BlackRock 20/80 Target Allocation Fund, Investor A (BACPX) N-CSRS Certified 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^SM

BlackRock Real Estate Securities Fund

Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809

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

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

Date of fiscal year end: 01/31/2022

Date of reporting period: 07/31/2021

Item 1 – Report to Stockholders

(a) The Report to Shareholders is attached herewith.

JULY 31, 2021

2021 Semi-Annual Report

(Unaudited)

BlackRock Funds^SM

· BlackRock Real Estate Securities Fund

Not FDIC Insured • May Lose Value • No Bank Guarantee

The Markets in Review

Dear Shareholder,

The 12-month reporting period as of July 31, 2021 was a remarkable period of adaptation and recovery, as the global economy dealt with the implications of the coronavirus (or “COVID-19”) pandemic. The United States, along with most of the world, began the reporting period emerging from a severe recession, prompted by pandemic-related restrictions that disrupted many aspects of daily life. However, easing restrictions and robust government intervention led to a strong rebound, and the economy grew at a significant pace for the reporting period, eventually regaining the output lost from the pandemic.

Equity prices rose with the broader economy, as strong fiscal and monetary support, as well as the development of vaccines, made investors increasingly optimistic about the economic outlook. The implementation of mass vaccination campaigns and passage of two additional fiscal stimulus packages further boosted stocks, and many equity indices neared or surpassed all-time highs late in the reporting period. In the United States, returns of small-capitalization stocks, which benefited the most from the resumption of in-person activities, outpaced large-capitalization stocks. International equities also gained, as both developed and emerging markets rebounded substantially.

The 10-year U.S. Treasury yield (which is inversely related to bond prices) had fallen sharply prior to the beginning of the reporting period, which meant bonds were priced for extreme risk avoidance and economic disruption. Despite expectations of doom and gloom, the economy expanded rapidly, stoking inflation concerns in early 2021, which led to higher yields and a negative overall return for most U.S. Treasuries. In the corporate bond market, support from the U.S. Federal Reserve (the “Fed”) assuaged credit concerns and led to solid returns for high-yield corporate bonds, although investment-grade corporates declined slightly.

The Fed remained committed to accommodative monetary policy by maintaining near zero interest rates and by reiterating that inflation could exceed its 2% target for a sustained period without triggering a rate increase. In response to rising inflation late in the period, the Fed changed its market guidance, raising the likelihood of less bond purchasing and the possibility of higher rates in 2023.

Looking ahead, we believe that the global expansion will continue to broaden as Europe and other developed market economies gain momentum, although the Delta variant remains a threat, particularly in emerging markets. While we expect inflation to remain elevated in the medium-term as the expansion continues, we believe the recent uptick owes more to temporary supply disruptions than a lasting change in fundamentals. The change in Fed policy also means that moderate inflation is less likely to be followed by interest rate hikes that could threaten the economic expansion.

Overall, we favor a moderately positive stance toward risk, with an overweight in equities. Sectors that are better poised to manage the transition to a lower-carbon world, such as technology and healthcare, are particularly attractive in the long-term. U.S. small-capitalization stocks and European equities are likely to benefit from the continuing vaccine-led restart. We are underweight long-term credit, but inflation-protected U.S. Treasuries, Asian fixed income, and Chinese government bonds offer potential opportunities. We believe that international diversification and a focus on sustainability can help provide portfolio resilience, and the disruption created by the coronavirus appears to be accelerating the shift toward sustainable investments.

In this environment, our view is that investors need to think globally, extend their scope across a broad array of asset classes, and be nimble as market conditions change. We encourage you to talk with your financial advisor and visit blackrock.com for further insight about investing in today’s markets.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of July 31, 2021
	6-Month	12-Month
U.S. large cap equities (S&P 500® Index)	19.19%	36.45%
U.S. small cap equities (Russell 2000® Index)	7.86	51.97
International equities (MSCI Europe, Australasia, Far East Index)	10.83	30.31
Emerging market equities (MSCI Emerging Markets Index)	(2.76)	20.64
3-month Treasury bills (ICE BofA 3-Month U.S. Treasury Bill Index)	0.02	0.08
U.S. Treasury securities (ICE BofA 10-Year U.S. Treasury Index)	(0.59)	(5.12)
U.S. investment grade bonds (Bloomberg Barclays U.S. Aggregate Bond Index)	0.21	(0.70)
Tax-exempt municipal bonds (S&P Municipal Bond Index)	1.38	3.47
U.S. high yield bonds (Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index)	3.66	10.62
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

2 T H I S  P A G E  I S  N O T  P A R T  O F  Y O U R  F U N D  R E P O R T

Table of Contents

	Page
The Markets in Review		2
Semi-Annual Report:
Fund Summary		4
About Fund Performance		7
Disclosure of Expenses		7
Derivative Financial Instruments		7
Financial Statements:
Schedule of Investments		8
Statement of Assets and Liabilities		13
Statement of Operations		15
Statements of Changes in Net Assets		16
Financial Highlights		17
Notes to Financial Statements		20
Disclosure of Investment Advisory Agreement and Sub-Advisory Agreements		29
Additional Information		32
Glossary of Terms Used in this Report		34

3

Fund Summary as of July 31, 2021 BlackRock Real Estate Securities Fund

Investment Objective

BlackRock Real Estate Securities Fund’s (the “Fund”) investment objective is to seek total return comprised of long-term growth of capital and dividend income.

Portfolio Management Commentary

How did the Fund perform?

For the six-month period ended July 31, 2021, the Fund outperformed its benchmark, the MSCI U.S. REIT Index.

What factors influenced performance?

In sector terms, exposure to triple net lease, lodging-REIT, office, and datacenter led to positive contributions relative to the benchmark. Individual positions that aided relative returns included Extra Space Storage, Inc. (storage), Mid-America Apartment Communities, Inc. (residential-apartments), UDR, Inc. (residential-apartments), Sun Communities, Inc. (residential-manufactured homes), and CyrusOne, Inc. (datacenters).

Conversely, sector exposures that detracted from relative performance included China datacenters, lodging-C Corp. and Mexico industrial. Individual positions that weighed on relative return included Public Storage (self storage), Medical Properties Trust, Inc. (healthcare), GDS Holdings Ltd. (datacenters), Equity Residential (residential-apartments) and Hilton Grand Vacations, Inc. (lodging-C Corp.).

Describe recent portfolio activity.

Over the period, the Fund sought exposure to sectors with strong secular growth drivers such as industrial and manufactured housing, as well as select names levered to economic recovery. In retail, the Fund focused on companies with well-located portfolios and strong balance sheets while avoiding those with exposure to below average household incomes or low population densities.

Describe portfolio positioning at period end.

As of period end, the Fund had overweight positions in the cell tower, industrial, datacenter, specialty, lodging-C Corp., and manufactured homes sectors. The Fund was underweight the triple net, retail, self-storage, health care, apartments, lodging-REIT, diversified, student housing, single family housing and office sectors.

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

4 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

Fund Summary as of July 31, 2021 (continued) BlackRock Real Estate Securities Fund

Performance Summary for the Period Ended July 31, 2021

				Average Annual Total Returns(a)(b)
				1 Year						5 Years						Since Inception(c)
	6-Month Total Returns			Without Sales Charge			With Sales Charge			Without Sales Charge			With Sales Charge			Without Sales Charge			With Sales Charge
Institutional		27.79	%		39.35	%		N/A			8.51	%		N/A			10.94	%		N/A
Investor A		27.66			38.97			31.68	%		8.22			7.06	%		10.66			9.98	%
Investor C		27.12			37.92			36.92			7.42			7.42			9.91			9.91
MSCI U.S. REIT Index(d)		26.93			37.59			N/A			5.15			N/A			8.39			N/A

^(a)  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” for a detailed description of share classes, including any related sales charges and fees.

^(b)  Under normal conditions, the Fund invests at least 80% of its net assets plus any borrowings for investment purposes (measured at the time of purchase) in a portfolio of equity investments in issuers that are primarily engaged in or related to the real estate industry inside the United States.

^(c)  The Fund commenced operations on September 28, 2012.

^(d) A free float-adjusted market capitalization weighted index that is comprised of equity Real Estate Investment Trusts (“REITs”). REITs are companies that in most cases own and operate income producing real estate assets.

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

Past performance is not an indication 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					Hypothetical(a)
		Beginning Account Value (02/01/21)	Ending Account Value (07/31/21)	Expenses Paid During the Period(	b)		Beginning Account Value (02/01/21)	Ending Account Value (07/31/21)	Expenses Paid During the Period	(b)	Annualized Expense Ratio
Institutional		$   1,000.00	$   1,277.90	$   4.23			$   1,000.00	$   1,021.08	$   3.75		0.75	%
Investor A		1,000.00	1,276.60	5.64			1,000.00	1,019.84	5.01		1.00
Investor C		1,000.00	1,271.20	9.84			1,000.00	1,016.13	8.74		1.75

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

^(b) 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 181/365 (to reflect the one-half year period shown).

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

F U N D    S U M M A R Y 5

Fund Summary  as of July 31, 2021  (continued) BlackRock Real Estate Securities Fund

Portfolio Information

TEN LARGEST HOLDINGS

Security(a)	Percent of Net Assets
Prologis, Inc.		10	%
Equinix, Inc.		8
Extra Space Storage, Inc.		5
Mid-America Apartment Communities, Inc.		5
Simon Property Group, Inc.		4
Rexford Industrial Realty, Inc.		4
Sun Communities, Inc.		4
Welltower, Inc.		4
AvalonBay Communities, Inc.		4
UDR, Inc.		3

INDUSTRY ALLOCATION

Industry(b)	Percent of Net Assets
Residential		18	%
Industrial		14
Communications		12
Triple Net Lease		11
Office		9
Health Care		9
Retail		7
Self Storage		7
Lodging		3
Specialty		3
IT Services		2
Diversified Telecommunication Services		2
Hotels, Restaurants & Leisure		1
Real Estate Management & Development		1
Short-Term Securities		4
Liabilities in Excess of Other Assets		(3	)

^(a)  Excludes short-term investments.

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

6 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

About Fund Performance

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

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

Investor 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. These shares automatically convert to Investor A Shares after approximately eight years.

Past performance is not an indication of future results. Financial markets have experienced extreme volatility and trading in many instruments has been disrupted. These circumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the fund’s investments. As a result, current performance may be lower or higher than the performance data quoted. Refer to blackrock.com 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 assume reinvestment of all distributions, if any, at net asset value (“NAV”) on the ex-dividend date or payable date, as applicable. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Distributions paid to each class of shares will vary because of the different levels of service, distribution and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders.

BlackRock Advisors, LLC (the “Manager”), the Fund’s investment adviser, has contractually and/or voluntarily agreed to waive and/or reimburse a portion of the Fund’s expenses. Without such waiver(s) and/or reimbursement(s), the Fund’s performance would have been lower. With respect to the Fund’s voluntary waiver(s), if any, the Manager is under no obligation to waive and/or reimburse or to continue waiving and/or reimbursing its fees and such voluntary waiver(s) may be reduced or discontinued at any time. With respect to the Fund’s contractual waiver(s), if any, the Manager is under no obligation to continue waiving and/or reimbursing its fees after the applicable termination date of such agreement. See the Notes to Financial Statements for additional information on waivers and/or reimbursements.

Disclosure of Expenses

Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, administration fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses, and other fund expenses. The expense example shown (which is based on a hypothetical investment of $1,000 invested on February 1, 2021 and held through July 31, 2021) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.

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

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

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

Derivative Financial Instruments

The Fund may invest in various derivative financial instruments. These instruments are used to obtain exposure to a security, commodity, index, market, and/or other assets 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 Fund’s 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 the Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these instruments, if any, are discussed in detail in the Notes to Financial Statements.

ABOUT  FUND  PERFORMANCE 7

Schedule of Investments  (unaudited) July 31, 2021 BlackRock Real Estate Securities Fund (Percentages shown are based on Net Assets)

Security	Shares		Value
Common Stocks
Communications — 12.3%
Digital Realty Trust, Inc.		72,583	$	11,189,395
Equinix, Inc.		33,496		27,480,454
SBA Communications Corp.		13,795		4,703,957
				43,373,806
Diversified Telecommunication Services — 1.8%
Cellnex Telecom SA(a)		95,676		6,239,668
Health Care — 9.2%
CareTrust REIT, Inc.		177,631		4,284,460
Community Healthcare Trust, Inc.		40,942		2,040,140
Medical Properties Trust, Inc.		414,328		8,713,318
Omega Healthcare Investors, Inc.		94,225		3,418,483
Welltower, Inc.		163,349		14,188,494
				32,644,895
Hotels, Restaurants & Leisure — 1.3%
Hilton Grand Vacations, Inc.(b)		111,105		4,518,640
Industrial — 14.2%
Prologis, Inc.		277,533		35,535,325
Rexford Industrial Realty, Inc.		240,079		14,769,660
				50,304,985
IT Services — 2.3%
GDS Holdings Ltd., ADR(b)		58,508		3,449,632
Switch, Inc., Class A		232,208		4,797,417
				8,247,049
Lodging — 2.5%
Apple Hospitality REIT, Inc.		253,854		3,795,117
RLJ Lodging Trust		364,798		5,234,852
				9,029,969
Office — 9.3%
Alexandria Real Estate Equities, Inc.		25,272		5,088,264
Boston Properties, Inc.		92,939		10,909,180
Cousins Properties, Inc.		215,029		8,540,952
Hudson Pacific Properties, Inc.		84,585		2,305,787
SL Green Realty Corp.		79,617		5,928,282
				32,772,465
Real Estate Management & Development — 1.0%
Corporacion Inmobiliaria Vesta SAB de CV		1,824,532		3,582,842
Residential — 18.3%
American Homes 4 Rent, Class A		209,091		8,781,822
AvalonBay Communities, Inc.		58,757		13,386,607
Mid-America Apartment Communities, Inc.		82,833		15,995,052

Security	Shares		Value
Residential (continued)
Sun Communities, Inc.		72,568	$	14,231,311
UDR, Inc.		225,097		12,378,084
				64,772,876
Retail — 6.8%
Federal Realty Investment Trust		33,173		3,898,823
Regency Centers Corp.		71,112		4,651,436
Simon Property Group, Inc.		123,902		15,676,081
				24,226,340
Self Storage — 6.4%
CubeSmart		131,422		6,526,416
Extra Space Storage, Inc.		93,228		16,234,724
				22,761,140
Specialty — 2.5%
Outfront Media, Inc.(b)		373,989		8,934,597
Triple Net Lease — 11.2%
Agree Realty Corp.		94,896		7,131,435
EPR Properties		174,931		8,799,029
Spirit Realty Capital, Inc.		154,619		7,764,966
STAG Industrial, Inc.		112,191		4,635,732
VICI Properties, Inc.		359,859		11,224,002
				39,555,164
Total Long-Term Investments — 99.1% (Cost: $ 269,119,276)				350,964,436
Short-Term Securities(c)(d)
Money Market Funds — 4.3%
BlackRock Liquidity Funds, T-Fund, Institutional Class, 0.01%		14,980,551		14,980,551
Total Short-Term Securities — 4.3% (Cost: $ 14,980,551)				14,980,551
Total Investments — 103.4% (Cost: $ 284,099,827)				365,944,987
Liabilities in Excess of Other Assets — (3.4)%				(11,888,561	)
Net Assets — 100.0%			$	354,056,426

^(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)  Non-income producing security.

^(c)  Affiliate of the Fund.

^(d)  Annualized 7-day yield as of period end.

8 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

Schedule of Investments  (unaudited) (continued) July 31, 2021 BlackRock Real Estate Securities Fund

Affiliates

Investments in issuers considered to be affiliate(s) of the Fund during the six months ended July 31, 2021 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliated Issuer	Value at 01/31/21			Purchases at Cost				Proceeds from Sale				Net Realized Gain (Loss)			Change in Unrealized Appreciation (Depreciation)				Value at 07/31/21			Shares Held at 07/31/21		Income				Capital Gain Distributions from Underlying Funds
BlackRock Liquidity Funds, T-Fund, Institutional Class		$	3,813,999		$	11,166,552	(a)		$	—			$	—		$	—			$	14,980,551		14,980,551		$	284			$	—
SL Liquidity Series, LLC, Money Market Series(b)			1,644,008			—				(1,644,008	)(a)			16			(16	)			—		—			342	(c)			—
													$	16		$	(16	)		$	14,980,551				$	626			$	—

^(a)  Represents net amount purchased (sold).

^(b)  As of period end, the entity is no longer held.

^(c)  All or a portion represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees and collateral investment expenses, and other payments to and from borrowers of securities.

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

Derivative Financial Instruments Outstanding as of Period End

Forward Foreign Currency Exchange Contracts

Currency Purchased		Currency Sold		Counterparty	Settlement Date		Unrealized Appreciation (Depreciation)
USD	355,477	EUR	299,000	Morgan Stanley & Co. International PLC		10/15/21	$	249
USD	5,382,547	EUR	4,550,000	Morgan Stanley & Co. International PLC		10/15/21		(23,103	)
							$	(22,854	)

OTC Total Return Swaps

Reference Entity

Payment Frequency

Counterparty(a)

Termination Date

Net Notional

Accrued Unrealized Appreciation (Depreciation)

Net Value of Reference Entity

Gross Notional Amount Net Asset Percentage

Equity Securities Long/Short

Monthly

Morgan Stanley & Co. International PLC(c)

06/07/23

$  1,512,278

$

7,274

(b)

$

1,518,460

0.4

%

^(a)  The Fund receives the total return on a portfolio of long positions underlying the total return swap. The Fund pays the total return on a portfolio of short positions underlying the total return swap. In addition, the Fund pays or receives a variable rate of interest, based on a specified benchmark. The benchmark and spread are determined based upon the country and/or currency of the individual underlying positions.

^(b)  Amount includes $1,092 of net dividends and financing fees.

The following are the specified benchmarks (plus or minus a range) used in determining the variable rate of interest:

	(c)
Range:	20 basis points
Benchmarks:	U.S. Federal Funds Effective Rate

SCHEDULE   OF   INVESTMENTS 9

Schedule of Investments  (unaudited) (continued) July 31, 2021 BlackRock Real Estate Securities Fund

The following table represents the individual long positions and related values of equity securities underlying the total return swap with Morgan Stanley & Co. International PLC, as of period end, termination date June 7, 2023:

	Shares		Value		% of Basket Value
Reference Entity — Long
Common Stocks
Health Care
CareTrust REIT, Inc.		47,267	$	1,140,080		75.1	%
Triple Net Lease
Agree Realty Corp.		5,035		378,380		24.9
Net Value of Reference Entity — Morgan Stanley & Co. International PLC			$	1,518,460

Balances Reported in the Statement of Assets and Liabilities for OTC Swaps

	Swaps Premiums Paid		Swap Premiums Received		Unrealized Appreciation		Unrealized Depreciation
OTC Swaps		$  —		$  —		$  7,274		$  —

Derivative Financial Instruments Categorized by Risk Exposure

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

	Commodity Contracts			Credit Contracts			Equity Contracts			Foreign Currency Exchange Contracts			Interest Rate Contracts			Other Contracts			Total
Assets — Derivative Financial Instruments
Forward foreign currency exchange contracts
Unrealized appreciation on forward foreign currency exchange contracts		$	—		$	—		$	—		$	249		$	—		$	—		$	249
Swaps — OTC
Unrealized appreciation on OTC swaps; Swap premiums paid			—			—			7,274			—			—			—			7,274
		$	—		$	—		$	7,274		$	249		$	—		$	—		$	7,523
Liabilities — Derivative Financial Instruments
Forward foreign currency exchange contracts
Unrealized depreciation on forward foreign currency exchange contracts		$	—		$	—		$	—		$	23,103		$	—		$	—		$	23,103

10 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

Schedule of Investments  (unaudited) (continued) July 31, 2021 BlackRock Real Estate Securities Fund

For the six months ended July 31, 2021, the effect of derivative financial instruments in the Statement of Operations was as follows:

	Commodity Contracts			Credit Contracts			Equity Contracts			Foreign Currency Exchange Contracts				Interest Rate Contracts			Other Contracts			Total
Net Realized Gain (Loss) from
Forward foreign currency exchange contracts		$	—		$	—		$	—		$	154,006			$	—		$	—		$	154,006
Swaps			—			—			121,257			—				—			—			121,257
		$	—		$	—		$	121,257		$	154,006			$	—		$	—		$	275,263
Net Change in Unrealized Appreciation (Depreciation) on
Forward foreign currency exchange contracts		$	—		$	—		$	—		$	(27,647	)		$	—		$	—		$	(27,647	)
Swaps			—			—			2,906			—				—			—			2,906
		$	—		$	—		$	2,906		$	(27,647	)		$	—		$	—		$	(24,741	)

Average Quarterly Balances of Outstanding Derivative Financial Instruments

Forward foreign currency exchange contracts
Average amounts purchased — in USD	$	5,316,163
Total return swaps
Average notional amount	$	1,068,255

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

Derivative Financial Instruments – Offsetting as of Period End

The Fund’s derivative assets and liabilities (by type) were as follows:

	Assets		Liabilities
Derivative Financial Instruments
Forward foreign currency exchange contracts	$	249	$	23,103
Swaps — OTC(a)		7,274		—
Total derivative assets and liabilities in the Statement of Assets and Liabilities	$	7,523	$	23,103
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”)		—		—
Total derivative assets and liabilities subject to an MNA	$	7,523	$	23,103

^(a)  Includes unrealized appreciation (depreciation) on OTC swaps in the Statement of Assets and Liabilities.

The following table presents the Fund’s derivative assets and liabilities by counterparty net of amounts available for offset under an MNA and net of the related collateral received and pledged by the Fund:

Counterparty	Derivative Assets Subject to an MNA by Counterparty			Derivatives Available for Offset(a)				Non- Cash Collateral Received			Cash Collateral Received			Net Amount of Derivative Assets
Morgan Stanley & Co. International PLC		$	7,523		$	(7,523	)		$	—		$	—		$	—
Counterparty	Derivative Liabilities Subject to an MNA by Counterparty			Derivatives Available for Offset(a)				Non- Cash Collateral Pledged			Cash Collateral Pledged			Net Amount of Derivative Liabilities(b)
Morgan Stanley & Co. International PLC		$	23,103		$	(7,523	)		$	—		$	—		$	15,580

^(a)  The amount of derivatives available for offset is limited to the amount of derivative assets and/or liabilities that are subject to an MNA.

^(b)  Net amount represents the net amount payable due to the counterparty in the event of default.

SCHEDULE   OF   INVESTMENTS 11

Schedule of Investments  (unaudited) (continued) July 31, 2021 BlackRock Real Estate Securities Fund

Fair Value Hierarchy as of Period End

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

The following table summarizes the Fund’s financial instruments categorized in the fair value hierarchy. The breakdown of the Fund’s financial instruments into major categories is disclosed in the Schedule of Investments above.

	Level 1		Level 2			Level 3		Total
Assets
Investments
Long-Term Investments
Common Stocks
Communications	$	43,373,806	$	—		$	—	$	43,373,806
Diversified Telecommunication Services		—		6,239,668			—		6,239,668
Health Care		32,644,895		—			—		32,644,895
Hotels, Restaurants & Leisure		4,518,640		—			—		4,518,640
Industrial		50,304,985		—			—		50,304,985
IT Services		8,247,049		—			—		8,247,049
Lodging		9,029,969		—			—		9,029,969
Office		32,772,465		—			—		32,772,465
Real Estate Management & Development		3,582,842		—			—		3,582,842
Residential		64,772,876		—			—		64,772,876
Retail		24,226,340		—			—		24,226,340
Self Storage		22,761,140		—			—		22,761,140
Specialty		8,934,597		—			—		8,934,597
Triple Net Lease		39,555,164		—			—		39,555,164
Short-Term Securities
Money Market Funds		14,980,551		—			—		14,980,551
	$	359,705,319	$	6,239,668		$	—	$	365,944,987
Derivative Financial Instruments(a)
Assets
Equity Contracts	$	—	$	7,274		$	—	$	7,274
Foreign Currency Exchange Contracts		—		249			—		249
Liabilities
Foreign Currency Exchange Contracts		—		(23,103	)		—		(23,103	)
	$	—	$	(15,580	)	$	—	$	(15,580	)

^(a)  Derivative financial instruments are swaps and forward foreign currency exchange contracts. Swaps and forward foreign currency exchange contracts are valued at the unrealized appreciation (depreciation) on the instrument.

See notes to financial statements.

12 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

Statement of Assets and Liabilities (unaudited)

July 31, 2021

	BlackRock Real Estate Securities Fund
ASSETS
Investments at value — unaffiliated(a)	$	350,964,436
Investments at value — affiliated(b)		14,980,551
Receivables:
Securities lending income — affiliated		1
Capital shares sold		359,290
Dividends — affiliated		246
Dividends — unaffiliated		246,801
From the Manager		51,594
Unrealized appreciation on:
Forward foreign currency exchange contracts		249
OTC swaps		7,274
Prepaid expenses		25,088
Total assets		366,635,530
LIABILITIES
Bank overdraft		77,599
Payables:
Investments purchased		11,656,883
Administration fees		11,791
Capital shares redeemed		426,323
Investment advisory fees		171,524
Trustees’ and Officer’s fees		1,349
Other accrued expenses		167,843
Service and distribution fees		42,689
Unrealized depreciation on forward foreign currency exchange contracts		23,103
Total liabilities		12,579,104
NET ASSETS	$	354,056,426
NET ASSETS CONSIST OF
Paid-in capital	$	288,396,127
Accumulated earnings		65,660,299
NET ASSETS	$	354,056,426
(a) Investments, at cost — unaffiliated	$	269,119,276
(b) Investments, at cost — affiliated	$	14,980,551

FINANCIAL  STATEMENTS 13

Statement of Assets and Liabilities  (unaudited) (continued)

July 31, 2021

	BlackRock Real Estate Securities Fund
NET ASSET VALUE
Institutional
Net assets	$	151,995,330
Shares outstanding		8,888,844
Net asset value	$	17.10
Shares authorized		Unlimited
Par value	$	0.001
Investor A
Net assets	$	199,308,935
Shares outstanding		11,688,305
Net asset value	$	17.05
Shares authorized		Unlimited
Par value	$	0.001
Investor C
Net assets	$	2,752,161
Shares outstanding		162,624
Net asset value	$	16.92
Shares authorized		Unlimited
Par value	$	0.001

See notes to financial statements.

14 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

Statement of Operations  (unaudited) 

Six Months Ended July 31, 2021

	BlackRock Real Estate Securities Fund
INVESTMENT INCOME
Dividends — unaffiliated	$	4,408,081
Dividends — affiliated		284
Securities lending income — affiliated — net		342
Foreign taxes withheld		(3,423	)
Total investment income		4,405,284
EXPENSES
Investment advisory		1,157,164
Transfer agent — class specific		289,590
Service and distribution — class specific		250,843
Administration		65,573
Professional		53,681
Registration		36,649
Administration — class specific		30,832
Accounting services		26,164
Printing and postage		15,507
Trustees and Officer		4,714
Custodian		3,138
Miscellaneous		5,797
Total expenses		1,939,652
Less:
Fees waived and/or reimbursed by the Manager		(213,424	)
Administration fees waived — class specific		(30,832	)
Transfer agent fees waived and/or reimbursed — class specific		(287,614	)
Total expenses after fees waived and/or reimbursed		1,407,782
Net investment income		2,997,502
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments — unaffiliated		1,317,761
Investments — affiliated		16
Forward foreign currency exchange contracts		154,006
Foreign currency transactions		9,576
Swaps		121,257
		1,602,616
Net change in unrealized appreciation (depreciation) on:
Investments — unaffiliated		70,658,563
Investments — affiliated		(16	)
Forward foreign currency exchange contracts		(27,647	)
Foreign currency translations		174
Swaps		2,906
		70,633,980
Net realized and unrealized gain		72,236,596
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	75,234,098

See notes to financial statements.

FINANCIAL  STATEMENTS 15

Statements of Changes in Net Assets

	BlackRock Real Estate Securities Fund
	Six Months
	Ended
	07/31/21			Year Ended
	(unaudited)			01/31/21
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income	$	2,997,502		$	3,331,750
Net realized gain (loss)		1,602,616			(14,707,825	)
Net change in unrealized appreciation (depreciation)		70,633,980			1,258,376
Net increase (decrease) in net assets resulting from operations		75,234,098			(10,117,699	)
DISTRIBUTIONS TO SHAREHOLDERS(a)
From net investment income:
Institutional		(1,065,446	)(b)		(1,215,853	)
Investor A		(1,486,924	)(b)		(2,542,681	)
Investor C		(12,145	)(b)		(22,646	)
Return of capital:
Institutional		—			(396,458	)
Investor A		—			(829,102	)
Investor C		—			(7,384	)
Decrease in net assets resulting from distributions to shareholders		(2,564,515	)		(5,014,124	)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from capital share transactions		9,905,902			20,558,707
NET ASSETS
Total increase in net assets		82,575,485			5,426,884
Beginning of period		271,480,941			266,054,057
End of period	$	354,056,426		$	271,480,941

^(a) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

^(b)  A portion of the distributions from net investment income may be deemed a return of capital or net realized gain at fiscal year-end.

See notes to financial statements.

16 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

Financial Highlights

(For a share outstanding throughout each period)

	BlackRock Real Estate Securities Fund
	Institutional
	Six Months Ended 07/31/21			Year Ended January 31,
	(unaudited)			2021			2020			2019			2018			2017
Net asset value, beginning of period	$	13.50		$	14.52		$	12.73		$	11.61		$	12.43		$	11.81
Net investment income(a)		0.16			0.19			0.25			0.22			0.25			0.19
Net realized and unrealized gain (loss)		3.58			(0.92	)		1.81			1.25			0.12			1.33
Net increase (decrease) from investment operations		3.74			(0.73	)		2.06			1.47			0.37			1.52
Distributions(b)
From net investment income		(0.14	)(c)		(0.22	)		(0.23	)		(0.35	)		(0.22	)		(0.20	)
From net realized gain		—			—			(0.04	)		—			(0.97	)		(0.70	)
Return of capital		—			(0.07	)		—			—			—			—
Total distributions		(0.14	)		(0.29	)		(0.27	)		(0.35	)		(1.19	)		(0.90	)
Net asset value, end of period	$	17.10		$	13.50		$	14.52		$	12.73		$	11.61		$	12.43
Total Return(d)
Based on net asset value		27.79	%(e)		(4.85	)%		16.32	%		12.95	%		2.71	%		12.84	%
Ratios to Average Net Assets
Total expenses		1.08	%(f)		1.16	%		1.25	%(g)(h)		1.95	%		1.49	%		1.36	%
Total expenses after fees waived and/or reimbursed		0.75	%(f)		0.84	%		1.05	%(g)		1.07	%		1.05	%		1.05	%
Net investment income		2.12	%(f)		1.48	%		1.74	%(g)		1.87	%		1.94	%		1.44	%
Supplemental Data
Net assets, end of period (000)	$	151,995		$	87,699		$	84,937		$	13,470		$	9,069		$	15,041
Portfolio turnover rate		26	%(i)		58	%(i)		63	%(i)		82	%(i)		103	%		118	%

^(a)  Based on average shares outstanding.

^(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

^(c)  A portion of the distributions from net investment income may be deemed a return of capital or net realized gain at fiscal year-end.

^(d) Where applicable, assumes the reinvestment of distributions.

^(e)  Aggregate total return.

^(f) Annualized.

^(g)  Excludes expenses incurred indirectly as a result of investments in underlying funds of 0.01%.

^(h) Includes recoupment of past waived and/or reimbursed fees with no financial impact to the expense ratios.

⁽ⁱ⁾ Excludes underlying investments in total return swaps.

See notes to financial statements.

FINANCIAL  HIGHLIGHTS 17

Financial Highlights  (continued)

(For a share outstanding throughout each period)

	BlackRock Real Estate Securities Fund (continued)
	Investor A
	Six Months Ended 07/31/21 (unaudited)			Year Ended January 31,
				2021			2020			2019			2018			2017
Net asset value, beginning of period	$	13.46		$	14.49		$	12.70		$	11.58		$	12.41		$	11.79
Net investment income(a)		0.14			0.17			0.16			0.22			0.19			0.19
Net realized and unrealized gain (loss)		3.57			(0.94	)		1.87			1.22			0.14			1.30
Net increase (decrease) from investment operations		3.71			(0.77	)		2.03			1.44			0.33			1.49
Distributions(b)
From net investment income		(0.12	)(c)		(0.20	)		(0.20	)		(0.32	)		(0.19	)		(0.17	)
From net realized gain		—			—			(0.04	)		—			(0.97	)		(0.70	)
Return of capital		—			(0.06	)		—			—			—			—
Total distributions		(0.12	)		(0.26	)		(0.24	)		(0.32	)		(1.16	)		(0.87	)
Net asset value, end of period	$	17.05		$	13.46		$	14.49		$	12.70		$	11.58		$	12.41
Total Return(d)
Based on net asset value		27.66	%(e)		(5.17	)%		16.09	%		12.70	%		2.34	%		12.57	%
Ratios to Average Net Assets
Total expenses		1.35	%(f)		1.40	%		1.44	%(g)(h)		2.23	%		1.89	%		1.76	%
Total expenses after fees waived and/or reimbursed		1.00	%(f)		1.09	%		1.30	%(g)		1.32	%		1.30	%		1.30	%
Net investment income		1.85	%(f)		1.40	%		1.11	%(g)		1.85	%		1.54	%		1.45	%
Supplemental Data
Net assets, end of period (000)	$	199,309		$	181,893		$	177,535		$	14,391		$	10,885		$	20,949
Portfolio turnover rate		26	%(i)		58	%(i)		63	%(i)		82	%(i)		103	%		118	%

^(a) Based on average shares outstanding.

^(b)  Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

^(c)  A portion of the distributions from net investment income may be deemed a return of capital or net realized gain at fiscal year-end.

^(d) Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

^(e)  Aggregate total return.

^(f) Annualized.

^(g)  Excludes expenses incurred indirectly as a result of investments in underlying funds of 0.01%.

^(h) Includes recoupment of past waived and/or reimbursed fees with no financial impact to the expense ratios.

⁽ⁱ⁾ Excludes underlying investments in total return swaps.

See notes to financial statements.

18 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

Financial Highlights  (continued)

(For a share outstanding throughout each period)

	BlackRock Real Estate Securities Fund (continued)
	Investor C
	Six Months Ended 07/31/21 (unaudited)			Year Ended January 31,
				2021			2020			2019			2018			2017
Net asset value, beginning of period	$	13.38		$	14.39		$	12.62		$	11.50		$	12.33		$	11.72
Net investment income(a)		0.08			0.11			0.16			0.15			0.10			0.09
Net realized and unrealized gain (loss)		3.54			(0.96	)		1.75			1.20			0.13			1.30
Net increase (decrease) from investment operations		3.62			(0.85	)		1.91			1.35			0.23			1.39
Distributions(b)
From net investment income		(0.08	)(c)		(0.12	)		(0.10	)		(0.23	)		(0.09	)		(0.08	)
From net realized gain		—			—			(0.04	)		—			(0.97	)		(0.70	)
Return of capital		—			(0.04	)		—			—			—			—
Total distributions		(0.08	)		(0.16	)		(0.14	)		(0.23	)		(1.06	)		(0.78	)
Net asset value, end of period	$	16.92		$	13.38		$	14.39		$	12.62		$	11.50		$	12.33
Total Return(d)
Based on net asset value		27.12	%(e)		(5.85	)%		15.21	%		11.92	%		1.57	%		11.75	%
Ratios to Average Net Assets
Total expenses		2.25	%(f)		2.22	%		2.49	%(g)		3.14	%		2.74	%		2.57	%
Total expenses after fees waived and/or reimbursed		1.75	%(f)		1.86	%		2.05	%(g)		2.07	%		2.05	%		2.05	%
Net investment income		1.09	%(f)		0.92	%		1.16	%(g)		1.31	%		0.78	%		0.71	%
Supplemental Data
Net assets, end of period (000)	$	2,752		$	1,889		$	3,583		$	2,446		$	2,500		$	3,539
Portfolio turnover rate		26	%(h)		58	%(h)		63	%(h)		82	%(h)		103	%		118	%

^(a)  Based on average shares outstanding.

^(b) Distributions for annual periods determined in accordance with U.S. federal income tax regulations.

^(c)  A portion of the distributions from net investment income may be deemed a return of capital or net realized gain at fiscal year-end.

^(d) Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

^(e)  Aggregate total return.

^(f) Annualized.

^(g) Excludes expenses incurred indirectly as a result of investments in underlying funds of 0.01%.

^(h) Excludes underlying investments in total return swaps.

See notes to financial statements.

FINANCIAL  HIGHLIGHTS 19

Notes to Financial Statements  (unaudited) 

1. ORGANIZATION

BlackRock FundsSM (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust is organized as a Massachusetts business trust. BlackRock Real Estate Securities Fund (the “Fund”) is a series of the Trust. The Fund is classified as non-diversified.

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

Share Class	Initial Sales Charge	CDSC			Conversion Privilege
Institutional Shares	No		No		None
Investor A Shares	Yes		No	(a)	None
Investor C Shares	No		Yes	(b	To Investor A Shares after approximately 8 years

^(a)  Investor A Shares may be subject to a contingent deferred sales charge (“CDSC”) for certain redemptions where no initial sales charge was paid at the time of purchase.

^(b)  A CDSC of 1.00% is assessed on certain redemptions of Investor C Shares made within one year after purchase.

The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of equity, multi-asset, index and money market funds referred to as the BlackRock Multi-Asset 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. The 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:

Investment Transactions and Income Recognition: For financial reporting purposes, investment transactions are recorded on the dates the transactions are executed. Realized gains and losses on investment transactions are determined using the specific identification method. Dividend income and capital gain distributions, if any, are recorded on the ex-dividend dates. Non-cash dividends, if any, are recorded on the ex-dividend dates at fair value. Dividends from foreign securities where the ex-dividend dates may have passed are subsequently recorded when the Fund is informed of the ex-dividend dates. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Upon notification from issuers, a portion of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Foreign Currency Translation: The Fund’s books and records are maintained in U.S. dollars. Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of trading on the New York Stock Exchange (“NYSE”). Purchases and sales of investments are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the investments denominated in that currency will lose value; the opposite effect occurs if the U.S. dollar falls in relative value.

The Fund does not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of investments for financial reporting purposes. Accordingly, the effects of changes in exchange rates on investments are not segregated in the Statement of Operations from the effects of changes in market prices of those investments, but are included as a component of net realized and unrealized gain (loss) from investments. The Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for U.S. federal income tax purposes.

Foreign Taxes: The Fund may be subject to foreign taxes (a portion of which may be reclaimable) on income, stock dividends, capital gains on investments, or certain foreign currency transactions. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which the Fund invests. These foreign taxes, if any, are paid by the Fund and are reflected in its Statement of Operations as follows: foreign taxes withheld at source are presented as a reduction of income, foreign taxes on securities lending income are presented as a reduction of securities lending income, foreign taxes on stock dividends are presented as “Foreign taxes withheld”, and foreign taxes on capital gains from sales of investments and foreign taxes on foreign currency transactions are included in their respective net realized gain (loss) categories. Foreign taxes payable or deferred as of July 31, 2021, if any, are disclosed in the Statement of Assets and Liabilities.

The Fund files withholding tax reclaims in certain jurisdictions to recover a portion of amounts previously withheld. The Fund may record a reclaim receivable based on collectability, which includes factors such as the jurisdiction’s applicable laws, payment history and market convention. The Statement of Operations includes tax reclaims recorded as well as professional and other fees, if any, associated with recovery of foreign withholding taxes.

Segregation and Collateralization: In cases where the Fund enters into certain investments (e.g., forward foreign currency exchange contracts and swaps) that would be treated as “senior securities” for 1940 Act purposes, the Fund may segregate or designate on its books and records cash or liquid assets having a market value at least equal

20 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

Notes to Financial Statements  (unaudited) (continued)

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 Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.

Distributions: Distributions paid by the Fund are recorded on the ex-dividend dates. The portion of distributions, if any, that exceeds a fund’s current and accumulated earnings and profits, as measured on a tax basis, constitute a non-taxable return of capital. The character and timing of distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.

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

Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods. 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.

The Fund has an arrangement with its custodian whereby credits are earned on uninvested cash balances, which could be used to reduce custody fees and/or overdraft charges. The Fund may incur charges on overdrafts, subject to certain conditions.

3. INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS

Investment Valuation Policies: The Fund’s investments are valued at fair value (also referred to as “market value” within the financial statements) each day that the Fund is open for business and, for financial reporting purposes, as of the report date. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Fund determines the fair values of its financial instruments using various independent dealers or pricing services under policies approved by the Board of Trustees of the Trust (the “Board”). If a security’s market price is not readily available or does not otherwise accurately represent the fair value of the security, the security will be valued in accordance with a policy approved by the Board as reflecting fair value. 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 the Fund’s assets and liabilities:

• Equity investments traded on a recognized securities exchange are valued at that day’s official closing price, as applicable, on the exchange where the stock is primarily traded. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price.

• Investments in open-end U.S. mutual funds (including money market funds) are valued at that day’s published net asset value (“NAV”).

• Forward foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of trading on the NYSE based on that day’s prevailing forward exchange rate for the underlying currencies.

• Swap agreements are valued utilizing quotes received daily by independent pricing services or through brokers, which are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments.

Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of trading on the NYSE. Each business day, the Fund uses current market factors supplied by independent pricing services to value certain foreign instruments (“Systematic Fair Value Price”). The Systematic Fair Value Price is designed to value such foreign securities at fair value as of the close of trading on the NYSE, which follows the close of the local markets.

If events (e.g., market volatility, company announcement or a natural disaster) occur that are expected to materially affect the value of such investment, or in the event that application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Valued Investments”). The fair valuation approaches that may be used by the Global Valuation Committee include market approach, income approach and cost approach. Valuation techniques such as discounted cash flow, use of market comparables and matrix pricing are types of valuation approaches and are typically used in determining fair value. When determining the price for Fair Valued Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant and consistent with the principles of fair value measurement. The pricing of all Fair Valued Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.

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

• Level 1 – Unadjusted price quotations in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access;

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

• Level 3 – Unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Global Valuation Committee’s assumptions used in determining the fair value of financial instruments).

NOTES  TO  FINANCIAL  STATEMENTS 21

Notes to Financial Statements  (unaudited) (continued)

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. 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 privately held companies or funds that may not have a secondary market and/or may have a limited number of investors. The categorization of a value determined for financial instruments is based on the pricing transparency of the financial instruments and is not necessarily an indication of the risks associated with investing in those securities.

4. SECURITIES AND OTHER INVESTMENTS

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

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 Schedule of Investments. Any non-cash collateral received cannot be sold, re-invested or pledged by the Fund, except in the event of borrower default. The securities on loan, if any, are disclosed in the Fund’s Schedule of Investments. The market value of any securities on loan and the value of any related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value – unaffiliated and collateral on securities loaned at value, respectively.

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

The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned to the extent the collateral received does not cover the value on the securities loaned in the event of borrower default. The Fund could incur 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. Such losses are borne entirely by the Fund.

5. DERIVATIVE FINANCIAL INSTRUMENTS

The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to manage its 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 Schedule of Investments. These contracts may be transacted on an exchange or OTC.

Forward Foreign Currency Exchange Contracts: Forward foreign currency exchange contracts are entered into to gain or reduce exposure to foreign currencies (foreign currency exchange rate risk).

A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a specified date. These contracts help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated and in some cases, may be used to obtain exposure to a particular market. The contracts are traded OTC and not on an organized exchange.

The contract is marked-to-market daily and the change in market value is recorded as unrealized appreciation (depreciation) in the Statement of Assets and Liabilities. When a contract is closed, a realized gain or loss is recorded in the Statement of Operations equal to the difference between the value at the time it was opened and the value at the time it was closed. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies, and such value may exceed the amounts reflected in the Statement of Assets and Liabilities. Cash amounts pledged for forward foreign currency exchange contracts are considered restricted and are included in cash pledged as collateral for OTC derivatives in the Statement of Assets and Liabilities. A Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain netted against any collateral held by the Fund.

22 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

Notes to Financial Statements  (unaudited) (continued)

Swaps: Swap contracts are entered into to manage exposure to issuers, markets and securities. Such contracts are agreements between the Fund and a counterparty to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are privately negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”).

For OTC swaps, any upfront premiums paid and any upfront fees received are shown as swap premiums paid and swap premiums received, respectively, in the Statement of Assets and Liabilities and amortized over the term of the contract. The daily fluctuation in market value is recorded as unrealized appreciation (depreciation) on OTC Swaps in the Statement of Assets and Liabilities. Payments received or paid are recorded in the Statement of Operations as realized gains or losses, respectively. When an OTC swap is terminated, a realized gain or loss is recorded in the Statement of Operations equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract, if any. Generally, the basis of the contract is the premium received or paid.

• Total return swaps — Total return swaps are entered into to obtain exposure to a security or market without owning such security or investing directly in such market or to exchange the risk/return of one security or market (e.g., fixed-income) with another security or market (e.g., equity or commodity prices) (equity risk, commodity price risk and/or interest rate risk).

Total return swaps are agreements in which there is an exchange of cash flows whereby one party commits to make payments based on the total return (distributions plus capital gains/losses) of an underlying instrument, or basket of underlying instruments, in exchange for fixed or floating rate interest payments. If the total return of the instrument(s) or index underlying the transaction exceeds or falls short of the offsetting fixed or floating interest rate obligation, the Fund receives payment from or makes a payment to the counterparty.

Certain total return swaps are designed to function as a portfolio of direct investments in long and short equity positions. This means that the Fund has the ability to trade in and out of these long and short positions within the swap and will receive the economic benefits and risks equivalent to direct investment in these positions, subject to certain adjustments due to events related to the counterparty. Benefits and risks include capital appreciation (depreciation), corporate actions and dividends received and paid, all of which are reflected in the swap’s market value. The market value also includes interest charges and credits (“financing fees”) related to the notional values of the long and short positions and cash balances within the swap. These interest charges and credits are based on a specified benchmark rate plus or minus a specified spread determined based upon the country and/or currency of the positions in the portfolio.

Positions within the swap and financing fees are reset periodically. During a reset, any unrealized appreciation (depreciation) on positions and accrued financing fees become available for cash settlement between the Fund and the counterparty. The amounts that are available for cash settlement are recorded as realized gains or losses in the Statement of Operations. Cash settlement in and out of the swap may occur at a reset date or any other date, at the discretion of the Fund and the counterparty, over the life of the agreement. Certain swaps have no stated expiration and can be terminated by either party at any time.

Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.

Master Netting Arrangements: In order to define its contractual rights and to secure rights that will help it mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its counterparties. An ISDA Master Agreement is a bilateral agreement between a Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, a Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency or other events.

Collateral Requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.

Cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately in the Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Generally, the amount of collateral due from or to a counterparty is subject to a certain minimum transfer amount threshold before a transfer is required, which is determined at the close of business of the Fund. Any additional required collateral is delivered to/pledged by the Fund on the next business day. Typically, the counterparty is not permitted to sell, re-pledge or use cash and non-cash collateral it receives. The Fund generally agrees not to use non-cash collateral that it receives but may, absent default or certain other circumstances defined in the underlying ISDA Master Agreement, be permitted to use cash collateral received. In such cases, interest may be paid pursuant to the collateral arrangement with the counterparty. To the extent amounts due to the Fund from the counterparties are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance. Likewise, to the extent the Fund has delivered collateral to a counterparty and stands ready to perform under the terms of its agreement with such counterparty, the Fund bears the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral. Based on the terms of agreements, collateral may not be required for all derivative contracts.

For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Statement of Assets and Liabilities.

NOTES  TO  FINANCIAL  STATEMENTS 23

Notes to Financial Statements  (unaudited) (continued)

6. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Advisory: The Trust, on behalf of the Fund, entered into an Investment Advisory Agreement with the Manager, the Fund’s investment adviser and an indirect, wholly-owned subsidiary of BlackRock, Inc. (“BlackRock”), to provide investment advisory services. The Manager is responsible for the management of the Fund’s portfolio and provides the personnel, facilities, equipment and certain other services necessary to the operations of the Fund.

For such services, the Fund pays the Manager a monthly fee at an annual rate equal to the following percentages of the average daily value of the Fund’s net assets:

Average Daily Net Assets	Investment Advisory Fees
First $1 billion		0.75	%
$1 billion - $3 billion		0.71
$3 billion - $5 billion		0.68
$5 billion - $10 billion		0.65
Greater than $10 billion		0.64

The Manager entered into a sub-advisory agreement with each of BlackRock International Limited (“BIL”) and BlackRock (Singapore) Limited (“BRS”) (collectively, the “Sub-Advisers”), each an affiliate of the Manager. The Manager pays BIL and BRS for services they provide for that portion of the Fund for which BIL and BRS, as applicable, acts as sub-adviser, a monthly fee that is equal to a percentage of the investment advisory fees paid by the Fund to the Manager.

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

Share Class	Service Fees			Distribution Fees
Investor A		0.25	%		N/A
Investor C		0.25			0.75	%

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

For the six months ended July 31, 2021, the following table shows the class specific service and distribution fees borne directly by each share class of the Fund:

	Investor A		Investor C		Total
Service and distribution fees — class specific	$	239,997	$	10,846	$	250,843

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

Average Daily Net Assets	Administration Fees
First $500 million		0.0425	%
$500 million - $1 billion		0.0400
$1 billion - $2 billion		0.0375
$2 billion - $4 billion		0.0350
$4 billion - $13 billion		0.0325
Greater than $13 billion		0.0300

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

For the six months ended July 31, 2021, the Fund paid the following to the Manager in return for these services, which are included in administration and administration — class specific in the Statement of Operations:

	Institutional		Investor A		Investor C		Total
Administration fees — class specific		$  11,436		$  19,179		$  217	$	30,832

Transfer Agent: Pursuant to written agreements, certain financial intermediaries, some of which may be affiliates, provide the Fund with sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to servicing of underlying investor accounts. For these services, these entities receive an asset-based fee or an annual fee per shareholder account, which will vary depending on share class and/or net assets. For the six months ended July 31, 2021, the Fund did not pay any amounts to affiliates in return for these services.

24 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

Notes to Financial Statements  (unaudited) (continued)

The Manager maintains a call center that is responsible for providing certain shareholder services to the Fund. Shareholder services include responding to inquiries and processing purchases and sales based upon instructions from shareholders. For the six months ended July 31, 2021, the Fund reimbursed the Manager the following amounts for costs incurred in running the call center, which are included in transfer agent — class specific in the Statement of Operations:

	Institutional		Investor A		Investor C		Total
Reimbursed amounts		$  339		$  2,512		$  968		$  3,819

For the six months ended July 31, 2021, the following table shows the class specific transfer agent fees borne directly by each share class of the Fund:

	Institutional		Investor A		Investor C		Total
Transfer agent fees — class specific		$  98,652		$  187,228		$  3,710		$  289,590

Other Fees: For the six months ended July 31, 2021, affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of the Fund’s Investor A Shares of $2,326.

For the six months ended July 31, 2021, affiliates received CDSCs in the amount of $1,117 and $19 for Investor A Shares and Investor C Shares, respectively.

Expense Limitations, Waivers and Reimbursements: The Manager contractually agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds (the “affiliated money market fund waiver”) through June 30, 2023. The contractual agreement may be terminated upon 90 days’ notice by a majority of the trustees who are not “interested persons” of the Trust, as defined in the 1940 Act (“Independent Trustees”), or by a vote of a majority of the outstanding voting securities of the Fund. The amount of waivers and/or reimbursements of fees and expenses made pursuant to the expense limitation described below will be reduced by the amount of the affiliated money market fund waiver. This amount is included in fees waived and/or reimbursed by the Manager in the Statement of Operations. For the six months ended July 31, 2021, the amount waived was $624.

The Manager has contractually agreed to waive its investment advisory fee with respect to any portion of the Fund’s assets invested in affiliated equity and fixed-income mutual funds and affiliated exchange-traded funds that have a contractual management fee through June 30, 2023. The contractual agreement may be terminated upon 90 days’ notice by a majority of the Independent Trustees, or by a vote of a majority of the outstanding voting securities of the Fund. For the six months ended July 31, 2021, there were no fees waived by the Manager pursuant to this arrangement.

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

Institutional		Investor A		Investor C
	0.75%		1.00%		1.75%

The Manager has agreed not to reduce or discontinue the contractual expense limitations through June 30, 2023, unless approved by the Board, including a majority of the Independent Trustees, or by a vote of a majority of the outstanding voting securities of the Fund. For the six months ended July 31, 2021, the Manager waived and/or reimbursed investment advisory fees of $212,800 which is included in fees waived and/or reimbursed by the Manager in the Statement of Operations.

In addition, these amounts waived and/or reimbursed by the Manager are included in administration fees waived — class specific and transfer agent fees waived and/or reimbursed — class specific, respectively, in the Statement of Operations. For the six months ended July 31, 2021, class specific expense waivers and/or reimbursements were as follows:

	Institutional		Investor A		Investor C		Total
Administration fees waived — class specific		$    11,436		$    19,179		$     217		$    30,832
Transfer agent fees waived and/or reimbursed — class specific		97,819		186,114		3,681		287,614

Securities Lending: The U.S. Securities and Exchange Commission (“SEC”) has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Fund, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Fund is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company, SL Liquidity Series, LLC, Money Market Series (the “Money Market Series”), managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the Money Market Series to an annual rate of 0.04%. The investment adviser to the Money Market Series will not charge any advisory fees with respect to shares purchased by the Fund. The Money Market Series may, under certain circumstances, impose a liquidity fee of up to 2% of the value withdrawn or temporarily restrict withdrawals for up to 10 business days during a 90 day period, in the event that the private investment company’s weekly liquid assets fall below certain thresholds. 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.

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

Pursuant to the current securities lending agreement, the Fund retains 77% of securities lending income (which excludes collateral investment expenses), and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.

NOTES  TO  FINANCIAL  STATEMENTS 25

Notes to Financial Statements  (unaudited) (continued)

In addition, commencing the business day following the date that the aggregate securities lending income earned across the BlackRock Multi-Asset Complex in a calendar year exceeds a specified threshold, the Fund, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income in an amount equal to 81% of securities lending income (which excludes collateral investment expenses), and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.

The share of securities lending income earned by the Fund is shown as securities lending income — affiliated — net in the Statement of Operations. For the six months ended July 31, 2021, the Fund paid BIM $74 for securities lending agent services.

Interfund Lending: In accordance with an exemptive order (the “Order”) from the SEC, the Fund may participate in a joint lending and borrowing facility for temporary purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the Fund’s investment policies and restrictions. The Fund is currently permitted to borrow and lend under the Interfund Lending Program.

A lending BlackRock fund may lend in aggregate up to 15% of its net assets, but may not lend more than 5% of its net assets to any one borrowing fund through the Interfund Lending Program. A borrowing BlackRock fund may not borrow through the Interfund Lending Program or from any other source more than 33 1/3% of its total assets (or any lower threshold provided for by the fund’s investment restrictions). If a borrowing BlackRock fund’s total outstanding borrowings exceed 10% of its total assets, each of its outstanding interfund loans will be subject to collateralization of at least 102% of the outstanding principal value of the loan. All interfund loans are for temporary or emergency purposes and the interest rate to be charged will be the average of the highest current overnight repurchase agreement rate available to a lending fund and the bank loan rate, as calculated according to a formula established by the Board.

During the six months ended July 31, 2021, the Fund did not participate in the Interfund Lending Program.

Trustees and Officers: Certain trustees and/or officers of the Trust are directors and/or officers of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Trust’s Chief Compliance Officer, which is included in Trustees and Officer in the Statement of Operations.

7. PURCHASES AND SALES

For the six months ended July 31, 2021, purchases and sales of investments, excluding short-term investments, were $90,522,873 and $80,287,153, respectively.

8. INCOME TAX INFORMATION

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

The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s U.S. federal tax returns generally remains open for a period of three fiscal years after they are filed. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.

Management has analyzed tax laws and regulations and their application to the Fund as of July 31, 2021, 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 Fund’s financial statements.

As of January 31, 2021, the Fund had non-expiring capital loss carryforwards available to offset future realized capital gains of $8,826,517.

As of July 31, 2021, gross unrealized appreciation and depreciation based on cost of investments (including short positions and derivatives, if any) for U.S. federal income tax purposes were as follows:

	Amounts
Tax cost	$	293,469,451
Gross unrealized appreciation	$	73,903,855
Gross unrealized depreciation		(1,443,899	)
Net unrealized appreciation (depreciation)	$	72,459,956

9. BANK BORROWINGS

The Trust, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.25 billion credit agreement with a group of lenders. Under this agreement, the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.75 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 0.10% 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 2022 unless extended or renewed. 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 July 31, 2021, the Fund did not borrow under the credit agreement.

26 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

Notes to Financial Statements  (unaudited) (continued)

10. PRINCIPAL RISKS

In the normal course of business, the Fund invests in securities or other instruments and may enter into certain transactions, and such activities subject the Fund to various risks, including among others, fluctuations in the market (market risk) or failure of an issuer to meet all of its obligations. The value of securities or other instruments may also be affected by various factors, including, without limitation: (i) the general economy; (ii) the overall market as well as local, regional or global political and/or social instability; (iii) regulation, taxation or international tax treaties between various countries; or (iv) currency, interest rate and price fluctuations. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the Fund and its investments. The Fund’s prospectus provides details of the risks to which the Fund is subject.

The Fund 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, which may be subject to redemption gates or liquidity fees under certain circumstances.

Market Risk: An outbreak of respiratory disease caused by a novel coronavirus has developed into a global pandemic and has resulted in closing borders, quarantines, disruptions to supply chains and customer activity, as well as general concern and uncertainty. The impact of this pandemic, and other global health crises that may arise in the future, could affect the economies of many nations, individual companies and the market in general in ways that cannot necessarily be foreseen at the present time. This pandemic may result in substantial market volatility and may adversely impact the prices and liquidity of a fund’s investments. The duration of this pandemic and its effects cannot be determined with certainty.

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. The Fund may invest in illiquid investments. An illiquid investment is any investment that the Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment. The Fund may experience difficulty in selling illiquid 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 the 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 the Fund may lose value, regardless of the individual results of the securities and other instruments in which the Fund invests.

Counterparty Credit Risk: The Fund 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, including making timely interest and/or principal payments or otherwise honoring its obligations. The Fund manages 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 Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is approximately their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.

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.

Concentration Risk: A diversified portfolio, where this is appropriate and consistent with a fund’s objectives, minimizes the risk that a price change of a particular investment will have a material impact on the NAV of a fund. The investment concentrations within the Fund’s portfolio are disclosed in its Schedule of Investments.

The Fund invests a significant portion of its assets in securities within a single or limited number of market sectors. When a Fund concentrates its investments in this manner, it assumes the risk that economic, regulatory, political and social conditions affecting such sectors may have a significant impact on the Fund and could affect the income from, or the value or liquidity of the Fund’s portfolio. Investment percentages in specific sectors are presented in the Schedule of Investments.

LIBOR Transition Risk: The United Kingdom’s Financial Conduct Authority announced a phase out of the London Interbank Offered Rate (“LIBOR”). Although many LIBOR rates will be phased out by the end of 2021, a selection of widely used USD LIBOR rates will continue to be published through June 2023 in order to assist with the transition. The Fund may be exposed to financial instruments tied to LIBOR to determine payment obligations, financing terms, hedging strategies or investment value. The transition process away from LIBOR might lead to increased volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently include LIBOR. The ultimate effect of the LIBOR transition process on the Fund is uncertain.

11. CAPITAL SHARE TRANSACTIONS

Transactions in capital shares for each class were as follows:

	Six Months Ended 07/31/21						Year Ended 01/31/21
Share Class	Shares			Amounts			Shares			Amounts
Institutional
Shares sold		3,440,854		$	54,089,780			2,875,247		$	35,444,839
Shares issued in reinvestment of distributions		66,373			1,061,881			128,997			1,612,144
Shares redeemed		(1,116,603	)		(17,403,009	)		(2,354,080	)		(28,062,061	)
		2,390,624		$	37,748,652			650,164		$	8,994,922

NOTES  TO  FINANCIAL  STATEMENTS 27

Notes to Financial Statements  (unaudited) (continued)

	Six Months Ended 07/31/21						Year Ended 01/31/21
Share Class	Shares			Amounts			Shares			Amounts
Investor A
Shares sold and automatic conversion of shares		824,421		$	12,700,076			4,543,147		$	53,272,103
Shares issued in reinvestment of distributions		93,713			1,484,726			270,525			3,369,301
Shares redeemed		(2,742,789	)		(42,384,506	)		(3,554,391	)		(43,762,965	)
		(1,824,655	)	$	(28,199,704	)		1,259,281		$	12,878,439
Investor C
Shares sold		53,787		$	844,361			31,593		$	371,238
Shares issued in reinvestment of distributions		762			12,004			2,373			29,470
Shares redeemed and automatic conversion of shares		(33,122	)		(499,411	)		(141,813	)		(1,715,362	)
		21,427		$	356,954			(107,847	)	$	(1,314,654	)
		587,396		$	9,905,902			1,801,598		$	20,558,707

12. SUBSEQUENT EVENTS

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

28 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreements

The Board of Trustees (the “Board,” the members of which are referred to as “Board Members”) of BlackRock FundsSM (the “Trust”) met on April 7, 2021 (the “April Meeting”) and May 10-12, 2021 (the “May Meeting”) to consider the approval to continue the investment advisory agreement (the “Advisory Agreement”) between the Trust, on behalf of BlackRock Real Estate Securities Fund (the “Fund”), and BlackRock Advisors, LLC (the “Manager”), the Fund’s investment advisor.

The Board also considered the approval of the sub-advisory agreement between the Manager and BlackRock International Limited (“BIL”) with respect to the Fund (the “BIL Sub-Advisory Agreement”) and the sub-advisory agreement between the Manager and BlackRock (Singapore) Limited (“BRS” and, together with BIL, the “Sub-Advisors”) with respect to the Fund (the “BRS Sub-Advisory Agreement” and, together with the BIL Sub-Advisory Agreement, the “Sub-Advisory Agreements”). The Manager and the Sub-Advisors are referred to herein as “BlackRock.” The Advisory Agreement and the Sub-Advisory Agreements are referred to herein as the “Agreements.”

The Approval Process

Consistent with the requirements of the Investment Company Act of 1940 (the “1940 Act”), the Board considers the approval of the continuation of the Agreements for the Fund on an annual basis. The Board members whom are not “interested persons” of the Trust, as defined in the 1940 Act, are considered independent Board members (the “Independent Board Members”). The Board’s consideration entailed a year-long deliberative process during which the Board and its committees assessed BlackRock’s various services to the Fund, including through the review of written materials and oral presentations, and the review of additional information provided in response to requests from the Independent Board Members. The Board had four quarterly meetings per year, each typically extending for two days, as well as additional ad hoc meetings and executive sessions throughout the year, as needed. The committees of the Board similarly met throughout the year. The Board also had a fifth one-day meeting to consider specific information surrounding the renewal of the Agreements. In particular, the Board assessed, among other things, the nature, extent and quality of the services provided to the Fund by BlackRock, BlackRock’s personnel and affiliates, including (as applicable): investment management services; accounting oversight; administrative and shareholder services; oversight of the Fund’s service providers; risk management and oversight; and legal, regulatory and compliance services. Throughout the year, including during the contract renewal process, the Independent Board Members were advised by independent legal counsel, and met with independent legal counsel in various executive sessions outside of the presence of BlackRock’s management.

During the year, the Board, acting directly and through its committees, considered information that was relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by BlackRock to the Fund and its shareholders. BlackRock also furnished additional information to the Board in response to specific questions from the Board. Among the matters the Board considered were: (a) investment performance for one-year, three-year, five-year, and/or since inception periods, as applicable, against peer funds, relevant benchmarks, and other performance metrics, as applicable, as well as BlackRock senior management’s and portfolio managers’ analyses of the reasons for any outperformance or underperformance relative to its peers, benchmarks, and other performance metrics, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Fund for services; (c) Fund operating expenses and how BlackRock allocates expenses to the Fund; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Fund’s investment objective, policies and restrictions, and meeting regulatory requirements; (e) BlackRock’s and the Fund’s adherence to applicable compliance policies and procedures; (f) the nature, character and scope of non-investment management services provided by BlackRock and its affiliates and the estimated cost of such services, as available; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) execution quality of portfolio transactions; (j) BlackRock’s implementation of the Fund’s valuation and liquidity procedures; (k) an analysis of management fees paid to BlackRock for products with similar investment mandates across the open-end fund, exchange-traded fund (“ETF”), closed-end fund, sub-advised mutual fund, separately managed account, collective investment trust, and institutional separate account product channels, as applicable, and the similarities and differences between these products and the services provided as compared to the Fund; (l) BlackRock’s compensation methodology for its investment professionals and the incentives and accountability it creates, along with investment professionals’ investments in the fund(s) they manage; and (m) periodic updates on BlackRock’s business.

Prior to and in preparation for the April Meeting, the Board received and reviewed materials specifically relating to the renewal of the Agreements. The Independent Board Members continuously engaged in a process with their independent legal counsel and BlackRock to review the nature and scope of the information provided to the Board to better assist its deliberations. The materials provided in connection with the April Meeting included, among other things: (a) information independently compiled and prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), based on either a Lipper classification or Morningstar category, regarding the Fund’s fees and expenses as compared with a peer group of funds as determined by Broadridge (“Expense Peers”) and the investment performance of the Fund as compared with a peer group of funds (“Performance Peers”); (b) information on the composition of the Expense Peers and Performance Peers and a description of Broadridge’s methodology; (c) information on the estimated profits realized by BlackRock and its affiliates pursuant to the Agreements and a discussion of fall-out benefits to BlackRock and its affiliates; (d) a general analysis provided by BlackRock concerning investment management fees received in connection with other types of investment products, such as institutional accounts, sub-advised mutual funds, ETFs, closed-end funds, open-end funds, and separately managed accounts, under similar investment mandates, as well as the performance of such other products, as applicable; (e) a review of non-management fees; (f) the existence, impact and sharing of potential economies of scale, if any, with the Fund; (g) a summary of aggregate amounts paid by the Fund to BlackRock; (h) sales and redemption data regarding the Fund’s shares; and (i) various additional information requested by the Board as appropriate regarding BlackRock’s and the Fund’s operations.

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

At the May Meeting, the Board concluded its assessment of, among other things: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Fund as compared to its Performance Peers and to other metrics, as applicable; (c) the advisory fee and the estimated cost of the services and estimated profits realized by BlackRock and its affiliates from their relationship with the Fund; (d) the Fund’s fees and expenses compared to its Expense Peers; (e) the existence and sharing of potential economies of scale; (f) any fall-out benefits to BlackRock and its affiliates as a result of BlackRock’s relationship with the Fund; and (g) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as other payments made to BlackRock or its affiliates relating to securities lending and cash management, and BlackRock’s services related to the valuation and pricing of Fund portfolio holdings. The Board noted the willingness of BlackRock’s personnel to engage in open, candid discussions with the Board. The members of the Board gave attention to all of the information that was furnished, and each Board Member placed

DISCLOSURE   OF   INVESTMENT  ADVISORY   AGREEMENT   AND   SUB - ADVISORY  AGREEMENTS 29

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

varying degrees of importance on the various pieces of information that were provided to them. The Board evaluated the information available to it on a fund by fund basis. The following paragraphs provide more information about some of the primary factors that were relevant to the Board’s decision. The Board Members did not identify any particular information, or any single factor as determinative, and each Board Member may have attributed different weights to the various items and factors considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock

The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services, and the resulting performance of the Fund. Throughout the year, the Board compared Fund performance to the performance of a comparable group of mutual funds, relevant benchmarks, and performance metrics, as applicable. The Board met with BlackRock’s senior management personnel responsible for investment activities, including the senior investment officers. The Board also reviewed the materials provided by the Fund’s portfolio management team discussing the Fund’s performance, investment strategies and outlook.

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; 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 also considered BlackRock’s overall risk management program, including the continued efforts of BlackRock and its affiliates to address cybersecurity risks and the role of BlackRock’s Risk & Quantitative Analysis Group. The Board engaged in a review of BlackRock’s compensation structure with respect to the Fund’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to investment advisory services, the Board considered the nature and quality of the administrative and other non-investment advisory services provided to the Fund. BlackRock and its affiliates provide the Fund with certain administrative, shareholder and other services (in addition to any such services provided to the Fund by third parties) and officers and other personnel as are necessary for the operations of the Fund. In particular, BlackRock and its affiliates provide the Fund with administrative services including, among others: (i) responsibility for disclosure documents, such as the prospectus, the summary prospectus (as applicable), the statement of additional information and periodic shareholder reports; (ii) oversight of daily accounting and pricing; (iii) responsibility for periodic filings with regulators; (iv) overseeing and coordinating the activities of third-party service providers including, among others, the Fund’s custodian, fund accountant, transfer agent, and auditor; (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 or managing administrative functions necessary for the operation of the Fund, such as tax reporting, expense management, fulfilling regulatory filing requirements, overseeing the Fund’s distribution partners, and shareholder call center and other services. The Board reviewed the structure and duties of BlackRock’s fund administration, shareholder services, and legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations. The Board considered the operation of BlackRock’s business continuity plans, including in light of the ongoing COVID-19 pandemic.

B. The Investment Performance of the Fund and BlackRock

The Board, including the Independent Board Members, reviewed and considered the performance history of the Fund throughout the year and at the April Meeting. In preparation for the April Meeting, the Board was provided with reports independently prepared by Broadridge, which included an analysis of the Fund’s performance as of December 31, 2020, as compared to its Performance Peers. Broadridge ranks funds in quartiles, ranging from first to fourth, where first is the most desirable quartile position and fourth is the least desirable. In connection with its review, the Board received and reviewed information regarding the investment performance of the Fund as compared to its Performance Peers. The Board and its Performance Oversight Committee regularly review and meet with Fund management to discuss the performance of the Fund throughout the year.

In evaluating performance, the Board focused particular attention on funds with less favorable performance records. The Board also noted that while it found the data provided by Broadridge generally useful, it recognized the limitations of such data, including in particular, that notable differences may exist between a fund and its Performance Peers (for example, the investment objectives and strategies). Further, the Board recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could produce significantly different results. The Board also acknowledged that long-term performance could be impacted by even one period of significant outperformance or underperformance, and that a single investment theme could have the ability to disproportionately affect long-term performance.

The Board noted that for each of the one-, three- and five-year periods reported, the Fund ranked in the second quartile, against its Performance Peers.

C. Consideration of the Advisory/Management Fees and the Estimated Cost of the Services and Estimated Profits Realized by BlackRock and its Affiliates from their Relationship with the Fund

The Board, including the Independent Board Members, reviewed the Fund’s contractual management fee rate compared with those of its Expense Peers. 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 total expense ratio, as well as its actual management fee rate, to those of its Expense Peers. 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, and the actual management fee rate gives effect to any management fee reimbursements or waivers. The Board considered 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).

The Board received and reviewed statements relating to BlackRock’s financial condition. The Board reviewed BlackRock’s profitability methodology and was also provided with an estimated profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Fund. The Board reviewed BlackRock’s estimated profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2020 compared to available aggregate estimated profitability data provided for the prior two years. The Board reviewed BlackRock’s estimated profitability with respect to certain other U.S. fund complexes

30 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

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

managed by the Manager and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the estimated profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, precision of expense allocations and business mix. The Board thus recognized that calculating and comparing profitability at the individual fund level is difficult.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board reviewed BlackRock’s overall operating margin, in general, compared to that of certain other publicly traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management, and the relative product mix.

The Board considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreements and to continue to provide the high quality of services that is expected by the Board. The Board further considered factors including but not limited to BlackRock’s commitment of time, assumption of risk, and liability profile in servicing the Fund, including in contrast to what is required of BlackRock with respect to other products with similar investment mandates across the open-end fund, ETF, closed-end fund, sub-advised mutual fund, separately managed account, collective investment trust, and institutional separate account product channels, as applicable.

The Board noted that the Fund’s contractual management fee rate ranked in the third quartile, and that the actual management fee rate and total expense ratio ranked in the second and first quartiles, respectively, relative to the Fund’s Expense Peers. The Board also noted that the Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board noted that if the size of the Fund were to decrease, the Fund could lose the benefit of one or more breakpoints. The Board further noted that BlackRock and the Board have contractually agreed to a cap on the Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis. In addition, the Board noted that BlackRock proposed, and the Board agreed to, a lower contractual expense cap on a class-by-class basis. This expense cap reduction was implemented on May 29, 2020.

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, including the existence of fee waivers and/or expense caps, as applicable, noting that any contractual fee waivers and contractual expense caps had been approved by the Board. In its consideration, the Board further considered the continuation and/or implementation of fee waivers and/or expense caps, as applicable. The Board also considered the extent to which the Fund benefits from such economies of scale in a variety of ways, and whether there should be changes in the advisory fee rate or breakpoint structure in order to enable the Fund to more fully participate in these economies of scale. The Board considered the Fund’s asset levels and whether the current fee schedule was appropriate.

E. Other Factors Deemed Relevant by the Board Members

The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from BlackRock’s respective relationships with the Fund, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and its 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, subject to applicable law, 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.

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

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

Conclusion

The Board, including the Independent Board Members, unanimously approved the continuation of (i) the Advisory Agreement between the Manager and the Trust, on behalf of the Fund, (ii) the BIL Sub-Advisory Agreement between the Manager and BIL with respect to the Fund and (iii) the BRS Sub-Advisory Agreement between the Manager and BRS with respect to the Fund, each for a one-year term ending June 30, 2022. Based upon its evaluation of all of the aforementioned factors in their totality, as well as other information, the Board, including the Independent Board Members, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at its decision to approve the Agreements, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination.

DISCLOSURE  OF  INVESTMENT  ADVISORY  AGREEMENT  AND  SUB -ADVISORY  AGREEMENTS 31

Additional Information

Regulation Regarding Derivatives

On October 28, 2020, the Securities and Exchange Commission (the “SEC”) adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). The Fund will be required to implement and comply with Rule 18f-4 by August 19, 2022. Once implemented, Rule 18f-4 will impose limits on the amount of derivatives a fund can enter into, eliminate the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, treat derivatives as senior securities and require funds whose use of derivatives is more than a limited specified exposure amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager.

General Information

Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Fund may be found on BlackRock’s website, which can be accessed at blackrock.com. Any reference to BlackRock’s website in this report is intended to allow investors public access to information regarding the Fund and does not, and is not intended to, incorporate BlackRock’s website in this report.

Householding

The Fund will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports, Rule 30e-3 notices and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please call the Fund at (800) 441-7762.

Availability of Quarterly Schedule of Investments

The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT is available on the SEC’s website at sec.gov. Additionally, the Fund makes its portfolio holdings for the first and third quarters of each fiscal year available at blackrock.com/fundreports.

Availability of Proxy Voting Policies, Procedures and Voting Records

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to securities held in the Fund’s portfolio during the most recent 12-month period ended June 30 is available without charge, upon request (1) by calling (800) 441-7762; (2) on the BlackRock website at blackrock.com; and (3) on the SEC’s website at 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.com for more information.

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 visit blackrock.com for more information.

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.

32 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

Additional Information  (continued)

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.

Fund and Service Providers

Investment Adviser and Administrator	Independent Registered Public Accounting Firm
BlackRock Advisors, LLC	Deloitte & Touche LLP
Wilmington, DE 19809	Boston, MA 02116
Sub-Advisers	Distributor
BlackRock International Limited	BlackRock Investments, LLC
Edinburgh, EH3 8JB	New York, NY 10022
United Kingdom
	Legal Counsel
BlackRock (Singapore) Limited	Sidley Austin LLP
079912 Singapore	New York, NY 10019
Accounting Agent and Transfer Agent	Address of the Trust
BNY Mellon Investment Servicing (US) Inc.	100 Bellevue Parkway
Wilmington, DE 19809	Wilmington, DE 19809
Custodian
The Bank of New York Mellon
New York, NY 10286

ADDITIONAL  INFORMATION 33

Glossary of Terms Used in this Report

Currency Abbreviation
EUR	Euro
USD	United States Dollar

Portfolio Abbreviation
ADR	American Depositary Receipt
OTC	Over-the-Counter
REIT	Real Estate Investment Trust

34 2 0 2 1  BLACK ROCK  SEMI - ANNUAL  REPORT  TO  SHAREHOLDERS

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

REALES-7/21-SAR

(b) Not Applicable

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 Registrant – 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(a) 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 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 – Disclosure of Securities Lending Activities for Closed-End Management Investment

Companies – Not Applicable

Item 13 – Exhibits attached hereto

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

(a)(2) Section 302 Certifications are attached

(a)(3) Not Applicable

(a)(4) Not Applicable

(b) Section 906 Certifications are attached

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^SM

By:	/s/ John M. Perlowski
	John M. Perlowski
	Chief Executive Officer (principal executive officer) of
	BlackRock FundsSM

Date: October 4, 2021

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 FundsSM

Date: October 4, 2021

By:	/s/ Trent Walker
	Trent Walker
	Chief Financial Officer (principal financial officer) of
	BlackRock FundsSM

Date: October 4, 2021