP

Boston, MA 02116

Legal Counsel

Sidley Austin LLP

New York, NY 10019

Address of the Trust

100 Bellevue Parkway

Wilmington, DE 19809

For Impact Bond Fund.



48	BLACKROCK FUNDS	NOVEMBER 30, 2016


Additional Information


General Information

Householding

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

Availability of Quarterly Schedule of Investments

The Funds files 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 the operation of the Public Reference Room or how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Funds’ Forms N-Q may also be obtained upon request and without charge by calling (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

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

Availability of Proxy Voting Record

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

BlackRock’s Mutual Fund Family

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



BLACKROCK FUNDS	NOVEMBER 30, 2016	49


Additional Information (concluded)


Shareholder Privileges

Account Information

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

Automatic Investment Plans

Investor Class shareholders who want to invest regularly can arrange to have $50 or more automatically deducted from their checking or savings account and invested in any of the BlackRock funds.

Systematic Withdrawal Plans

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

Retirement Plans

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


BlackRock 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.



50	BLACKROCK FUNDS	NOVEMBER 30, 2016

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

LOGO


IMP-11/16-SAR


Item 2	–	Code of Ethics – Not Applicable to this semi-annual report

Item 3	–	Audit Committee Financial Expert – Not Applicable to this semi-annual report

Item 4	–	Principal Accountant Fees and Services – Not Applicable to this semi-annual report

Item 5	–	Audit Committee of Listed Registrants – Not Applicable

Item 6	–	Investments
		(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this Form.
		(b) Not Applicable due to no such divestments during the semi-annual period covered since the previous Form N-CSR filing.

Item 7	–	Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – Not Applicable

Item 8	–	Portfolio Managers of Closed-End Management Investment Companies – Not Applicable

Item 9	–	Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers – Not Applicable

Item 10	–	Submission of Matters to a Vote of Security Holders –There have been no material changes to these procedures.

Item 11	–	Controls and Procedures

		(a) – The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended.

		(b) – There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12	–	Exhibits attached hereto

		(a)(1) – Code of Ethics – Not Applicable to this semi-annual report

		(a)(2) – Certifications – Attached hereto

		(a)(3) – Not Applicable

		(b) – Certifications – Attached hereto

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:		February 3, 2017

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:		February 3, 2017

By:		/s/ Neal J. Andrews
		Neal J. Andrews
		Chief Financial Officer (principal financial officer) of
		BlackRock Funds

Date:		February 3, 2017

See Notes to Financial Statements.

BLACKROCK FUNDS

NOVEMBER 30, 2016